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<PAGE>   1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 30, 2000      Commission File Number 1-9751

                           CHAMPION ENTERPRISES, INC.
             (Exact name of Registrant as specified in its charter)

                    Michigan                             38-2743168
         (State or other jurisdiction of              (I.R.S. Employer
         incorporation or organization)              Identification No.)

    2701 Cambridge Court, Suite 300, Auburn Hills, Michigan        48326
           (Address of principal executive offices)             (Zip Code)

       Registrant's telephone number, including area code:     (248) 340-9090

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

     Title of Each Class               Name of Each Exchange on Which Registered
Common Stock, $1 par value                      New York Stock Exchange
Series A Preferred Stock                         Chicago Stock Exchange
     Purchase Rights                             Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Registrant has been
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                    Yes   X          No
                                        -----           -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X

The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of March 9, 2001, based on the last sale price of $5.11 per share
for the Common Stock on the New York Stock Exchange on such date, was
approximately $104,940,759. As of March 9, 2001, the Registrant had 47,544,011
shares of Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                                    Part of Form 10-K Report
               Document                           into which it is incorporated

Proxy Statement for Annual Shareholders' Meeting
  to be held May 1, 2001 .......................              III



<PAGE>   2


                                     PART I

ITEM 1. BUSINESS.

General

Established in 1953, Champion Enterprises, Inc. and its subsidiaries
(collectively, Champion or the Company) primarily produces and sells
manufactured homes. As of December 30, 2000, the Company was operating 53
manufacturing plants in 17 states and western Canada and 260 retail locations in
28 states. We had approximately 12,000 employees at year end.

Champion led the U.S. manufactured housing industry in wholesale sales revenues
for the last five years and led the industry in the number of wholesale homes
sold for the last three years. This leadership determination was based on data
obtained from industry members' press releases, filings with the Securities and
Exchange Commission (SEC), and data from an annual survey by Manufactured Home
Merchandiser (MHM), an industry trade publication. Champion is the third largest
retailer of manufactured housing in the U.S. based on the number of retail
locations reported by industry members in press releases and SEC filings.

From 1994 to 1999 we significantly expanded our manufactured housing production
operations through acquisitions, internal growth and, in 1996, our merger with
Redman Industries, Inc.(Redman), a publicly-held company. As a result of this
growth, Champion's manufactured housing wholesale revenues increased from less
than $300 million in 1993 (excluding Redman sales) to over $2 billion in 1999.
During 1998 and 1999 we significantly expanded our retail operations by
completing the acquisitions of 15 retail organizations which operated 178 sales
centers.

Commencing in mid-1999, the industry's excess retail locations and inventory
levels, tightened consumer credit standards, high consumer repossession levels,
higher interest rates and other factors affected our results as discussed in
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations. Based on data reported by the National Conference of States on
Building Codes and Standards (NCSBCS), industry wholesale shipments of homes in
2000 declined 28% from 1999 levels. Based on data reported by Statistical
Surveys, Inc., 2000 industry retail sales of homes were an estimated 19% lower
than 1999 sales. As a result of this industry downturn, during 2000 we idled
seven manufacturing facilities and closed 62 retail sales centers. During the
first quarter of 2001, we closed two more manufacturing facilities and 30
additional retail sales centers. Since mid-1999 we have closed 17 homebuilding
facilities, two of which have been sold.

The industry's U.S. wholesale shipments in 2001 could continue to suffer from
the factors previously noted. Champion's wholesale and retail sales and margins
are expected to be impacted until industry consumer financing is more readily
available, consumer repossessions return to normal levels, and retail sales of
new homes increase. We are focusing on improving retailer inventory turnover,
rewarding retailers for retail selling of homes purchased, and promoting
retailer sound business practices. We continually review our manufacturing
capacity and the number and locations of our Company-operated retail sales
centers and will make further adjustments, consolidations and closures, if
necessary.

Recent Growth

From 1994 to 1999 we acquired eight manufactured housing companies including:
Dutch Housing, Inc. in Michigan and Indiana in 1994; Chandeleur Homes, Inc. in
Alabama, Crest Ridge Homes, Inc. in Texas and New Horizon Manufactured Homes,
Ltd. in Alberta, Canada in 1995; Grand Manor, Inc. in Georgia and Homes of
Legend, Inc. in Alabama in 1996; Fleming County Industries, Inc. in Kentucky in
1998; and Homes of Merit, Inc. in Florida in 1999. In addition, from 1996
through 1999 the Company opened 17 new production facilities.

In 1998 and 1999 we acquired 15 retail organizations. Among those acquired were
Southern Showcase Housing, Inc. and Accent Homes, Inc., both headquartered in


<PAGE>   3

North Carolina; Advantage Homes, Inc. in California; Iseman Homes, Inc.
headquartered in South Dakota; Manufactured Home Buyers Group, A-1 Homes, and
Heartland Homes in Texas; Homes America Group headquartered in Nevada;
Manufactured Housing of Louisiana; Tom Terry Enterprises, Inc. in Nevada;
Oklahoma Lifestyle; Trading Post Mobile Homes, Inc. in Kentucky; and Care Free
Homes, Inc. based in Utah.

In 2000 we formed a new division, Genesis Homes (Genesis), to develop homes and
marketing programs to attract small to medium-sized builders and developers.
Genesis produces modular and manufactured housing in 12 of Champion's existing
homebuilding facilities, which provides nationwide market presence. Champion
sold approximately 2,000 homes through 200 local builders and developers in
2000, which accounted for an estimated 7% of our wholesale revenues.

In 1999 we formed Champion Development Corp. (CDC) to make minority interest
investments in manufactured housing developments. CDC formed a joint venture
with Sun Communities, Inc., a publicly-held real estate investment trust. As of
December 2000, CDC had investments in 16 properties in seven states. Certain
Company-owned retailers also have interests in various community developments.

We formed HomePride Finance Corp. (HomePride) in 1999 to establish relationships
with major lending institutions in order to offer special consumer lending
programs to Champion-owned and key independent retailers. HomePride facilitates
the provision of consumer credit and competitive interest rates to these
retailers by consolidating significant loan origination volume. HomePride also
helps Genesis builders and developers obtain financing.

During 2000 we entered into an agreement with Homestore.com(TM), the leading
home and real estate network for consumers and real estate professionals on the
Internet, through which Homestore.com will provide a full range of web based
on-line marketing and services to Champion-owned retailers and independent
retailers who are members of our Champion Home Centers distribution network.

Segment Information

Financial information about the Company's manufacturing and retail segments is
included in Note 11 of Notes to Consolidated Financial Statements. Our foreign
operations consist of two manufacturing facilities in Canada. During each of the
last three years these Canadian operations accounted for less than 5% of our
manufacturing segment total sales, identifiable assets and earnings before
interest, taxes and goodwill amortization.

Products

Most of the manufactured homes that we produce are constructed to building
standards in accordance with the National Manufactured Home Construction and
Safety Standards promulgated by the U.S. Department of Housing and Urban
Development (HUD code homes). Approximately 96% of the homes we produced in 2000
were HUD code homes. The remaining 4% of homes we produced were manufactured in
Canada or were modular homes. Homes produced in Canada are constructed in
accordance with applicable Canadian building standards. Modular homes are
designed to meet local building codes.

Champion produces a broad range of single-section and multi-section homes under
various trade names and brand names and in a variety of floor plans and price
ranges. The 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, dining room, kitchen, and two full bathrooms. In 2000 we produced and sold
52,442 homes, of which 71% were multi-section compared to 66% in 1999. According
to NCSBCS data, the industry's U.S. multi-section mix was 70% in 2000, compared
to 65% in 1999.

During 2000 our average wholesale home price was $28,500, excluding delivery,
and wholesale prices ranged from $10,000 to over $100,000. Retail sales prices
of the homes, without land, generally range from $15,000 to over $150,000,
depending upon size, floor plan, features and options. During 2000 the average
new home


<PAGE>   4

retail selling price was $49,600 for homes sold by Company-operated retail sales
centers.

The chief components and products used in manufactured housing are generally the
same kind and quality as those used by other housing builders, including
conventional site-builders. These components include lumber, plywood, chipboard,
drywall, steel, vinyl floor coverings, insulation, exterior siding (wood, vinyl
and metal), windows, shingles, kitchen appliances, furnaces, plumbing and
electrical fixtures and hardware. These components are presently available from
several sources and the Company is not dependent upon any particular supplier.
Prices of certain materials such as lumber, insulation, and drywall can
fluctuate significantly due to changes in demand and supply. The industry and
the Company generally have been able to pass higher material costs on to the
consumer in the form of surcharges and base price increases. It is not certain,
however, that any future price increases can be passed on to the consumer
without affecting demand.

The completed home has carpeting, cabinets, appliances, wall coverings, window
treatments, and electrical, heating and plumbing systems. Optional factory
installed features include fireplaces and skylights. Upon completion and factory
sale of the home, it is transported to a retail sales center or directly to the
consumer's home site. In connection with the retail sale of the home to the
consumer, the home is transported to the home site, placed on a foundation and
readied by the retailer for occupancy. The sections of a multi-section home are
joined and the interior and exterior seams are finished at the home site.

Production

Our manufactured homes are constructed in indoor facilities using an
assembly-line process employing approximately 150 to 250 production employees at
each facility. The homes are manufactured in one or more sections (also known as
floors) on a permanently affixed steel support chassis. Each home is assembled
in stages beginning with the construction of the chassis, then adding other
constructed and purchased components, and ending with a final quality control
inspection. The efficiency of the assembly-line process, protection from the
elements of weather, and quantity discounts resulting from increased purchasing
power enables the Company to produce homes in one to two days at substantially
less cost than conventional site-built housing. According to 1999 data reported
by the U.S. Department of Commerce (USDOC), manufactured housing costs
approximately $29.46 per square foot, compared to $68.80 per square foot for
site-built housing.

The production schedules of our manufacturing facilities are based upon
wholesale buyer (retailer) orders which fluctuate from week to week, are subject
to cancellation at any time without penalty and are not necessarily an
indication of future business. Retailers place orders for retail stocking
(inventory) purposes or for customer specified orders. Before scheduling homes
for production, orders and availability of financing are confirmed with the
retailer and floor plan lender. Orders are generally filled within 90 days of
receipt, depending upon the level of unfilled orders and requested delivery
dates. As of the end of December 2000, unfilled orders for wholesale housing
totaled an estimated $15 million, compared to $49 million a year earlier.
Although manufactured homes can be produced throughout the year in indoor
facilities, demand for homes is usually affected by inclement weather and by the
cold winter months in northern areas of the U.S. and in Canada.

We produce homes to fill existing wholesale and retail orders and, therefore,
generally our manufacturing plants do not carry finished goods inventories
except for homes awaiting delivery. Typically a one to three weeks' supply of
raw materials is maintained.

Charges to transport manufactured homes increase with the distance from the
factory to the retailer and home site. As a result, most of the retail stores
for a manufacturer's homes are located within a 250 to 500 mile radius of its
manufacturing plants.

Independent Retailers


<PAGE>   5

During 2000, 84% of our wholesale shipments were to independent retail locations
throughout the U.S. and western Canada, including more than 1,000 locations that
have joined either the Alliance of Champions or Champion Home Centers retail
distribution networks. In 2000 we built on the success of our Alliance of
Champions program, and expanded our Champion Home Center (CHC) branding. CHC
retailers are required to stock 80% of their inventory with Champion-built
homes, identify their stores with CHC retail signs and maintain specified
consumer satisfaction standards.

We continually seek to increase sales at our existing independent retailers by
improving throughput of our homes, as well as by finding new independent
retailers to carry our homes. During 1998 we commenced our Alliance of Champions
marketing program for selected Champion independent retailers with a record of
success and a commitment to grow. The Alliance program was introduced to help
assure the continued growth of well managed, independent retailers of our homes.
The program assures supply of a broad range of quality products from Champion's
manufacturing facilities and provides training in sales, management and home
installation, as well as enhanced marketing programs.

As is common in the industry, our independent retailers may sell manufactured
homes produced by other manufacturers in addition to those produced by the
Company. Some independent retailers operate multiple sales centers. In 2000, no
single independent retailer or distributor accounted for more than 10% of our
manufacturing sales. The majority of independent retailer home purchases are
financed by lending institutions on a floor plan basis secured by a lien on such
homes. A manufacturing facility generally receives payment from the lending
institution 7 to 15 days after a home is sold to an independent retailer. In
accordance with trade practice, the Company enters into various repurchase
agreements with the lending institutions providing retailer financing, as is
more fully described in Note 1 of Notes to Consolidated Financial Statements.

Company-Operated Retail Sales Centers

We had 260 retail locations in 28 states as of December 30, 2000, compared to
280 sales locations a year earlier. During the first quarter of 2001, 30 of
these retail sales centers were closed due to market conditions. Our retail
sales in 2000 totaled $607 million, down from $787 million in 1999. Purchases by
Company-owned retailers accounted for 16% of wholesale home shipments made by
our manufacturing operations in 2000. Of the total new homes sold by
Company-owned retailers in 2000, 73% were Champion-produced compared to 62% in
1999. Each of our Company-owned retailers does business autonomously under its
own name and carries and sells homes based on availability from suppliers and
marketability for their local area.

Each of our Company-operated retail sales centers has a sales office, which is
generally a factory-built home, and a variety of model homes of various sizes,
floor plans, features and prices. Customers may purchase a home from an
inventory of homes maintained at the location, including a model home, or may
order a home that will be built at a manufacturing facility. Many sales centers
also sell pre-owned homes that are obtained through trade-ins or repossessed
homes sold on a consignment basis for consumer finance companies. At December
2000 Company-owned sales centers had an average inventory of 18 new homes per
location, down from 20 a year earlier. Company-owned retailers generally finance
their inventories of homes under floor plan financing arrangements similar to
those discussed above under "Independent Retailers".

Our Company-operated sales centers are generally located on a main road or
highway for high visibility. Model homes may be displayed in a residential
setting with sidewalks and landscaping. Each sales center usually employs a
manager and three or four commissioned salespersons. Our Company-owned retailers
use radio and television advertising in areas where they have a concentration of
sales centers. Most retail customers finance the purchase of their home through
a lending institution. The sales center often assists in arranging financing and
insurance on the home, for which a fee is received. The sales centers may also
sell additional accessories in connection with the sale of the home, such as


<PAGE>   6

central air conditioning, decks, skirting and additional appliances. Retailers
also often arrange for necessary permits and utility connections.

Market

Manufactured housing competes in suburban and rural areas with other forms of
new low-cost housing such as site-built housing, prefabricated and modular
homes, condominiums, and with existing housing such as pre-owned homes and
apartments. According to statistics published by NCSBCS and the USDOC, for the
past five years manufactured housing wholesale shipments accounted for an
estimated 22% of all new single-family housing starts and 28% of all new
single-family homes sold. Industry wholesale shipments of manufactured housing
decreased 28% in 2000 to 250,550 homes, according to data reported by NCSBCS.
Data reported by Statistical Surveys, Inc. indicates that industry retail home
sales in 2000 were down 19% from 1999 levels to an estimated 278,000 new homes.

The market for manufactured housing is affected by a number of different
factors, including consumer confidence, job creation, general economic growth
and the overall affordability of manufactured housing versus other forms of
housing. In addition, demographic trends, such as changes in population growth,
and competition affect the demand for housing products. Interest rates and the
availability of financing influence the affordability of manufactured housing.
There can be no assurance that a rise in overall interest rates would not have
an adverse impact on the general economy and, therefore, the market for
manufactured housing.

We believe the segment of the housing market in which manufactured housing is
most competitive includes consumers with household incomes under $40,000. This
segment has a high representation of young single persons and married couples,
as well as elderly or retired persons. The comparatively low cost of fully or
partially furnished housing attracts these consumers. Persons in rural areas,
where fewer housing alternatives exist, and those who presently live in
manufactured homes make up a significant portion of the demand for new
manufactured housing.

We believe that a much larger market may exist, including apartment dwellers and
persons who have traditionally purchased low-priced site-built homes. Our
Genesis operations target this market. In the past, a number of factors have
restricted demand for manufactured housing, including less-favorable financing
terms for manufactured housing compared to site-built housing, the effects of
restrictive zoning on the availability of certain locations for home placement
and, in some cases, an unfavorable public image. Certain of these negative
factors have lessened considerably in recent years with improved quality and
appearance of manufactured housing.

Competition

The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon several factors,
including price, product features, reputation for service and quality, depth of
field inventory, promotion, merchandising and the terms of retailer and retail
customer financing. Capital requirements for entry into the manufactured housing
industry are relatively low.

According to NCSBCS, in December 2000 there were approximately 70 producers of
manufactured homes in the U.S. We estimate that these producers were operating
approximately 250 production facilities. This total compares to 300 plants a
year ago and 216 plants in 1991. In 1999 the top five companies had combined
market share of approximately 62%, according to data from a survey by MHM. Based
on industry data reported by NCSBCS, in 2000 the Company's U.S. wholesale market
share of HUD code homes sold was 20.1%, up from 19.9% in 1999.

We believe there are an estimated 7,000 industry retail locations throughout the
U.S. We sell our homes through our Company-owned sales centers and our
independent retailers, which include more than 1,000 locations that have joined
either the Alliance of Champions or Champion Home Centers retail distribution


<PAGE>   7

networks.

Forward Looking Statements

Certain statements contained in this Report, including our plans and beliefs
regarding goals, ability to implement retail and manufacturing strategies and
the affect of those strategies, availability of liquidity and financing, new
market initiatives and strategies, anticipated capital expenditures, outlook for
the manufactured housing industry in particular and the economy in general,
characterization of and our ability to control our contingent liabilities,
demographic trends, and our ability to maintain supply and distribution networks
could be construed to be forward looking statements within the meaning of the
Securities Exchange Act of 1934. In addition, Champion or persons acting on our
behalf may from time to time publish or communicate other items that could also
be construed to be forward looking statements. Statements of this sort are or
will be based on the Company's estimates, assumptions and projections, and are
subject to risks and uncertainties, including those specifically listed below
that could cause actual results to differ materially from those included in the
forward looking statements. The Company does not undertake to update its forward
looking statements or risk factors to reflect future events or circumstances.
The following risk factors could affect the Company's operating results.

GENERAL INDUSTRY CONDITIONS - THE CURRENT DOWNTURN IN THE MANUFACTURED HOUSING
INDUSTRY HAS ADVERSELY AFFECTED OUR OPERATING RESULTS. IF THE CURRENT DOWNTURN
DOES NOT IMPROVE, OUR SALES COULD DECLINE AND WE MAY SUFFER FURTHER LOSSES.

The manufactured housing industry has experienced declining sales since mid-1999
as a result of excess retail locations and inventory levels, tightened consumer
credit standards, high consumer repossession levels, higher interest rates and
other factors, which may take another year or longer to normalize. Based on
reports published by NCSBCS, during 2000 industry wholesale shipments of
manufactured housing decreased 28%. According to data reported by Statistical
Surveys, Inc., during 2000 industry retail sales of new homes declined an
estimated 19%. In addition, we estimate approximately 2,500 retail locations, or
about 25% of the total industry, and 85 manufacturing facilities, or 25% of
industry manufacturing facilities, have closed since mid-1999. As a result, in
2000 we reported a pretax loss of $30.6 million, excluding goodwill impairment
charges. We also performed an analysis of the recoverability of goodwill. The
assessment was performed using lower volume and growth assumptions than
previously assumed due to the continued downturn in the industry and lowered
future expectations. The recoverability analysis resulted in the recording of
pretax goodwill impairment charges of $189.7 million primarily related to our
prior retail acquisitions. If the current downturn in the industry does not
improve, our sales could decline and we may suffer further losses.

INTEREST RATES; THIRD-PARTY FINANCING - TIGHTENED CREDIT STANDARDS AND INCREASED
INTEREST RATES AMONG WHOLESALE AND RETAIL HOME LENDERS HAVE REDUCED OUR SALES.
IF SUCH WHOLESALE AND RETAIL FINANCING WERE TO BECOME FURTHER CURTAILED OR
UNAVAILABLE, WE MAY EXPERIENCE FURTHER SALES DECLINES.

Champion-owned and independent retailers and the consumers who buy our homes
typically secure wholesale and retail financing, respectively, from third-party
lenders. The availability, terms and costs of both wholesale and retail
financing depend on the lending practices of financial institutions,
governmental policies and economic and other conditions, all of which are beyond
our control. A consumer seeking to finance the purchase of a manufactured home
without land will generally pay a higher interest rate and have a shorter loan
maturity than will a consumer seeking to finance the purchase of land and the
home. Manufactured home retail financing is at times more difficult to obtain
than financing for site-built homes. In particular, since 1999, retail lenders
have tightened the credit underwriting standards and increased interest rates
for loans to purchase manufactured homes, which in turn has reduced our sales.
Further, lenders to our independent retailers have increased their underwriting
standards recently, which may impair the ability of our retailers to finance the
purchase of homes from us. If either consumer or retailer financing were to
become further curtailed or unavailable, we may experience further sales


<PAGE>   8

declines.

ZONING - IF THE MANUFACTURED HOME INDUSTRY IS UNABLE TO GAIN WIDESPREAD
ACCEPTANCE OR SECURE FAVORABLE LOCAL ZONING ORDINANCES, OUR SALES COULD DECLINE
AND OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE
MATERIALLY ADVERSELY AFFECTED.

Limitations on the number of sites available for placement of manufactured homes
or on the operation of manufactured housing communities could negatively affect
the demand for manufactured homes and our sales. Manufactured housing
communities and individual home placements are subject to local zoning
ordinances and other local regulations relating to utility service and
construction of roadways. In the past, property owners often have resisted the
adoption of zoning ordinances permitting the location of manufactured homes in
residential areas, which we believe has restricted the growth of the industry.
Manufactured homes may not receive widespread acceptance and localities may not
adopt zoning ordinances permitting the development of manufactured home
communities. If the manufactured housing industry is unable to gain widespread
acceptance or secure favorable local zoning ordinances, our sales could decline
and our business, results of operations and financial condition could be
materially adversely affected.

FLUCTUATIONS IN OPERATING RESULTS - THE CYCLICAL AND SEASONAL NATURE OF THE
HOUSING MARKET CAUSES OUR REVENUES AND OPERATING RESULTS TO FLUCTUATE. WE EXPECT
THIS FLUCTUATION TO CONTINUE IN THE FUTURE, WHICH COULD RESULT IN OPERATING
LOSSES DURING PERIODS OF CYCLICAL DOWNTURNS IN THE HOUSING MARKET.

The manufactured housing industry is highly cyclical and is influenced by many
national and regional economic and demographic factors, including:

     -    consumer confidence;

     -    interest rates;

     -    availability of financing for homebuyers and retailers;

     -    regional population and employment trends;

     -    housing demand; and

     -    general economic conditions, including inflation and recessions.

These factors have in the past, and in the future may, negatively impact our
business. In addition to these factors, the housing industry is affected by
seasonality. Sales during the period from March to November are traditionally
higher than in other months. As a result of economic, demographic and seasonal
trends, our revenues and operating results fluctuate, and we expect them to
continue to fluctuate in the future. We may experience operating losses during
periods of cyclical downturns in the housing market.

COMPETITION - THE MANUFACTURED HOUSING INDUSTRY IS VERY COMPETITIVE. IF WE ARE
UNABLE TO EFFECTIVELY ADDRESS THIS COMPETITION, OUR GROWTH COULD BE LIMITED AND
OUR SALES COULD DECLINE.

The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon several factors,
including price, product features, reputation for service and quality, and depth
of retail inventory. Numerous companies produce manufactured homes in our
markets. A number of our manufacturing competitors also have their own retail
distribution systems. In addition, there are many independent manufactured
housing retail locations in most areas where we have retail operations. Since
barriers to entry for manufactured housing retailers are very low, we believe
that it is easy for new retailers to enter into our markets as competitors. In
addition, our products compete with other forms of low to moderate-cost housing,
including site-built, prefabricated and modular homes, apartments, townhouses
and condominiums. If we are unable to effectively address this competition our
retail sales and wholesale shipments could be reduced. As a result, our growth
could be limited and our sales could decline.

CERTAIN ELEMENTS OF OUR BUSINESS STRATEGY MAY NOT SUCCEED - OUR BUSINESS
STRATEGY MAY NOT ADEQUATELY ADDRESS THE ISSUES CURRENTLY FACING OUR COMPANY AND
THE


<PAGE>   9

MANUFACTURED HOUSING INDUSTRY OR CORRECTLY IDENTIFY FUTURE TRENDS IN THE
INDUSTRY. ANY FAILURE OF OUR BUSINESS STRATEGY COULD CAUSE OUR SALES TO DECLINE.

During 1999 and 2000, retail sales and wholesale shipments of new manufactured
homes decreased as a result of excess retail locations and inventory levels,
tightened consumer credit standards, high consumer repossession levels, higher
interest rates and other factors. As a result, our operating results have been
adversely affected and we have closed a significant number of manufacturing
facilities and retail sales centers. We are implementing a strategy designed to
address these issues. This strategy may not be successful because the reasons
for the decline in demand or future trends in the industry may not be correctly
identified, and our operating results may not improve. For example, our modified
sales rebate programs and retailer training programs may be unsuccessful in
increasing the frequency of inventory turnover and reducing excess inventories
and our corresponding contingent repurchase obligation. In addition, factors
beyond our control, such as increased competition, reductions in consumer demand
or an economic downturn, may offset any improved operating results that are
attributable to our strategy. Any failure of our business strategy could cause
our sales to decline.

DEPENDENCE UPON INDEPENDENT RETAILERS - IF WE ARE UNABLE TO ESTABLISH OR
MAINTAIN RELATIONSHIPS WITH SOLVENT INDEPENDENT RETAILERS WHO SELL OUR HOMES,
OUR SALES COULD DECLINE.

During 2000, 84% of our wholesale shipments of homes were made to independent
retail locations throughout the United States and western Canada. As is common
in the industry, independent retailers may sell manufactured homes produced by
competing manufacturers. We may not be able to establish relationships with new
independent retailers or maintain good relationships with independent retailers
that sell our homes. Even if we do establish and maintain relationships with
independent retailers, these retailers are not obligated to sell our
manufactured homes exclusively, and may choose to sell our competitors' homes
instead. The independent retailers with whom we have relationships can cancel
these relationships on short notice. In addition, these retailers may not remain
financially solvent as they are subject to the same industry, economic,
demographic and seasonal trends that we face. If we do not establish and
maintain relationships with solvent independent retailers in one or more of our
markets, sales in those markets could decline.

EFFECT ON LIQUIDITY - CURRENT INDUSTRY CONDITIONS AND OUR RECENT OPERATING
RESULTS HAVE LIMITED OUR SOURCES OF CAPITAL. IF THIS SITUATION DOES NOT IMPROVE
AND IF WE NEED TO LOCATE ALTERNATIVE SOURCES OF CAPITAL, BUT ARE UNABLE TO DO
SO, WE MAY NOT BE ABLE TO EXPAND OUR BUSINESS, AND WE MAY NEED TO LIMIT OUR
OPERATIONS.

We depend on our cash balances, cash flows from operations, our bank line of
credit facility and floor plan facilities to finance our operating requirements,
capital expenditures and other needs. The downturn in the manufactured housing
industry together with our recent operating results have limited availability
under our bank line of credit facility and decreased sources for floor plan
financing.

During 2000, our bank credit facility was changed from a $200 million unsecured
facility to a $75 million secured facility. Availability under the facility is
limited to a borrowing base calculated based on qualifying accounts receivable
and inventories as defined in the facility. At the end of February 2001, the
calculated borrowing base was $63 million and there were $33 million of letters
of credit and $15 million of borrowings outstanding under the facility. As a
result, remaining borrowing availability at February 2001 month end was $15
million.

During the past two years some of the manufactured housing industry floor plan
lenders have elected to exit or reduce their participation in the market. We
currently finance most of the new home inventory at Champion-owned stores
through borrowings from Conseco Finance. In July 2000, Conseco Finance made a
verbal request that we reduce our floor plan borrowings with them in order to
meet


<PAGE>   10

certain of its concentration requirements. Since receiving this request, we have
reduced our total floor plan borrowings with Conseco Finance from over $121
million in July 2000 to $81 million at March 23, 2001. Conseco Finance has
recently requested that we continue to reduce our floor plan borrowings with
them to $60 million by June 30, 2001 and to $40 million by September 30, 2001.
In an effort to meet this request we are reducing retail inventory, obtaining
alternate floor plan financing and seeking additional finance sources. If the
availability under our floor plan borrowings or credit line facility or cash
flow from operations is insufficient to finance our operations and alternative
capital is not available, we may not be able to expand our business, and we may
need to limit our operations.

CONTINGENT LIABILITIES - WE HAVE, AND WILL CONTINUE TO HAVE, SIGNIFICANT
CONTINGENT REPURCHASE OBLIGATIONS, SOME OF WHICH MAY BECOME ACTUAL OBLIGATIONS
THAT NEED TO BE PAID OR FINANCED.

As is customary for retailers throughout the manufactured housing industry, most
of our independent retailers finance their wholesale purchases of homes through
floor plan arrangements under which a financial institution provides the
retailer with a loan for the purchase price of the home and maintains a security
interest in the home as collateral. In connection with a floor plan arrangement,
the financial institution that provides the retailer financing customarily
requires us to enter into a separate repurchase agreement with the financial
institution. Under this separate agreement, we are obligated, for a period of 12
months to 15 months from the date of the sale, upon default by the retailer and
repossession of the home by the financial institution, to purchase from the
lender the related floor plan loan or the home at a price equal to the unpaid
principal amount of the loan, plus certain administrative and handling expenses,
reduced by the amount of any damage to the home and any missing appliances. Our
maximum potential repurchase obligation at December 30, 2000 was $430 million,
exclusive of any resale value of the homes, compared to $630 million a year
earlier. During 2000, we paid $19.1 million and incurred losses of $6.0 million
under repurchase agreements related to 660 homes resulting from defaults by 86
independent retail companies. We may be required to honor some or all of our
repurchase obligations in the future and we may suffer additional losses with
respect to, and as a consequence of, these repurchase agreements.

SIGNIFICANT LEVERAGE - OUR SIGNIFICANT DEBT COULD ADVERSELY AFFECT OUR FINANCIAL
HEALTH AND PREVENT US FROM FULFILLING OUR DEBT OBLIGATIONS. IF WE ARE UNABLE TO
PAY OUR DEBT OBLIGATIONS WHEN DUE, WE COULD BE IN DEFAULT UNDER OUR DEBT
AGREEMENTS AND OUR LENDERS COULD ACCELERATE OUR DEBT OR TAKE OTHER ACTIONS WHICH
COULD RESTRICT OUR OPERATIONS.

We have a significant amount of debt, which at the end of February, 2001,
consisted of long-term debt of $226 million and floor plan payables of $108
million. We also had contingent debt obligations with respect to $33 million of
letters of credit and $45 million of surety bonds. This indebtedness could have
important consequences on the Company. For example, it could:

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

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

     -    limit our flexibility in planning for, or reacting to, changes in our
          business and the manufactured housing industry;

     -    place us at a competitive disadvantage because we have more
          indebtedness than some of our competitors; and

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

In addition, our future cash flows may be insufficient to meet our debt
obligations. The factors that affect our ability to generate cash can also
affect our ability to raise additional funds to meet our debt service and other



<PAGE>   11

obligations through the sale of equity securities, the refinancing of debt, or
the sale of assets. Our business may not generate sufficient cash flows from
operations and borrowings may not be available to us under our revolving credit
facility in an amount sufficient to enable us to pay our debt or to fund other
liquidity needs. Borrowings under our revolving credit facility and floor plan
facilities bear interest at floating rates so increases in the prevailing
interest rates may also affect our ability to meet our debt service obligations.

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

RESTRICTIVE COVENANTS - THE TERMS OF OUR DEBT PLACE RESTRICTIONS ON US AND OUR
SUBSIDIARIES, REDUCING OPERATIONAL FLEXIBILITY.

The documents governing the terms of certain of our indebtedness contain
covenants that place restrictions on us and our subsidiaries. Our bank credit
facility and certain floor plan facilities include covenants that restrict our
and our subsidiaries' ability to, among other things:

     -    incur capital expenditures, including payments under capitalized
          leases, in each fiscal year;

     -    incur additional indebtedness, guarantees, leases and liens;

     -    use proceeds from the sale of certain assets;

     -    make advances, investments and loans;

     -    pay dividends, repurchase our common stock or make other distributions
          on our common stock;

     -    enter into transactions with affiliates;

     -    enter into joint ventures;

     -    merge with, consolidate into or acquire other companies;

     -    make changes to our business; and

     -    make changes in our management.

Our credit facilities include financial performance covenants that require the
Company to maintain specified levels of earnings and net worth.

If we fail to comply with any of these covenants, the lenders could cause our
debt to become due and payable prior to maturity. If this debt were to
accelerate, our assets might not be sufficient to repay our debt in full.

DEPENDENCE UPON WALTER R. YOUNG AND OTHER KEY PERSONNEL - THE LOSS OF ANY OF OUR
EXECUTIVE OFFICERS COULD REDUCE OUR ABILITY TO ACHIEVE OUR BUSINESS PLAN AND
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATING RESULTS.

We depend on the continued services and performance of our executive officers,
including our Chairman, President and Chief Executive Officer, Walter R. Young.
If we lose the service of Mr. Young or any of our executive officers, it could
reduce our ability to achieve our business plan and could have a material
adverse effect on our business and operating results.


<PAGE>   12



Executive Officers of the Company

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

<TABLE>
<CAPTION>
       Name                    Age             Position or Office
       ----                    ---             ------------------
<S>                            <C>     <C>
Walter R. Young                56      Chairman of the Board of Directors,
                                        President and Chief Executive Officer

Anthony S. Cleberg             48      Executive Vice President and Chief
                                        Financial Officer

Philip C. Surles               59      Chief Operating Officer

M. Mark Cole                   39      President, Retail Operations

Donald D. Williams             56      Chief Marketing and Information Officer

John J. Collins, Jr.           49      Senior Vice President, General Counsel
                                        and Secretary

Richard P. Hevelhorst          53      Vice President and Controller
</TABLE>

The executive officers serve at the pleasure of the Company's Board of Directors
except for Mr. Young, who is currently serving in accordance with the terms of a
Letter Agreement dated April 27, 1990, as amended. The Letter Agreement
terminates on April 30, 2004 unless terminated earlier pursuant to the
agreement. Mr. Young joined Champion in 1990 as President and Chief Executive
Officer and was elected Chairman of the Board in 1992.

In 2000 Mr. Cleberg joined Champion from Washington Group International, a
publicly-held engineering and construction firm, where for the previous three
years he was the Executive Vice President and Chief Financial Officer. Previous
to Washington Group International, he worked for Honeywell Inc. for 15 years in
various senior financial positions, leaving as Corporate Vice President,
Business Development.

Mr. Surles joined Champion upon the October 1996 merger with Redman Industries,
Inc., a leading manufactured housing company. Prior to his appointment to Chief
Operating Officer in May 1997, he served as the Company's President,
Southwestern Region and in various executive capacities with Redman for 20
years.

Mr. Cole joined Champion in 1998 upon the acquisition of Southern Showcase
Housing, Inc., a manufactured housing retailer, where he was President for eight
years. He was promoted to Champion's President, Retail Operations in September
1998.

Prior to joining Champion as Chief Marketing Officer in March 1999, Mr. Williams
was employed by Young & Rubicam Brazil, an advertising agency, where he was
Executive Vice President and Account Managing Director since 1989. In January
2001 he was promoted to Chief Marketing and Information Officer.

Mr. Collins joined the Company in 1997 as Vice President, General Counsel and
Secretary. For the previous five years, he was Principal and Managing Director
of Miller, Canfield, Paddock and Stone PLC, a law firm which provided legal
services to the Company for the past four years, and was the Resident Director
of one of its offices. Mr. Collins was promoted to Senior Vice President,
General Counsel and Secretary in April 2000.

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



<PAGE>   13



ITEM 2. PROPERTIES.

All of our manufacturing facilities are one story with concrete floors and wood
and steel superstructures and generally range from 80,000 to 150,000 square
feet. We own all of our manufacturing facilities except for six housing
facilities which are leased, four of which are under capital leases.
Substantially all of the machinery and equipment used in our manufacturing
facilities is owned. We believe our plant facilities are generally well
maintained and provide ample capacity to meet expected demand.

The following table sets forth certain information as of December 30, 2000 with
respect to our homebuilding facilities, all of which are assembly-line
operations.

<TABLE>
<CAPTION>
         United States
         -------------
<S>                          <C>
         Alabama             Guin
                             Boaz (4 plants)
         Arizona             Chandler (2 plants)*
         California          Corona*
                             Lindsay
                             Woodland*
         Colorado            Berthoud
         Florida             Bartow (3 plants)*
                             Lake City (3 plants)*
                             Plant City
         Georgia             Thomasville
                             Richland
         Idaho               Weiser
         Indiana             LaGrange (4 plants)
                             Ridgeville
                             Topeka (4 plants)
         Kentucky            Flemingsburg
         Michigan            White Pigeon (2 plants)
         Nebraska            Central City
                             York (2 plants)**
         New York            Sangerfield*
         North Carolina      Lillington (2 plants)**
                             Pembroke
                             Sanford
         Oregon              Silverton
                             Woodburn
         Pennsylvania        Claysburg
                             Ephrata
         Tennessee           Henry
         Texas               Athens (2 plants)
                             Breckenridge
                             Burleson (2 plants)

         Canada
         ------
         Alberta             Medicine Hat
         British Columbia    Penticton
</TABLE>



In addition, the Company owns 12 idled manufacturing facilities in seven states
at December 30, 2000.

*  Includes one leased facility.
** A facility at each location was closed in the first quarter of 2001.




<PAGE>   14


Our Company-operated retail sales centers generally range in size from one and
one-half acre to four acres, although some locations are up to ten acres. The
following table sets forth the 260 Company-operated retail locations by state as
of December 30, 2000:

<TABLE>
<CAPTION>
                          Number of                                                       Number of
                            Retail                                                          Retail
State                     Locations                         State                         Locations
-----                     ---------                         -----                         ---------
<S>                       <C>                               <C>                           <C>
Arizona                       9                             New Mexico                        1
California                    4                             North Carolina                   29
Colorado                      2                             North Dakota                      1
Georgia                       2                             Ohio                              1
Idaho                        11                             Oklahoma                          7
Indiana                       5                             Oregon                           12
Iowa                          2                             South Carolina                   24
Kansas                        5                             South Dakota                      4
Kentucky                     19                             Tennessee                         8
Louisiana                     6                             Texas                            64
Mississippi                   4                             Utah                             10
Missouri                      1                             Virginia                          6
Nebraska                      2                             Washington                       10
Nevada                        8                             Wyoming                           3
</TABLE>


   30 of these retail locations were closed during the first quarter of 2001.

Most of our Company-operated retail locations are leased, with aggregate lease
payments totaling approximately $12 million in 2000. Sales center lease terms
generally range from monthly to five years. Our executive offices, which are
located in Auburn Hills, Michigan, and other miscellaneous offices and
properties are also leased.

ITEM 3.  LEGAL PROCEEDINGS.

In the ordinary course of business, the Company is involved in routine
litigation incidental to its business. This litigation arises principally from
the sale of our products and in various governmental agency proceedings arising
from occupational safety and health, wage and hour, and similar employment and
workplace regulations. In the opinion of management, none of such matters
presently pending are material to Champion's overall financial position or
results of operations.

On August 26, 1999, a putative shareholder class action suit entitled Joel
Miller v. Champion Enterprises, Inc. was filed against the Company and Walter R.
Young in the U.S. District Court for the Eastern District of Michigan. The
complaint seeks unspecified damages and costs for alleged violations of federal
securities laws. The plaintiff generally alleges, among other things, that the
Company made false and misleading statements and omitted other information
regarding the financial condition of Ted Parker Homes Sales, Inc. (Ted Parker),
our former largest independent retailer, and the potential impact on Champion of
Ted Parker becoming insolvent. There are similar actions that have been filed
and are being consolidated with the Joel Miller action. We are vigorously
defending against these actions.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of Champion's security holders during
the fourth quarter of 2000.


<PAGE>   15


                                     PART II

ITEM 5.  MARKET FOR CHAMPION'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

(a) Champion's common stock is listed on the New York, Chicago and Pacific Stock
Exchanges as ChampEnt and has a ticker symbol of CHB. Quarterly stock prices
were as follows:

<TABLE>
<CAPTION>
                                                  HIGH           LOW
                                                  ----           ---
<S>                                             <C>            <C>
2000
----

1st Quarter                                     $ 8.4375       $ 5.3125
2nd Quarter                                         7.75           4.00
3rd Quarter                                        6.625          4.125
4th Quarter                                       4.1875         2.3125


1999
----

1st Quarter                                       27.375          18.50
2nd Quarter                                      21.6875         18.125
3rd Quarter                                       18.875         8.1875
4th Quarter                                     $  10.25       $  7.875
</TABLE>


(b) There were approximately 6,000 shareholders of record and 8,000 beneficial
holders on March 9, 2001.

(c) Champion has not paid cash dividends during the past three fiscal years.
Consistent with our plan to improve shareholder value through investments in our
businesses, the Company does not plan to pay cash dividends in the near term.

<PAGE>   16
ITEM 6. SELECTED FINANCIAL INFORMATION
NINE-YEAR HIGHLIGHTS (UNAUDITED)
(Dollars and weighted shares in thousands, except per share amounts)

<TABLE>
<CAPTION>
                        2000        1999        1998          1997        1996        1995          1994      1993      1992

<S>                   <C>         <C>          <C>         <C>         <C>           <C>         <C>         <C>        <C>
OPERATIONS
Net sales
  Manufacturing       $1,564,026  $2,068,627   $1,986,317  $1,733,162  $1,645,024    $1,410,890  $1,138,027  $759,544   $616,686
  Retail                 606,708     787,011      561,659      60,624      33,202        27,200      34,702    30,661     27,241
  Less: intercompany    (249,000)   (291,000)    (215,000)    (39,300)    (23,800)      (19,800)    (23,600)  (21,900)   (19,800)
  Net sales            1,921,734   2,564,638    2,332,976   1,754,486   1,654,426     1,418,290   1,149,129   768,305    624,127

Cost of sales          1,619,903   2,164,868**  1,931,397   1,503,028   1,410,397     1,214,217     990,905   664,861    545,507
Gross margin             301,831     399,770      401,579     251,458     244,029       204,073     158,224   103,444     78,620
Selling, general and
  administrative
  expenses (SG&A)        305,286     292,188**    231,295     135,028     130,629       112,396      89,289    74,732     62,617
Nonrecurring charges     189,700*         --           --          --      22,000***         --       2,700       572      1,308

Operating income
  (loss)                (193,155)    107,582      170,284     116,430      91,400        91,677      66,235    28,140     14,695

Net interest
  income (expense)       (27,177)    (25,540)     (13,486)        941         525           298         673    (1,770)    (4,985)

Pretax income (loss)-
  continuing
  operations            (220,332)     82,042      156,798     117,371      91,925        91,975      66,908    26,370      9,710

Income (loss)-
  continuing
  operations            (147,332)*    50,042       94,198      70,771      52,225***     54,475      43,808    18,470      7,137
Income (loss)-
  discontinued
  operations                  --          --           --       4,500       1,361         1,810       3,230    (3,750)    (3,847)
Extraordinary gain
  (loss)                      --          --           --          --          --            --          --    (1,753)       420
Net income (loss)      ($147,332)    $50,042      $94,198     $75,271     $53,586       $56,285     $47,038   $12,967     $3,710

Diluted earnings
  (loss) per share
Income (loss)-
  continuing
  operations              ($3.12)*     $1.02        $1.91       $1.45       $1.06***      $1.10       $0.90     $0.43      $0.19
Income (loss)-
  discontinued
  operations                  --          --           --        0.09        0.03          0.04        0.06     (0.09)     (0.10)
Extraordinary gain
  (loss)                      --          --           --          --          --            --          --     (0.04)      0.01
Net income (loss)         ($3.12)      $1.02        $1.91       $1.54       $1.09         $1.14       $0.96     $0.30      $0.10
</TABLE>



<PAGE>   17

<TABLE>
<S>                    <C>         <C>          <C>         <C>         <C>           <C>         <C>         <C>       <C>
Diluted weighted
  shares outstanding      47,252      48,889       49,284      48,875      49,327        49,389      48,900    42,954     37,820

FINANCIAL INFORMATION
EBITDA, as defined
  below                  $36,851    $145,472     $197,195    $133,521    $127,863      $102,971     $77,023   $35,075    $22,752
Depreciation and
  amortization            40,306      37,890       26,911      17,091      14,463        11,294       8,088     6,363      6,749
Capital expenditures      15,035      50,390       49,120      38,266      50,094        19,854      18,762    10,601      4,840
Net property, plant
  and equipment          207,277     222,898      190,963     143,519     119,994        75,271      59,783    44,578     41,480
Total assets             942,056   1,182,940    1,021,672     501,250     461,222       367,872     290,090   204,490    177,349
Long-term debt           225,634     224,357      121,629       1,813       1,158         1,685       2,536     3,440     42,018
Shareholders' equity     296,809     444,262      405,246     280,416     226,634       176,142     133,266    81,741     22,316
  Per share                $6.27       $9.39        $8.40       $6.02       $4.75         $3.73       $2.79     $1.76      $0.60
  Return (loss) on
    average equity           (40%)        12%          27%         30%         27%           36%         44%       25%        19%

OTHER STATISTICAL
  INFORMATION
Number of employees
  at year end             12,000      15,000       14,000      11,300      10,700         8,700       7,600     6,200      5,200
Homes sold
  Wholesale               52,442      71,761       70,359      64,285      61,796        53,955      44,453    32,607     29,249
  Retail - new            11,483      15,853       11,738         983         541           477         644       637        580
  Retail - pre-owned       2,863       4,102        2,867          87          28            36          51        62         74
Wholesale
  multi-section mix           71%         66%          63%         58%         56%           54%         54%       51%        46%
</TABLE>

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

The Company made significant acquisitions of manufacturing companies in 1994
through 1996 and in 1999. The Company made significant acquisitions of retail
companies in 1998 and 1999.

The Company measures cash flows under generally accepted accounting principles
(GAAP), as well as using EBITDA, which is not a GAAP measure. EBITDA, as used by
the Company, consists of operating income (loss) (income or loss before interest
and income taxes) before nonrecurring charges, depreciation and amortization.
Nonrecurring charges consist of non-cash goodwill impairment charges of $189.7
million in 2000 and merger and other charges of $22.0 million related to the
merger with Redman Industries, Inc. in 1996. EBITDA as defined by the Company
may not be comparable to similarly titled measures used by other companies.
Although EBITDA is not a measure of performance calculated in accordance with
GAAP, the Company believes it is a generally recognized measure of performance
used in the housing industry and by analysts who issue reports on companies in
the housing industry. Nevertheless, EBITDA should not be considered in isolation
or as a substitute for operating income (loss), net income (loss), net cash
provided by operating activities or any other measure for determining the
Company's operating performance or liquidity that is calculated in accordance
with GAAP.

* Includes goodwill impairment charges of $189.7 million ($127.8 million after
tax of $2.70 per share).


<PAGE>   18


** Cost of sales and SG&A expenses include $26.5 million and $7.1 million,
respectively, related to the bankruptcy of the Company's former largest
independent retailer in 1999. Previously, the $33.6 million of losses related
to the bankruptcy were presented as a separate component of operating income.

***Includes nonrecurring merger and other charges of $22.0 million ($16.8
million after tax or $0.34 per share) due to the 1996 merger with Redman
Industries, Inc., which was accounted for as a pooling of interests.

<PAGE>   19
       ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


OVERVIEW

Champion Enterprises, Inc. (Champion or the Company) is the leading producer of
manufactured housing in the U.S. and the industry's third largest retailer based
on the number of retail locations. In 2000, 1999 and 1998 Champion led the U.S.
manufactured housing industry in wholesale revenues and wholesale shipments of
homes. As of December 30, 2000, the Company was operating 53 homebuilding
facilities in 17 states and western Canada and 260 retail sales centers in 28
states. Champion homes are also sold by independent retail locations throughout
the U.S. and western Canada, including more than 1,000 members of the Champion
Home Centers or Alliance of Champions retail distribution networks.

In 2000 Champion's revenues and profits were affected by challenging industry
conditions, including excess retail locations and inventory, tightened consumer
credit standards, high consumer repossession levels, and higher interest rates.
According to data reported by the National Conference of States on Building
Codes and Standards (NCSBCS), 2000 U.S. industry wholesale shipments of HUD code
homes(1) and floors(2) decreased 28.1% and 25.9%, respectively, from 1999
levels. Based on data reported by Statistical Surveys, Inc., we believe that
industry retail sales of new homes in 2000 dropped 19% from a year ago.

As a result of this industry downturn, during 2000 we idled seven manufacturing
facilities and closed 62 retail sales centers. During the first quarter of 2001,
we closed two more manufacturing facilities and 30 additional retail sales
centers. Since the start of the industry downturn in mid-1999, we have closed 17
homebuilding facilities, two of which have been sold.

The industry's U.S. wholesale shipments in 2001 could continue to suffer from
the factors previously noted. Champion's wholesale and retail sales and margins
are expected to be impacted until industry consumer financing is more readily
available, consumer repossessions return to normal levels, and retail sales of
new homes increase. We are focusing on improving retailer inventory turnover,
rewarding retailers for retail selling of homes purchased, and promoting
retailer sound business practices. We continually review our manufacturing
capacity and the number and locations of our Company-operated retail sales
centers and will make further adjustments, consolidations and closures, if
necessary.

In the fourth quarter of 2000, the Company recorded non-cash goodwill impairment
charges of $189.7 million ($127.8 million after tax or $2.70 per share). Of this
total, $180.0 million was for retail operations and $9.7 million for
manufacturing operations. The amortization period for retail goodwill was also
reduced from 40 to 20 years. For additional information see the section on
Goodwill Impairment Charges.

During 2000 we entered into an agreement with Homestore.com, the leading home
and real estate network for consumers and real estate professionals on the
Internet. Under the agreement Homestore.com will provide a full range of web
based on-line marketing and services to our Company-owned and independent
retailers who are members of our Champion Home Centers distribution network.

--------
(1) U.S. manufactured homes are constructed in accordance with the Federal
Manufactured Home Construction and Safety Standards, as administered by the U.S.
Department of Housing and Urban Development (HUD). The HUD code regulates
manufactured home design and construction, strength and durability, fire
resistance and energy efficiency. Other building codes apply to modular homes
and homes built in Canada.

(2) A floor is a section of a home. A single-section home is comprised of one
floor and a multi-section home is comprised of two or more floors.

<PAGE>   20


In 2000 we formed Genesis Homes (Genesis) to develop homes and marketing
programs to attract small to medium-sized builders and developers. Genesis
produces modular and manufactured housing in 12 of Champion's existing
homebuilding facilities, which provides nationwide market presence. Champion
sold approximately 2,000 homes through 200 local builders and developers in
2000, which accounted for an estimated 7% of our wholesale revenues.

In 1999 Champion's former largest independent retail customer declared
bankruptcy. Sales to this retailer represented 3.5% of Champion's wholesale home
shipments in 1998 and 2.7% for the first six months of 1999. In the bankruptcy
proceedings the Company repurchased 1,850 homes for approximately $70 million
which were financed through floor plan borrowings. Pretax charges of $33.6
million were recorded in the third quarter of 1999 for the estimated losses
associated with the bankruptcy, consisting of $26.5 million to write down the
repurchased homes to estimated net resale value and $7.1 million to write off
uncollectible receivables. In the second quarter of 2000, a loss of $5 million
was recorded for an additional write down of the value of the remaining
repurchased homes. Substantially all the repurchased homes had been liquidated
by the end of the third quarter of 2000. The repurchase losses associated with
this bankruptcy were unusually large due to the following factors: the number of
homes that were repurchased, most of which were larger, costlier multi-section
homes; the amount of unrecoverable volume rebates; the competitive market place
in which the homes were located, which had an excess number of retail locations
and inventories; the effects of tightening consumer credit standards on the
consumers' ability to finance purchases of the homes; and the effects of
negative publicity associated with the bankruptcy on the Company's ability to
liquidate the homes.

RESULTS OF OPERATIONS 2000 VERSUS 1999

CONSOLIDATED

<TABLE>
<CAPTION>
(Dollars in millions)
                                              2000           1999        % change
                                             -------        -------      --------
<S>                                          <C>            <C>          <C>
Net sales
  Manufacturing                              $ 1,564        $ 2,069        (24%)
  Retail                                         607            787        (23%)
  Less: intercompany                            (249)          (291)
                                             -------        -------
Total net sales                              $ 1,922        $ 2,565        (25%)
                                             =======        =======

Gross margin                                 $   302        $   400        (24%)
SG&A                                             305            292          4%
Goodwill impairment charges                     (190)            --
                                             -------        -------
Operating income (loss)                      $  (193)       $   108
                                             =======        =======

As a percent of sales
  Gross margin                                  15.7%         15.6%
  SG&A                                          15.9%         11.4%
</TABLE>

Champion's 2000 consolidated revenues decreased 25% from 1999 levels due to
challenging industry conditions which affected both retail sales and wholesale
shipments. These conditions included excess retail locations and inventory,
tightened consumer credit standards, high consumer repossession levels and
higher interest rates.

Gross margin dollars in 2000 were $98 million less than in 1999. Approximately
$100 million in reduced gross margin was due to the $643 million reduction in
consolidated sales. Also affecting gross margin dollars and as a percentage of
sales in 2000 were manufacturing inefficiencies from low production volume, the
$5 million additional charge for further write down of the repurchased homes
from the 1999 independent retailer bankruptcy, and approximately $5 million of
costs to reduce inventory and sell older homes at Company-owned sales centers,
partially offset by lower material costs. Gross margin in 1999 was reduced by
$26.5 million from the write down of repurchased homes to estimated net resale
value related to the independent retailer bankruptcy.


<PAGE>   21



SG&A in 2000 rose as a result of marketing programs, fixed asset impairment
charges and other costs for the closing and consolidation of seven manufacturing
facilities and 62 sales centers, and impairment charges related to developments.
Costs for marketing and advertising programs increased $20 million. Non-cash
fixed asset impairment charges totaled $10.5 million and retail lease
termination costs were $1.8 million. Also affecting 2000 SG&A costs were an
increase in the provision for wholesale repurchase losses of $4 million
(excluding losses associated with the 1999 independent retailer bankruptcy),
$6.9 million of property insurance gains and lower SG&A due to reduced sales and
fewer manufacturing facilities in operation. In addition to these items, as a
percentage of sales SG&A increased in 2000 due to the effects of lower sales
volume on fixed costs, particularly in the retail segment. SG&A in 1999 included
$7.1 million for the write off of uncollectible receivables as a result of the
independent retailer bankruptcy.

Operating income (loss) in 2000 and 1999 was comprised of the following:

<TABLE>
<CAPTION>
                                                        % OF                  % of
(Dollars in millions)                        2000       SALES      1999       sales
---------------------                        ----       -----      ----       -----
<S>                                         <C>         <C>        <C>        <C>
Manufacturing EBITA before
 losses from independent
 retailer bankruptcy                        $  51        3.3%      $132       6.4%
Retail segment EBITA (loss)                    (9)      (1.5%)       51       6.5%
General corporate expenses                    (30)                  (23)
Intercompany profit in inventory                4                    (4)
Goodwill amortization                         (14)                  (14)
Goodwill impairment charges                  (190)                    -
Losses from independent
 retailer bankruptcy                           (5)                  (34)
                                            -----                  ----
Operating income (loss)                     $(193)                 $108
                                            =====                  ====
</TABLE>

Segment EBITA consists of earnings (loss) before interest, taxes, goodwill
amortization, goodwill impairment charges and losses associated with the 1999
independent retailer bankruptcy.

Manufacturing segment sales to the retail segment and related manufacturing
profits are included in the manufacturing segment. Retail segment results
include retail profits from the sale of homes to consumers but do not include
any manufacturing segment profits associated with the homes sold. Intercompany
transactions between the operating segments are eliminated in consolidation,
including intercompany profit in inventory which represents the amount of
manufacturing segment gross margin in Champion-produced inventory at
Company-owned retailers. In 2000 a credit was required for the reduction in
intercompany profit in inventory resulting from lower manufacturing segment
gross margins and declining inventories at the retail segment. In 1999 an
elimination was required due to the increased number of Champion-produced homes
in inventory at Company-owned retailers.

General corporate expenses increased $6.5 million in 2000 due primarily to
non-cash fixed asset impairment charges of $4.0 million related to development
operations, of which $1.5 million was recognized upon the sale of a majority
interest in certain developments, and $2.5 million was recognized due to
insufficient estimated future cash flows from a wholly-owned development. In
addition, equity method losses from our minority interests in unconsolidated
development operations increased by $1 million.

<PAGE>   22

Income tax benefits were recorded in 2000 resulting from the pretax loss,
compared to income tax charges recorded in 1999 due to taxable income. The
effective income tax rate decreased to 33% in 2000 from 39% a year earlier due
to the nondeductible portion of the goodwill impairment charges.

MANUFACTURING OPERATIONS
<TABLE>
<CAPTION>
                                           2000        1999       % change
                                          ------      ------      --------
<S>                                      <C>         <C>          <C>
Net sales (in millions)                  $ 1,564     $  2,069       (24%)
EBITA before loss from independent
 retailer bankruptcy (in millions)       $    51     $   132       (61%)
EBITA margin %                              3.3%         6.4%
Homes sold                                52,442       71,761       (27%)
Floors sold                               90,458      120,496       (25%)
Multi-section mix                            71%          66%
Average home price                       $28,500     $ 27,600         3%
Manufacturing facilities at year end          53           60       (12%)
</TABLE>

Manufacturing revenues in 2000 decreased because of challenging market
conditions, with Champion's wholesale homes and floors sold declining 26.9% and
24.9%, respectively, from a year earlier. Our U.S. wholesale shipments of HUD
code homes decreased 27.5% from a year earlier, which resulted in a U.S. market
share of 20.1% in 2000 compared to 19.9% in 1999. Wholesale shipments of
single-section homes decreased 36.1% from 1999 levels, while multi-section sales
were down 22.3%. The increased average wholesale selling price per home resulted
primarily from the higher multi-section mix. Manufacturing sales to
Company-owned retailers accounted for 16% of total homes sold in 2000, up from
14% in 1999.

Manufacturing EBITA in 2000 declined $81 million as compared to 1999 excluding
the losses from the 1999 independent retailer bankruptcy. Approximately $60
million of this decline was due to reduced gross margin from lower manufacturing
sales of $505 million, and $20 million was due to higher marketing and
advertising costs. Manufacturing margins were also affected by manufacturing
inefficiencies resulting from low volume, partially offset by lower material
costs. In addition, 2000 manufacturing EBITA was impacted by fixed asset
impairment charges of $2.5 million related to plant closings, $6.9 million for
property insurance gains and an increase in the provision for wholesale
repurchase losses of $4 million (excluding losses associated with the 1999
independent retailer bankruptcy).

Although retailer orders can be cancelled at any time without penalty, and
unfilled orders are not necessarily an indication of future business, the
Company's unfilled wholesale orders for housing at December 30, 2000 totaled
approximately $15 million, compared to $49 million a year earlier. At the end of
2000, Champion was operating 53 homebuilding facilities, compared to 60 at the
end of 1999. Champion closed two of these manufacturing facilities in the first
quarter of 2001 and may consider other adjustments to manufacturing capacity in
response to changes in market conditions.

RETAIL OPERATIONS

<TABLE>
<CAPTION>
                                             2000        1999      % change
                                           -------     -------     --------
<S>                                        <C>         <C>         <C>
Net sales (in millions)                    $   607     $   787       (23%)
EBITA (loss)(in millions)                  $    (9)    $    51
EBITA margin %                               (1.5%)       6.5%
New homes sold                              11,483      15,853       (28%)
Pre-owned homes sold                         2,863       4,102       (30%)
Total homes sold                            14,346      19,955       (28%)
% Champion-produced new homes sold             73%         62%
New multi-section mix                          62%         55%
Average new home price                     $49,600     $46,300         7%
Average number of new homes in
  inventory per sales center at year end        18          20       (10%)
Sales centers at year end                      260         280        (7%)
</TABLE>

<PAGE>   23

Retail sales decreased in 2000 due to challenging industry conditions. During
the year 62 sales centers were closed or consolidated, primarily in the second
half, bringing the year end total to 260 locations in 28 states.

Retail EBITA in 2000 declined $60 million as compared to 1999. Approximately $39
million of this decline was due to reduced gross margin from lower retail sales
of $180 million and an estimated $5 million was due to costs to reduce inventory
and sell older homes. Retail EBITA also included $4.0 million for fixed asset
impairment charges and $1.8 million for lease termination costs related to sales
center closures. In addition, retail margins were impacted by a highly
competitive market and reduced loan origination income from lower rates and
volume.

GOODWILL IMPAIRMENT CHARGES

The Company evaluates the recoverability of long-lived assets not held for sale
by measuring the carrying value of the assets against the associated estimated
undiscounted future cash flows in accordance with SFAS No. 121. At the time such
evaluations indicate that the undiscounted future cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are adjusted to their estimated fair values. Estimated fair
values are determined using the present value of estimated future cash flows.

Industry conditions in 2000, including excess retail locations and inventory,
tightened consumer credit standards, high consumer repossession levels and
higher interest rates for purchasers of manufactured housing, resulted in lower
sales volumes and sales center closures for the Company's acquired retail
businesses. Beginning in the second half of 1999, retail finance companies began
tightening credit eligibility requirements and increasing down payment
requirements for consumer loans in the manufactured housing industry. We
monitored these changes throughout 1999 and through the third quarter of 2000
with an expectation that underwriting standards would be relaxed and/or other
lenders would enter the marketplace to compete. During this period an increasing
number of repossessed manufactured homes were also becoming available in the
market. These factors contributed to declining retail sales of new homes in the
industry and at Company-owned retailers. In the first half of 2000, almost all
of our acquisitions were sufficiently profitable such that the carrying value of
the related goodwill continued to appear to be recoverable. In the third quarter
of 2000, certain of the Company's retail acquisitions incurred operating losses,
and we closed and consolidated 29 under performing retail sales centers.
However, our long-term forecast for these retailers was sufficiently profitable
that the goodwill appeared to be recoverable. These long-term forecasts were
based on past operating results, management plans, and expectations for the
industry.

In the fourth quarter of 2000 industry conditions continued to worsen. The
Company's retail losses continued into October. By late November it appeared
that retail traffic for the month dropped by approximately 45%, retail financing
continued to tighten and a significant retail operating loss for the month was
forecasted. On December 1, 2000, October industry wholesale shipments were
released showing a 32% decline from 1999 levels. Third quarter industry retail
data showed declines of approximately 25% and October appeared to decline 30%.
It became apparent to management that additional lenders were not coming into
the market and tightened underwriting standards were going to prevail longer
term. During the fourth quarter management committed to close 25 additional
under performing sales centers. The culmination of these factors suggested that
a detailed review regarding the recoverability of long-lived assets was
required.

In the evaluation process we forecasted cash flows over the next 20 years using
assumptions for each retail company. The resulting cash flows were discounted to
present value using a discount factor that approximated the Company's blended
cost of capital of 13%. The assessment was performed using lower volume and
growth assumptions than previously assumed due to the continued downturn in the
industry and lowered future expectations. The key assumptions in our 20 year
forecast for Company-owned retailers with impaired goodwill included the
following:


<PAGE>   24

-    Average number of new homes sold per month per sales center ranging from
     2.5 to 5.0. Average selling price per new home ranging from $40,000 to
     $52,000. Average gross profit and other income ranging from 26% to 29% of
     sales. Average variable SG&A ranging from 5% to 7% of sales. Average
     monthly fixed SG&A per retail sales center ranging from $25,000 to $40,000.

-    For the next one to two years, an expectation of an uncertain U.S. economy,
     declining consumer confidence and a mild recessionary trend.

-    Over the longer term, expected lower growth for our Company-owned retailers
     in terms of number of sales centers operated and the number of homes sold
     per location and slight improvement in consumer financing availability,
     relative interest rates and industry retail sales.

As a result of the recoverability analysis, the Company recorded non-cash pretax
goodwill impairment charges of $189.7 million, consisting of $180.0 million for
seven retail companies that were acquired in 1998 and 1999 and $9.7 million for
two manufacturing companies that were acquired in 1996 and 1998.

In conjunction with the SFAS No. 121 analysis discussed above, the estimated
useful life of our goodwill was reviewed. We initially selected 40 years for
both our manufacturing and retail acquisitions based on the long-term nature of
the manufactured housing industry and its significance to the housing market in
the U.S. Our traditional consumer base consists of individuals with annual
household incomes under $40,000. These individuals comprise the largest
demographic segment of the manufactured housing market. The Company believes
these consumers are attracted to manufactured homes by their low cost as
compared to site-built homes. According to 1999 data reported by USDOC, the
retail cost of manufactured housing is approximately $29.46 per square foot, as
compared to $68.80 per square foot for site-built housing. We believe the
affordability of manufactured housing more readily enables people who would
otherwise rent alternative forms of housing to own their residence. Accordingly,
given the affordable nature of Champion's homes for consumers as compared to
renting, the Company believed that for the next 40 years consumers would be
available, and would continue to purchase our products. We believed the
resulting volume of retail sales at our acquired retail businesses would
generate sufficient cash flows to realize the recorded goodwill.

Late in the fourth quarter, we evaluated the appropriateness of the 40 year
useful life we originally assigned to goodwill for our retail acquisitions.
Given the culmination of the factors which required the Company to evaluate the
recoverability of the goodwill as previously discussed, in conjunction with the
changes transpiring in the retail distribution channel, we believed an
adjustment to a 20 year useful life was appropriate.

Other factors considered were as follows:

-    Retail sales center volume and profits are sensitive to market conditions
     including the number of sales centers and the level of retail inventory in
     the market area. This is evidenced by a number of restructurings in the
     latter half of 2000 at Company-owned retailers, including the closure of 62
     sales centers (approximately 20% of the total), management changes and
     sales force turnover.

-    Retail sales center volume and profitability are affected by relationships
     and programs with consumer finance companies and floor plan lenders. At the
     time of the acquisitions, ample consumer and floor plan financing was
     available at advantageous rates. Subsequently, consumer credit underwriting
     standards have tightened and interest rates have risen. Further, floor plan
     financing availability has declined and costs have risen. These changes in
     industry lending practices have adversely affected retail sales and
     profitability.

-    It became clear to the Company that the business model for the traditional
     retail distribution channel will be impacted by Internet strategies. In
     mid-2000 we entered into an agreement with Homestore.com, the leading home
     and real estate network for consumers and real estate professionals on the
     Internet. Under the agreement Homestore.com will provide a full range of
     web based on-line marketing and services to our Company-owned retailers and
     independent retailers who are


<PAGE>   25

     members of our Champion Home Centers distribution network.

-    Primarily as a result of industry conditions, an estimated 25% of the
     industry's retail locations have gone out of business during the past two
     years.

The combination of these factors indicated substantially more volatility in the
retail segment as compared to the manufacturing segment. Therefore, we concluded
that a period of 20 years is a more reasonable estimate of the useful life for
our retail goodwill.

REPURCHASE OBLIGATIONS

Each month the Company reviews its contingent repurchase obligation for
independent retailers to assess the adequacy of the reserve for repurchase
losses. This analysis is based on the combination of current and historical
experience, reports received from four of the primary national floor plan
lenders that provide approximately 65% of all floor plan financing for our
independent retailers, and information regarding our retailers obtained from
management at our manufacturing facilities.

The maximum repurchase obligation is calculated as the total amount that would
be paid upon the default of all of our independent retailers, without reduction
for the resale value of the repurchased homes. Potential losses under repurchase
obligations are determined by the difference between the repurchase price and
the estimated net resale value of the homes.

Each month the Company uses the information from these four primary lenders to
determine the amount subject to repurchase and the estimated potential loss for
each of our 25 largest independent retailers. As of February 28, 2001, our
largest independent retailer, a nationwide retailer who we consider to be low
risk, had $23.5 million of inventory subject to repurchase, with associated
potential repurchase loss estimated at $4.7 million. Each of our next 24 largest
independent retailers had from $1.5 million to $6.0 million of inventory subject
to repurchase as of February 28, 2001.

A summary of actual repurchase activity for the last three years, excluding the
$38.6 million losses associated with the 1999 independent retailer bankruptcy,
was as follows (dollars in millions):

<TABLE>
<CAPTION>
                                                      2000       1999       1998
                                                      ----       ----       ----
<S>                                                  <C>        <C>         <C>
Maximum repurchase obligation
   at end of year                                    $ 430      $ 630      $ 760
Number of retailer defaults                             86         63         50
Number of homes repurchased                            660        480        165
Total repurchase price                               $19.1      $14.2      $ 4.9
Total repurchase losses incurred                     $ 6.0      $ 2.9      $ 0.4
</TABLE>

To reduce potential losses from repurchase obligations, in the fourth quarter of
1999 we initiated a change to our program for the payment of volume rebates to
our independent retailers. The majority of our sales to independent retailers
are currently made under rebate programs that result in little or no loss
exposure for volume rebates.

DEFERRED TAX ASSETS

At December 30, 2000, the Company had gross deferred tax assets of $101 million.
We believe that our deferred tax assets will be realized based on an analysis of
historical performance and forecasted future performance. The Company has been
profitable for eight of the last nine years, generating pretax earnings of $82
million, $157 million and $117 million in 1999, 1998 and 1997, respectively. The
carryforward period of 20 years allows for the gross deferred tax assets to be
realized through cumulative taxable income of $262 million or an average of $13
million per year. Despite current industry conditions, we believe that a minimum
expectation of $13 million in average annual taxable income over the next 20
years is reasonable.


<PAGE>   26


RESULTS OF FOURTH QUARTER 2000 VERSUS 1999


<TABLE>
<CAPTION>
(Dollars in millions)                            2000          1999        % change
                                               ---------     ---------     --------
<S>                                            <C>           <C>           <C>
Net sales
  Manufacturing                                $    310      $    474        (34%)
  Retail                                            124           175        (29%)
  Less: intercompany                                (47)          (63)
                                               --------      --------
Total net sales                                $    387      $    586        (34%)
                                               ========      ========

Gross margin                                   $     57      $     90        (37%)
SG&A                                                 82            74         11%
Goodwill impairment charges                        (190)           --
                                               --------      --------
Operating income (loss)                        $   (215)     $     16
                                               ========      ========

Manufacturing EBITA                            $      3      $     20
Retail EBITA (loss)                                 (15)            5
General corporate expenses                          (10)           (6)
Goodwill amortization                                (3)           (3)
Goodwill impairment charges                        (190)           --
                                               --------      --------
 Operating income (loss)                       $   (215)     $     16
                                               ========      ========

As a percent of sales
  Gross margin                                     14.7%         15.3%
  SG&A                                             21.1%         12.6%
  Manufacturing EBITA margin %                      1.0%          4.3%
  Retail EBITA margin %                           (12.3%)         2.7%

Manufacturing
  Homes sold                                      9,737        16,211        (40%)
  Floors sold                                    17,466        27,456        (36%)
  Multi-section mix                                  77%           68%

Retail
  New homes sold                                  2,216         3,378        (34%)
  Pre-owned homes sold                              594           979        (39%)
  % Champion-produced new homes sold                 79%           64%
</TABLE>

Challenging industry market conditions and a significant drop in consumer retail
traffic and sales affected Champion's results for the fourth quarter ended
December 30, 2000. Fourth quarter U.S. industry wholesale shipments were off 38%
from a year earlier according to NCSBCS, while industry retail sales were down
27% based on data provided by Statistic Surveys, Inc.

Gross margin dollars for the fourth quarter of 2000 were $33 million lower than
in 1999 primarily due to lower consolidated sales of $199 million. Gross margin
as a percentage of sales was lower in 2000 because of manufacturing
inefficiencies from lower production volume and competitive market conditions in
the retail segment.

SG&A in the fourth quarter of 2000 was $8 million higher than in 1999 primarily
due to $6.5 million of non-cash fixed asset impairment charges and $1.1 million
of retail lease termination costs. As a percent of revenues, SG&A also rose in
2000 due to the effects of lower volume on fixed costs.


<PAGE>   27


OPERATIONS

For the quarter, the Company's manufacturing revenues decreased due to
challenging market conditions. Manufacturing EBITA for the quarter was $17
million lower than in 1999 primarily from lower gross margin due to reduced
sales of $164 million. Higher marketing costs in the quarter and $1.5 million of
fixed asset impairment charges were offset by lower SG&A from operating fewer
plants than a year ago. During the fourth quarter of both 2000 and 1999, two
manufacturing facilities were closed.

Challenging industry conditions and lower sales volume per store affected retail
revenues and profitability in the fourth quarter of 2000. Retail EBITA for the
quarter was $20 million lower than in 1999. Of this decline, approximately $10
million was from lower gross margin due to the $51 million reduction in sales,
$2.5 million for fixed asset impairment charges and $1.1 million for lease
termination costs. Fourth quarter of 2000 results were also affected by costs to
reduce inventories and by lower loan origination fees. During the fourth quarter
of 2000, 24 sales centers were closed or consolidated, compared to 14 closures
in the three-month period in 1999.

RESULTS OF OPERATIONS 1999 VERSUS 1998


(Dollars in millions, except average home price)

<TABLE>
<CAPTION>
                                                 1999          1998        % change
                                               ---------     ---------     --------
<S>                                            <C>           <C>           <C>
Net sales
  Manufacturing                                $   2,069     $   1,986         4%
  Retail                                             787           562        40%
  Less:  intercompany                               (291)         (215)
                                               ---------     ---------
Total net sales                                $   2,565     $   2,333        10%
                                               =========     =========

Gross margin                                   $     400           401         -%
SG&A                                                 292           231        26%
                                               ---------     ---------
Operating income                               $     108     $     170       (37%)
                                               =========     =========

As a percent of sales
  Gross margin                                      15.6%         17.2%
  SG&A                                              11.4%          9.9%

Manufacturing
  Homes sold                                      71,761        70,359         2%
Floors sold                                      120,496       115,519         4%
  Multi-section mix                                   66%           63%
  Average home price                           $  27,600     $  27,000         2%
  Manufacturing facilities at year end                60            60

Retail
  New homes sold                                  15,853        11,738        35%
  Pre-owned homes sold                             4,102         2,867        43%
  % Champion-produced
    new homes sold                                    62%           49%
  Average new home price                       $  46,300     $  45,100         3%
  Sales centers at year end                          280           246
</TABLE>



<PAGE>   28


Operating income in 1999 and 1998 was comprised of the following:

<TABLE>
<CAPTION>
                                                        % of                 % of
(Dollars in millions)                        1999       sales      1998      sales
                                            ------      -----     ------     -----
<S>                                         <C>         <C>       <C>        <C>
Manufacturing EBITA before
 loss from independent
 retailer bankruptcy                        $ 132        6.4%     $ 165       8.3%
Retail EBITA                                   51        6.5%        47       8.4%
General corporate expenses                    (23)                  (23)
Intercompany profit in inventory               (4)                  (10)
Goodwill amortization                         (14)                   (9)
Loss from independent
 retailer bankruptcy                          (34)                   --
                                            -----                 -----
Operating income                            $ 108                 $ 170
                                            =====                 =====
</TABLE>

In January 1999 the Company acquired Homes of Merit, Inc. (Homes of Merit),
Florida's largest producer of manufactured homes with six manufacturing
facilities. Heartland Homes, a housing retailer with nine sales centers in
Texas, was also acquired in early January. In June 1999 Utah-based Care Free
Homes, Inc., a retailer with seven housing centers, was acquired. We also
acquired a manufactured housing community developer in 1999. These acquired
businesses had 1998 sales of approximately $200 million. Throughout 1998
Champion acquired 14 manufactured housing retail organizations, which operated
163 sales locations at the time of acquisition, and one homebuilding facility.

The 1999 bankruptcy of the Company's former largest independent retailer
resulted in the repurchase of inventory for $70 million and pretax charges of
$33.6 million. See further discussion of this bankruptcy in "Overview".

Revenues in 1999, particularly in the second half of the year, were affected by
market conditions, including the industry's excess number of retailers, excess
retail inventory and tightened consumer credit standards.

Gross margin in 1999 was comparable to the 1998 amount. Gross margin in 1999
increased approximately $37 million due to the $232 million increase in
consolidated sales, but was reduced by $26.5 million due to the write down of
repurchased inventory from the independent retailer bankruptcy. Gross margin in
1999 was also affected by manufacturing inefficiencies resulting from low
production volume and plant closures during the second half of the year.

SG&A in 1999 increased $61 million as compared to 1998, primarily due to the
expansion of Company-operated retail sales centers and the $7.1 million write
off of receivables related to the independent retailer bankruptcy. Also
contributing to higher SG&A were the 1999 acquisitions and $2 million for the
commencement of marketing programs. As a percent of sales, SG&A also increased
in 1999 due to expanded retail operations and the effects of lower retail sales
volume per store.

Interest expense was higher in 1999 due to amounts outstanding on the Company's
Senior Notes and inventory floor plan obligations. The Senior Notes were
primarily used to reduce bank borrowings, which were incurred to finance
acquisitions in 1998 and 1999. Floor plan liabilities were higher in 1999 due to
the increase in the number of Company-owned stores.

Income tax expense decreased in 1999 due to lower taxable income, with the
effective tax rate declining to 39% from 40% in 1998 due to lower state tax
rates related to certain acquisitions.

Intercompany profit in inventory eliminations of $4.4 million and $10.2 million
were required in 1999 and 1998, respectively, due to the increase in
Champion-produced inventory at Company-owned retailers. This increase was due to
acquired retailers transitioning to Champion-produced homes as well as inventory
requirements at new sales centers. The eliminations were lower in 1999 due to
fewer acquisitions and inventory reductions at Company-owned stores during the
year.

<PAGE>   29

Manufacturing revenues increased due to the Homes of Merit acquisition, with
wholesale homes and floors sold rising 2.0% and 4.3%, respectively, from 1998
levels. Excluding Homes of Merit, 1999 net sales and wholesale homes and floors
sold declined 2.5%, 3.6% and 2.4%, respectively, from the previous year.
Multi-section homes sold rose 7.8% and single-section homes sold decreased 7.7%
from 1998 levels. The increased average wholesale selling price per home
resulted primarily from the higher multi-section mix. Manufacturing sales to
Company-operated sales centers accounted for 14% of total homes sold in 1999, up
from 11% in 1998.

Champion's U.S. wholesale shipments of HUD code homes increased 1.4% from a year
earlier, which resulted in a U.S. market share improvement to 19.9% in 1999 from
18.3% in 1998. Excluding Homes of Merit, HUD code homes sold by the Company
decreased 4.1%. According to data reported by NCSBCS, in 1999 U.S. industry
wholesale shipments of HUD code homes and floors decreased 6.5% and 4.3%,
respectively, from 1998 levels.

Manufacturing EBITA, before the loss from the retailer bankruptcy, declined $33
million in 1999 as compared to 1998. In 1999 higher manufacturing gross profit
of approximately $10 million from increased sales of $83 million was offset by
operating inefficiencies resulting from low volume, approximately $7 million of
costs to close and consolidate eight facilities, and market conditions,
particularly in the second half of the year. Margins in 1998 benefited from
production efficiencies resulting from high levels of unfilled orders and
product mix and pricing.

Retail sales substantially increased in 1999 due to a full year of operations
from the 1998 and 1999 acquisitions and expansions, partially offset by lower
sales volume per store. The average number of retail locations operated by the
Company increased in 1999 to 276 from 175 in 1998. The number of sales centers
at the end of 1999 totaled 280, for a net increase of 34 stores during the year.

Retail EBITA in 1999 was $4 million higher than in 1998. Increased gross margin
dollars from $225 million of higher retail sales were offset by higher SG&A
costs from a greater number of sales centers. Also affecting margins in 1999
were competitive pricing in key markets and lower sales volume per store.
Margins in 1998 benefited from higher sales volume per store. Startup and
expansion costs also affected margins in both years.

LIQUIDITY AND CAPITAL RESOURCES

Cash balances totaled $50 million at December 30, 2000, up from $13 million at
January 1, 2000. During the year $115 million of cash was generated from
operations and $55 million was used to reduce debt. Proceeds from the sale of
property, plant and equipment were approximately $4 million. Cash totaling $10
million was used for acquisition-related payments and $15 million for capital
improvements.

In 2000 $0.9 million was used to repurchase 117,000 shares of Company common
stock, pursuant to a Board of Directors' authorization in February 1999 for up
to 3.0 million shares. Before the program was suspended in June 2000, 1.9
million shares had been repurchased.

Year end 2000 trade accounts receivable decreased due to the reduction in
December 2000 sales from December 1999 levels. Year end inventories and floor
plan payable decreased due to the liquidation of homes repurchased in 1999 upon
the independent retailer bankruptcy, 20 fewer sales centers at the end of 2000
as compared to 1999 and efforts to reduce inventories throughout our retail
organization in response to industry conditions. Deferred taxes and other assets
substantially increased due to the expected future tax benefits related to the
goodwill impairment charges.

The Company has a revolving credit agreement, maturing in May 2003, with a group
of banks. In June 2000 our bank credit facility was amended to reduce the
facility to $100 million from $200 million and to provide more flexible terms.
As of September 30, 2000, the Company received a waiver of certain of the
facility's financial performance covenants for the period October 1, 2000
through November 15, 2000. On November 20,


<PAGE>   30

2000, the facility was amended to a secured line of credit and to provide more
flexible financial performance covenants. The November amendment temporarily
reduced the facility size to $45 million and limited advances under the facility
to a borrowing base calculated based on qualifying accounts receivable and
inventories, as defined in the amendment. On February 13, 2001, the credit
facility was amended to provide more flexible financial performance covenants.
For the four months from October 2000 to January 2001, the calculated borrowing
base averaged $70 million and the February 2001 calculated borrowing base was
$63 million. On March 1, 2001, the facility automatically increased to $75
million. The facility may be further increased to $90 million upon a majority
vote of the bank group. The agreement allows for letters of credit up to $35
million. At the end of February 2001, there were $33 million of letters of
credit and $15 million of borrowings outstanding under the credit facility. As
of December 30, 2000, and through February 2001, we were in compliance with the
agreement's financial performance covenants. Based on our forecasts and
projections, we believe that we will be in compliance with the financial
performance covenants throughout 2001.

On May 3, 1999 the Company completed an offering of $200 million of unsecured
Senior Notes due May 15, 2009 with interest payable semi-annually at an annual
rate of 7.625%. The net proceeds from the offering totaling $197.3 million were
primarily used to reduce bank debt that resulted from acquisitions.

Champion plans to spend less than $15 million in 2001 on capital expenditures
for facility maintenance. Borrowings may be required during 2001 for capital
improvements and to meet seasonal working capital needs. Consistent with its
plan to improve shareholder value through investments in its operating
businesses, the Company does not plan to pay cash dividends in the near term.

During the past year some of the manufactured housing industry floor plan
lenders have elected to exit or reduce their participation in the market.
Currently, there are five primary national floor plan lenders, which finance a
substantial portion of floor plan borrowings of Company-owned and independent
retailers. We finance most of the new home inventory at our Company-owned stores
through borrowings from floor plan lenders, of which Conseco Finance (Conseco)
is the primary lender. In July 2000, Conseco made a verbal request of the
Company to reduce its floor plan borrowings with Conseco in order to meet
certain of its concentration requirements. Our total floor plan borrowings with
Conseco at that time were $121 million. In March 2001, we received a request
from Conseco to reduce our floor plan borrowings with them to $60 million by
June 30, 2001 and $40 million by September 30, 2001. As of March 23, 2001, our
total floor plan borrowings with Conseco were $81 million. Additional reductions
of our retail inventories and borrowings from Conseco will occur upon the
liquidation of inventory at the 30 retail sales centers that we closed during
the first quarter of 2001, additional planned inventory reductions and a $7
million transfer of floor plan financing to another lender.

As a result of efforts to diversify our floor plan borrowings, in November 2000
and February 2001, we obtained floor plan lines of credit with two financial
institutions totaling $25 million. We continue to review the most effective
means to finance our retail inventories from a variety of sources.

The Company believes that its cash balances, cash flows from operations,
availability under its bank line of credit facility and floor plan arrangements
will be adequate to meet its anticipated financing needs, operating requirements
and capital expenditures for the next twelve months. We are seeking alternative
finance sources in order to further reduce our floor plan borrowings with
Conseco. The Company may also seek additional sources of capital. However, there
can be no assurance that we will be able to secure additional floor plan
borrowings or additional capital. In the event the Company is required to
further reduce its total floor plan borrowings or the availability under its
credit facility is insufficient to finance its operations and alternative
financing or capital is unavailable, there could be an adverse impact on our
liquidity.




<PAGE>   31

IMPACT OF INFLATION

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

IMPACT OF RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." SAB No.
101 draws on existing accounting rules and provides specific guidance on how
those accounting rules should be applied to revenue recognition. Our revenue
recognition policies were in compliance with SAB No. 101; therefore, adoption of
SAB No. 101 in the fourth quarter of 2000 had no effect on our reported results
of operations, financial position or cash flows.

The Financial Accounting Standards Board (FASB) Emerging Issues Task Force
(EITF) No. 00-10 "Accounting for Shipping and Handling Fees and Costs" was
adopted in the fourth quarter of 2000. The adoption of EITF 00-10 resulted in
the reclassification of manufacturing segment delivery revenue to net sales from
cost of sales. Prior year net sales and cost of sales amounts have been
reclassified accordingly. Delivery costs are and have been included in cost of
sales. The net amount of delivery revenue reclassified to net sales was $56
million, $76 million and $79 million in 2000, 1999 and 1998, respectively.

In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
was subsequently amended by SFAS Nos. 137 and 138. SFAS 133, as amended, did not
have a material impact on our results of operations, financial position or cash
flows, and did not require the recording of a transition adjustment upon
adoption in January 2001.


<PAGE>   32



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company's floor plan borrowings at December 30, 2000 were $114
million and are subject to interest primarily based on the U.S. prime interest
rate. A 100 basis point increase in the prime rate would result in additional
annual interest cost of $1.1 million, assuming average floor plan borrowings of
$114 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The financial statements and schedules filed herewith are set forth on
the Index to Financial Statements and Financial Statement Schedules on page F-1
of the separate financial section of this Report and are incorporated herein by
reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

         None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

         The information set forth in the first part of the section entitled
"Election of Directors" in the Company's Proxy Statement for the Annual
Shareholders' Meeting to be held May 1, 2001 (the "Proxy Statement") is
incorporated herein by reference.

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

ITEM 11. EXECUTIVE COMPENSATION.

         The information set forth under the section entitled "Executive
Compensation" in the Company's Proxy Statement is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information set forth under the captions "Principal Shareholders"
and "Security Ownership of Management" in the section entitled "Additional
Information" in the Company's Proxy Statement is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information set forth under the caption "Other Information
Regarding Management" in the section entitled "Additional Information" in the
Company's Proxy Statement is incorporated herein by reference.

<PAGE>   33
PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

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

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

Exhibit No.                   Description

      3.1       Restated Articles of Incorporation of the Company, filed with
                the Company's Annual Report on Form 10-K for the fiscal year
                ended December 30, 1995 and incorporated herein by reference.

      3.2       Amendment to Restated Articles of Incorporation of the Company,
                filed with the Company's Quarterly Report on Form 10-Q for the
                quarter ended June 28, 1997 and incorporated herein by
                reference.

      3.3       Article III of the Company's Restated Articles of Incorporation
                (increasing number of authorized shares of capital stock),
                included in the Company's Amendment to Restated Articles of
                Incorporation, filed as Exhibit 3.1 to the Company's Quarterly
                Report on Form 10-Q for the quarter ended June 28, 1997 and
                incorporated herein by reference.

      3.4       Certificate of Correction to Articles of Incorporation of the
                Company, filed as Exhibit 3.3 to the Company's Annual Report on
                Form 10-K for the fiscal year ended January 2, 1999 and
                incorporated herein by reference.

      3.5       Bylaws of the Company as amended through February 22, 1999,
                filed as Exhibit 3.4 to the Company's Annual Report on Form 10-K
                for the fiscal year ended January 2, 1999 and incorporated
                herein by reference.

      4.1       Indenture dated as of May 3, 1999 between the Company, the
                Subsidiary Guarantors and Bank One Trust Company, NA (formerly
                The First National Bank of Chicago), as Trustee, filed as
                Exhibit 4.1 to the Company's Form S-4 Registration Statement No.
                333-84227 dated July 30, 1999 and incorporated herein by
                reference.

      4.2       Supplemental Indenture dated as of July 30, 1999 between the
                Company, the Subsidiary Guarantors and Bank One Trust Company,
                NA (formerly The First National Bank of Chicago), as Trustee,
                filed as Exhibit 4.2 to the Company's Form S-4 Registration
                Statement No. 333-84227 dated July 30, 1999 and incorporated
                herein by reference.

      4.3       Supplemental Indenture dated as of October 4, 1999 between the
                Company, the Subsidiary Guarantors and Bank One Trust Company,
                NA, as Trustee, filed as Exhibit 4.3 to the Company's Annual
                Report on Form 10-K for the fiscal year ended January 1, 2000
                and incorporated herein by reference.

      4.4       Supplemental Indenture dated as of February 10, 2000 between the
                Company, the Subsidiary Guarantors and Bank One Trust Company,
                NA, as Trustee, filed as Exhibit 4.4 to the Company's Annual
                Report on Form 10-K for the fiscal year ended January 1, 2000
                and incorporated herein by reference.


<PAGE>   34


      4.5       Registration Rights Agreement dated as of April 28, 1999 between
                the Company; Credit Suisse First Boston Corporation; Donaldson,
                Lufkin & Jenrette Securities Corporation; and Merrill Lynch,
                Pierce, Fenner & Smith Incorporated, as Initial Purchasers,
                filed as Exhibit 4.3 to the Company's Form S-4 Registration
                Statement No. 333-84227 dated July 30, 1999 and incorporated
                herein by reference.

      4.6       Form of Rights Certificate, filed as Exhibit 1 to the Company's
                Registration Statement on Form 8-A dated January 12, 1996 and
                incorporated herein by reference.

      4.7       Rights Agreement by and between the Company and Harris Trust and
                Savings Bank, filed as Exhibit 2 to the Company's Registration
                Statement on Form 8-A dated January 12, 1996 and incorporated
                herein by reference.

     10.1       Lease Agreement dated November 21, 1991 between the Company and
                University Development Company relating to the premises located
                at 2701 Cambridge Court (formerly University Drive), Auburn
                Hills, Michigan, filed as Exhibit 10.12 to the Company's Annual
                Report on Form 10-K for the fiscal year ended February 28, 1992
                and incorporated herein by reference.

     10.2       First Amendment dated December 29, 1997 to the Lease Agreement
                dated November 21, 1991 between the Company and University
                Development Company relating to the premises located at 2701
                Cambridge Court (formerly University Drive), Auburn Hills,
                Michigan, filed as Exhibit 10.2 to the Company's Annual Report
                on Form 10-K for the fiscal year ended January 3, 1998 and
                incorporated herein by reference.

     10.3       Credit Agreement by and among the Company; the guarantors party;
                the banks party; PNC Bank, National Association, as
                Administrative Agent; Bank One Capital Markets, Inc., as
                Syndication Agent; Comerica Bank, as Documentation Agent; and
                National City Bank, Keybank National Association, Bank of
                America, N.A. and Wachovia Bank, N.A., as Co-Agents dated as of
                May 5, 1998, as amended by Amendment No. 1 to Credit Agreement,
                dated as of December 18, 1998; as amended by Amendment No. 2 to
                Credit Agreement, dated as of March 31, 1999; as amended by
                Amendment No. 3 to Credit Agreement, dated as of July 1, 1999;
                as amended by Amendment No. 4 to Credit Agreement, dated as of
                February 14, 2000; as amended by Amendment No. 5 to Credit
                Agreement, dated as of June 15, 2000; and as amended by
                Amendment No. 6 to Credit Agreement dated as of November 20,
                2000.

     10.4       Seventh Amendment dated February 13, 2001 to the Credit
                Agreement dated May 5, 1998 by and among the Company; the
                guarantors party; the banks party; PNC Bank, National
                Association, as Agent; Bank One, Michigan, as Syndication Agent;
                Comerica Bank, as Documentation Agent; and National City Bank,
                Harris Trust and Savings Bank, Keybank, National Association,
                Bank of America, N.A., and Wachovia Bank, N.A., as Co-Agents.

     10.5       *Champion Enterprises, Inc. 1993 Management Stock Option Plan,
                as amended and restated as of October 27, 1998, filed as Exhibit
                10.6 to the Company's Annual Report on Form 10-K for the fiscal
                year ended January 2, 1999 and incorporated herein by reference.

     10.6       *Champion Enterprises, Inc. 1995 Stock Option and Incentive
                Plan, filed as Exhibit 10.1 to the Company's Registration
                Statement on Form S-8 dated May 1, 1995 and incorporated herein
                by reference.

     10.7       *First Amendment to the Champion Enterprises, Inc. 1995 Stock
                Option and Incentive Plan, filed as Exhibit 10.12 to the
                Company's Annual Report on Form 10-K for the fiscal year ended
                December 30, 1995 and incorporated herein by reference.


<PAGE>   35

      10.8      *Second Amendment dated April 28, 1998 to the Champion
                Enterprises, Inc. 1995 Stock Option and Incentive Plan, filed as
                Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
                fiscal year ended January 2, 1999 and incorporated herein by
                reference.

      10.9      *Third Amendment dated October 27, 1998 to the Champion
                Enterprises, Inc. 1995 Stock Option and Incentive Plan, filed as
                Exhibit 10.10 to the Company's Annual Report on Form 10-K for
                the fiscal year ended January 2, 1999 and incorporated herein by
                reference.

      10.10     *Fourth Amendment dated April 27, 1999 to the Champion
                Enterprises, Inc. 1995 Stock Option and Incentive Plan, filed as
                Exhibit 10.2 to the Company's Report on Form 10-Q for the
                quarter ended April 3, 1999 and incorporated herein by
                reference.

      10.11     *Management Stock Purchase Plan, filed as Exhibit 4.1 to the
                Company's Form S-8 dated September 17, 1998 and incorporated
                herein by reference.

      10.12     *Deferred Compensation Plan, filed as Exhibit 4.2 to the
                Company's Form S-8 dated September 17, 1998 and incorporated
                herein by reference.

      10.13     *Corporate Officer Stock Purchase Plan, filed as Exhibit 4.1 to
                the Company's Form S-8 dated February 26, 1999 and incorporated
                herein by reference.

      10.14     *Consent in Lieu of a Special Meeting of the Deferred
                Compensation Committee dated January 1, 1999 to amend the
                Corporate Officer Stock Purchase Plan, filed as Exhibit 10.33 to
                the Company's Annual Report on Form 10-K for the fiscal year
                ended January 2, 1999 and incorporated herein by reference.

      10.15     *2000 Stock Compensation Plan for Nonemployee Directors, filed
                as Exhibit 4.1 to the Company's Registration Statement on Form
                S-8 dated December 28, 2000 and incorporated herein by
                reference.

      10.16     *First Amendment to the 2000 Stock Compensation Plan for
                Nonemployee Directors, filed as Exhibit 4.2 to the Company's
                Registration Statement on Form S-8 dated December 28, 2000 and
                incorporated herein by reference.

      10.17     *Salesperson Retention Plan, filed as Exhibit 99(a) to the
                Company's Registration Statement on Form S-3 dated January 19,
                2001 and incorporated herein by reference.

      10.18     *Letter Agreement dated April 27, 1990 between the Company and
                Walter R. Young, filed as Exhibit 10.3 to the Company's Annual
                Report on Form 10-K for the fiscal year ended March 2, 1990 and
                incorporated herein by reference.

      10.19     *Amendment dated August 31, 1995 to the Letter Agreement dated
                April 27, 1990 between the Company and Walter R. Young, filed as
                Exhibit 10.15 to the Company's Annual Report on Form 10-K for
                the fiscal year ended December 30, 1995 and incorporated herein
                by reference.

      10.20     *Letter Agreement dated October 17, 2000 between the Company and
                Anthony S. Cleberg.

      10.21     *Change in Control Severance Agreement dated November 30, 2000
                between the Company and Anthony S. Cleberg.

      10.22     *Letter Agreement dated May 1, 1997 between the Company and
                Philip

<PAGE>   36

                C. Surles, filed as Exhibit 10.31 to the Company's Annual Report
                on Form 10-K for the fiscal year ended January 3, 1998 and
                incorporated herein by reference.

      10.23     *Change in Control Severance Agreement dated June 13, 1997
                between the Company and Philip C. Surles, filed as Exhibit 10.32
                to the Company's Annual Report on Form 10-K for the fiscal year
                ended January 3, 1998 and incorporated herein by reference.

      10.24     *Confidentiality and Noncompetition Agreement dated June 13,
                1997 between the Company and Philip C. Surles, filed as Exhibit
                10.33 to the Company's Annual Report on Form 10-K for the fiscal
                year ended January 3, 1998 and incorporated herein by reference.

      10.25     *Amendment to Change in Control Severance Agreement dated
                February 18, 1999 between the Company and Philip C. Surles,
                filed as Exhibit 10.20 to the Company's Annual Report on Form
                10-K for the fiscal year ended January 2, 1999 and incorporated
                herein by reference.

      10.26     *Employment and Noncompetition Agreement dated January 8, 1998
                between the Company and M. Mark Cole, filed as Exhibit 10.26 to
                the Company's Annual Report on Form 10-K for the fiscal year
                ended January 2, 1999 and incorporated herein by reference.

      10.27     *Letter Agreement dated September 11, 1998 between the Company
                and M. Mark Cole, filed as Exhibit 10.28 to the Company's Annual
                Report on Form 10-K for the fiscal year ended January 2, 1999
                and incorporated herein by reference.

      10.28     Lease dated June 30, 1997 between Southern Showcase Housing,
                Inc., a subsidiary of the Company, and MMG Investments LLC,
                filed as Exhibit 10.35 to the Company's Annual Report on Form
                10-K for the fiscal year ended January 1, 2000 and incorporated
                herein by reference.

      10.29     Amendment dated July 1, 1998 to Lease dated June 30, 1997
                between Southern Showcase Housing, Inc. and MMG Investments LLC,
                filed as Exhibit 10.36 to the Company's Annual Report on Form
                10-K for the fiscal year ended January 1, 2000 and incorporated
                herein by reference.

      10.30     *Letter Agreement dated September 28, 1998 between the Company
                and Donald D. Williams, filed as Exhibit 10.37 to the Company's
                Annual Report on Form 10-K for the fiscal year ended January 1,
                2000 and incorporated herein by reference.

      10.31     *Letter Agreement dated February 12, 1997 between the Company
                and John J. Collins, Jr., filed as Exhibit 10.25 to the
                Company's Annual Report on Form 10-K for the fiscal year ended
                December 28, 1996 and incorporated herein by reference.

      10.32     *Letter Agreement dated April 7, 2000 between the Company and
                John J. Collins, Jr.

      10.33     *Change in Control Severance Agreement dated March 3, 1997
                between the Company and John J. Collins, Jr., filed as Exhibit
                10.28 to the Company's Annual Report on Form 10-K for the fiscal
                year ended January 3, 1998 and incorporated herein by reference.

      10.34     *Amendment to Change in Control Severance Agreement dated
                February 18, 1999 between the Company and John J. Collins, Jr.,
                filed as Exhibit 10.16 to the Company's Annual Report on Form
                10-K for the fiscal year ended January 2, 1999 and incorporation
                herein by reference.

      10.35     *Agreement and General Release dated September 5, 2000 between
                the Company and Joseph H. Stegmayer.


<PAGE>   37



      10.36     *Consulting Agreement dated September 5, 2000 between the
                Company and Joseph H. Stegmayer.

      11        Statement Regarding Computation of Per Share Earnings.

      21.1      Subsidiaries of the Company.

      23.1      Consent of PricewaterhouseCoopers LLP.

      99.1      Proxy Statement for the Company's 2001 Annual Meeting of
                Shareholders, filed by the Company pursuant to Regulation 14A
                and incorporated herein by reference.

         (b) On November 21, 2000 and December 14, 2000 the Company filed
current reports on Form 8-K. Subsequent to year end on March 20, 2001, the
Company filed a current report on Form 8-K.


<PAGE>   38



                                   SIGNATURES

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

                                     CHAMPION ENTERPRISES, INC.

                                     By: /s/ANTHONY S. CLEBERG
                                         ---------------------
                                         Anthony S. Cleberg
Dated:  March 28, 2001                   Executive Vice President and
                                         Chief Financial Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
   Signature                            Title                                 Date
   ---------                            -----                                 ----
<S>                          <C>                                        <C>
/s/WALTER R. YOUNG           Chairman of the Board of Directors,        March 28, 2001
-----------------------      President and Chief Executive Officer
Walter R. Young              (Principal Executive Officer)



/s/ANTHONY S. CLEBERG        Executive Vice President and               March 28, 2001
-----------------------      Chief Financial Officer
Anthony S. Cleberg           (Principal Financial Officer)



/s/RICHARD HEVELHORST        Vice President and Controller              March 28, 2001
-----------------------      (Principal Accounting Officer)
Richard Hevelhorst


/s/ROBERT W. ANESTIS         Director                                   March 28, 2001
-----------------------
Robert W. Anestis


/s/SELWYN ISAKOW             Director                                   March 28, 2001
-----------------------
Selwyn Isakow


/s/BRIAN D. JELLISON         Director                                   March 28, 2001
-----------------------
Brian D. Jellison


/s/ELLEN R. LEVINE           Director                                   March 28, 2001
-----------------------
Ellen R. Levine


/s/GEORGE R. MRKONIC         Director                                   March 28, 2001
-----------------------
George R. Mrkonic


/s/CARL L. VALDISERRI        Director                                   March 28, 2001
-----------------------
Carl L. Valdiserri
</TABLE>


<PAGE>   39




                  CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS
                                       AND
                          FINANCIAL STATEMENT SCHEDULES



<TABLE>
<CAPTION>
                           Description                                                         Page
                           -----------                                                         ----
<S>                                                                                            <C>
         Report of Independent Accountants                                                     F-2

         Consolidated Statements of Operations for the Periods
              Ended  December 30, 2000, January 1, 2000, and
              January 2, 1999                                                                  F-3

         Consolidated Balance Sheets as of December 30, 2000
              and January 1, 2000                                                              F-4

         Consolidated Statements of Cash Flows for the
              Periods Ended December 30, 2000, January 1, 2000,
              and January 2, 1999                                                              F-5

         Consolidated Statements of Shareholders' Equity for the Periods Ended
              December 30, 2000, January 1, 2000, and January 2, 1999                          F-6

         Notes to Consolidated Financial Statements                                            F-7

</TABLE>


         All financial statement schedules are omitted either because they are
not applicable or the required information is immaterial or is shown in the
Notes to Consolidated Financial Statements.
















                                       F-1

<PAGE>   40



                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Champion Enterprises, Inc.

In our opinion, the accompanying consolidated financial statements listed in the
index appearing under item 14(a) on page F-1 present fairly, in all material
respects, the financial position of Champion Enterprises, Inc. and its
subsidiaries at December 30, 2000 and January 1, 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 30, 2000 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


/s/PricewaterhouseCoopers LLP

Detroit, Michigan
February 13, 2001

<PAGE>   41


CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                    Year Ended
                                    -----------------------------------------
                                     December 30,   January 1,     January 2,
                                         2000          2000           1999
                                    -----------------------------------------
<S>                                 <C>            <C>            <C>
NET SALES                           $ 1,921,734    $ 2,564,638    $ 2,332,976

Cost of sales                         1,619,903      2,138,368      1,931,397
Cost of sales - loss from
 independent retailer bankruptcy             --         26,500             --
                                    -----------    -----------    -----------

GROSS MARGIN                            301,831        399,770        401,579

Selling, general and
administrative expenses                 305,286        292,188        231,295
Goodwill impairment charges             189,700             --             --
                                    -----------    -----------    -----------

OPERATING INCOME (LOSS)                (193,155)       107,582        170,284

Interest income                           2,647          2,830          2,347
Interest expense                        (29,824)       (28,370)       (15,833)
                                    -----------    -----------    -----------
INCOME (LOSS) BEFORE
 INCOME TAXES                          (220,332)        82,042        156,798

Income tax expense (benefits)           (73,000)        32,000         62,600
                                    -----------    -----------    -----------

NET INCOME (LOSS)                   ($  147,332)   $    50,042    $    94,198
                                    ===========    ===========    ===========

BASIC EARNINGS (LOSS) PER SHARE          ($3.12)   $      1.04    $      1.97
                                    ===========    ===========    ===========

DILUTED EARNINGS (LOSS) PER SHARE        ($3.12)   $      1.02    $      1.91
                                    ===========    ===========    ===========
</TABLE>


See accompanying Notes to Consolidated Financial Statements.


<PAGE>   42


CHAMPION ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

<TABLE>
<CAPTION>
                                          December 30,    January 1,
                                             2000            2000
                                          -----------    -----------
<S>                                       <C>            <C>
ASSETS

CURRENT ASSETS
Cash and cash equivalents                 $    50,143    $    12,847
Accounts receivable, trade                     31,132         66,636
Inventories                                   217,765        301,885
Deferred taxes and other
 current assets                                77,493         72,344
                                          -----------    -----------
Total current assets                          376,533        453,712
                                          -----------    -----------

PROPERTY, PLANT AND EQUIPMENT
Land and improvements                          38,191         36,816
Buildings and improvements                    180,860        181,492
Machinery and equipment                       101,822         99,461
                                          -----------    -----------
                                              320,873        317,769
Less-accumulated depreciation                 113,596         94,871
                                          -----------    -----------
                                              207,277        222,898
                                          -----------    -----------

GOODWILL                                      320,656        511,588
Less-accumulated amortization                  46,686         37,716
                                          -----------    -----------
                                              273,970        473,872
                                          -----------    -----------


DEFERRED TAXES AND OTHER ASSETS                84,276         32,458
                                          -----------    -----------
                                          $   942,056    $ 1,182,940
                                          ===========    ===========


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Floor plan payable                        $   114,198    $   170,553
Accounts payable                               43,103         42,160
Accrued warranty obligations                   49,304         55,476
Accrued volume rebates                         45,552         54,237
Accrued compensation and payroll taxes         19,034         26,848
Other current liabilities                      71,662         79,902
                                          -----------    -----------
Total current liabilities                     342,853        429,176
                                          -----------    -----------

LONG-TERM LIABILITIES
Long-term debt                                225,634        224,357
Deferred portion of purchase price             39,157         45,200
</TABLE>


<PAGE>   43


<TABLE>
<S>                                       <C>            <C>
Other long-term liabilities                    37,603         39,945
                                          -----------    -----------
                                              302,394        309,502
                                          -----------    -----------

CONTINGENT LIABILITIES (NOTE 9)

SHAREHOLDERS' EQUITY
Preferred stock, no par value,
  5,000 authorized, none issued                    --             --
Common stock, $1 par value,
  120,000 authorized,
  2000 - 47,357 issued and outstanding;
  1999 - 47,304 issued and outstanding;        47,357         47,304
Capital in excess of par value                 33,116         33,160
Retained earnings                             217,650        364,982
Accumulated other comprehensive income         (1,314)        (1,184)
                                          -----------    -----------
  Total shareholders' equity                  296,809        444,262
                                          -----------    -----------
                                          $   942,056    $ 1,182,940
                                          ===========    ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


<PAGE>   44


CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
                                                           Year Ended
                                              ------------------------------------
                                              December 30,  January 1,  January 2,
                                                 2000          2000        1999
                                              ----------    ----------  ----------
<S>                                            <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                              ($147,332)   $  50,042    $  94,198
                                               ---------    ---------    ---------
Adjustments to reconcile net income (loss)
 to net cash provided by
 continuing operating activities
  Depreciation and amortization                   40,306       37,890       26,911
  Goodwill impairment charges                    189,700           --           --
  Certain other asset impairment charges          10,500           --           --
  Deferred income taxes                          (43,700)      (9,900)        (400)
  Increase/decrease, net of acquisitions
    Accounts receivable                           35,504       (1,039)       1,312
    Inventories                                   82,428       18,386      (51,244)
    Accounts payable                                 943       (8,203)      14,471
    Accrued liabilities                          (22,003)      (1,804)      26,212
    Independent retailer bankruptcy              (12,177)      27,763           --
    Other, net                                   (19,457)     (13,199)      (5,671)
                                               ---------    ---------    ---------
      Total adjustments                          262,044       49,894       11,591
                                               ---------    ---------    ---------
Net cash provided by continuing
  operating activities                           114,712       99,936      105,789
                                               ---------    ---------    ---------

CASH FLOWS FROM DISCONTINUED OPERATIONS
Proceeds on disposal                                  --           --        9,710
Increase in net assets                                --           --         (459)
                                               ---------    ---------    ---------
Net cash provided by discontinued operations          --           --        9,251
                                               ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions                                     (10,165)     (79,131)    (260,183)
Additions to property,
  plant and equipment                            (15,035)     (50,390)     (49,120)
Investments in and advances to
  unconsolidated subsidiaries                       (659)     (10,776)          --
Proceeds on the disposal of property,
  plant and equipment                              3,745          996           --
                                               ---------    ---------    ---------
Net cash used for investing activities           (22,114)    (139,301)    (309,303)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in
  floor plan payable, net                        (56,355)     (44,953)      29,555
Increase (decrease) in
  other long-term debt                             1,584       12,240       (1,884)
Common stock repurchased                            (863)     (22,520)          --
Common stock issued, net                             332        4,433        7,040
</TABLE>



<PAGE>   45



<TABLE>
<S>                                            <C>          <C>          <C>
Proceeds from senior notes                            --      197,300           --
Increase (decrease) in
  long-term bank debt, net                            --     (118,000)     118,000
Tax benefit of stock options exercised                --        1,000        5,100
Deferred financing costs                              --       (1,116)          --
                                               ---------    ---------    ---------
Net cash provided by (used for)
  financing activities                           (55,302)      28,384      157,811
                                               ---------    ---------    ---------
Net increase (decrease) in
  cash and cash equivalents                       37,296      (10,981)     (36,452)
Cash and cash equivalents
  at beginning of period                          12,847       23,828       60,280
                                               ---------    ---------    ---------

Cash and cash equivalents
  at end of period                             $  50,143    $  12,847    $  23,828
                                               =========    =========    =========

ADDITIONAL CASH FLOW INFORMATION
Cash paid for interest                         $  30,151    $  27,617    $  14,919
Cash paid for income taxes                     $   4,977    $  49,692    $  53,259

CASH FLOWS FROM ACQUISITIONS
Guaranteed purchase price                      $     165    $  71,600    $ 285,675
Less:  Unpaid portion of
  guaranteed purchase price                           --           --      (17,577)
Less:  Cash acquired                                  --      (18,999)     (15,193)
Plus:  Payment of deferred and
  contingent portions of purchase price           10,000       26,079        5,100
Plus:  Acquisition costs                              --          451        2,178
                                               ---------    ---------    ---------
                                               $  10,165    $  79,131    $ 260,183
                                               =========    =========    =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


<PAGE>   46


CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)
<TABLE>
<CAPTION>
                                                                                     Accumulated
                                                         Capital in                     other                     Total
                                      Common stock       excess of     Retained     comprehensive             comprehensive
                                   Shares      Amount    par value     earnings         income       Total       income
                                   ------      ------   -----------    --------     -------------    -----    -------------

<S>                                 <C>       <C>          <C>          <C>          <C>          <C>          <C>
Balance January 3, 1998             46,600    $  46,600    $  14,338    $ 220,742    $  (1,264)   $ 280,416

Net income                              --           --           --       94,198           --       94,198    $  94,198
Stock option and benefit plans       1,208        1,208       12,579           --           --       13,787
Tax benefit of stock options            --           --        5,100           --           --        5,100
Issuance for acquisition               462          462       11,632           --           --       12,094
Foreign currency
    translation adjustments             --           --           --           --         (349)        (349)        (349)
                                 ---------    ---------    ---------    ---------    ---------    ---------    ---------
Balance January 2, 1999             48,270       48,270       43,649      314,940       (1,613)     405,246    $  93,849
                                                                                                               =========

Net income                              --           --           --       50,042           --       50,042    $  50,042
Stock option and benefit plans         814          814        9,251           --           --       10,065
Common stock repurchases            (1,780)      (1,780)     (20,740)          --           --      (22,520)
Tax benefit of stock options            --           --        1,000           --           --        1,000
Foreign currency
    translation adjustments             --           --           --           --          429          429          429
                                 ---------    ---------    ---------    ---------    ---------    ---------    ---------
Balance January 1, 2000             47,304       47,304       33,160      364,982       (1,184)     444,262    $  50,471
                                                                                                               =========

Net loss                                --           --           --     (147,332)          --     (147,332)   $(147,332)
Stock option and benefit plans         170          170          702           --           --          872
Common stock repurchases              (117)        (117)        (746)          --           --         (863)
Foreign currency
    translation adjustments             --           --           --           --         (130)        (130)        (130)
                                 ---------    ---------    ---------    ---------    ---------    ---------    ---------
Balance December 30, 2000           47,357    $  47,357    $  33,116    $ 217,650    $  (1,314)   $ 296,809    $(147,462)
                                 =========    =========    =========    =========    =========    =========    =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


<PAGE>   47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Summary of Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of Champion
Enterprises, Inc. and its wholly-owned subsidiaries (the Company). All
significant intercompany transactions have been eliminated. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Certain amounts in the prior years' financial statements
have been reclassified to conform to current year presentation.

BUSINESS

The Company is the industry's leading producer of manufactured housing with
operations and markets located throughout the U.S. and in western Canada. The
Company is also a leading retailer of manufactured housing with sales centers in
28 states.

REVENUE RECOGNITION

For wholesale shipments to independent retailers, sales revenue is recognized
when wholesale floor plan financing or retailer credit approval has been
received, the home is shipped and title is transferred. For wholesale shipments
to independent retailers, the Company has no obligation to install or set up the
home upon retail sale to the consumer-homebuyer. As is customary in the
manufactured housing industry, the majority of the Company's wholesale shipments
to independent retailers are financed by the retailers under floor plan
agreements with financing companies (lenders). In connection with these floor
plan agreements, the Company generally has separate agreements with the lenders
that require the Company, for a period of either 12 or 15 months from invoice
date of the sale of the homes, upon default by the retailer and repossession of
the homes by the lender, to purchase the related floor plan loans or repurchase
the homes from the lender. The repurchase price is equal to the unpaid balance
of the floor plan loans, plus certain administrative costs incurred by the
lender to repossess the homes, less any damage to the homes or any missing parts
or accessories. Estimated losses for repurchase obligations are accrued for
currently. See Note 9.

Wholesale shipments to independent retailers that are subject to repurchase
agreements are not consignment sales or financings because the Company does not
provide financing for sales to independent retailers; retailers do not have the
right to return homes purchased from the Company; retailers are responsible to
the floor plan lenders for interest costs; and, the Company does not refund a
portion of the original net selling price representative of interest cost on the
retailers' floor plan obligations.

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

The Company's revenue recognition policies were in compliance with Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements"
issued by the Securities and Exchange Commission. Therefore adoption of SAB No.
101 by the Company in the fourth quarter of 2000 had no effect on the Company's
reported results of operations, financial position or cash flows.

The Financial Accounting Standards Board (FASB) Emerging Issues Task Force
(EITF) No. 00-10 "Accounting for Shipping and Handling Fees and Costs" was
adopted in the fourth quarter of 2000. The adoption of EITF 00-10 resulted in
the reclassification of manufacturing segment delivery revenue to net sales from
cost of sales. Prior year net sales and cost of sales have been reclassified
accordingly. Delivery costs are and have been included in cost of sales. The net
amount of delivery revenue reclassified to net sales was $56 million, $76
million and $79 million in 2000, 1999 and 1998, respectively.

CASH AND CASH EQUIVALENTS

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

INVENTORIES

Inventories are stated at the lower of cost or market, with cost determined
under the first-in, first-out method for manufacturing operations and the
specific identification method for retail operations.

YEAR END

The Company's fiscal year ends on the Saturday nearest December 31.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment (PP&E) are stated at cost. Depreciation is
provided principally on the straight-line method over the following estimated
useful lives: land improvements - 3 to 15 years; buildings and improvements - 8
to 33 years; and machinery and equipment - 3 to 15 years. Depreciation expense
was $26.6 million, $24.3 million and $17.7 million in 2000, 1999 and 1998,
respectively. The recoverability of PP&E is evaluated whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
recoverable, primarily based on estimated selling price, appraised value or
projected undiscounted cash flows. In 2000 the Company recorded PP&E impairment
charges of $10.5 million. See Note 11.

<PAGE>   48


GOODWILL

Goodwill represents the excess of cost over the fair value of net assets of
businesses acquired and is amortized on the straight-line method over the
expected periods to be benefited, which through 2000, was generally 40 years.
Commencing in 2001, remaining goodwill from retail acquisitions will be
amortized over 20 years. Amortization expense was $13.7 million, $13.6 million,
and $9.2 million in 2000, 1999 and 1998, respectively. The recoverability of
goodwill is evaluated whenever events or changes in circumstances indicate that
the carrying amount of goodwill may not be recoverable, primarily based on each
business' projected undiscounted cash flows. In 2000 the Company recorded
goodwill impairment charges of $189.7 million. See Note 13.

UNCONSOLIDATED SUBSIDIARIES

The Company uses the equity method to account for its minority interests in
certain manufactured housing community development companies. The Company's net
investment in these companies totaled $6.2 million and $9.7 million at December
30, 2000 and January 1, 2000, respectively. Equity method losses from these
companies totaling $2.0 million in 2000 and $1.1 million in 1999 were recorded
in general and administrative expenses.

WARRANTY OBLIGATIONS

The Company's manufacturing operations provide the retail homebuyer with a
twelve-month warranty from the date of retail purchase. Estimated warranty costs
are accrued as cost of sales at the time of sale.

OTHER LONG-TERM LIABILITIES

Other long-term liabilities consist of the non-current portion of self-insurance
and warranty reserves, compensation programs and other reserves.

INCOME TAXES

Deferred tax assets and liabilities are determined based on the differences
between the financial statement amounts and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.

STOCK BASED COMPENSATION PROGRAMS

The Company accounts for its stock based employee compensation programs under
Accounting Principles Board (APB) Opinion No. 25. The additional disclosures and
pro forma information required by SFAS No. 123 are included in Note 10.

ADVERTISING

Advertising costs are expensed as incurred. Total advertising expense was
approximately $24 million, $15 million and $10 million in 2000, 1999 and 1998,
respectively.

NEW ACCOUNTING PRONOUNCEMENT

In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
was subsequently amended by SFAS Nos. 137 and 138. SFAS 133, as amended, did not
have a material impact on the Company's results of operations, financial
position or cash flows, and did not require the recording of a transition
adjustment upon adoption by the Company in January 2001.


NOTE 2 - INVENTORIES

A summary of inventories by component at December 30, 2000 and January 1, 2000
follows:

<TABLE>
<CAPTION>

(In thousands)                                                   2000           1999
                                                                 ----           ----
<S>                                                         <C>            <C>

New and pre-owned manufactured homes                         $  143,892     $   225,730
Raw materials and work-in-process                                44,980          59,062
Other inventory                                                  28,893          17,093
                                                             ----------     -----------
                                                             $  217,765     $   301,885
                                                             ==========     ===========

</TABLE>


NOTE 3 - BUSINESS COMBINATIONS

In 1999 the Company acquired two manufactured housing retail organizations, one
manufactured housing company with six homebuilding facilities and one
manufactured housing communities developer. In 1998 the Company acquired 14
manufactured housing retail organizations and one manufactured homebuilding
facility. The aggregate purchase price for these acquisitions consisted of total
guaranteed purchase price of $365 million and total contingent purchase price of
up to $226 million potentially payable through 2003 based upon post-acquisition
performance of the acquired businesses. In connection with the 1998 acquisitions
the Company assumed $105 million of floor plan liabilities.

The acquisitions were recorded using the purchase method and resulted in the
recording of initial goodwill of $377 million. Recognition of additional
purchase price related to contingent amounts results in the recording of a
corresponding amount of goodwill. During 2000, 1999 and 1998 contingent purchase
price of $6 million, $23 million and $35 million, respectively, was recorded.
During 2000, 1999 and 1998 the Company made net cash payments of $10 million,
$79 million and $253 million, respectively, and in 1998 issued common stock
valued at $12 million, for these and other miscellaneous acquisitions.


<PAGE>   49


The results of operations of acquisitions are included with those of the Company
from the respective acquisition dates. Following are the summarized unaudited
pro forma combined results of operations for the year ended January 2, 1999,
assuming the 1999 and 1998 acquisitions had taken place at the beginning of the
fiscal year. Pro forma results of operations are not presented for the year
ended January 1, 2000 because the significant acquisitions occurred in January
1999, and their full year results of operations are included in the Company's
actual results. The preacquisition results of operations for other 1999
acquisitions are immaterial. The unaudited pro forma results are not necessarily
indicative of future earnings or earnings that would have been reported had the
acquisitions been completed when assumed.

<TABLE>
<CAPTION>

(In millions, except per share amounts)
                                                                1998
                                                                ----
<S>                                                           <C>

Net sales                                                      $2,645
                                                               ======

Income before income taxes                                     $  167
Income taxes                                                       67
                                                               ------
Net income                                                     $  100
                                                               ======

Per diluted share                                              $ 2.03
                                                               ======
</TABLE>


NOTE 4 - EARNINGS PER SHARE

The numerator used in the Company's earnings per share (EPS) calculations is net
income (loss) as reported in the financial statements. The denominators used in
the Company's EPS calculations are as follows. Weighted average shares
outstanding are used in calculating basic EPS. Weighted average shares
outstanding plus the effect of dilutive securities are used in calculating
diluted EPS. The Company's dilutive securities consist of its outstanding stock
options. Dilutive securities were not considered in determining diluted EPS in
2000 because the effect on the net loss would have been anti-dilutive. The
amount of potentially dilutive securities that were excluded from the
determination of diluted EPS in 2000 was 76,000 shares. A reconciliation of the
denominators follows:

<TABLE>
<CAPTION>

(In thousands)
                                                 2000          1999        1998
                                                 ----          ----        ----
<S>                                            <C>           <C>          <C>

Weighted average shares outstanding             47,252        48,227       47,780
Effect of dilutive securities-options                -           662        1,504
                                                ------        ------       ------
Shares for diluted EPS                          47,252        48,889       49,284
                                                ======        ======       ======

</TABLE>

NOTE 5 - DEBT

On May 3, 1999 the Company completed an offering of $200 million of unsecured
Senior Notes due May 15, 2009, with interest payable semi-annually at an annual
rate of 7.625%. The net proceeds from the offering totaling $197.3 million were
primarily used to reduce bank debt.

The Company has a revolving credit agreement, maturing in May 2003, with a group
of banks for a secured line of credit that totaled $45 million as of December
30, 2000. Effective March 1, 2001 the line of credit automatically increased to
$75 million. At the Company's request and upon a majority approval by the bank
group, the line of credit may be further increased to $90 million. The agreement
allows for letters of credit up to $35 million. Availability under the credit
agreement is limited to a borrowing base calculated based on qualifying accounts
receivable and inventories, as defined therein. For the four months from October
2000 to January 2001 the calculated borrowing base averaged $70 million and the
February 2001 calculated borrowing base was $63 million. As of December 30,
2000, the Company had no cash borrowings and $33 million of letters of credit
outstanding under the facility.

Borrowings under the credit agreement bear interest at the bank's prime rate
plus 1%. The Company's letters of credit fees are 3% annually and commitment
fees are 0.625% annually on the unused portion of the facility. The agreement
contains covenants which, among other things, limit additional indebtedness and
capital spending and require maintenance of minimum consolidated cash flows from
operations and net worth, as defined. The amount of unrestricted retained
earnings at December 30, 2000 was $57 million. Under the credit agreement, the
Company has pledged as collateral certain of its current assets, including
certain accounts receivable and inventories, other personal property and
intangible assets, subject to negative pledge limitations in the Company's
Senior Notes. In February 2001, the revolving credit line was amended to provide
more flexible financial performance covenants.

Floor plan liabilities are borrowings from various financial institutions
secured principally by retail inventories of manufactured homes. Interest on
these liabilities generally ranges from the prime rate to the prime rate plus up
to 3%.

<PAGE>   50


NOTE 6 - SHAREHOLDERS' EQUITY

The Company has 120 million shares of common stock authorized. In addition,
there are five million authorized but unissued shares of preferred stock,
without par value, the issuance of which is subject to approval by the Board of
Directors. The Board has the authority to fix the number, rights, preferences
and limitations of the shares of each series, subject to applicable laws and the
provisions of the Articles of Incorporation.

In February 1999 the Board of Directors authorized a common stock repurchase
program for up to 3.0 million shares. Pursuant to this authorization, the
Company repurchased 117,000 shares of its common stock during 2000 and 1.8
million shares in 1999 for $0.9 million and $22.5 million, respectively. In June
2000, the program was suspended.


The Board of Directors has reserved 750,000 preferred shares for issuance in
connection with the 1996 Shareholders Rights Plan. Each outstanding share of the
Company's common stock is entitled to one Preferred Stock Purchase Right. Each
Right entitles shareholders to buy one two-hundredth share of preferred stock
for $140 and becomes exercisable only if a third party acquires or announces an
intention to acquire 20% or more of the Company's common stock. The Rights
expire on February 5, 2006 unless redeemed or exercised.



NOTE 7 - INCOME TAXES

Pretax income (loss) for the fiscal years ended December 30, 2000, January 1,
2000, and January 2, 1999 was taxed under the following jurisdictions:

<TABLE>
<CAPTION>


(In thousands)                                    2000           1999        1998
                                                  ----           ----        ----
<S>                                           <C>            <C>          <C>

Domestic                                       ($219,664)     $ 79,090     $155,716
Foreign                                             (668)        2,952        1,082
                                               ---------      --------     --------
  Total                                        ($220,332)     $ 82,042     $156,798
                                               =========      ========     ========
</TABLE>

The provisions for income taxes (benefits) were as follows:

<TABLE>
<CAPTION>


(In thousands)                                      2000        1999        1998
                                                    ----        ----        ----
<S>                                             <C>          <C>           <C>

Current
  Federal                                        ($24,000)    $36,000      $54,400
  Foreign                                            (100)      1,400          600
  State                                            (5,200)      4,500        8,000
                                                 --------     -------      -------

   Total current                                  (29,300)     41,900       63,000
                                                 --------     -------      -------

Deferred
  Federal                                         (39,400)     (9,100)        (300)
  Foreign                                            (100)        100          (50)
  State                                            (4,200)       (900)         (50)
                                                 --------     -------      -------

   Total deferred                                 (43,700)     (9,900)        (400)
                                                 --------     -------      -------

   Total provision (benefits)                    ($73,000)    $32,000      $62,600
                                                 ========     =======      =======

</TABLE>

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

<TABLE>
<CAPTION>


(Dollars in thousands)                              2000         1999         1998
                                                    ----         ----         ----
<S>                                             <C>           <C>         <C>

Statutory U.S. tax rate                         ($77,100)     $28,700      $54,900
Increase (decrease) in rate resulting from
  State taxes, net of federal benefit             (7,600)       2,900        5,200
  Nondeductible goodwill impairment                9,900           -            -
  Other                                            1,800          400        2,500
                                                --------      -------      -------
Total provision (benefits)                      ($73,000)     $32,000      $62,600
                                                ========      =======      =======
Effective tax rate                                   33%           39%          40%
                                                ========      =======      =======

</TABLE>



<PAGE>   51
Deferred tax assets and liabilities are comprised of the following as of
December 30, 2000 and January 1, 2000:
<TABLE>
<CAPTION>


(In thousands)                                        2000        1999
                                                      ----        ----
<S>                                             <C>            <C>

Assets

  Warranty reserve                              $   20,900     $   24,800
  Insurance accruals                                10,400          9,200
  Goodwill                                          46,700              -
  Employee compensation                              6,000          5,700
  Loss from independent retailer bankruptcy            900          7,800
  Acquisition-related reserves                       3,500          3,500
  Volume rebates                                     5,000          2,300
  Other                                              4,200          9,900
                                                ----------     ----------
  Gross deferred tax assets                         97,600         63,200
                                                ----------     ----------

Liabilities
  Depreciation                                       6,100          2,600
  Canadian withholding                                 500            500
  Safe harbor leases                                   400          1,800
  Goodwill                                               -         11,300
                                                ----------     ----------
Gross deferred tax liabilities                       7,000         16,200
                                                ----------     ----------
Net deferred tax assets                         $   90,600     $   47,000
                                                ==========     ==========

Net deferred tax assets
  Current                                       $   30,600     $   42,400
  Non-current                                       60,000          4,600
                                                ----------     ----------
                                                $   90,600     $   47,000
                                                ==========     ==========

</TABLE>


NOTE 8 - RETIREMENT PLANS

The Company and certain of its subsidiaries sponsor defined contribution
retirement and savings plans covering most employees. Full time employees of
participating companies are eligible to participate in a plan after completing
one year of service. Participating employees may contribute from 1% to 17% of
their compensation to the plans. The Company generally makes matching
contributions of 50% of the first 6% of employees' contributions. Company
contributions vest when made. Amounts expensed under these plans were $3.6
million in 2000, $4.7 million in 1999, and $3.4 million in 1998.



NOTE 9 - CONTINGENT LIABILITIES

The majority of the Company's manufacturing sales to independent retailers are
made pursuant to repurchase agreements. The contingent obligations under these
agreements are spread over many retailers and financial institutions, and are
reduced by the resale value of the homes which may be repurchased. The maximum
repurchase obligation is calculated as the total amount that would be paid upon
the default of all the Company's independent retailers, without reduction for
the resale value of the repurchased homes. The maximum potential repurchase
obligation was approximately $430 million at December 30, 2000, compared to $630
million at January 1, 2000. Potential losses under repurchase obligations are
determined by the difference between the repurchase price and the estimated net
resale value of the homes. Repurchase losses totaled $6.0 million in 2000, $2.9
million in 1999, excluding the losses from the bankruptcy discussed below, and
$0.4 million in 1998.


In 1999 Champion's former largest independent retailer declared bankruptcy. In
the bankruptcy proceedings the Company repurchased 1,850 homes for approximately
$70 million which were financed through floor plan borrowings. Pretax charges of
$33.6 million were recorded in the third quarter of 1999 for the estimated
losses associated with the bankruptcy, consisting of $26.5 million to write down
the repurchased homes to estimated net resale value (included in cost of sales)
and $7.1 million to write off uncollectible receivables (included in selling,
general and administrative expenses). Previously, the $33.6 million of losses
related to the bankruptcy were presented as a separate component of operating
income. In the second quarter of 2000, a loss of $5 million was recorded for an
additional write down of the value of the remaining repurchased homes (in cost
of sales). Substantially all the repurchased homes had been liquidated by the
end of the third quarter of 2000.

At December 30, 2000 the Company was contingently obligated for additional
purchase price of up to $133 million related to its 1999 and 1998 acquisitions.
Management currently believes that payment of $1 million of this contingent
purchase price is reasonably possible.

Under the Company's insurance programs, coverage is obtained for catastrophic
exposures as well as those risks required to be insured by law. The Company
retains a significant portion of risk of certain losses related primarily to
medical benefits, workers' compensation and general, product and auto liability
and has established reserves for its retained portion of these risks.

The Company is subject to various legal proceedings and claims which arise in
the ordinary course of its business. Management believes the ultimate liability
with respect to these actions will not have a material effect on the Company's
financial position or


<PAGE>   52


results of operations.

At December 30, 2000, the Company was contingently obligated for approximately
$40 million under surety bonds and $33 million under letters of credit,
generally to support insurance, industrial revenue bond financing, and licensing
and service bonding requirements.



NOTE 10 - STOCK OPTION AND INCENTIVE PLANS

The Company has various stock option and incentive plans and agreements whereby
stock options are made available to key employees and directors. Stock options
may be granted below, at or above fair market value and generally expire six or
ten years from the grant date. Some options become exercisable immediately and
others over a period of up to five years. Under the Company's 1995 Stock Option
and Incentive Plan, grants may be made of stock options, stock awards, stock
appreciation rights and other stock based incentives. In addition to these
plans, other nonqualified stock options and awards have been granted to
executive officers and key employees and in connection with acquisitions.


Amounts charged to expense in connection with the grants and awards under these
plans and agreements totaled $0.8 million in 2000, $4.6 million in 1999 and $6.8
million in 1998. There were 4,850,000, 2,183,000 and 745,000 shares reserved for
future grants and awards at December 30, 2000, January 1, 2000 and January 2,
1999, respectively.

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

<TABLE>
<CAPTION>

                                                                     Number          Weighted average
                                                                   of shares          exercise price
                                                                 (in thousands)          per share
                                                                 --------------          ---------
                     <S>                                         <C>                 <C>



                     Outstanding at January 3, 1998                   4,117               $ 9.62

                        Granted                                       3,899                20.54
                        Exercised                                    (1,305)                7.75
                        Canceled or forfeited                          (784)               19.13
                                                                     ------               ------

                     Outstanding at January 2, 1999                   5,927                15.95

                        Granted                                       1,956                16.07
                        Exercised                                      (652)                5.57
                        Canceled or forfeited                          (359)               19.57
                                                                     ------               ------

                     Outstanding at January 1, 2000                   6,872                16.78

                        Granted                                       1,923                 4.20
                        Exercised                                        (4)                2.78
                        Canceled or forfeited                        (3,328)               20.47
                                                                     ------               ------

                     OUTSTANDING AT DECEMBER 30, 2000                 5,463               $10.12
                                                                     ======               ======
</TABLE>




The following table summarizes information regarding stock options outstanding
at December 30, 2000:

<TABLE>
<CAPTION>


                                 Options Outstanding                Options Exercisable
                        --------------------------------------  ---------------------------
                                                       Average                      Average
                           Number      Weighted       exercise        Number       exercise
       Range of          of shares      average       price per      of shares     price per
    exercise prices   (in thousands)  life (years)      share      (in thousands)    share
    ---------------   --------------  ------------      -----      --------------    -----
    <S>               <C>             <C>           <C>           <C>             <C>

    $1.25-$7.00             2,282           5.5      $  4.17             606      $   4.03
    $7.01-$14.00            1,633           4.7         8.87           1,545          8.86
    $14.01-$21.00           1,044           6.8        18.45             540         17.98
    $21.01-$28.50             504           7.7        23.85             161         24.35
                        ---------     ---------     --------      ----------     ---------
                            5,463           5.7      $ 10.12           2,852      $  10.44
                        =========     =========     ========      ==========     =========

</TABLE>

As of January 1, 2000, exercisable shares totaled 1,919,000 with a weighted
average exercise price of $12.53 per share. As of

<PAGE>   53


January 2, 1999, exercisable shares totaled 1,547,000 with a weighted average
exercise price of $8.69 per share.

The number of shares issued through stock awards in 2000, 1999 and 1998 was
24,800, 91,119 and 34,400, respectively, with award date fair values per share
of $6.88, $19.07 and $24.63, respectively.

As permitted by SFAS Statement No. 123, the Company has elected to continue to
account for its stock based plans under APB Opinion No. 25. If compensation
costs for the Company's stock based compensation plans had been determined based
on the fair value at the grant dates consistent with the method of SFAS No. 123,
pro forma net income (loss) and earnings (loss) per share would have been the
amounts indicated below:

<TABLE>
<CAPTION>

                                              2000            1999           1998
                                              ----            ----           ----
<S>                                       <C>              <C>             <C>

Net income (loss) (in millions)            ($147.0)          $41.8         $ 90.8
Basic EPS (loss)                             (3.11)           0.87           1.90
Diluted EPS (loss)                          ($3.11)          $0.87         $ 1.84

</TABLE>

In determining the pro forma amounts in accordance with SFAS No. 123, the fair
value of each stock option grant or award is estimated as of the grant date
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 2000, 1999 and 1998:

<TABLE>
<CAPTION>

                                             2000          1999          1998
                                             ----          ----          ----
<S>                                          <C>           <C>           <C>

Risk free interest rate                      5.7%          5.9%          5.2%
Expected life (years)                        3.4           3.3           4.4
Expected volatility                           37%           37%           38%
Expected dividend                             --            --            --

</TABLE>

The weighted average per share fair value of stock options granted during 2000,
1999 and 1998 was $1.52, $6.97 and $9.01, respectively, for options granted at
market value, and $1.93, $11.17 and $13.11, respectively, for options granted at
less than market value. Total stock based compensation costs that would have
been charged to income under SFAS No. 123 were $0.2 million, $18.1 million and
$12.4 million in 2000, 1999 and 1998, respectively. In 2000, SFAS No. 123 pro
forma compensation costs were reduced by the reversal of prior year pro forma
compensation costs totaling $7.4 million for forfeitures of unvested options
during the year.

NOTE 11 - SEGMENT INFORMATION

The Company operates principally in two segments in the manufactured housing
industry: (1) production and wholesale distribution and (2) retail selling. The
accounting policies of the segments are the same as those described in Note 1
"Summary of Significant Accounting Policies". Manufacturing segment sales to the
retail segment and related manufacturing profits are included with the
manufacturing segment. Retail segment results include retail profits from the
sale of homes to consumers but do not include any manufacturing segment profits
associated with the homes sold. Intercompany transactions between reportable
operating segments are eliminated in consolidation. Each segment's results
include corporate office costs that are directly and exclusively incurred for
the segment. General corporate expenses include the costs and equity method
losses from development operations. Intercompany profit in inventory represents
the change in manufacturing segment gross profit in Champion-produced inventory
at Company-owned retailers.

The Company evaluates the performance of its segments and allocates resources to
them primarily based on earnings before interest, taxes, goodwill amortization
and general corporate expenses (EBITA), excluding goodwill impairment charges
and losses associated with the 1999 independent retailer bankruptcy. The Company
also evaluates the performance of its segments based on return on net capital
employed (working capital plus net fixed assets).

Expenditures during 2000 for long-lived assets were $7 million for the
manufacturing segment and $7 million for the retail segment. In addition,
corporate expenditures for long-lived assets totaled $1 million. These amounts
compare to $65 million, $43 million and $4 million for the manufacturing, retail
and corporate segments, respectively, in 1999, and $38 million, $325 million and
$1 million, respectively, in 1998, including goodwill for each segment.

Reconciliations of segment sales to consolidated sales, segment EBITA to
consolidated operating income (loss) and segment depreciation expense to
consolidated depreciation expense in 2000, 1999 and 1998, and segment assets to
consolidated assets as of December 30, 2000, January 1, 2000 and January 2,
1999, were as follows:

<PAGE>   54


<TABLE>
<CAPTION>

(In thousands)

Net sales                                                   2000               1999             1998
                                                            ----               ----             ----
<S>                                                   <C>                <C>              <C>

   Manufacturing                                       $  1,564,026       $  2,068,627     $  1,986,317
   Retail                                                   606,708            787,011          561,659
   Less: intercompany                                      (249,000)          (291,000)        (215,000)
                                                       ------------       ------------     ------------
   Consolidated net sales                              $  1,921,734       $  2,564,638     $  2,332,976
                                                       ============       ============     ============

Operating income (loss)
   Manufacturing EBITA
     before losses from independent
     retailer bankruptcy                               $     50,974       $    132,110     $    164,863
   Retail EBITA (loss)                                       (9,109)            51,372           47,259
   General corporate expenses                               (30,803)           (24,255)         (22,419)
   Intercompany profit in inventory                           4,200             (4,400)         (10,200)
   Goodwill amortization                                    (13,717)           (13,645)          (9,219)
   Goodwill impairment charges                             (189,700)                 -                -
   Losses from independent retailer bankruptcy               (5,000)           (33,600)               -
                                                       ------------       ------------     ------------
   Consolidated operating income (loss)                $   (193,155)      $    107,582     $    170,284
                                                       ============       ============     ============

Total assets
   Manufacturing                                       $    392,404       $    498,259     $    421,670
   Retail                                                   367,905            632,067          546,460
   Corporate and developments                               197,584             88,154           74,346
   Intercompany elimination                                 (15,837)           (35,540)         (20,804)
                                                       ------------       ------------     ------------
   Consolidated total assets                           $    942,056       $  1,182,940     $  1,021,672
                                                       ============       ============     ============

Depreciation expense
    Manufacturing                                      $     18,418       $     18,066     $     14,487
    Retail                                                    7,181              5,381            2,649
    Corporate and developments                                  990                798              556
                                                       ------------       ------------     ------------

    Consolidated depreciation expense                  $     26,589       $     24,245     $     17,692
                                                       ============       ============     ============
</TABLE>


Included in 2000 manufacturing segment EBITA are non-cash fixed asset impairment
charges of $2.5 million related to plant closures and $6.9 million of property
insurance gains. Included in 2000 retail segment EBITA are non-cash fixed asset
impairment charges of $4.0 million related to sales center closures. Included in
2000 general corporate expenses are $4.0 million of non-cash fixed asset
impairment charges related to development operations, $1.5 million of which was
recognized upon the sale of a majority interest in certain developments, and
$2.5 million of which was recognized due to insufficient estimated future cash
flows from a wholly-owned development.

All cash balances and deferred tax assets are classified as corporate assets.
Retail floor plan interest expense not charged to retail segment EBITA totaled
$13.2 million, $12.5 million and $6.7 million in 2000, 1999 and 1998,
respectively.


NOTE 12 - LEASES

Most of the Company's retail sales locations and certain of its other facilities
are leased under terms that range from monthly to five years. Rent expense was
$15.0 million in 2000, $11.0 million in 1999 and $5.5 million in 1998.


NOTE 13 - GOODWILL IMPAIRMENT CHARGES

The Company evaluates the recoverability of long-lived assets not held for sale
by measuring the carrying value of the assets against the estimated undiscounted
future cash flows in accordance with SFAS No. 121. At the time such evaluations
indicate that the undiscounted future cash flows of certain long-lived assets
are not sufficient to recover the carrying value of such assets, the assets are
adjusted to their estimated fair values. Estimated fair values are determined
using the present value of estimated future cash flows.

Industry conditions in 2000, including excess number of retail locations and
inventory levels, tightened consumer credit standards, high consumer
repossession levels, and higher interest rates for purchasers of manufactured
housing, resulted in lower sales volumes and sales center closures for the
Company's acquired retail businesses.

<PAGE>   55


Beginning in the second half of 1999, consumer finance companies began
tightening credit eligibility requirements and increasing down payment
requirements for consumer loans in the manufactured housing industry. The
Company monitored these changes throughout 1999 and through the third quarter of
2000 with an expectation that underwriting standards would be relaxed and/or
other lenders would enter the marketplace to compete. During this period an
increasing number of repossessed manufactured homes were also becoming available
in the market. These factors contributed to declining retail sales of new homes
in the industry and at Company-owned retailers. In the first half of 2000,
almost all of the Company's acquisitions were sufficiently profitable such that
the carrying value of the goodwill continued to appear to be recoverable. In the
third quarter of 2000 certain of the Company's retail acquisitions incurred
operating losses and the Company closed and consolidated 29 under performing
retail sales centers; however, the Company's long-term forecast for these
retailers was sufficiently profitable that the goodwill appeared to be
recoverable. These long-term forecasts were based on past operating results,
management plans, and expectations for the industry.


In the fourth quarter of 2000, industry conditions continued to worsen. The
Company's retail losses continued into October. By late November it appeared
that the month's retail traffic dropped by approximately 45%, consumer financing
continued to tighten and a significant operating loss was forecasted for the
retail segment. On December 1, 2000, industry wholesale shipment data for
October were released showing a 32% decline from 1999. Third quarter industry
retail data showed declines of approximately 25% and October appeared to also
decline. It became apparent to management that additional lenders were not
coming into the market and tightened underwriting standards were going to
prevail longer term. During the fourth quarter management committed to close 25
additional under performing sales centers. The culmination of these factors
suggested to the Company that a detailed review regarding the recoverability of
long-lived assets was required. The assessment was performed using lower volume
and growth assumptions than previously assumed due to the continued downturn in
the industry and lowered future expectations. As a result of this assessment, in
the fourth quarter of 2000, the Company recorded non-cash pretax goodwill
impairment charges of $189.7 million, consisting of $180.0 million for seven
acquired retail companies and $9.7 million for two acquired manufacturing
companies.


NOTE 14 - SUBSIDIARIES' GUARANTY OF INDEBTEDNESS

Substantially all the Company's subsidiaries are guarantors of the indebtedness
under the $200 million Senior Notes. Separate financial statements for each
guarantor subsidiary are not included in this filing because each guarantor
subsidiary is fully, unconditionally, jointly and severally liable for the
Senior Notes. In addition, the parent company issuer has no independent assets
or operations and the non-guarantor subsidiaries of the Company, individually
and in the aggregate, are minor in relation to consolidated totals of the
Company. There are no significant restrictions on the ability of the parent
company or any guarantor subsidiary to obtain funds from its subsidiaries by
dividend or loan.





<PAGE>   56

NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
(Dollars in thousands,                 First        Second        Third        Fourth
   except per share amounts)          Quarter       Quarter      Quarter       Quarter           Total
<S>                                 <C>           <C>           <C>           <C>           <C>
2000
Net sales
  Manufacturing                     $ 435,802     $ 439,277     $ 378,449     $ 310,498     $ 1,564,026
  Retail                              167,507       166,934       148,619       123,648         606,708
  Less: intercompany                  (68,000)      (73,000)      (61,000)      (47,000)       (249,000)
Total net sales                       535,309       533,211       466,068       387,146       1,921,734
Cost of sales                         451,338       447,791       390,359       330,415       1,619,903
Gross margin                           83,971        85,420        75,709        56,731         301,831
Selling, general and
  administrative expenses              74,801        73,254        75,420        81,811         305,286
Goodwill impairment charges                --            --            --      (189,700)       (189,700)
Operating income (loss)                 9,170        12,166           289      (214,780)       (193,155)
Interest expense, net                   6,969         6,844         6,762         6,602          27,177
Pretax income (loss)                    2,201         5,322        (6,473)     (221,382)       (220,332)
Net income (loss)                       1,301         2,822        (3,973)     (147,482)       (147,332)
Basic earnings (loss) per share          0.03          0.06         (0.08)        (3.12)          (3.12)
Diluted earnings (loss) per share   $    0.03     $    0.06     ($   0.08)    ($   3.12)    ($     3.12)
Homes sold
  Wholesale                            15,351        14,961        12,393         9,737          52,442
  Retail - new                          3,315         3,176         2,776         2,216          11,483
  Retail - pre-owned                      906           713           650           594           2,863
Wholesale multi-section mix                66%           69%           73%           77%             71%
Locations at period end
  Manufacturing facilities                 59            57            55            53              53
  Sales centers                           285           291           270           260             260

1999
Net sales
  Manufacturing                     $ 528,952     $ 552,005     $ 514,348     $ 473,322     $ 2,068,627
  Retail                              185,154       214,995       211,516       175,346         787,011
  Less: intercompany                  (70,000)      (82,000)      (76,000)      (63,000)       (291,000)
Total net sales                       644,106       685,000       649,864       585,668       2,564,638
Cost of sales                         533,079       561,293       574,424       496,072       2,164,868
Gross margin                          111,027       123,707        75,440        89,596         399,770
Selling, general and
  administrative expenses              70,293        69,633        78,628        73,634         292,188
Operating income (loss)                40,734        54,074        (3,188)       15,962         107,582
</TABLE>

<PAGE>   57


<TABLE>
<S>                                 <C>           <C>           <C>           <C>           <C>
Interest expense, net                   5,979         6,250         6,533         6,778          25,540
Pretax income (loss)                   34,755        47,824        (9,721)        9,184          82,042
Net income (loss)                      21,155        29,224        (5,921)        5,584          50,042
Basic earnings (loss) per share          0.44          0.60         (0.12)         0.12            1.04
Diluted earnings (loss) per share   $    0.43     $    0.59     ($   0.12)    $    0.12     $      1.02
Homes sold
  Wholesale                            18,830        19,160        17,560        16,211          71,761
  Retail - new                          3,833         4,343         4,299         3,378          15,853
  Retail - pre-owned                      996         1,090         1,037           979           4,102
Wholesale multi-section mix                65%           66%           67%           68%             66%
Locations at period end
  Manufacturing facilities                 65            65            62            60              60
  Sales centers                           268           282           291           280             280
</TABLE>


In the fourth quarter of 2000, the Company recorded goodwill impairment charges
of $189.7 million ($127.8 million after tax or $2.70 per diluted share).

In connection with the 1999 bankruptcy of the Company's former largest
independent retailer, the Company recorded losses totaling $38.6 million
consisting of $26.5 million in cost of sales and $7.1 million in SG&A in the
third quarter of 1999 and $5.0 million in cost of sales in the second quarter of
2000. Previously, the $33.6 million loss recorded in the third quarter of 1999
was presented as a separate component of operating income and the $5.0 million
loss recorded in the second quarter of 2000 was included in SG&A. See Note 9.

The adoption of EITF No. 00-10 in the fourth quarter of 2000 resulted in the
reclassification of manufacturing segment delivery revenue to net sales from
cost of sales. Net sales and cost of sales for each quarter of 2000 and 1999
have been restated accordingly. See "Revenue Recognition" in Note 1.

Per share amounts are based on the weighted average shares outstanding for each
period. Quarterly amounts may not add to annual amounts due to changes in shares
outstanding.


<PAGE>   58
                                INDEX TO EXHIBITS

Exhibit No.                   Description

      3.1       Restated Articles of Incorporation of the Company, filed with
                the Company's Annual Report on Form 10-K for the fiscal year
                ended December 30, 1995 and incorporated herein by reference.

      3.2       Amendment to Restated Articles of Incorporation of the Company,
                filed with the Company's Quarterly Report on Form 10-Q for the
                quarter ended June 28, 1997 and incorporated herein by
                reference.

      3.3       Article III of the Company's Restated Articles of Incorporation
                (increasing number of authorized shares of capital stock),
                included in the Company's Amendment to Restated Articles of
                Incorporation, filed as Exhibit 3.1 to the Company's Quarterly
                Report on Form 10-Q for the quarter ended June 28, 1997 and
                incorporated herein by reference.

      3.4       Certificate of Correction to Articles of Incorporation of the
                Company, filed as Exhibit 3.3 to the Company's Annual Report on
                Form 10-K for the fiscal year ended January 2, 1999 and
                incorporated herein by reference.

      3.5       Bylaws of the Company as amended through February 22, 1999,
                filed as Exhibit 3.4 to the Company's Annual Report on Form 10-K
                for the fiscal year ended January 2, 1999 and incorporated
                herein by reference.

      4.1       Indenture dated as of May 3, 1999 between the Company, the
                Subsidiary Guarantors and Bank One Trust Company, NA (formerly
                The First National Bank of Chicago), as Trustee, filed as
                Exhibit 4.1 to the Company's Form S-4 Registration Statement No.
                333-84227 dated July 30, 1999 and incorporated herein by
                reference.

      4.2       Supplemental Indenture dated as of July 30, 1999 between the
                Company, the Subsidiary Guarantors and Bank One Trust Company,
                NA (formerly The First National Bank of Chicago), as Trustee,
                filed as Exhibit 4.2 to the Company's Form S-4 Registration
                Statement No. 333-84227 dated July 30, 1999 and incorporated
                herein by reference.

      4.3       Supplemental Indenture dated as of October 4, 1999 between the
                Company, the Subsidiary Guarantors and Bank One Trust Company,
                NA, as Trustee, filed as Exhibit 4.3 to the Company's Annual
                Report on Form 10-K for the fiscal year ended January 1, 2000
                and incorporated herein by reference.

      4.4       Supplemental Indenture dated as of February 10, 2000 between the
                Company, the Subsidiary Guarantors and Bank One Trust Company,
                NA, as Trustee, filed as Exhibit 4.4 to the Company's Annual
                Report on Form 10-K for the fiscal year ended January 1, 2000
                and incorporated herein by reference.

<PAGE>   59

      4.5       Registration Rights Agreement dated as of April 28, 1999 between
                the Company; Credit Suisse First Boston Corporation; Donaldson,
                Lufkin & Jenrette Securities Corporation; and Merrill Lynch,
                Pierce, Fenner & Smith Incorporated, as Initial Purchasers,
                filed as Exhibit 4.3 to the Company's Form S-4 Registration
                Statement No. 333-84227 dated July 30, 1999 and incorporated
                herein by reference.

      4.6       Form of Rights Certificate, filed as Exhibit 1 to the Company's
                Registration Statement on Form 8-A dated January 12, 1996 and
                incorporated herein by reference.

      4.7       Rights Agreement by and between the Company and Harris Trust and
                Savings Bank, filed as Exhibit 2 to the Company's Registration
                Statement on Form 8-A dated January 12, 1996 and incorporated
                herein by reference.

      10.1      Lease Agreement dated November 21, 1991 between the Company and
                University Development Company relating to the premises located
                at 2701 Cambridge Court (formerly University Drive), Auburn
                Hills, Michigan, filed as Exhibit 10.12 to the Company's Annual
                Report on Form 10-K for the fiscal year ended February 28, 1992
                and incorporated herein by reference.

      10.2      First Amendment dated December 29, 1997 to the Lease Agreement
                dated November 21, 1991 between the Company and University
                Development Company relating to the premises located at 2701
                Cambridge Court (formerly University Drive), Auburn Hills,
                Michigan, filed as Exhibit 10.2 to the Company's Annual Report
                on Form 10-K for the fiscal year ended January 3, 1998 and
                incorporated herein by reference.

      10.3      Credit Agreement by and among the Company; the guarantors party;
                the banks party; PNC Bank, National Association, as
                Administrative Agent; Bank One Capital Markets, Inc., as
                Syndication Agent; Comerica Bank, as Documentation Agent; and
                National City Bank, Keybank National Association, Bank of
                America, N.A. and Wachovia Bank, N.A., as Co-Agents dated as of
                May 5, 1998, as amended by Amendment No. 1 to Credit Agreement,
                dated as of December 18, 1998; as amended by Amendment No. 2 to
                Credit Agreement, dated as of March 31, 1999; as amended by
                Amendment No. 3 to Credit Agreement, dated as of July 1, 1999;
                as amended by Amendment No. 4 to Credit Agreement, dated as of
                February 14, 2000; as amended by Amendment No. 5 to Credit
                Agreement, dated as of June 15, 2000; and as amended by
                Amendment No. 6 to Credit Agreement dated as of November 20,
                2000.

      10.4      Seventh Amendment dated February 13, 2001 to the Credit
                Agreement dated May 5, 1998 by and among the Company; the
                guarantors party; the banks party; PNC Bank, National
                Association, as Agent; Bank One, Michigan, as Syndication Agent;
                Comerica Bank, as Documentation Agent; and National City Bank,
                Harris Trust and Savings Bank, Keybank, National Association,
                Bank of America, N.A., and Wachovia Bank, N.A., as Co-Agents.


<PAGE>   60

      10.5      *Champion Enterprises, Inc. 1993 Management Stock Option Plan,
                as amended and restated as of October 27, 1998, filed as Exhibit
                10.6 to the Company's Annual Report on Form 10-K for the fiscal
                year ended January 2, 1999 and incorporated herein by reference.

      10.6      *Champion Enterprises, Inc. 1995 Stock Option and Incentive
                Plan, filed as Exhibit 10.1 to the Company's Registration
                Statement on Form S-8 dated May 1, 1995 and incorporated herein
                by reference.

      10.7      *First Amendment to the Champion Enterprises, Inc. 1995 Stock
                Option and Incentive Plan, filed as Exhibit 10.12 to the
                Company's Annual Report on Form 10-K for the fiscal year ended
                December 30, 1995 and incorporated herein by reference.

      10.8      *Second Amendment dated April 28, 1998 to the Champion
                Enterprises, Inc. 1995 Stock Option and Incentive Plan, filed as
                Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
                fiscal year ended January 2, 1999 and incorporated herein by
                reference.

      10.9      *Third Amendment dated October 27, 1998 to the Champion
                Enterprises, Inc. 1995 Stock Option and Incentive Plan, filed as
                Exhibit 10.10 to the Company's Annual Report on Form 10-K for
                the fiscal year ended January 2, 1999 and incorporated herein by
                reference.

      10.10     *Fourth Amendment dated April 27, 1999 to the Champion
                Enterprises, Inc. 1995 Stock Option and Incentive Plan, filed as
                Exhibit 10.2 to the Company's Report on Form 10-Q for the
                quarter ended April 3, 1999 and incorporated herein by
                reference.

      10.11     *Management Stock Purchase Plan, filed as Exhibit 4.1 to the
                Company's Form S-8 dated September 17, 1998 and incorporated
                herein by reference.

      10.12     *Deferred Compensation Plan, filed as Exhibit 4.2 to the
                Company's Form S-8 dated September 17, 1998 and incorporated
                herein by reference.

      10.13     *Corporate Officer Stock Purchase Plan, filed as Exhibit 4.1 to
                the Company's Form S-8 dated February 26, 1999 and incorporated
                herein by reference.

      10.14     *Consent in Lieu of a Special Meeting of the Deferred
                Compensation Committee dated January 1, 1999 to amend the
                Corporate Officer Stock Purchase Plan, filed as Exhibit 10.33 to
                the Company's Annual Report on Form 10-K for the fiscal year
                ended January 2, 1999 and incorporated herein by reference.


<PAGE>   61

      10.15     *2000 Stock Compensation Plan for Nonemployee Directors, filed
                as Exhibit 4.1 to the Company's Registration Statement on Form
                S-8 dated December 28, 2000 and incorporated herein by
                reference.

      10.16     *First Amendment to the 2000 Stock Compensation Plan for
                Nonemployee Directors, filed as Exhibit 4.2 to the Company's
                Registration Statement on Form S-8 dated December 28, 2000 and
                incorporated herein by reference.

      10.17     *Salesperson Retention Plan, filed as Exhibit 99(a) to the
                Company's Registration Statement on Form S-3 dated January 19,
                2001 and incorporated herein by reference.

      10.18     *Letter Agreement dated April 27, 1990 between the Company and
                Walter R. Young, filed as Exhibit 10.3 to the Company's Annual
                Report on Form 10-K for the fiscal year ended March 2, 1990 and
                incorporated herein by reference.

      10.19     *Amendment dated August 31, 1995 to the Letter Agreement dated
                April 27, 1990 between the Company and Walter R. Young, filed as
                Exhibit 10.15 to the Company's Annual Report on Form 10-K for
                the fiscal year ended December 30, 1995 and incorporated herein
                by reference.

      10.20     *Letter Agreement dated October 17, 2000 between the Company and
                Anthony S. Cleberg.

      10.21     *Change in Control Severance Agreement dated November 30, 2000
                between the Company and Anthony S. Cleberg.

      10.22     *Letter Agreement dated May 1, 1997 between the Company and
                Philip C. Surles, filed as Exhibit 10.31 to the Company's Annual
                Report on Form 10-K for the fiscal year ended January 3, 1998
                and incorporated herein by reference.

      10.23     *Change in Control Severance Agreement dated June 13, 1997
                between the Company and Philip C. Surles, filed as Exhibit 10.32
                to the Company's Annual Report on Form 10-K for the fiscal year
                ended January 3, 1998 and incorporated herein by reference.

      10.24     *Confidentiality and Noncompetition Agreement dated June 13,
                1997 between the Company and Philip C. Surles, filed as Exhibit
                10.33 to the Company's Annual Report on Form 10-K for the fiscal
                year ended January 3, 1998 and incorporated herein by reference.

      10.25     *Amendment to Change in Control Severance Agreement dated
                February 18, 1999 between the Company and Philip C. Surles,
                filed as Exhibit 10.20 to the Company's Annual Report on Form
                10-K for the fiscal year ended January 2, 1999 and incorporated
                herein by reference.


<PAGE>   62

      10.26     *Employment and Noncompetition Agreement dated January 8, 1998
                between the Company and M. Mark Cole, filed as Exhibit 10.26 to
                the Company's Annual Report on Form 10-K for the fiscal year
                ended January 2, 1999 and incorporated herein by reference.

      10.27     *Letter Agreement dated September 11, 1998 between the Company
                and M. Mark Cole, filed as Exhibit 10.28 to the Company's Annual
                Report on Form 10-K for the fiscal year ended January 2, 1999
                and incorporated herein by reference.

      10.28     Lease dated June 30, 1997 between Southern Showcase Housing,
                Inc., a subsidiary of the Company, and MMG Investments LLC,
                filed as Exhibit 10.35 to the Company's Annual Report on Form
                10-K for the fiscal year ended January 1, 2000 and incorporated
                herein by reference.

      10.29     Amendment dated July 1, 1998 to Lease dated June 30, 1997
                between Southern Showcase Housing, Inc. and MMG Investments LLC,
                filed as Exhibit 10.36 to the Company's Annual Report on Form
                10-K for the fiscal year ended January 1, 2000 and incorporated
                herein by reference.

      10.30     *Letter Agreement dated September 28, 1998 between the Company
                and Donald D. Williams, filed as Exhibit 10.37 to the Company's
                Annual Report on Form 10-K for the fiscal year ended January 1,
                2000 and incorporated herein by reference.

      10.31     *Letter Agreement dated February 12, 1997 between the Company
                and John J. Collins, Jr., filed as Exhibit 10.25 to the
                Company's Annual Report on Form 10-K for the fiscal year ended
                December 28, 1996 and incorporated herein by reference.

      10.32     *Letter Agreement dated April 7, 2000 between the Company and
                John J. Collins, Jr.

      10.33     *Change in Control Severance Agreement dated March 3, 1997
                between the Company and John J. Collins, Jr., filed as Exhibit
                10.28 to the Company's Annual Report on Form 10-K for the fiscal
                year ended January 3, 1998 and incorporated herein by reference.

      10.34     *Amendment to Change in Control Severance Agreement dated
                February 18, 1999 between the Company and John J. Collins, Jr.,
                filed as Exhibit 10.16 to the Company's Annual Report on Form
                10-K for the fiscal year ended January 2, 1999 and incorporation
                herein by reference.

      10.35     *Agreement and General Release dated September 5, 2000 between
                the Company and Joseph H. Stegmayer.

      10.36     *Consulting Agreement dated September 5, 2000 between the
                Company and Joseph H. Stegmayer.


<PAGE>   63

      11        Statement Regarding Computation of Per Share Earnings.

      21.1      Subsidiaries of the Company.

      23.1      Consent of PricewaterhouseCoopers LLP.

      99.1      Proxy Statement for the Company's 2001 Annual Meeting of
                Shareholders, filed by the Company pursuant to Regulation 14A
                and incorporated herein by reference.

Champion Enterprises, Inc. will, for a nominal charge, provide a copy of any of
the above exhibits to any shareholder upon written request addressed to the
Investor Relations Department, Champion Enterprises, Inc., 2701 Cambridge Court,
Suite 300, Auburn Hills, Michigan 48326.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>2
<FILENAME>k60964ex10-3.txt
<DESCRIPTION>CREDIT AGREEMENT
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.3










                                CREDIT AGREEMENT

                                  by and among

                           CHAMPION ENTERPRISES, INC.,

                          THE GUARANTORS PARTY HERETO,

                             THE BANKS PARTY HERETO,

            PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent,

              BANK ONE CAPITAL MARKETS, INC., as Syndication Agent,

                      COMERICA BANK, as Documentation Agent

                                       and

                               NATIONAL CITY BANK,

                          KEYBANK NATIONAL ASSOCIATION,

                              BANK OF AMERICA, N.A.

                                       and

                        WACHOVIA BANK, N.A., as Co-Agents


                            Dated as of May 5, 1998,

               as amended by Amendment No. 1 to Credit Agreement,
                         dated as of December 18, 1998,

 as amended by Amendment No. 2 to Credit Agreement, dated as of March 31, 1999,

  as amended by Amendment No. 3 to Credit Agreement, dated as of July 1, 1999,

               as amended by Amendment No. 4 to Credit Agreement,
                         dated as of February 14, 2000,

  as amended by Amendment No. 5 to Credit Agreement, dated as of June 15, 2000,

                                       and

 as amended by Amendment No. 6 to Credit Agreement dated as of November 20, 2000



<PAGE>   2




                                CREDIT AGREEMENT

         THIS CREDIT AGREEMENT is dated as of May 5, 1998 and is made by and
among CHAMPION ENTERPRISES, INC., a Michigan corporation (the "Borrower"), each
of the Guarantors (as hereinafter defined), the BANKS (as hereinafter defined),
PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent for the
Banks under this Agreement (hereinafter referred to in such capacity as the
"Agent"), BANK ONE CAPITAL MARKETS, INC., as Syndication Agent, COMERICA BANK,
as Documentation Agent and NATIONAL CITY BANK, HARRIS TRUST AND SAVINGS BANK,
KEYBANK NATIONAL ASSOCIATION, BANK OF AMERICA, N.A. and WACHOVIA BANK, N.A., as
Co-Agents.

                                   WITNESSETH:

         WHEREAS, the Borrower has requested the Banks to provide a revolving
credit facility to the Borrower in an aggregate principal amount not to exceed
$90,000,000; and

         WHEREAS, the revolving credit facility shall be used to finance the
Borrower's and the Guarantors' purchase of raw materials and other materials
used in the manufacturing of their inventory and for the reimbursement of the
Borrower and the Guarantors for amounts they have paid for the purchase of raw
materials and other materials used in the manufacturing of their inventory which
were made within three hundred sixty (360) days prior to the applicable
Revolving Credit Loan and for the issuance of letters of credit which support
certain corporate purposes as described herein; and

         WHEREAS, the Banks are willing to provide such credit upon the terms
and conditions hereinafter set forth;

         NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:

                             1. CERTAIN DEFINITIONS


         1.1   Certain Definitions.


         In addition to words and terms defined elsewhere in this Agreement, the
following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:

             Account shall mean any account, contract right, general intangible,
chattel paper, instrument or document representing any right to payment for
goods sold or services rendered, whether or not earned by performance and
whether or not evidenced by a contract, instrument or document, which is now
owned or hereafter acquired by the Loan Parties. All



                                      -2-
<PAGE>   3

Accounts, whether Qualified Accounts or not, shall be subject to the Banks'
Prior Security Interest.

         Account Debtor shall mean any Person who is or who may become obligated
to the Borrower under, with respect to, or on account of, an Account.

         Affiliate as to any Person shall mean any other Person (i) which
directly or indirectly controls, is controlled by or is under common control
with such Person, (ii) which beneficially owns or holds 5% or more of any class
of the voting or other equity interests of such Person, or (iii) 5% or more of
any class of voting interests or other equity interests of which is beneficially
owned or held, directly or indirectly, by such Person. "Control," as used in
this definition, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise,
including the power to elect a majority of the directors or trustees of a
corporation or trust, as the case may be.

         Agent shall mean PNC Bank, National Association, and its successors and
assigns.

         Agent's Fee shall have the meaning assigned to that term in Section
9.15.

         Agent's Letter shall have the meaning assigned to that term in Section
9.15.

         Agreement shall mean this Credit Agreement, as the same may be
supplemented or amended from time to time, including all schedules and exhibits.

         Applicable Commitment Fee Rate shall mean a percentage rate per annum
equal to five-eighths percent (5/8%).

         Applicable Margin shall mean the percentage spread of one percent (1%)
to be added to Base Rate under the Base Rate Option.

         Approved Non-Cash Charges shall mean (i) the non-cash charge to net
income of the Borrower and its Subsidiaries, as determined and consolidated in
accordance with GAAP, attributable to the one-time write-down of goodwill,
provided however, it is expressly agreed that such charges shall not exceed
$200,000,000 in the aggregate for the period commencing on November 1, 2000
through and including any date of determination thereafter, and (ii) non-cash
charges to net income of the Borrower and its Subsidiaries, as determined and
consolidated in accordance with GAAP, attributable to matters other than the
write-down of goodwill, provided however, it is expressly agreed that charges
shall not exceed $10,000,000 in the aggregate for the period commencing on the
November 1, 2000 through and including any date of determination thereafter

         Assignment and Assumption Agreement shall mean an Assignment and
Assumption Agreement by and among a Purchasing Bank, a Transferor Bank and the
Agent, as Agent and on behalf of the remaining Banks, substantially in the form
of Exhibit 1.1(A).



                                      -3-
<PAGE>   4


         Authorized Officer shall mean those individuals, designated by written
notice to the Agent from the Borrower, authorized to execute notices, reports
and other documents on behalf of the Loan Parties required hereunder. The
Borrower may amend such list of individuals from time to time by giving written
notice of such amendment to the Agent.

         Banks shall mean the financial institutions named on Schedule 1.1(B)
and their respective successors and assigns as permitted hereunder, each of
which is referred to herein as a Bank.

         Base Rate shall mean the greater of (i) the interest rate per annum
announced from time to time by the Agent at its Principal Office as its then
prime rate, which rate may not be the lowest rate then being charged commercial
borrowers by the Agent, or (ii) the Federal Funds Effective Rate plus 1/2% per
annum.

         Base Rate Option shall mean the option of the Borrower to have
Revolving Credit Loans bear interest at the rate and under the terms and
conditions set forth in Section 3.1.

         Benefit Arrangement shall mean at any time an "employee benefit plan,"
within the meaning of Section 3(3) of ERISA, which is neither a Plan nor a
Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to by any member of the ERISA Group.

         Borrower shall mean Champion Enterprises, Inc., a corporation organized
and existing under the laws of the State of Michigan.

         Borrowing Base shall mean at any time the sum of (i) 85% of Qualified
Accounts ("Accounts Portion"), plus (ii) 65% of Qualified Inventory ("Inventory
Portion"). Effective on January 1, 2002 and thereafter, the percent of Qualified
Inventory included in the Borrowing Base shall be reduced to 50%. Effective on
January 1, 2003 and thereafter, the percent of Qualified Accounts included in
the Borrowing Base shall be reduced to 80%.

         Borrowing Base Certificate shall mean a Borrowing Base Certificate in
substantially the form of Exhibit 7.3.4, with such changes or in such other form
as reasonably acceptable to the Agent.

         Borrowing Date shall mean, with respect to any Loan, the date for the
making thereof, which shall be a Business Day.

         Business Day shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required to be closed
for business in Pittsburgh, Pennsylvania.

         Champion Development shall mean Champion Development Corporation, a
Michigan corporation, which at all times since its formation:


                                      -4-
<PAGE>   5


         (i) identified itself, and will continue to identify itself, in all
dealings with the public, under its own name and as a separate and distinct
entity; has not and will not identify itself as being a division or a part of
any other entity; has not and will not fail to correct any known
misunderstanding regarding the separate identity of such entity; and has
conducted and will conduct its business in its own name (and not in the name of
any other Person, including any Loan Party);

         (ii) has maintained and will maintain its accounts, books and records
separate from any other Person (including any Loan Party); has allocated and
will allocate fairly and reasonably any overhead for shared office space; and
has used and will use separate stationery, invoices and checks;

         (iii) will not commingle its funds or assets with those of any other
Person (including any Loan Party);

         (iv) will hold its assets in its own name (and not in the name of any
Loan Party);

         (v) has maintained and will maintain its financial statements,
accounting records and other entity documents separate from any other Person
(including any Loan Party);

         (vi) has ensured and will continue to ensure that any payment of its
liabilities will be out of its own funds and assets;

         (vii) has observed and will observe all corporate formalities; and

         (viii) has maintained and currently intends to continue to maintain
adequate capital in light of its contemplated business operations.

         Closing Date shall mean November 20, 2000.

         Closing Fee shall have the meaning assigned to that term in Section
2.4.

         Collateral shall mean the Pledged Collateral, the UCC Collateral, and
the Intellectual Property Collateral.

         Collateral Assignment shall mean the Collateral Assignment
substantially in the form of Exhibit 1.1(C) with such changes or in such other
form reasonable acceptable to the Agent.

         Commercial Letter of Credit shall mean any Letter of Credit which is a
commercial letter of credit issued in respect of the purchase of goods or
services by one or more of the Loan Parties in the ordinary course of their
business.


                                      -5-
<PAGE>   6


         Commitment shall mean as to any Bank its Revolving Credit Commitment,
and Commitments shall mean the aggregate of the Revolving Credit Commitments of
all of the Banks.

         Consolidated Cash Flow From Operations for any period of determination
shall mean (i) the sum of net income, depreciation, amortization, interest
expense, income tax expense, and, without duplication, Approved Non-Cash
Charges, minus (iii) noncash credits to net income and gains on the disposition
of assets to the extent included in net income but not included in operating
income, in each case of the Borrower and its Subsidiaries for such period
determined and consolidated in accordance with GAAP.

         Consolidated Net Worth shall mean as of any date of determination total
stockholders' equity of the Borrower and its Subsidiaries as of such date
determined and consolidated in accordance with GAAP, provided however, that
stockholders' equity of the Borrower and its Subsidiaries shall not be reduced
by Approved Non-Cash Charges.

         Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money
of the United States of America.

         Domestic Subsidiary shall mean any subsidiary of the Borrower (other
than Champion Development or subsidiaries of Champion Development) which is
organized or incorporated under the laws of any state or commonwealth in the
United States of America or the District of Columbia.

         Drawing Date shall have the meaning assigned to that term in Section
2.9.3.2.

         Earn Out Obligations shall mean, as of any date of determination, the
contingent portion of acquisition-related liabilities which were not paid by the
Borrower or its Subsidiaries at the time of the closing of the acquisitions, as
set forth in the purchase agreements entered into at the time of the closing of
such acquisitions.

         Environmental Complaint shall mean any written complaint setting forth
a cause of action for personal or property damage or natural resource damage or
equitable relief, order, notice of violation, citation or subpoena relating to,
arising out of or issued pursuant to any of the Environmental Laws or any
Environmental Conditions, as the case may be, or request for information or
other written notice of any type issued pursuant to any Environmental Laws by an
Official Body in connection with an alleged violation of Environmental Laws.

         Environmental Conditions shall mean any conditions of the environment,
including the workplace, the ocean, natural resources (including flora or
fauna), soil, surface water, groundwater, any actual or potential drinking water
supply sources, substrata or the ambient air, relating to or arising out of, or
caused by, the use, handling, storage, treatment, recycling, generation,
transportation, release, spilling, leaking, pumping, emptying, discharging,
injecting, escaping, leaching, disposal, dumping, threatened release or other
management or


                                       -6-
<PAGE>   7


mismanagement of Regulated Substances resulting from the use of, or operations
on, any Property.

         Environmental Laws shall mean all federal, state, local and foreign
Laws and regulations, including permits, licenses, authorizations, bonds,
orders, judgments and consent decrees issued, or entered into, pursuant thereto,
relating to pollution or protection of human health or the environment or
employee safety in the workplace.

         ERISA shall mean the Employee Retirement Income Security Act of 1974,
as the same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, as from
time to time in effect.

         ERISA Group shall mean, at any time, the Borrower and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control and all other entities which, together with
the Borrower, are treated as a single employer under Section 414 of the Internal
Revenue Code.

         Event of Default shall mean any of the events described in Section 8.1
and referred to therein as an "Event of Default."

         Expiration Date shall mean, with respect to the Revolving Credit
Commitments, May 4, 2003.

         Federal Funds Effective Rate for any day shall mean the rate per annum
(based on a year of 360 days and actual days elapsed and rounded upward to the
nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
federal funds transactions arranged by federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
Federal Funds Effective Rate for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.

         Financial Projections shall have the meaning assigned to that term in
Section 5.1.8(ii).

         Floor-Plan Financing Obligations shall mean the liabilities of the Loan
Parties and Subsidiaries of the Loan Parties which are in the business of retail
sales of manufactured housing products with respect to inventory financing
provided by third party lenders.

         Floor Plan Financing Availability shall mean the lines of credit
facilities (whether or not in use) of third party lenders to provide financing
to Loan Parties which are in the business of retail sales of manufactured
housing products.


                                      -7-
<PAGE>   8


         Foreign Subsidiary shall mean any subsidiary of the Borrower which is
not a Domestic Subsidiary.

         GAAP shall mean generally accepted accounting principles as are in
effect from time to time, subject to the provisions of Section 1.3, and applied
on a consistent basis both as to classification of items and amounts.

         Governmental Acts shall have the meaning assigned to that term in
Section 2.9.8.

         Guarantor shall mean each of the parties to this Agreement which is
designated as a "Guarantor" on the signature pages of Amendment No. 6 and each
other Person which joins this Agreement as a Guarantor after the date hereof
pursuant to Section 10.18. Each of the Domestic Subsidiaries now existing is a
Guarantor and each Domestic Subsidiary hereafter created shall join this
Agreement as a Guarantor.

         Guarantor Joinder shall mean a joinder by a Person as a Guarantor under
this Agreement, the Guaranty Agreement and the other Loan Documents in the form
of Exhibit 1.1(G)(1).

         Guaranty of any Person shall mean any obligation of such Person
guaranteeing or in effect guaranteeing any liability or obligation of any other
Person in any manner, whether directly or indirectly, including any agreement to
indemnify or hold harmless any other Person, any performance bond or other
suretyship arrangement and any other form of assurance against loss, except
endorsement of negotiable or other instruments for deposit or collection in the
ordinary course of business.

         Guaranty Agreement shall mean the Guaranty and Suretyship Agreement in
substantially the form of Exhibit 1.1(G)(2) executed and delivered by each of
the Guarantors to the Agent for the benefit of the Banks.

         Historical Statements shall have the meaning assigned to that term in
Section 5.1.8(i).

         Indebtedness shall mean, as to any Person at any time, and without
duplication, any and all indebtedness, obligations or liabilities (whether
matured or unmatured, liquidated or unliquidated, direct or indirect, absolute
or contingent, or joint or several) of such Person for or in respect of: (i)
borrowed money, (ii) amounts raised under or liabilities in respect of any note
purchase or acceptance credit facility, (iii) reimbursement obligations
(contingent or otherwise) under any letter of credit, currency swap agreement,
interest rate swap, cap, collar or floor agreement or other interest rate
management device, (iv) any other transaction (including forward sale or
purchase agreements, capitalized leases, conditional sales agreements and other
purchase agreements with deferred or contingent consideration) having the
commercial effect of a borrowing of money entered into by such Person to finance
its operations or capital requirements (but not including trade payables and
accrued expenses incurred in the ordinary course of business which are not
represented by a promissory note or other evidence of


                                      -8-
<PAGE>   9

indebtedness and which are not more than thirty (30) days past due), (v)
Repurchase Obligations, Earn Out Obligations and Floor-Plan Financing
Obligations, or (vi) any Guaranty of Indebtedness for borrowed money.

         Indenture shall mean that certain Indenture dated as of May 3, 1999,
among the Borrower, certain of its Subsidiaries and The First National Bank of
Chicago, in its capacity trustee for the Borrower's 7-5/8% senior notes due
2009.

         Ineligible Security shall mean any security which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as
amended.

         Insolvency Proceeding shall mean, with respect to any Person, (a) a
case, action or proceeding with respect to such Person (i) before any court or
any other Official Body under any bankruptcy, insolvency, reorganization or
other similar Law now or hereafter in effect, or (ii) for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator or conservator
(or similar official) of any Loan Party or otherwise relating to the
liquidation, dissolution, winding-up or relief of such Person; or (b) any
general assignment for the benefit of creditors, composition, marshaling of
assets for creditors or other similar arrangement in respect of such Person's
creditors generally or any substantial portion of its creditors undertaken under
any Law.

         Intellectual Property Collateral shall mean all of the property
described in the Patent, Trademark and Copyright Security Agreement.

         Internal Revenue Code shall mean the Internal Revenue Code of 1986, as
the same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, as from
time to time in effect.

         Inventory shall mean any and all goods, merchandise and other personal
property, including, without limitation, goods in transit, wheresoever located
and whether now owned or hereafter acquired by the Loan Parties which are or may
at any time be held as raw materials, finished goods, work-in-process, supplies
or materials used or consumed in the Loan Parties' business or held for sale or
lease, including, without limitation, (a) all such property the sale or other
disposition of which has given rise to Accounts and which has been returned to
or repossessed or stopped in transit by the Loan Parties, and (b) all packing,
shipping and advertising materials relating to all or any such property.

         Issuing Bank shall mean, with respect to a Letter of Credit, including
any replacements therefor or extensions thereof, any Bank selected by the
Borrower to issue such Letter of Credit.

         Labor Contracts shall mean all employment agreements, employment
contracts, collective bargaining agreements and other agreements among any Loan
Party or Subsidiary of a Loan Party and its employees.



                                      -9-
<PAGE>   10

         Law shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.

         Letter of Credit shall have the meaning assigned to that term in
Section 2.9.1.

         Letter of Credit Borrowing shall mean an extension of credit resulting
from a drawing under any Letter of Credit which shall not have been reimbursed
on the date when made and shall not have been converted into a Revolving Credit
Loan under Section 2.9.3.2.

         Letter of Credit Fee shall mean a per annum Letter of Credit Fee in an
amount equal to three percent (3%) per annum.

         Letters of Credit Outstanding shall mean at any time the sum of (i) the
aggregate undrawn face amount of outstanding Letters of Credit and (ii) the
aggregate amount of all unpaid and outstanding Reimbursement Obligations.

         Lien shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the filing).

         LLC Interests shall have the meaning given to such term in Section
5.1.2.

         Loan Documents shall mean this Agreement, the Agent's Letter, the
Collateral Assignment, the Guaranty Agreement, the Indemnity, the Intercompany
Subordination Agreement, the Notes, the Patent, Trademark and Copyright
Assignment, the Pledge Agreement, the Security Agreement, and any other
instruments, certificates or documents delivered or contemplated to be delivered
hereunder or thereunder or in connection herewith or therewith, as the same may
be supplemented or amended from time to time in accordance herewith or
therewith, and Loan Document shall mean any of the Loan Documents.

         Loan Parties shall mean the Borrower and the Significant Subsidiaries.

         Loan Request shall have the meaning given to such term in Section
2.5.1.

         Loans shall mean collectively and Loan shall mean separately all
Revolving Credit Loans or any Revolving Credit Loan.

         Material Adverse Change shall mean any set of circumstances or events
which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of this Agreement or any
other Loan Document, (b) is or could reasonably be expected to be material and
adverse to the business, properties, assets, financial


                                      -10-
<PAGE>   11

condition, results of operations or prospects of the Loan Parties taken as a
whole, (c) impairs materially or could reasonably be expected to impair
materially the ability of the Loan Parties taken as a whole to duly and
punctually pay or perform their Indebtedness, or (d) impairs materially or could
reasonably be expected to impair materially the ability of the Agent or any of
the Banks, to the extent permitted, to enforce its legal remedies pursuant to
this Agreement or any other Loan Document.

         Multiemployer Plan shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five plan years,
has made or had an obligation to make such contributions.

         Multiple Employer Plan shall mean a Plan which has two or more
contributing sponsors (including the Borrower or any member of the ERISA Group)
at least two of whom are not under common control, as such a plan is described
in Sections 4063 and 4064 of ERISA.

         Notes shall mean the Revolving Credit Notes.

         notices shall have the meaning assigned to that term in Section 10.6.

         Obligation shall mean any obligation or liability of any of the Loan
Parties to the Agent or any of the Banks, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing, or due or to become due, under or in connection with this Agreement,
any Notes, the Letters of Credit, the Agent's Letter or any other Loan Document.

         Official Body shall mean any national, federal, state, local or other
government or political subdivision, or any agency, authority, bureau, central
bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

         Participation Advance shall mean, with respect to any Bank, such Bank's
payment in respect of its participation in a Letter of Credit Borrowing
according to its Ratable Share pursuant to Section 2.9.4.

         Partnership Interests shall have the meaning given to such term in
Section 5.1.2.

         Patent, Trademark and Copyright Security Agreement shall mean the
Patent, Trademark and Copyright Security Agreement in substantially the form of
Exhibit 1.1(P)(1), with such changes or in such other form as reasonably
acceptable to the Agent, executed and delivered by the Borrower and each of the
Guarantors to the Agent for the benefit of the Banks.




                                      -11-
<PAGE>   12


         PBGC shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any successor.

         Permitted Investments shall mean:

         (i) direct obligations of the United States of America or any agency or
instrumentality thereof or obligations backed by the full faith and credit of
the United States of America maturing in twelve (12) months or less from the
date of acquisition;

         (ii) commercial paper maturing in 180 days or less and rated not lower
than A-1 by Standard & Poor's or P-1 by Moody's Investors Service, Inc. on the
date of acquisition;

         (iii) demand deposits, time deposits or certificates of deposit
maturing within one year in commercial banks whose obligations are rated A-1, A
or the equivalent or better by Standard & Poor's on the date of acquisition;

         (iv) investments described on Schedule 1.1(P)(1); and

         (v) other short-term investments acceptable to the Agent.

         Permitted Liens shall mean:

         (i) Liens for taxes, assessments or similar charges incurred in the
ordinary course of business and which are not yet due and payable;

         (ii) Pledges or deposits made in the ordinary course of business to
secure payment of workmen's compensation, or to participate in any fund in
connection with workmen's compensation, unemployment insurance, old-age pensions
or other social security programs;

         (iii) Liens of mechanics, materialmen, warehousemen or carriers, or
other like Liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable and Liens of landlords securing
obligations to pay lease payments that are not yet due and payable or in
default;

         (iv) Good-faith pledges or deposits made in the ordinary course of
business to secure performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, not in excess of the aggregate amount
due thereunder, or to secure statutory obligations, or surety, appeal,
indemnity, performance or other similar bonds required in the ordinary course of
business;

         (v) Encumbrances consisting of zoning restrictions, easements or other
restrictions on the use of real property, none of which materially impairs the
use of such property or the value thereof, and none of which is violated in any
material respect by existing or proposed structures or land use;



                                      -12-
<PAGE>   13


         (vi) Liens, security interests and mortgages in favor of the Agent for
the benefit of the Banks;

         (vii) Liens on property leased by any Loan Party or Subsidiary of a
Loan Party under capital and operating leases (in either case, as the nature of
such Lease is determined in accordance with GAAP) securing obligations of such
Loan Party or Subsidiary to the lessor under such leases;

         (viii) Purchase Money Security Interests provided that (a) Purchase
Money Security Interests securing Indebtedness other than Floor-Plan Financing
Obligations shall not exceed the limitations set forth in Section 7.2.1(iv), and
(b) Purchase Money Security Interests securing Indebtedness for Floor-Plan
Financing Obligations, provided however, the security interests which secure
such Floor-Plan Financing Obligations shall not extend to property of a Loan
Party or a Subsidiary of a Loan Party other than property acquired with the
proceeds of such Indebtedness;

         (ix) Mortgage Liens on real property securing Indebtedness to any Loan
Party or Subsidiary of a Loan Party or deferred payments by such Loan Party or
Subsidiary for the purchase of such real property, provided that the
Indebtedness secured by such Lien shall not exceed the limitations set forth in
Section 7.2.1(iv) and the Lien shall be limited to the property acquired with
the proceeds of such Indebtedness;

         (x) any Lien existing on the date of this Agreement and described on
Schedule 1.1(P)(2), provided that the principal amount secured thereby is not
hereafter increased, and no additional assets become subject to such Lien; and

         (xi) The following, (A) if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings diligently
conducted, so long as levy and execution thereon have been stayed and continue
to be stayed, or (B) if a final judgment is entered and such judgment is
discharged within thirty (30) days of entry, and in either case they do not
affect the Collateral, or they do not in the aggregate materially impair the
ability of any Loan Party to perform its Obligations hereunder or under the
other Loan Documents:

              (1) Claims or Liens for taxes, assessments or charges due and
     payable and subject to interest or penalty, provided that the applicable
     Loan Party maintains such reserves or other appropriate provisions as shall
     be required by GAAP and pays all such taxes, assessments or charges
     forthwith upon the commencement of proceedings to foreclose any such Lien;

              (2) Claims, Liens or encumbrances upon, and defects of title to,
     real or personal property other than the Collateral, including any
     attachment of personal or real property or other legal process prior to
     adjudication of a dispute on the merits;

              (3) Claims or Liens of mechanics, materialmen, warehousemen or
     carriers, or other statutory nonconsensual Liens; or

                                      -13-

<PAGE>   14


              (4) Liens resulting from final judgments or orders described in
     Section 8.1.6.

         Permitted Unsecured Debt shall mean Indebtedness incurred by the
Borrower or any of its Subsidiaries provided that each of the following
requirements is met:

         (i) The Borrower shall permanently reduce the Revolving Credit
Commitments in a minimum amount equal to the amount of such Indebtedness in
excess of $10,000,000;

         (ii) Neither the Borrower, nor any of the Borrower's Subsidiaries shall
grant, or agree to grant, whether conditionally or unconditionally, any Liens in
its assets securing such Indebtedness;

         (iii) The warranties and covenants governing such Indebtedness shall
not be less favorable to the Borrower and its Subsidiaries than the warranties
and covenants hereunder as determined by the Required Banks in their reasonable
discretion;

         (iv) (A) The Borrower shall deliver to the Agent for the benefit of the
Banks drafts of the agreements governing such Indebtedness at least seven (7)
days prior to the effective date of such agreements; and (B) the warranties and
covenants shall not be modified after the Banks have made the determination
described in clause (iv) above without the approval of the Required Banks;

         (v) No principal payments on such Indebtedness shall be due or may be
paid until after the Expiration Date hereunder; and

         (vi) No Subsidiary shall provide a Guaranty with respect to such
Indebtedness unless it has previously become a Guarantor.

         Person shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
organization, joint venture, government or political subdivision or agency
thereof, or any other entity.

         Plan shall mean at any time an employee pension benefit plan (including
a Multiple Employer Plan, but not a Multiemployer Plan) which is covered by
Title IV of ERISA or is subject to the minimum funding standards under Section
412 of the Internal Revenue Code, and either (i) is maintained by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained by any entity which was
at such time a member of the ERISA Group for employees of any entity which was
at such time a member of the ERISA Group.

         Pledge Agreement shall mean the Pledge Agreement in substantially the
form of Exhibit 1.1(P)(2) with such changes or in such other for as reasonably
acceptable to the Agent, executed and delivered by the Borrower and each of the
Guarantors to the Agent for the benefit of the Banks.



                                      -14-
<PAGE>   15


         Pledged Collateral shall mean the property of the Loan Parties in which
security interests are to be granted under the Pledge Agreement or the
Collateral Assignment.

         PNC Bank shall mean PNC Bank, National Association, its successors and
assigns.

         Potential Default shall mean any event or condition which, with notice,
passage of time or both, would constitute an Event of Default.

         Principal Office shall mean the main banking office of the Agent in
Pittsburgh, Pennsylvania.

         Prior Security Interest shall mean a valid and enforceable perfected
first-priority security interest under the Uniform Commercial Code in the UCC
Collateral and the Pledged Collateral which is subject only to Liens for taxes
not yet due and payable to the extent such prospective tax payments are given
priority by statute or Purchase Money Security Interests as permitted hereunder.

         Prohibited Transaction shall mean any prohibited transaction as defined
in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which
neither an individual nor a class exemption has been issued by the United States
Department of Labor.

         Property shall mean all real property, both owned and leased, of any
Loan Party or Subsidiary of a Loan Party.

         Purchase Money Security Interests shall mean Liens upon tangible
personal property securing loans to any Loan Party or Subsidiary of a Loan Party
or deferred payments by such Loan Party or Subsidiary for the purchase of such
tangible personal property.

         Purchasing Bank shall mean a Bank which becomes a party to this
Agreement by executing an Assignment and Assumption Agreement.

         Qualified Accounts shall mean any Accounts of the Borrower and the
Guarantors which the Agent in its sole discretion determines to have met all of
the minimum requirements set forth on Schedule 1.1(C).

         Qualified Inventory shall mean any Inventory of the Borrower and the
Guarantors which the Agent in its sole discretion determines to have met all of
the minimum requirements set forth on Schedule 1.1(D).

         Ratable Share shall mean the proportion that a Bank's Commitment bears
to the Commitments of all of the Banks.

         Regulated Substances shall mean any substance, including any solid,
liquid, semisolid, gaseous, thermal, thoriated or radioactive material, refuse,
garbage, wastes, chemicals, petroleum products, byproducts, coproducts,
impurities, dust, scrap and heavy metals, defined as a "hazardous substance,"
"pollutant," "pollution," "contaminant," "hazardous or toxic


                                      -15-
<PAGE>   16

substance," "extremely hazardous substance," "toxic chemical," "toxic waste,"
"hazardous waste," "industrial waste," "residual waste," "solid waste,"
"municipal waste," "mixed waste," "infectious waste," "chemotherapeutic waste,"
"medical waste" or "regulated substance" or any related materials, substances or
wastes as now or hereafter defined pursuant to any Environmental Laws,
ordinances, rules, regulations or other directives of any Official Body, the
generation, manufacture, extraction, processing, distribution, treatment,
storage, disposal, transport, recycling, reclamation, use, reuse, spilling,
leaking, dumping, injection, pumping, leaching, emptying, discharge, escape,
release or other management or mismanagement of which is regulated by the
Environmental Laws.

         Regulation U shall mean Regulation U, T or X as promulgated by the
Board of Governors of the Federal Reserve System, as amended from time to time.

         Reimbursement Obligation shall have the meaning assigned to such term
in Section 2.9.3.2.

         Reportable Event shall mean a reportable event described in Section
4043 of ERISA and regulations thereunder with respect to a Plan or Multiemployer
Plan.

         Repurchase Obligations shall mean the repurchase arrangements described
in Schedule 1.1(R) and such additional repurchase arrangements as the Borrower
and its Subsidiaries shall enter into from time to time.

         Required Banks shall mean any Bank or group of Banks if the aggregate
sum of the Loans, Reimbursement Obligations and Letter of Credit Borrowings of
such Banks then outstanding aggregates at least 51% of the total principal
amount of all of the Loans, Reimbursement Obligations and Letter of Credit
Borrowings then outstanding. If there are no Loans, Reimbursement Obligations or
Letter of Credit Borrowings outstanding, then Required Banks shall mean Banks
whose Commitments aggregate at least 51% of the Commitments of all of the Banks.

Reimbursement Obligations and Letter of Credit Borrowings shall be deemed, for
purposes of this definition, to be in favor of the Agent and not a participating
Bank if such Bank has not made its Participation Advance in respect thereof and
shall be deemed to be in favor of such Bank to the extent of its Participation
Advance if it has made its Participation Advance in respect thereof.

         Retail Finance Companies shall mean collectively, and Retail Finance
Company shall mean separately, a Person, other than an individual, primarily
engaged in the business of making loans to retail purchasers of manufactured
housing products subject to the underwriting standards of purchasers of such
types of loans, provided the loans held by such Retail Finance Company in
excess of sixty (60) days shall not at any time exceed $5,000,000.

         Revolving Credit Commitment shall mean, as to any Bank at any time, the
amount initially set forth opposite its name on Schedule 1.1(B) in the column
labeled "Amount of Commitment for Revolving Credit Loans," and thereafter on
Schedule I to the most recent


                                      -16-
<PAGE>   17

Assignment and Assumption Agreement, and Revolving Credit Commitments shall mean
the aggregate Revolving Credit Commitments of all of the Banks.

         Revolving Credit Loans shall mean collectively and Revolving Credit
Loan shall mean separately all Revolving Credit Loans or any Revolving Credit
Loan made by the Banks or one of the Banks to the Borrower pursuant to Section
2.1 or 2.9.3.

         Revolving Credit Note shall mean any Revolving Credit Note of the
Borrower in the form of Exhibit 1.1(R) issued by the Borrower at the request of
a Bank pursuant to Section 4.6 evidencing the Revolving Credit Loans to such
Bank, together with all amendments, extensions, renewals, replacements,
refinancings or refundings thereof in whole or in part.

         Revolving Facility Usage shall mean at any time the sum of the Loans
outstanding and the Letters of Credit Outstanding.

         Schedule of Accounts shall mean a summary aging of all then existing
Accounts in form and substance satisfactory to Agent, and if requested by the
Agent, such summary shall specify in each case the names, addresses, face amount
and dates of invoice(s) for each Account Debtor obligated on an Account so
listed, copies of proof of delivery and customer statements and the original
copy of all documents, including, without limitation, repayment histories and
present status reports, and such other matters and information relating to the
status of the Accounts and/or the Account Debtors so scheduled as the Agent may
from time to time reasonably request.

         Schedule of Inventory shall mean a summary of then existing Inventory
in form and substance satisfactory to the Agent on a FIFO basis, and with
specific identification of inventory located on retail lots and if requested by
Agent itemizing and describing the kind, type, quality and quantity of
Inventory.

         SEC shall mean the Securities and Exchange Commission or any
governmental agencies substituted therefor.

         Section 20 Subsidiary shall mean the Subsidiary of the bank holding
company controlling any Bank, which Subsidiary has been granted authority by the
Federal Reserve Board to underwrite and deal in certain Ineligible Securities.

         Security Agreement shall mean the Security Agreement in substantially
the form of Exhibit 1.1(S) with such changes or in such other form as reasonably
acceptable to the Agent, executed and delivered by the Borrower and each of the
Guarantors to the Agent for the benefit of the Banks.

         Shares shall have the meaning assigned to that term in Section 5.1.2.

         Significant Subsidiary shall mean any Subsidiary of the Borrower (other
than Champion Development and any Subsidiary of Champion Development) which at
the time (i) has gross revenues equal to or in excess of two and one-half
percent (2-1/2%) of the


                                      -17-
<PAGE>   18


consolidated gross revenues of the Borrower and its Subsidiaries, (ii) has total
assets equal to or in excess of five percent (5%) of the consolidated total
assets of the Borrower and its Subsidiaries, as determined and consolidated in
accordance with GAAP, (iii) has any material trademarks or other intellectual
property related to the business of the Borrower and its Subsidiaries, or (iv)
has commitments to lend or Guaranties from the Borrower or any other Significant
Subsidiary equal to or in excess of five percent (5%) of the consolidated total
assets of the Borrower and its Subsidiaries, as determined and consolidated in
accordance with GAAP.

         Solvent shall mean, with respect to any Person on a particular date,
that on such date (i) the fair value of the property of such Person is greater
than the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (ii) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (iii) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (iv) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability net of the amount of
receipts and recoveries that can reasonably be expected to inure to such Person
in relation to liabilities.

         Standard & Poor's shall mean Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., and its successors.

         Standby Letter of Credit shall mean a Letter of Credit issued to
support obligations of one or more of the Loan Parties, contingent or otherwise,
which finance the working capital and business needs of the Loan Parties
incurred in the ordinary course of business.

         Subsidiary of any Person at any time shall mean (i) any corporation or
trust of which more than 50% (by number of shares or number of votes) of the
outstanding capital stock or shares of beneficial interest normally entitled to
vote for the election of one or more directors or trustees (regardless of any
contingency which does or may suspend or dilute the voting rights) is at such
time owned directly or indirectly by such Person or one or more of such Person's
Subsidiaries, (ii) any partnership of which such Person is a general partner or
of which more than 50% of the partnership interests is at the time directly or
indirectly owned by such Person or one or more of such Person's Subsidiaries,
(iii) any limited liability company of which such Person is a member and of
which more than 50% of the limited liability company interests is at the time
directly or indirectly owned by such Person or one or more of such Person's
Subsidiaries, or (iv) any corporation, trust, partnership, limited liability
company or other entity



                                      -18-
<PAGE>   19


which is controlled or capable of being controlled by such Person or one or more
of such Person's Subsidiaries.

              Subsidiary Shares shall have the meaning assigned to that term in
Section 5.1.2.

              Transferor Bank shall mean the selling Bank pursuant to an
Assignment and Assumption Agreement.

              UCC Collateral shall mean the property of the Loan Parties in
which security interests are to be granted under the Security Agreement.

              Uniform Commercial Code shall have the meaning assigned to that
term in Section 5.1.15.

         1.2 Construction.


         Unless the context of this Agreement otherwise clearly requires, the
following rules of construction shall apply to this Agreement and each of the
other Loan Documents:

              1.2.1 Number; Inclusion.

              References to the plural include the singular, the plural, the
part and the whole; "or" has the inclusive meaning represented by the phrase
"and/or"; and "including" has the meaning represented by the phrase "including
without limitation";

              1.2.2 Determination.

              References to "determination" of or by the Agent or the Banks
shall be deemed to include good-faith estimates by the Agent or the Banks (in
the case of quantitative determinations) and good-faith beliefs by the Agent or
the Banks (in the case of qualitative determinations), and any such
determination shall be conclusive absent manifest error;

              1.2.3 Agent's Discretion and Consent.

              Whenever the Agent or the Banks are granted the right herein to
act in its or their sole discretion or to grant or withhold consent, such right
shall be exercised in good faith;

              1.2.4 Documents Taken as a Whole.

              The words "hereof," "herein," "hereunder," "hereto" and similar
terms in this Agreement or any other Loan Document refer to this Agreement or
such other Loan Document as a whole and not to any particular provision of this
Agreement or such other Loan Document;


                                      -19-
<PAGE>   20



              1.2.5 Headings.

              The section and other headings contained in this Agreement or such
other Loan Document and the table of contents (if any) preceding this Agreement
or such other Loan Document are for reference purposes only and shall not
control or affect the construction of this Agreement or such other Loan Document
or the interpretation thereof in any respect;

              1.2.6 Implied References to This Agreement.

              Article, section, subsection, clause, schedule and exhibit
references are to this Agreement or other Loan Document, as the case may be,
unless otherwise specified;

              1.2.7 Persons.

              Reference to any Person includes such Person's successors and
assigns, but, if applicable, only if such successors and assigns are permitted
by this Agreement or such other Loan Document, as the case may be, and reference
to a Person in a particular capacity excludes such Person in any other capacity;

              1.2.8 Modifications to Documents.

              Reference to any agreement (including this Agreement and any other
Loan Document together with the schedules and exhibits hereto or thereto),
document or instrument means such agreement, document or instrument as amended,
modified, replaced, substituted for, superseded or restated;

              1.2.9 From, To and Through.

              Relative to the determination of any period of time, "from" means
"from and including"; "to" means "to but excluding"; and "through" means
"through and including"; and

              1.2.10 Shall; Will.

              References to "shall" and "will" are intended to have the same
meaning.

         1.3 Accounting Principles.

         Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP and consistent with the past practices of the Borrower
and its Subsidiaries (including principles of consolidation where appropriate),
and all accounting or financial terms shall have the meanings ascribed to such
terms by GAAP; provided, however, that all accounting terms used in Section
7.1.11 [Negative Covenants] (and all defined terms used in the definition of any
accounting term used in Section 7.1.11) shall have the meaning given to such
terms (and defined terms) under GAAP as in effect on the date hereof applied on
a basis consistent with those used in preparing the



                                     -20-
<PAGE>   21

Historical Statements referred to in Section 5.1.8(i) [Historical Statements].
In the event of any change after the date hereof in GAAP, and if such change
would result in the inability to determine compliance with the financial
covenants set forth in Section 7.1.11 based upon the Borrower's regularly
prepared financial statements by reason of the preceding sentence, then the
parties hereto agree to endeavor, in good faith, to agree upon an amendment to
this Agreement that would adjust such financial covenants in a manner that would
not affect the substance thereof, but would allow compliance therewith to be
determined in accordance with the Borrower's financial statements at that time;
until this Agreement is so amended, the covenants shall remain as set forth in
this Agreement.

                         2. REVOLVING CREDIT FACILITIES


         2.1 Commitments.


              2.1.1 Revolving Credit Loan Commitments.

Subject to the terms and conditions hereof and relying upon the representations
and warranties herein set forth, each Bank severally agrees to make Revolving
Credit Loans to the Borrower at any time or from time to time on or after the
date hereof to the Expiration Date, provided that after giving effect to such
Loan, (i) during the period from the Closing Date through February 28, 2001, the
aggregate amount of Loans from such Bank shall not exceed such Bank's Ratable
Share of Ten Million Dollars ($10,000,000), and the aggregate amount of Loans
from all the Banks plus the Letters of Credit Outstanding shall not exceed
$45,000,000, (ii) during the period from March 1, 2001, through the Expiration
Date, the aggregate amount of the Loans from such Bank shall not exceed such
Bank's Ratable Share of Seventy-Five Million Dollars ($75,000,000) minus such
Bank's Ratable Share of the Letters of Credit Outstanding, and (iii) at all
times the aggregate amount of Loans from all the Banks plus the aggregate amount
of Letters of Credit Outstanding shall not exceed the Borrowing Base. Within
such limits of time and amount and subject to the other provisions of this
Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section
2.1.1. The Revolving Credit Loans shall be due and payable in full on the
Expiration Date or the earlier acceleration thereof.

              2.1.2 [Intentionally Omitted].

         2.2 Nature of Banks' Obligations With Respect to Revolving Credit
Loans.

         Each Bank shall be obligated to participate in each request for
Revolving Credit Loans pursuant to Section 2.5 [Revolving Credit Loan Requests,
Etc.] in accordance with its Ratable Share. The aggregate of each Bank's
Revolving Credit Loans outstanding hereunder to the Borrower at any time shall
never exceed (i) during the period from the Closing Date through February 28,
2001, such Bank's Ratable Share of Ten Million Dollars ($10,000,000), and (ii)
during the period from March 1, 2001, through the Expiration Date, such Bank's
Ratable Share of Seventy-Five Million Dollars ($75,000,000) minus such Bank's
Ratable Share of the Letters of Credit Outstanding, and the aggregate amount of
the Banks' Revolving Credit Loans outstanding hereunder plus Letters of Credit
Outstanding shall not at any time exceed the Borrowing Base.

                                      -21-
<PAGE>   22

The obligations of each Bank hereunder are several. The failure of any Bank to
perform its obligations hereunder shall not affect the Obligations of the
Borrower to any other party, nor shall any other party be liable for the failure
of such Bank to perform its obligations hereunder. The Banks shall have no
obligation to make Revolving Credit Loans hereunder on or after the Expiration
Date.

         2.3 Commitment Fee.

         Accruing from the date hereof until the Expiration Date, the Borrower
agrees to pay to the Agent for the account of each Bank, as consideration for
such Bank's Revolving Credit Commitment hereunder, a nonrefundable commitment
fee (the "Commitment Fee") equal to the Applicable Commitment Fee Rate (computed
on the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) on the average daily difference between the amount of (i) such Bank's
Revolving Credit Commitment as the same may be constituted from time to time,
and (ii) the sum of the principal amount of such Bank's Revolving Credit Loans
outstanding plus its Ratable Share of the Letters of Credit Outstanding. The
Commitment Fee shall be payable in arrears on the first Business Day of each
January, April, July and October after the date hereof and on the Expiration
Date or upon acceleration of the Loans.

         2.4 Closing Fee.

         The Borrower agrees to pay to the Agent, for the account of each Bank,
as consideration for such Bank's Revolving Credit Commitment, a nonrefundable
closing fee as set forth in the Agent's Letter.

         2.5 Revolving Credit Loan Requests.

              2.5.1 Revolving Credit Loan Requests.

              Except as otherwise provided herein, the Borrower may from time to
time prior to the Expiration Date request the Banks to make Revolving Credit
Loans, by delivering to the Agent, not later than 10:00 a.m., Pittsburgh time,
one (1) Business Day prior to either the proposed Borrowing Date, a duly
completed request therefor substantially in the form of Exhibit 2.5.1 or a
request by telephone immediately confirmed in writing by letter, facsimile or
telex in such form (each, a "Loan Request"), accompanied by a Borrowing Base
Certificate, it being understood that the Agent may rely on the authority of any
individual making such a telephonic request without the necessity of receipt of
such written confirmation. Each Loan Request shall be irrevocable and shall
specify (i) the proposed Borrowing Date; and (ii) the aggregate amount of the
proposed Loans, which shall be not less than the lesser of $1,000,000 or the
maximum amount available.

              2.5.2 [Intentionally Omitted.]

         2.6 Making Revolving Credit Loans.

         The Agent shall, promptly after receipt by it of a Loan Request
pursuant to Section 2.5 [Revolving Credit Loan Requests, Etc.] accompanied by a
Borrowing Base


                                      -22-
<PAGE>   23


Certificate, notify the Banks of its receipt of such Loan Request, specifying:
(i) the proposed Borrowing Date and the time and method of disbursement of the
Revolving Credit Loans requested thereby; (ii) the amount of each such Revolving
Credit Loan; and (iii) the apportionment among the Banks of such Revolving
Credit Loans as determined by the Agent in accordance with Section 2.2 [Nature
of Banks' Obligations With Respect to Revolving Credit Loans]. Each Bank shall
remit the principal amount of each Revolving Credit Loan to the Agent such that
the Agent is able to, and the Agent shall, to the extent the Banks have made
funds available to it for such purpose and subject to Section 6.2 [Each
Additional Loan or Letter of Credit], fund such Revolving Credit Loans to the
Borrower in U.S. Dollars and immediately available funds at the Principal Office
prior to 2:00 p.m., Pittsburgh time, on the applicable Borrowing Date; provided
that if any Bank fails to remit such funds to the Agent in a timely manner, the
Agent may elect in its sole discretion to fund with its own funds the Revolving
Credit Loans of such Bank on such Borrowing Date, and such Bank shall be subject
to the repayment obligation in Section 9.16 [Availability of Funds].

              2.6.1 [Intentionally Omitted.]

         2.7 Use of Proceeds.

         The proceeds of the Revolving Credit Loans shall be used for working
capital purposes and to finance the Borrower's and the Guarantors' purchase of
raw materials and other materials used in the manufacturing of their inventory
and for the reimbursement of the Borrower and the Guarantors for amounts they
have paid for the purchase of raw materials and other materials used in the
manufacturing of their inventory which were made within three hundred sixty
(360) days prior to the applicable Revolving Credit Loan and in accordance with
Section 7.1.10 [Use of Proceeds].

         2.8 [Intentionally Omitted.]

         2.9 Letter of Credit Subfacility.

              2.9.1 Issuance of Letters of Credit.

              The Borrower may request the issuance of a letter of credit (each,
a "Letter of Credit") on behalf of itself or another Loan Party by delivering to
the Issuing Bank selected by the Borrower (with a copy to the Agent) a completed
application and agreement for letters of credit in such form as the Issuing Bank
may specify from time to time by no later than 10:00 a.m., Pittsburgh time, at
least five (5) Business Days, or such shorter period as may be agreed to by the
Issuing Bank, in advance of the proposed date of issuance, accompanied by a
Borrowing Base Certificate evidencing that (i) the Borrowing Base is equal to or
greater than the aggregate amount of the Loans plus the Letters of Credit
Outstanding after giving effect to the Letter of Credit which the Borrower has
requested to be issued, (ii) during the period from the Closing Date through
February 28, 2001, the aggregate amount of Loans plus the Letters of Credit
Outstanding after giving effect to the Letter of Credit which the Borrower has
requested to be issued is not in excess of $45,000,000, and (iii) during the
period from March 1, 2001, through the Expiration Date, the aggregate amount of
the Loans plus Letters of Credit Outstanding after


                                      -23-
<PAGE>   24


giving effect to the Letter of Credit which the Borrower has requested is not in
excess of $75,000,000. Each Letter of Credit shall be either a Standby Letter of
Credit or a Commercial Letter of Credit. Subject to the terms and conditions
hereof and in reliance on the agreements of the other Banks set forth in this
Section 2.9, the Issuing Bank will issue a Letter of Credit provided that each
Letter of Credit shall (A) have a maximum maturity of eighteen (18) months from
the date of issuance and (B) in no event expire later than ten (10) Business
Days prior to the Expiration Date and providing that in no event shall (i) the
Letters of Credit Outstanding exceed, at any one time, $35,000,000, (ii) the
Revolving Facility Usage exceed, at any one time, during the period from the
Closing Date through February 28, 2001, $45,000,000, and during the period from
March 1, 2001, through the Expiration Date, $75,000,000, (iii) the sum of the
Loans and Letters of Credit Outstanding exceed, at any one time, the Borrowing
Base.

              2.9.2 Letter of Credit Fees.

              The Borrower shall pay (i) to the Agent for the ratable account of
the Banks a fee equal to the Letter of Credit Fee and (ii) to the Issuing Bank
for its own account a fronting fee agreed upon between the Issuing Bank and the
Borrower (such fee computed on the basis of a year of 360 days and actual days
elapsed), which fees shall be computed on the daily average Letters of Credit
Outstanding and shall be payable quarterly in arrears commencing with the first
Business Day of each January, April, July and October following issuance of each
Letter of Credit and on the Expiration Date. Subject to the terms and conditions
of this Agreement, any Issuing Bank selected by the Borrower shall issue the
requested Letter of Credit. The Borrower shall also pay to the Issuing Bank for
the Issuing Bank's sole account the Issuing Bank's then-in-effect reasonable and
customary fees and administrative expenses payable with respect to the Letters
of Credit as the Issuing Bank may generally charge or incur from time to time in
connection with the issuance, maintenance, modification (if any), assignment or
transfer (if any), negotiation and administration of Letters of Credit.

              2.9.3 Disbursements, Reimbursement.

                   2.9.3.1 Immediately upon the Issuance of each Letter of
Credit, each Bank shall be deemed to, and hereby irrevocably and unconditionally
agrees to, purchase from the Issuing Bank a participation in such Letter of
Credit and each drawing thereunder in an amount equal to such Bank's Ratable
Share of the maximum amount available to be drawn under such Letter of Credit
and the amount of such drawing, respectively.

                   2.9.3.2 In the event of any request for a drawing under a
Letter of Credit by the beneficiary or transferee thereof, the Issuing Bank will
promptly notify the Borrower and the Agent. Provided that it shall have received
such notice, the Borrower shall reimburse (such obligation to reimburse the
Issuing Bank shall sometimes be referred to as a "Reimbursement Obligation") the
Agent on behalf of the Issuing Bank prior to 12:00 noon, Pittsburgh time, on
each date that an amount is paid by the Issuing Bank under any Letter of Credit
(each such date, a "Drawing Date") in an amount equal to the amount so paid by
the Issuing Bank. In the event the Borrower fails to reimburse the Agent on
behalf of the Issuing Bank for the full amount of any drawing under any Letter
of Credit by 12:00 noon, Pittsburgh time, on the Drawing Date, the Issuing Bank
will promptly notify the Agent and each Bank



                                      -24-
<PAGE>   25

thereof, and the Borrower shall be deemed to have requested that Revolving
Credit Loans be made by the Banks under the Base Rate Option to be disbursed on
the Drawing Date under such Letter of Credit, subject to the amount of the
unutilized portion of the Revolving Credit Commitment and subject to the
conditions set forth in Section 6.2 [Each Additional Loan or Letter of Credit]
other than any notice requirements. Any notice given by the Issuing Bank
pursuant to this Section 2.9.3.2 may be oral if immediately confirmed in
writing, provided that the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice.

                   2.9.3.3 Each Bank shall upon any notice pursuant to Section
2.9.3.2 make available to the Agent, on behalf of the Issuing Bank, an amount in
immediately available funds equal to its Ratable Share of the amount of the
drawing, whereupon the participating Banks shall (subject to Section 2.9.3.4)
each be deemed to have made a Revolving Credit Loan under the Base Rate Option
to the Borrower in that amount. If any Bank so notified fails to make available
to the Agent for the account of the Issuing Bank the amount of such Bank's
Ratable Share of such amount by no later than 2:00 p.m., Pittsburgh time, on the
Drawing Date, then interest shall accrue on such Bank's obligation to make such
payment from the Drawing Date to the date on which such Bank makes such payment
(i) at a rate per annum equal to the Federal Funds Effective Rate during the
first three days following the Drawing Date and (ii) at a rate per annum equal
to the rate applicable to Loans under the Revolving Credit Base Rate Option on
and after the fourth day following the Drawing Date. The Issuing Bank will
promptly give notice to the Agent and each other Bank of the occurrence of the
Drawing Date, but failure of the Issuing Bank to give any such notice on the
Drawing Date or in sufficient time to enable any Bank to effect such payment on
such date shall not relieve such Bank from its obligation under this Section
2.9.3.3.

                   2.9.3.4 With respect to any unreimbursed drawing that is not
converted into Revolving Credit Loans under the Base Rate Option to the Borrower
in whole or in part as contemplated by Section 2.9.3.2, because of the
Borrower's failure to satisfy the conditions set forth in Section 6.2 [Each
Additional Loan or Letter of Credit] other than any notice requirements or for
any other reason, the Borrower shall be deemed to have incurred from the Issuing
Bank a Letter of Credit Borrowing in the amount of such drawing. Such Letter of
Credit Borrowing shall be due and payable on demand (together with interest) and
shall bear interest at the rate per annum applicable to the Revolving Credit
Loans under the Base Rate Option. Each Bank's payment to the Agent on behalf of
the Issuing Bank pursuant to Section 2.9.3.3 shall be deemed to be a payment in
respect of its participation in such Letter of Credit Borrowing and shall
constitute a "Participation Advance" from such Bank in satisfaction of its
participation obligation under this Section 2.9.3.

              2.9.4 Repayment of Participation Advances.

                   2.9.4.1 Upon (and only upon) receipt by the Agent for the
account of the Issuing Bank of immediately available funds from the Borrower (i)
in reimbursement of any payment made by the Issuing Bank under the Letter of
Credit with respect to which any Bank has made a Participation Advance to the
Agent, or (ii) in payment of interest on such a payment made by the Issuing Bank
under such a Letter of Credit, the Agent on behalf



                                      -25-
<PAGE>   26
of the Issuing Bank will pay to each Bank, in the same funds as those received
by the Agent on behalf of the Issuing Bank, the amount of such Bank's Ratable
Share of such funds, except the Agent shall retain the amount of the Ratable
Share of such funds of any Bank that did not make a Participation Advance in
respect of such payment by Issuing Bank.

                   2.9.4.2 If any Issuing Bank (or the Agent on behalf of any
Issuing Bank) is required at any time to return to any Loan Party, or to a
trustee, receiver, liquidator, custodian or any official in any Insolvency
Proceeding, any portion of the payments made by any Loan Party to the Issuing
Bank or to the Agent on behalf of any Issuing Bank pursuant to Section 2.9.3.2
in reimbursement of a payment made under the Letter of Credit or interest or fee
thereon, each Bank shall, on demand of the Agent, on behalf of the Issuing Bank,
forthwith return to the Agent, on behalf of the Issuing Bank, the amount of its
Ratable Share of any amounts so returned by the Issuing Bank or by the Agent on
behalf of the Issuing Bank plus interest thereon from the date such demand is
made to the date such amounts are returned by such Bank to the Issuing Bank or
to the Agent on behalf of the Issuing Bank, at a rate per annum equal to the
Federal Funds Effective Rate in effect from time to time.

              2.9.5 Documentation.

              Each Loan Party agrees to be bound by the terms of the Issuing
Bank's application and agreement for letters of credit and the Issuing Bank's
written regulations and customary practices relating to letters of credit,
though such interpretation may be different from such Loan Party's own. In the
event of a conflict between such application or agreement and this Agreement,
this Agreement shall govern. It is understood and agreed that, except in the
case of gross negligence or willful misconduct, neither the Agent nor any
Issuing Bank shall be liable for any error, negligence and/or mistakes, whether
of omission or commission, in following any Loan Party's instructions or those
contained in the Letters of Credit or any modifications, amendments or
supplements thereto.

              2.9.6 Determinations to Honor Drawing Requests.

              In determining whether to honor any request for drawing under any
Letter of Credit by the beneficiary thereof, the Issuing Bank shall be
responsible to determine only that the documents and certificates required to be
delivered under such Letter of Credit have been delivered and that they comply
on their face with the requirements of such Letter of Credit.

              2.9.7 Nature of Participation and Reimbursement Obligations.

              Each Bank's obligation in accordance with this Agreement to make
the Revolving Credit Loans or Participation Advances, as contemplated by Section
2.9.3, as a result of a drawing under a Letter of Credit, and the Obligation of
the Borrower to reimburse the Issuing Bank upon a draw under a Letter of Credit,
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Section 2.9 under all
circumstances, including the following circumstances:





                                      -26-
<PAGE>   27

                        (i) any set-off, counterclaim, recoupment, defense or
other right which such Bank may have against the Issuing Bank, the Agent, the
Borrower or any other Person for any reason whatsoever;

                        (ii) the failure of any Loan Party or any other Person
to comply, in connection with a Letter of Credit Borrowing, with the conditions
set forth in Section 2.1 [Revolving Credit Commitments], 2.5 [Revolving Credit
Loan Requests, Etc.], 2.6 [Making Revolving Credit Loans] or 6.2 [Each
Additional Loan or Letter of Credit] or as otherwise set forth in this Agreement
for the making of a Revolving Credit Loan, it being acknowledged that such
conditions are not required for the making of a Letter of Credit Borrowing and
the obligation of the Banks to make Participation Advances under Section 2.9.3;

                        (iii) any lack of validity or enforceability of any
Letter of Credit;

                        (iv) the existence of any claim, set-off, defense or
other right which any Loan Party or any Bank may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons for whom
any such transferee may be acting), the Agent, any Issuing Bank, or any Bank or
any other Person or, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between any Loan Party or Subsidiaries of a Loan Party and the
beneficiary for which any Letter of Credit was procured);

                        (v) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect, even if the Issuing Bank has been notified thereof;

                        (vi) payment by the Issuing Bank under any Letter of
Credit against presentation of a demand, draft, certificate or other document
which does not comply with the terms of such Letter of Credit;

                        (vii) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of any Loan
Party or Subsidiaries of a Loan Party;

                        (viii) any breach of this Agreement or any other Loan
Document by any party thereto;

                        (ix) the occurrence or continuance of an Insolvency
Proceeding with respect to any Loan Party;

                        (x) the fact that an Event of Default or a Potential
Default shall have occurred and be continuing;

                        (xi) the fact that the Expiration Date shall have passed
or this Agreement or the Commitments hereunder shall have been terminated; and




                                      -27-
<PAGE>   28

                        (xii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.

              Nothing in the preceding sentence shall relieve the Agent from
liability pursuant to Section 2.9.9 [Liability for Acts and Omissions] for the
Agent's gross negligence or willful misconduct in connection with actions or
omissions described in such clauses (i) through (xii) of such sentence.

              2.9.8 Indemnity.

              In addition to amounts payable as provided in Section 9.5
[Reimbursement and Indemnification of Agent by the Borrower], the Borrower
hereby agrees to protect, indemnify, pay and save harmless the Agent and each
Issuing Bank from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which the
Agent or any Issuing Bank may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of any Letter of Credit, other than as a result of
(A) the gross negligence or willful misconduct of any Agent or an Issuing Bank
as determined by a final judgment of a court of competent jurisdiction or, (B)
subject to the following clause (ii), the wrongful dishonor by an Issuing Bank
of a proper demand for payment made under any Letter of Credit, or (ii) the
failure of an Issuing Bank to honor a drawing under any such Letter of Credit as
a result of any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto government or governmental authority (all such acts
or omissions herein called "Governmental Acts").

              2.9.9 Liability for Acts and Omissions.

              As between any Loan Party, each Issuing Bank and the Agent, such
Loan Party assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, neither any Agent nor any
Issuing Bank shall be responsible for: (i) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in
connection with the application for an issuance of any such Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged (even if the Issuing Bank shall
have been notified thereof); (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) the
failure of the beneficiary of any such Letter of Credit, or any other party to
which such Letter of Credit may be transferred, to comply fully with any
conditions required in order to draw upon such Letter of Credit, or any other
claim of any Loan Party against any beneficiary of such Letter of Credit or any
such transferee, or any dispute between or among any Loan Party and any
beneficiary of any Letter of Credit or any such transferee; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit




                                      -28-
<PAGE>   29

of the proceeds of any drawing under such Letter of Credit; or (viii) any
consequences arising from causes beyond the control of any Issuing Bank or any
Agent, including any Governmental Acts, and none of the above shall affect or
impair, or prevent the vesting of, any of the Agent's rights or powers hereunder
or of any of the rights or powers hereunder of any Issuing Bank. Nothing in the
preceding sentence shall: (x) relieve the Agent from liability for the Agent's
gross negligence or willful misconduct in connection with actions or omissions
described in such clauses (i) through (viii) of such sentence, or (y) relieve
any Issuing Bank from liability for such Issuing Bank's gross negligence or
willful misconduct in connection with actions or omissions described in such
clauses (i) through (viii) of such sentence.

              In furtherance and extension, and not in limitation, of the
specific provisions set forth above, any action taken or omitted by the Agent or
any Issuing Bank under or in connection with the Letters of Credit issued by it
or any documents and certificates delivered thereunder, if taken or omitted in
good faith, shall not put the Agent or any Issuing Bank under any resulting
liability to the Borrower or any other Bank.

         2.10 Mandatory Prepayments.

              2.10.1 Sale of Assets.

              Within five (5) Business Days of any sale of assets authorized by
Section 7.2.6(iii) [Disposition of Assets or Subsidiaries] and to the extent
that the gross consideration received for such sale is in excess of either of
the amounts set forth in Section 7.2.6(iii), the Borrower shall make a mandatory
prepayment of principal of the Revolving Credit Loans equal to the amount of net
cash proceeds (i.e. gross proceeds minus fees and expenses of such sale) paid by
the buyer or buyers in connection with such sale, together with accrued interest
on such principal amount. Any such mandatory prepayment of the Revolving Credit
Loans or deposits of funds as cash collateral (as described in the next
sentence) shall also reduce the maximum amount of credit available through the
Expiration Date for Loans and Letters of Credit under Sections 2.1 and 2.9 on a
dollar-for-dollar basis in the amount of the reduction of the Loans or such
deposits. If there are no Revolving Credit Loans outstanding at the time of
mandatory prepayment pursuant to this Section 2.10.1, the net cash proceeds of
such sale shall be held by the Agent in an account under its control and shall
serve as additional Collateral with respect to the Obligations.

         2.11 Permanent Reductions of Commitments.

              2.11.1 Voluntary Reductions.

              The Borrower shall be permitted, without premium or penalty, at
any time upon five (5) Business Days' notice to the Agent, to reduce permanently
the Revolving Credit Commitments in an aggregate amount of not less than
$5,000,000 and in integral multiples of $1,000,000 for amounts in excess of
$5,000,000, and each Bank's Revolving Credit Commitment shall be reduced in
accordance with its Ratable Share; provided, however, that any such reduction in
the Revolving Credit Commitments shall also reduce the maximum amount of credit





                                      -29-
<PAGE>   30

available through the Expiration Date for Loans and Letters of Credit under
Sections 2.1 and 2.9 on a dollar-for-dollar basis in the amount of the reduction
of the Commitments.

              2.11.2 Eligible Inventory Advance Rates; Borrowing Base Exceeded.

              Whenever the outstanding principal balance of Revolving Credit
Loans by the Banks plus the Letters of Credit Outstanding exceeds the Borrowing
Base, the Borrower shall make, within three (3) Business Days after the Borrower
learns of such excess and whether or not the Agent has given notice to such
effect, a mandatory prepayment of principal equal to the excess of the
outstanding principal balance of the Revolving Credit Loans plus the Letters of
Credit Outstanding over the Borrowing Base, together with accrued interest on
such principal amount. Whenever the Letters of Credit Outstanding issued
pursuant to Section 2.9 exceeds the Borrowing Base, the Borrower shall make,
within three (3) Business Day after the Borrower learns of such excess and
whether or not the Agent has given notice to such effect, a cash deposit with
the Agent in a deposit account under the sole control of the Agent in an amount
equal to the excess of the Letters of Credit Outstanding over the Borrowing
Base.

              2.11.3 Mandatory Reductions.

              The maximum amount of credit available for Loans and Letters of
Credit under Sections 2.1 and 2.9 shall be permanently reduced on the date of
any mandatory prepayment required pursuant to Section 2.10.1 by an amount equal
to the gross proceeds (after deducting fees and expenses incurred in connection
with such sale) paid by the buyer or buyers in connection with such asset sale
transaction, and in each case, each Bank's Revolving Credit Commitment shall be
reduced in accordance with its Ratable Share.

              2.11.4 Effect of Reductions.

              After each such reduction of the maximum amount of credit
available for Loans and Letters of Credit under Section 2.1 and 2.9 and
corresponding dollar-for-dollar reduction of the Revolving Credit Commitments,
the Commitment Fee shall be calculated upon the Revolving Credit Commitments of
the Banks as so reduced, and the amount of the reduction of the maximum amount
of credit available for Loans and Letters of Credit under Section 2.1 and 2.9
and the Revolving Credit Commitments shall not be reinstated.

                               3. INTEREST RATES

         3.1 Interest Rate.

              The Borrower shall pay interest in respect of the outstanding
unpaid principal amount of the Loans.

              The Revolving Credit Loans shall bear interest at a fluctuating
rate per annum (computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed) equal to the Base Rate plus the Applicable
Margin, such interest rate to change automatically from time to time effective
as of the effective date of each change in the Base Rate.






                                      -30-
<PAGE>   31

         3.2 [Intentionally Omitted].

         3.3 Interest After Default.

         To the extent permitted by Law, upon the occurrence of an Event of
Default and until such time such Event of Default shall have been cured or
waived:

              3.3.1 Letter of Credit Fees; Interest Rate.

              The Letter of Credit Fees and the rate of interest for each Loan
otherwise applicable pursuant to Section 2.9.2 [Letter of Credit Fees] or
Section 3.1 [Interest Rate Options], respectively, shall be increased by 2.0%
per annum; and

              3.3.2 Other Obligations.

              Each other Obligation hereunder, if not paid when due, shall bear
interest at a rate per annum equal to the Base Rate plus an additional 3% per
annum from the time such Obligation becomes due and payable until it is paid in
full.

              3.3.3 Acknowledgment.

              The Borrower acknowledges that the increase in rates referred to
in this Section 3.3 reflects, among other things, the fact that such Loans or
other amounts have become a substantially greater risk given their default
status and that the Banks are entitled to additional compensation for such risk;
and all such interest shall be payable by Borrower upon demand by Agent.

                                  4. PAYMENTS

         4.1 Payments.

         All payments and prepayments to be made in respect of principal,
interest, Commitment Fees, Letter of Credit Fees, the Agent's Fee or other fees
or amounts due from the Borrower hereunder shall be payable prior to noon,
Pittsburgh time, on the date when due without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by the Borrower,
and without set-off, counterclaim or other deduction of any nature, and an
action therefor shall immediately accrue. Such payments shall be made to the
Agent at the Principal Office for the ratable accounts of the Banks with respect
to the Revolving Credit Loans in U.S. Dollars and in immediately available
funds, and the Agent shall promptly distribute such amounts to the Banks in
immediately available funds; provided that in the event payments are received by
noon, Pittsburgh time, by the Agent with respect to the Loans and such payments
are not distributed to the Banks on the same day received by the Agent, the
Agent shall pay the Banks the Federal Funds Effective Rate with respect to the
amount of such payments for each day held by the Agent and not distributed to
the Banks. The Agent's and each Bank's statement of account, ledger or other
relevant record shall, in the absence of manifest error, be conclusive




                                      -31-
<PAGE>   32

as the statement of the amount of principal of and interest on the Loans and
other amounts owing under this Agreement and shall be deemed an "account
stated."

         4.2 Pro Rata Treatment of the Banks.

         Each borrowing shall be allocated to each Bank according to its Ratable
Share, and each payment or prepayment by the Borrower with respect to principal,
interest, Commitment Fees, Letter of Credit Fees or other fees (except for the
Agent's Fee) or amounts due from the Borrower hereunder to the Banks with
respect to the Loans shall (except as provided in Section 4.4.2 [Replacement of
a Bank] or 4.5 [Additional Compensation in Certain Circumstances]) be made in
proportion to the applicable Loans outstanding from each Bank and, if no such
Loans are then outstanding, in proportion to the Ratable Share of each Bank.

         4.3 Interest Payment Dates.

         Interest on Loans to which the Base Rate Option applies shall be due
and payable in arrears on the first Business Day of each January, April, July
and October after the date hereof and on the Expiration Date or upon
acceleration of the Loans. Interest on mandatory prepayments of principal under
Section 2.10 [Mandatory Prepayments] shall be due on the date such mandatory
prepayment is due. Interest on the principal amount of each Loan or other
monetary Obligation shall be due and payable on demand after such principal
amount or other monetary Obligation becomes due and payable (whether on the
stated maturity date, upon acceleration or otherwise).

         4.4 Voluntary Prepayments.

              4.4.1 Right to Prepay.

              The Borrower shall have the right at its option from time to time
to prepay the Loans in whole or part without premium or penalty.

              Whenever the Borrower desires to prepay any part of the Loans, it
shall provide a prepayment notice to the Agent by 1:00 p.m., Pittsburgh time, at
least one (1) Business Day prior to the date of prepayment of the Revolving
Credit Loans, setting forth the following information:

              (x) the date, which shall be a Business Day, on which the proposed
     prepayment is to be made; and

              (y) the total principal amount of such prepayment, which shall not
     be less than $1,000,000 for any Revolving Credit Loan.

              All prepayment notices shall be irrevocable. The principal amount
of the Loans for which a prepayment notice is given, together with interest on
such principal amount except with respect to Loans to which the Base Rate Option
applies, shall be due and payable on the date specified in such prepayment
notice as the date on which the proposed prepayment is to


                                      -32-
<PAGE>   33

be made. Any prepayment hereunder shall be subject to the Borrower's Obligation
to indemnify the Banks under Section 4.5.2 [Indemnity].

              4.4.2 Replacement of a Bank.

              In the event any Bank (i) gives notice under Section 4.5.1
[Increased Costs, Etc.], (ii) does not fund Revolving Credit Loans because the
making of such Loans would contravene any Law applicable to such Bank, (iii)
does not approve any action as to which consent of the Required Banks is
requested by the Borrower and obtained hereunder, or (iv) becomes subject to the
control of an Official Body (other than normal and customary supervision), then
the Borrower shall have the right at its option, with the consent of the Agent,
which shall not be unreasonably withheld, to prepay the Loans of such Bank in
whole, together with all interest accrued thereon, and terminate such Bank's
Commitment within ninety (90) days after (w) receipt of such Bank's notice under
Section 4.5.1 [Increased Costs, Etc.], (x) the date such Bank has failed to fund
Revolving Credit Loans because the making of such Loans would contravene Law
applicable to such Bank, (y) the date of obtaining the consent which such Bank
has not approved, or (z) the date such Bank became subject to the control of an
Official Body, as applicable; provided that (A) the Borrower shall also pay to
such Bank at the time of such prepayment any amounts required under Section 4.5
[Additional Compensation in Certain Circumstances] and any accrued interest due
on such amount and any related fees or amounts then due under the Loans
Documents to such Bank; (B) the Borrower shall also prepay the Loans, together
with all interest accrued thereon, and terminate the Commitment of all other
Banks that are similarly situated pursuant to Section 4.4.2 (i)-(iii); (C)
unless the Borrower exercises its right to permanently reduce the Commitments by
the amount of such Bank's Commitment (upon such notice and in such amounts as
set forth in Section 2.11.1 [Voluntary Reductions]),the Commitment of such Bank
shall be provided by one or more of the remaining Banks or a replacement bank
acceptable to the Agent, which consent shall not be unreasonably withheld;, and
(D) the remaining Banks shall have no obligation hereunder to increase their
Commitments. Notwithstanding the foregoing, the Agent may only be replaced
subject to the requirements of Section 9.14 [Successor Agent] and an Issuing
Bank may only be replaced if all Letters of Credit issued by such Issuing Bank
have expired or been terminated or replaced.

              4.4.3 Change of Lending Office.

              Each Bank agrees that upon the occurrence of any event giving rise
to increased costs or other special payments under Section 3.4.2 [Illegality,
Etc.] or 4.5.1 [Increased Costs, Etc.] with respect to such Bank, it will, if
requested by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Bank) to designate another lending office for any Loans
or Letters of Credit affected by such event, provided that such designation is
made on such terms that such Bank and its lending office suffer no economic,
legal or regulatory disadvantage, with the object of avoiding the consequence of
the event giving rise to the operation of such Section. Nothing is this Section
4.4.3 shall affect or postpone any of the Obligations of the Borrower or any
other Loan Party or the rights of the Agent or any Bank provided in this
Agreement.





                                      -33-
<PAGE>   34

         4.5 Additional Compensation in Certain Circumstances.

              4.5.1 Increased Costs or Reduced Return Resulting From Taxes,
Reserves, Capital Adequacy Requirements, Expenses, Etc.

              If any Law, guideline or interpretation, or any change in any Law,
guideline or interpretation or application thereof by any Official Body charged
with the interpretation or administration thereof, or compliance with any
request or directive (whether or not having the force of Law) of any central
bank or other Official Body:

                        (i) subjects any Bank to any tax or changes the basis of
taxation with respect to this Agreement, the Loans or payments by the Borrower
of principal, interest, Commitment Fees or other amounts due from the Borrower
hereunder (except for taxes on the overall net income of such Bank),

                        (ii) imposes, modifies or deems applicable any reserve,
special deposit or similar requirement against credits or commitments to extend
credit extended by, or assets (funded or contingent) of, deposits with or for
the account of or other acquisitions of funds by, any Bank, or

                        (iii) imposes, modifies or deems applicable any capital
adequacy or similar requirement (A) against assets (funded or contingent) of, or
letters of credit, other credits or commitments to extend credit extended by,
any Bank, or (B) otherwise applicable to the obligations of any Bank under this
Agreement,

and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by or impose any expense (including loss of margin) upon any
Bank with respect to this Agreement, or the making, maintenance or funding of
any part of the Loans (or, in the case of any capital adequacy or similar
requirement, to have the effect of reducing the rate of return on any Bank's
capital, taking into consideration such Bank's customary policies with respect
to capital adequacy) by an amount which such Bank in its sole discretion deems
to be material, such Bank shall from time to time notify the Borrower and the
Agent of the amount determined in good faith (using any averaging and
attribution methods employed in good faith) by such Bank to be necessary to
compensate such Bank for such increase in cost, reduction of income, additional
expense or reduced rate of return. Such notice shall set forth in reasonable
detail the basis for such determination. Such amount shall be due and payable by
the Borrower to such Bank ten (10) Business Days after such notice is given.

              4.5.2 Indemnity.

              In addition to the compensation required by Section 4.5.1
[Increased Costs, Etc.], the Borrower shall indemnify each Bank against all
liabilities, losses or expenses (including loss of margin, any loss or expense
incurred in liquidating or employing deposits from third parties) which such
Bank sustains or incurs as a consequence of any:

                        (i) attempt by the Borrower to revoke (expressly, by
later inconsistent notices or otherwise) in whole or part any Loan Request under
Section 2.5



                                      -34-
<PAGE>   35

[Revolving Credit Loan Requests, Etc.]or notice relating to prepayments under
Section 4.4 [Voluntary Prepayments], or

                        (ii) default by the Borrower in the performance or
observance of any covenant or condition contained in this Agreement or any other
Loan Document, including any failure of the Borrower to pay when due (by
acceleration or otherwise) any principal, interest, Commitment Fee or any other
amount due hereunder.

              If any Bank sustains or incurs any such loss or expense, it shall
from time to time notify the Borrower of the amount determined in good faith by
such Bank (which determination may include such assumptions, allocations of
costs and expenses and averaging or attribution methods as such Bank shall deem
reasonable) to be necessary to indemnify such Bank for such loss or expense.
Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrower to such Bank
ten (10) Business Days after such notice is given.

         4.6 Notes.

         Upon the request of any Bank, the Revolving Credit Loans made by such
Bank may be evidenced by a Revolving Credit Note in the form of Exhibit 1.1(R).

         4.7 [Intentionally Omitted.]

         4.8 Receipt and Application of Payment. Upon request of the Agent
(which request shall be made if the Required Banks so direct), the Loan Parties
shall notify all Account Debtors to make all payments due from them to the Loan
Parties directly to a lockbox for collection pursuant to a lockbox agreement in
form satisfactory to the Agent (the "Cash Collateral Account"). In the event the
Loan Parties (or any of its Affiliates, shareholders, directors, officers,
employees, agents or those Person acting for or in concert with the Borrower)
shall receive any cash, checks, notes, drafts or other similar items of payment
relating to or constituting the Collateral (or proceeds thereof) after such
request by the Agent that all payments be remitted to the lockbox for deposit in
the Cash Collateral Account, no later than the first Business Day following
receipt thereof, the Loan Parties shall (i) deposit or cause the same to be
deposited, in kind, in the Cash Collateral Account established by the Loan
Parties with the Agent or such other depository as may be designated in writing
by the Agent (the "Depository"), from which account the Agent alone shall have
sole power of withdrawal, and with respect to which the Depository shall waive
any rights of set off, and (ii) forward to the Agent on a daily basis, a
collection report in form and substance satisfactory to the Agent and, at the
Agent's request, copies of all such items and deposit slips related thereto. All
cash, notes, checks, drafts or similar items of payment by or for the account of
the Borrower shall be the sole and exclusive property of the Banks immediately
upon the earlier of the receipt of such items by the Agent or the Depository or
the receipt of such items by the Borrower; provided, however, that for the
purpose of computing interest hereunder such items shall be deemed to have been
collected and shall be applied by the Agent on account of the Loans one (1)
Business Day after receipt by the Agent (subject to correction for any items
subsequently dishonored for any reason whatsoever). Notwithstanding anything to
the contrary herein, all such items of payment shall, solely for



                                      -35-
<PAGE>   36

purposes of determining the occurrence of an Event of Default, be deemed
received upon actual receipt by the Agent, unless the same are subsequently
dishonored for any reason whatsoever. Upon the occurrence of an Event of
Default, all funds in the Cash Collateral Account, including all payments made
by or on behalf of and all credits due the Borrower, may be applied and
reapplied in whole or in part to any of the Loans to the extent and in the
manner the Agent deems advisable which is not inconsistent with the terms of
this Agreement.

         4.9 Collections; Agent's Right to Notify Account Debtors. The Loan
Parties hereby authorize the Agent, now and at any time or times hereafter at
the discretion of the Agent, to (i) notify any or all Account Debtors that the
Accounts have been assigned to the Banks and that the Banks have a security
interest therein, and (ii) direct such Account Debtors to make all payments due
from them to the Borrower upon the Accounts directly to the Agent or to a
lockbox designated by the Agent. The Agent shall promptly furnish the Borrower
with a copy of any such notice sent. The Agent shall provide such notice if the
Required Banks so direct. Any such notice, in the Agent's sole discretion, may
be sent on the Loan Parties' stationery, in which event the Loan Parties shall
co-sign such notice with the Agent. To the extent that any Law or custom or any
contract or agreement with any Account Debtor requires notice to or the approval
of the Account Debtor in order to perfect such assignment of a security interest
in Accounts, the Loan Parties agrees to give such notice or obtain such
approval.



                       5. REPRESENTATIONS AND WARRANTIES

         5.1 Representations and Warranties.

         The Loan Parties, jointly and severally, make the following
representations and warranties with respect to the Loan Parties, and further, to
the best of their knowledge and belief, make the following representations and
warranties with respect to the Subsidiaries of the Borrower which are not Loan
Parties:

              5.1.1 Organization and Qualification.

              Each Loan Party is a corporation, partnership or limited liability
company duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization. Each Subsidiary of each Loan Party is a
corporation, partnership or limited liability company duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, except where the failure to be in good standing would not have a
Material Adverse Change. Each Loan Party and each Subsidiary of each Loan Party
has the lawful power to own or lease its properties and to engage in the
business it presently conducts or proposes to conduct. Each Loan Party and each
Subsidiary of each Loan Party is duly licensed or qualified and in good standing
in each jurisdiction where the property owned or leased by it or the nature of
the business transacted by it or both make such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a Material Adverse Change.




                                      -36-
<PAGE>   37

              5.1.2 Subsidiaries.

              Schedule 5.1.2 states the name of each of the Borrower's
Subsidiaries, its jurisdiction of incorporation, its authorized capital stock,
the issued and outstanding shares (referred to herein as the "Subsidiary
Shares") and the owners thereof if it is a corporation, its outstanding
partnership interests (the "Partnership Interests") if it is a partnership and
its outstanding limited liability company interests, interests assigned to
managers thereof and the voting rights associated therewith (the "LLC
Interests") if it is a limited liability company, all the foregoing as in effect
on the Closing Date. The Borrower and each Subsidiary of the Borrower have good
and marketable title to all of the respective Subsidiary Shares, Partnership
Interests and LLC Interests they purport to own, free and clear in each case of
any Lien. All Subsidiary Shares, Partnership Interests and LLC Interests have
been validly issued, and all Subsidiary Shares are fully paid and nonassessable.
All capital contributions and other consideration required to be made or paid in
connection with the issuance of the Partnership Interests and LLC Interests have
been made or paid, as the case may be. There are no options, warrants or other
rights outstanding to purchase any such Subsidiary Shares, Partnership Interests
or LLC Interests except as indicated on Schedule 5.1.2.

              5.1.3 Power and Authority.

              Each Loan Party has full power to enter into, execute, deliver and
carry out this Agreement and the other Loan Documents to which it is a party, to
incur the Indebtedness contemplated by the Loan Documents and to perform its
Obligations under the Loan Documents to which it is a party, and all such
actions have been duly authorized by all necessary proceedings on its part.

              5.1.4 Validity and Binding Effect.

              This Agreement has been duly and validly executed and delivered by
each Loan Party, and each other Loan Document which any Loan Party is required
to execute and deliver on or after the date hereof will have been duly executed
and delivered by such Loan Party on the required date of delivery of such Loan
Document. This Agreement and each other Loan Document constitutes or will
constitute, legal, valid and binding obligations of each Loan Party which is or
will be a party thereto on and after the respective dates of delivery thereof,
enforceable against such Loan Party in accordance with their respective terms,
except to the extent that enforceability of any of such Loan Document may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforceability of creditors' rights generally or limiting the
right of specific performance.

              5.1.5 No Conflict.

              Neither the execution and delivery of this Agreement or the other
Loan Documents by any Loan Party nor the consummation of the transactions herein
or therein contemplated or compliance with the terms and provisions hereof or
thereof by any of them will conflict with, constitute a default under or result
in any breach of (i) the terms and conditions of the certificate of
incorporation, bylaws, certificate of limited partnership, partnership
agreement,



                                      -37-
<PAGE>   38

certificate of formation, limited liability company agreement or other
organizational documents of any Loan Party or (ii) any Law or any material
agreement or instrument or order, writ, judgment, injunction or decree to which
any Loan Party or any of its Subsidiaries is a party or by which it or any of
its Subsidiaries is bound or to which it is subject, or result in the creation
or enforcement of any Lien, charge or encumbrance whatsoever upon any property
(now or hereafter acquired) of any Loan Party or any of its Subsidiaries (other
than Liens granted under the Loan Documents).

              5.1.6 Litigation.

              Except as set forth on Schedule 5.1.5, there are no actions,
suits, proceedings or investigations pending or, to the knowledge of any Loan
Party, threatened against such Loan Party or any Subsidiary of such Loan Party
at law or equity before any Official Body which individually or in the aggregate
could reasonably be expected to result in any Material Adverse Change. None of
the Loan Parties or any Subsidiaries of any Loan Party is in violation of any
order, writ, injunction or decree of any Official Body which may result in any
Material Adverse Change.

              5.1.7 Title to Properties.

              Each Loan Party and each Subsidiary of each Loan Party has good
and marketable title to or valid leasehold interest in all material properties,
assets and other rights which it purports to own or lease or which are reflected
as owned or leased on its books and records, free and clear of all Liens and
encumbrances except Permitted Liens, and subject to the terms and conditions of
the applicable leases. All material leases of property are in full force and
effect without the necessity for any consent which has not previously been
obtained upon consummation of the transactions contemplated hereby.

              5.1.8 Financial Statements.

                        (i) Historical Statements. The Borrower has delivered to
the Agent copies of its audited consolidated year-end financial statements for
and as of the end of the 1999 fiscal year ended January 1, 2000 (the "Historical
Statements"). The Historical Statements were compiled from the books and records
maintained by the Borrower's management, are correct and complete and fairly
represent the consolidated financial condition of the Borrower and its
Subsidiaries as of their dates and the results of operations for the fiscal
periods then ended and have been prepared in accordance with GAAP consistently
applied.

                        (ii) Financial Projections. The Borrower has delivered
to the Agent financial projections of the Borrower and its Subsidiaries for the
period covering the fiscal years 2000 through 2003 derived from various
assumptions of the Borrower's management (the "Financial Projections"). The
Financial Projections represent a reasonable range of possible results in light
of the history of the business, present and foreseeable conditions and the
intentions of the Borrower's management.





                                      -38-
<PAGE>   39

                        (iii) Accuracy of Financial Statements. Neither the
Borrower nor any Subsidiary of the Borrower has any material liabilities,
contingent or otherwise, or forward or long-term commitments that are not
disclosed in the Historical Statements or in the notes thereto, and except as
disclosed therein, there are no unrealized or anticipated losses from any
commitments of the Borrower or any Subsidiary of the Borrower which may cause a
Material Adverse Change. Since January 1, 2000, no Material Adverse Change has
occurred.

              5.1.9 Use of Proceeds; Margin Stock; Section 20 Subsidiaries.

                   5.1.9.1 General.

                   The Loan Parties intend to use the proceeds of the Loans in
accordance with Sections 2.7 [Use of Proceeds] and 7.1.10 [Use of Proceeds].

                   5.1.9.2 Margin Stock.

                   None of the Loan Parties or any Subsidiary of any Loan Party
engages or intends to engage principally, or as one of its important activities,
in the business of extending credit for the purpose, immediately, incidentally
or ultimately, of purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Loan has been or will be used,
immediately, incidentally or ultimately, to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock or to refund Indebtedness originally incurred for such purpose, or
for any purpose which entails a violation of or which is inconsistent with the
provisions of the regulations of the Board of Governors of the Federal Reserve
System. None of the Loan Parties or any Subsidiary of any Loan Party holds or
intends to hold margin stock in such amounts that more than 25% of the
reasonable value of the assets of any Loan Party or Subsidiary of any Loan Party
are or will be represented by margin stock.

                   5.1.9.3 Section 20 Subsidiaries.

                   The Loan Parties do not intend to use and shall not knowingly
use any portion of the proceeds of the Loans, directly or indirectly, to
purchase during the underwriting period, or for 30 days thereafter, Ineligible
Securities being underwritten by a Section 20 Subsidiary.

              5.1.10 Full Disclosure.

              Neither this Agreement nor any other Loan Document, nor any
certificate, statement, agreement or other document furnished to the Agent or
any Bank in connection herewith or therewith, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which they were made, not misleading. There is no fact known to any Loan Party
as of the Closing Date which materially adversely affects the business,
property, assets, financial condition, results of operations or prospects of any
Loan Party or Subsidiary of any Loan Party which has not been set forth in this
Agreement or in the certificates, statements,



                                      -39-
<PAGE>   40

agreements or other documents furnished in writing to the Agent and the Banks
prior to or at the date hereof in connection with the transactions contemplated
hereby.

              5.1.11 Taxes.

              All federal, state, local and other tax returns required to have
been filed with respect to each Loan Party have been filed and all federal,
state, local and other tax returns required to have been filed with respect to
each Subsidiary of each Loan Party after the date of creation of such Subsidiary
or the acquisition of such Subsidiary by any Loan Party have been filed, and
payment or adequate provision therefor has been made of all taxes, fees,
assessments and other governmental charges which have or may become due pursuant
to said returns or to assessments received, except to the extent that such
taxes, fees, assessments and other charges are being contested in good faith by
appropriate proceedings diligently conducted and for which such reserves or
other appropriate provisions, if any, as shall be required by GAAP shall have
been made. Except as disclosed in writing to the Agent, there are no agreements
or waivers extending the statutory period of limitations applicable to any
federal income tax return of any Loan Party or Subsidiary of any Loan Party for
any period.

              5.1.12 Consents and Approvals.

              No consent, approval, exemption, order or authorization of, or a
registration or filing with, any Official Body or any other Person is required
by any Law or any agreement in connection with the execution, delivery and
carrying out of this Agreement and the other Loan Documents by any Loan Party,
except as listed on Schedule 5.1.12, all of which shall have been obtained or
made on or prior to the Closing Date except as otherwise indicated on Schedule
5.1.12.

              5.1.13 No Event of Default; Compliance With Instruments.

              No event has occurred and is continuing, and no condition exists
or will exist after giving effect to the borrowings or other extensions of
credit to be made on the Closing Date under or pursuant to the Loan Documents,
which constitutes an Event of Default or Potential Default. None of the Loan
Parties or any Subsidiary of any Loan Party is in violation of (i) any term of
its certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability company
agreement or other organizational documents or (ii) any material agreement or
instrument to which it is a party or by which it or any of its properties may be
subject or bound where such violation would constitute a Material Adverse
Change.

              5.1.14 Patents, Trademarks, Copyrights, Licenses, Etc.

              Each Loan Party and each Subsidiary of each Loan Party owns or
possesses all the material patents, trademarks, service marks, trade names,
copyrights, licenses, registrations, franchises, permits and rights necessary to
own and operate its properties and to carry on its business as presently
conducted and planned to be conducted by such Loan Party or Subsidiary, without
known, possible, alleged or actual conflict with the rights of others. All



                                      -40-
<PAGE>   41

material patents, trademarks, service marks, trade names, copyrights, licenses,
registrations, franchises and permits of each Loan Party and each Subsidiary of
each Loan Party are listed and described on Schedule 5.1.14.

              5.1.15 Security Interests.

              Upon the consummation of the matters described in Section 7.1.16,
the Liens and security interests granted to the Agent for the benefit of the
Banks pursuant to the Collateral Assignment, the Patent, Trademark and Copyright
Assignment, the Pledge Agreement and the Security Agreement in the Collateral
constitute and will continue Prior Security Interests under the Uniform
Commercial Code as in effect in each applicable jurisdiction (the "Uniform
Commercial Code") or other applicable Law entitled to all the rights, benefits
and priorities provided by the Uniform Commercial Code or such Law to the extent
provided in such Agreements. Upon the filing of financing statements relating to
said security interests in each office and in each jurisdiction where required
in order to perfect the security interests described above, taking possession of
any stock certificates or other certificates evidencing the Pledged Collateral
and recordation of the Patent, Trademark and Copyright Assignment in the United
States Patent and Trademark Office and United States Copyright Office, as
applicable, all such action as is necessary or advisable to establish such
rights of the Agent will have been taken, and there will be upon execution and
delivery of the Collateral Assignment, the Patent, Trademark and Copyright
Assignment, the Pledge Agreement and the Security Agreement, such filings and
such taking of possession, and there will be no necessity for any further action
in order to preserve, protect and continue such rights, except the filing of
continuation statements with respect to such financing statements within six
months prior to each five-year anniversary of the filing of such financing
statements. All filing fees and other expenses in connection with each such
action have been or will be paid by the Borrower.

              5.1.16 Status of the Pledged Collateral.

              All the shares of capital stock, Partnership Interests or LLC
Interests included in the Pledged Collateral to be pledged pursuant to the
Pledge Agreement or the Collateral Assignment are or will be upon issuance
validly issued and nonassessable and owned beneficially and of record by the
pledgor free and clear of any Lien or restriction on transfer, except as
otherwise provided by the Pledge Agreement or the Collateral Assignment and
except as the right of the Banks to dispose of the Shares, Partnership Interests
or LLC Interests may be limited by the Securities Act of 1933, as amended, and
the regulations promulgated by the Securities and Exchange Commission thereunder
and by applicable state securities laws. There are no shareholder, partnership,
limited liability company or other agreements or understandings with respect to
the shares of capital stock, Partnership Interests or LLC Interests included in
the Pledged Collateral except for the partnership agreements and limited
liability company agreements described on Schedule 5.1.16. The Loan Parties have
delivered true and correct copies of such partnership agreements and limited
liability company agreements to the Agent.


                                      -41-
<PAGE>   42

              5.1.17 Insurance.

              No notice has been received by the Borrower or any Subsidiary, and
no grounds exist, to cancel or avoid any insurance policies or bonds or to
reduce the coverage provided thereby. Such policies and bonds provide adequate
coverage from reputable and financially sound insurers in amounts sufficient to
insure the assets and risks of each Loan Party and each Subsidiary of each Loan
Party in accordance with prudent business practice in the industry of the Loan
Parties and their Subsidiaries.

              5.1.18 Compliance With Laws.

              The Loan Parties and their Subsidiaries are in compliance in all
material respects with all applicable Laws in all jurisdictions in which any
Loan Party or Subsidiary of any Loan Party is presently or will be doing
business, except where the failure to do so would not constitute a Material
Adverse Change.

              5.1.19 Material Contracts; Burdensome Restrictions.

              All material contracts relating to the business operations of each
Loan Party and each Subsidiary of any Loan Party, including all employee benefit
plans and Labor Contracts, are valid, binding and enforceable upon such Loan
Party or Subsidiary and each of the other parties thereto in accordance with
their respective terms, and there is no default thereunder, to the Loan Parties'
knowledge, with respect to parties other than such Loan Party or Subsidiary.
None of the Loan Parties or their Subsidiaries is bound by any contractual
obligation, or subject to any restriction in any organization document or any
requirement of Law, which could result in a Material Adverse Change.

              5.1.20 Investment Companies; Regulated Entities.

              None of the Loan Parties or any Subsidiary of any Loan Party is an
"investment company" registered or required to be registered under the
Investment Company Act of 1940 or under the "control" of an "investment company"
as such terms are defined in the Investment Company Act of 1940 and shall not
become such an "investment company" or under such "control." None of the Loan
Parties or any Subsidiary of any Loan Party is subject to any other federal or
state statute or regulation limiting its ability to incur Indebtedness for
borrowed money.

              5.1.21 Plans and Benefit Arrangements.

                        (i) The Borrower and each other member of the ERISA
Group are in compliance in all material respects with any applicable provisions
of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer
Plans. There has been no Prohibited Transaction with respect to any Benefit
Arrangement or any Plan or, to the best knowledge of the Borrower, with respect
to any Multiemployer Plan or Multiple Employer Plan, which could result in any
material liability of the Borrower or any other member of the ERISA Group. The
Borrower and all other members of the ERISA Group have made, when due, any and
all payments required to be made under any agreement relating to a Multiemployer
Plan or a




                                      -42-
<PAGE>   43

Multiple Employer Plan or any Law pertaining thereto. With respect to each Plan
and Multiemployer Plan, the Borrower and each other member of the ERISA Group
(i) have fulfilled in all material respects their obligations under the minimum
funding standards of ERISA, (ii) have not incurred any liability to the PBGC,
and (iii) have not had asserted against them any penalty for failure to fulfill
the minimum funding requirements of ERISA. All Plans, Benefit Arrangements and
Multiemployer Plans have been administered in accordance with their terms and
applicable Law.

                        (ii) No event requiring notice to the PBGC under Section
302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with
respect to any Plan, and no amendment with respect to which security is required
under Section 307 of ERISA has been made or is reasonably expected to be made to
any Plan.

                        (iii) Neither the Borrower nor any other member of the
ERISA Group has incurred or reasonably expects to incur any material withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer Plan.
Neither the Borrower nor any other member of the ERISA Group has been notified
by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan
or Multiple Employer Plan has been terminated within the meaning of Title IV of
ERISA and, to the best knowledge of the Borrower, no Multiemployer Plan or
Multiple Employer Plan is reasonably expected to be reorganized or terminated
within the meaning of Title IV of ERISA.

              5.1.22 Employment Matters.

              Each of the Loan Parties and each of their Subsidiaries is in
compliance with the Labor Contracts and all applicable federal, state and local
labor and employment Laws, including those related to equal employment
opportunity and affirmative action, labor relations, minimum wage, overtime,
child labor, medical insurance continuation, worker adjustment and relocation
notices, immigration controls and workers' and unemployment compensation, where
the failure to comply would constitute a Material Adverse Change. There are no
outstanding grievances, arbitration awards or appeals therefrom arising out of
the Labor Contracts or current or threatened strikes, picketing, handbilling or
other work stoppages or slowdowns at facilities of any of the Loan Parties or
any of their Subsidiaries which in any case would constitute a Material Adverse
Change. The Borrower has delivered to the Agent true and correct copies of each
of the collective bargaining agreements to which the Borrower and the
Subsidiaries are a party as of the Closing Date and, upon the request of the
Agent, the Borrower will provide a copy to the Agent of any collective
bargaining agreements entered into by the Borrower or any Subsidiary of the
Borrower after the Closing Date.

              5.1.23 Environmental Matters.

              Except as set forth in the Borrower's Annual Report on Form 10-K
for the fiscal year ending January 3, 1998, none of the Loan Parties or any
Subsidiary of any Loan Party has received any Environmental Complaint from any
Official Body or private Person alleging that such Loan Party or Subsidiary, or
any prior or subsequent owner of any of the Property, is a potentially
responsible party under the Comprehensive Environmental Response, Cleanup and




                                      -43-
<PAGE>   44

Liability Act, 42 U.S.C. ss. 9601 et seq., and none of the Loan Parties has any
reason to believe that such an Environmental Complaint might be received. There
are no pending or, to any Loan Party's knowledge, threatened material
Environmental Complaints relating to any Loan Party or Subsidiary of any Loan
Party or, to any Loan Party's knowledge, any prior or subsequent owner of any of
the Property pertaining to, or arising out of, any Environmental Conditions.

              5.1.24 Senior Debt Status.

              The Obligations of each Loan Party under this Agreement, the
Guaranty Agreement and each of the other Loan Documents to which it is a party
currently rank and will rank at least pari passu in priority of payment with all
other Indebtedness of such Loan Party, except Indebtedness of such Loan Party to
the extent secured by Permitted Liens. There is no Lien upon or with respect to
any of the properties or income of any Loan Party or Subsidiary of any Loan
Party which secures indebtedness or other obligations of any Person, except for
Permitted Liens.

         5.2 Continuation of Representations.

         The Loan Parties make the representations and warranties in this
Article 5 on the date hereof and on the Closing Date and each date thereafter on
which a Loan is made or a Letter of Credit is issued as provided in and subject
to Section 6.2.

     6. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT

     The obligation of each Bank to make Loans and of the Issuing Banks to issue
Letters of Credit hereunder is subject to the performance by each of the Loan
Parties of its Obligations to be performed hereunder at or prior to the making
of any such Loans or issuance of such Letters of Credit and to the satisfaction
of the following further conditions:

         6.1 First Loans and Letters of Credit.

         On the Closing Date:

              6.1.1 Officer's Certificate.

              The representations and warranties of each of the Loan Parties
contained in Section 5.1 and in each of the other Loan Documents shall be true
and accurate on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein), and each of the Loan Parties shall
have performed and complied with all covenants and conditions hereof and
thereof, no Event of Default or Potential Default shall have occurred and be
continuing or shall exist; and there shall be delivered to the Agent for the
benefit of each Bank a certificate of each of the Loan Parties, dated the
Closing Date and signed by the Chief Executive Officer, President, Vice
President or Chief Financial Officer of each of the Loan Parties, to each such
effect.



                                      -44-
<PAGE>   45

              6.1.2 Secretary's Certificate.

              There shall be delivered to the Agent for the benefit of each Bank
a certificate dated the Closing Date and signed by the Secretary or an Assistant
Secretary of each of the Loan Parties, certifying as appropriate as to:

                        (i) all action taken by each Loan Party in connection
with this Agreement and the other Loan Documents;

                        (ii) the names of the officer or officers authorized to
sign this Agreement and the other Loan Documents and the true signatures of such
officer or officers and specifying the Authorized Officers permitted to act on
behalf of each Loan Party for purposes of this Agreement and the true signatures
of such officers, on which the Agent and each Bank may conclusively rely; and

                        (iii) copies of its organizational documents, including
its certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, and limited liability company
agreement as in effect on the Closing Date certified by the appropriate state
official where such documents are filed in a state office, together with
certificates from the appropriate state officials as to the continued existence
and good standing of each Loan Party in each state where organized or qualified
to do business and a bring-down certificate by facsimile dated the Closing Date.

              6.1.3 Delivery of Loan Documents.

              The Collateral Assignment, Guaranty Agreement, Notes, Patent,
Trademark and Copyright Assignment, Pledge Agreement and Security Agreement
shall have been duly executed and delivered to the Agent for the benefit of the
Banks, together with all appropriate financing statements and appropriate stock
powers and certificates evidencing the Shares, the Partnership Interests and the
LLC Interests.

              6.1.4 Opinion of Counsel.

              There shall be delivered to the Agent for the benefit of each Bank
a written opinion of John Collins, Esquire and Dykema, Gossett, counsel for the
Loan Parties (who may rely on the opinions of such other counsel as may be
acceptable to the Agent), dated the Closing Date and in form and substance
satisfactory to the Agent and its counsel:

                        (i) as to the matters set forth in Exhibit 6.1.4; and

                        (ii) as to such other matters incident to the
transactions contemplated herein as the Agent may reasonably request.

              6.1.5 Legal Details.

              All legal details and proceedings in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be in form and substance




                                      -45-
<PAGE>   46
satisfactory to the Agent and counsel for the Agent, and the Agent shall have
received all such other counterpart originals or certified or other copies of
such documents and proceedings in connection with such transactions, in form and
substance satisfactory to the Agent and said counsel, as the Agent or said
counsel may reasonably request.

              6.1.6 Payment of Fees.

              The Borrower shall have paid or caused to be paid to the Agent for
itself and for the account of the Banks, to the extent not previously paid, all
fees accrued through the Closing Date and the costs and expenses for which the
Agent, the Syndication Agent and the Banks are entitled to be reimbursed.

              6.1.7 Consents.

              All material consents required to effectuate the transactions
contemplated hereby as set forth on Schedule 5.1.12 shall have been obtained.

              6.1.8 Officers' Certificates.

              Since January 1, 2000, no Material Adverse Change shall have
occurred; prior to the Closing Date, there shall have been no material adverse
change in the management of any Loan Party or Subsidiary of any Loan Party; and
there shall have been delivered to the Agent for the benefit of each Bank a
certificate dated the Closing Date and signed by the Chief Executive Officer,
President or Chief Financial Officer of each Loan Party to each such effect. The
Borrower shall further deliver a certificate dated the Closing Date and signed
by the Chief Executive Officer, President, Vice President, Treasurer or Chief
Financial Officer of the Borrower certifying that the Loan Documents and related
transactions consummated on the Closing Date not conflict with or result in a
default under the Indenture, which certificate shall further include a
calculation of the Borrower's Consolidated Net Tangible Assets, as such term is
defined in the Indenture.

              6.1.9 No Violation of Laws.

              The making of the Loans and the issuance of the Letters of Credit
shall not contravene any Law applicable to any Loan Party or any of the Banks.

              6.1.10 No Actions or Proceedings.

              No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, this Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or which, in the
Agent's sole discretion, would make it inadvisable to consummate the
transactions contemplated by this Agreement or any of the other Loan Documents.


                                      -46-

<PAGE>   47

              6.1.11 Insurance Policies; Certificates of Insurance;
Endorsements.

              The Loan Parties shall have delivered certificates of insurance as
evidence acceptable to the Agent that adequate insurance in compliance with
Section 7.1.3 [Maintenance of Insurance] is in full force and effect and that
all premiums then due thereon have been paid, and upon request of the Agent,
shall provide to the Agent a certified copy of each Loan Party's casualty
insurance policy or policies evidencing coverage satisfactory to the Agent, with
additional insured, and lender loss payable special endorsements attached
thereto in form and substance satisfactory to the Agent and its counsel naming
the Agent as additional insured, and lender loss payee.

              6.1.12 Requisite Floor-Plan Financing.

              On or before the Closing Date, the Borrower and the Guarantors
shall have obtained Floor Plan Financing Availability of not less than
$100,000,000 and provided to the Agent certified copies of the contracts
relating to such financing, all of the foregoing to the satisfaction of the
Agent.

              6.1.13 Lien Search Results.

              The Agent shall have received copies of UCC, judgment and tax lien
searches relating to the consensual and non-consensual liens filed against the
Borrower and the Guarantors which evidence that upon the filing necessary to
perfect the Lien of the Banks on the Collateral, such Lien shall constitute a
Prior Security Interest in favor of the Banks.

         6.2 Each Additional Loan or Letter of Credit.

         At the time of making any Loans or issuing any Letters of Credit other
than Loans made or Letters of Credit issued on the Closing Date and after giving
effect to the proposed extensions of credit: the representations and warranties
of the Loan Parties contained in Section 5.1 and in the other Loan Documents
shall be true on and as of the date of such additional Loan or Letter of Credit
with the same effect as though such representations and warranties had been made
on and as of such date (except representations and warranties which expressly
relate solely to an earlier date or time, which representations and warranties
shall be true and correct on and as of the specific dates or times referred to
therein), and the Loan Parties shall have performed and complied with all
covenants and conditions hereof; no Event of Default or Potential Default shall
have occurred and be continuing or shall exist; the making of the Loans or
issuance of such Letter of Credit shall not contravene any Law applicable to any
Loan Party or Subsidiary of any Loan Party or any of the Banks; and the Borrower
shall have delivered to the Agent (and the Issuing Bank, in the case of a
request for a Letter of Credit) a duly executed and completed Loan Request or
application for a Letter of Credit as the case may be.


                                      -47-

<PAGE>   48

                                  7. COVENANTS

         7.1 Affirmative Covenants.

         The Loan Parties, jointly and severally, covenant and agree that until
payment in full of the Loans, Reimbursement Obligations and Letter of Credit
Borrowings, and interest thereon, expiration or termination of all Letters of
Credit, satisfaction of all of the Loan Parties' other Obligations under the
Loan Documents and termination of the Commitments, the Loan Parties shall comply
at all times with the following affirmative covenants:

              7.1.1 Preservation of Existence, Etc.

              Each Loan Party shall, and shall cause each of its Subsidiaries
to, maintain its legal existence as a corporation, limited partnership or
limited liability company and its license or qualification and good standing in
each jurisdiction in which its ownership or lease of property or the nature of
its business makes such license or qualification necessary, except where the
failure to do so would not result in a Material Adverse Change or except as
otherwise expressly permitted in Section 7.2.5 [Liquidations, Mergers, Etc.].

              7.1.2 Payment of Liabilities, Including Taxes, Etc.

              Each Loan Party shall, and shall cause each of its Subsidiaries
to, duly pay and discharge all liabilities to which it is subject or which are
asserted against it, promptly as and when the same shall become due and payable,
including all taxes, assessments and governmental charges upon it or any of its
properties, assets, income or profits, prior to the date on which penalties
attach thereto, except to the extent that such liabilities, including taxes,
assessments or charges, are being contested in good faith and by appropriate and
lawful proceedings diligently conducted and for which such reserve or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made, but only to the extent that failure to discharge any such liabilities
would not result in any additional liability which would adversely affect to a
material extent the financial condition of any Loan Party or Subsidiary of any
Loan Party or which would affect the Collateral, provided that the Loan Parties
and their Subsidiaries will pay all such liabilities forthwith upon the
commencement of proceedings to foreclose any Lien which may have attached as
security therefor; provided, further, that the failure of Champion Development
and any Subsidiary of Champion Development to comply with this Section 7.1.2
shall not result in a default hereunder unless such failure could reasonably be
expected to result in a Material Adverse Change.

              7.1.3 Maintenance of Insurance.

              Each Loan Party shall, and shall cause each of its Subsidiaries
to, insure its properties and assets against loss or damage by fire and such
other insurable hazards as such assets are commonly insured (including fire,
extended coverage, property damage, workers' compensation, public liability and
business interruption insurance) and against other risks (including errors and
omissions) in such amounts as similar properties and assets are insured by
prudent companies in similar circumstances carrying on similar businesses, and
with reputable


                                      -48-

<PAGE>   49

and financially sound insurers, including self-insurance to the extent
customary, all as reasonably acceptable to the Agent. At the request of the
Agent, the Loan Parties shall deliver to the Agent and each of the Banks (x) on
the Closing Date and annually thereafter an original certificate of insurance
signed by the Loan Parties' independent insurance broker describing and
certifying as to the existence of the insurance on the Collateral required to be
maintained by this Agreement and the other Loan Documents, together with a copy
of the endorsement described in the next sentence attached to such certificate
and (y) from time to time a summary schedule indicating all insurance then in
force with respect to each of the Loan Parties. Such policies of insurance shall
contain special endorsements, in form and substance acceptable to the Agent,
which shall, among other matters, specify the Agent as an additional insured and
lender loss payee as its interests may appear, (with the understanding that any
obligation imposed upon the insured, including the liability to pay premiums
shall be the sole obligation of the applicable Loan Parties and not that of the
insured); that except in the case of public liability insurance and workmen's
compensation insurance, all insurance proceeds for losses of less than
$2,500,000 shall be adjusted with and payable to the applicable Loan Parties;
and all insurance proceeds for losses of $2,500,000 or more shall be adjusted
with and payable to the Agent. The applicable Loan Parties shall notify the
Agent promptly of any occurrence causing a material loss or decline in value of
the Collateral and the estimated (or actual, if available) amount of such loss
or decline. Any monies received by the Agent constituting insurance proceeds
may, at the option of the Agent, (i) be applied by the Agent to the payment of
the Loans in such manner as the Agent may reasonably determine, or (ii) be
disbursed to the applicable Loan Parties on such terms as are deemed appropriate
by the Agent for the repair, restoration and/or replacement of property in
respect of which such proceeds were received.

              7.1.4 Maintenance of Properties and Leases.

              Each Loan Party shall, and shall cause each of its Subsidiaries
to, maintain in good repair, working order and condition (ordinary wear and tear
excepted) in accordance with the general practice of other businesses of similar
character and size, all of those properties which are useful or necessary to its
business, and from time to time, such Loan Party will make or cause to be made
all appropriate repairs, renewals or replacements thereof, except where the
failure so maintain such properties would not result in a Material Adverse
Change.

              7.1.5 Maintenance of Patents, Trademarks, Etc.

              Each Loan Party shall, and shall cause each of its Subsidiaries
to, maintain in full force and effect all patents, trademarks, service marks,
trade names, copyrights, licenses, franchises, permits and other authorizations
necessary for the ownership and operation of its properties and business if the
failure so to maintain the same would constitute a Material Adverse Change.

              7.1.6 Visitation Rights.

              Upon request of the Agent, each Loan Party and Subsidiaries shall
permit the Agent or professionals retained by the Agent to conduct an audit on
the accounts and inventory of the Loan Parties and each of their Subsidiaries,
all such audits to be at the sole cost



                                      -49-

<PAGE>   50

and expense of the Borrower and each Loan Party shall, and shall cause each of
its Subsidiaries to, permit any of the officers or authorized employees or
representatives of the Agent or any of the Banks to visit and inspect any of its
properties and to examine and make excerpts from its books and records and
discuss its business affairs, finances and accounts with its officers, all in
such detail and at such times and as often as any of the Banks may reasonably
request, provided that each Bank shall provide the Borrower and the Agent with
reasonable notice prior to any visit or inspection. In the event any Bank
desires to conduct a visit to or inspection of any of the properties of any Loan
Party, such Bank shall make a reasonable effort to conduct such visits and
inspections contemporaneously with any visits and inspections to be performed by
the Agent.

              7.1.7 Keeping of Records and Books of Account.

              The Borrower shall, and shall cause each Subsidiary of the
Borrower to, maintain and keep proper books of record and account which enable
the Borrower and its Subsidiaries to issue financial statements in accordance
with GAAP and as otherwise required by applicable Laws of any Official Body
having jurisdiction over the Borrower or any Subsidiary of the Borrower, and in
which full, true and correct entries shall be made in all material respects of
all its dealings and business and financial affairs.

              7.1.8 Plans and Benefit Arrangements.

              The Borrower shall, and shall cause each other member of the ERISA
Group to, comply with ERISA, the Internal Revenue Code and other applicable Laws
applicable to Plans and Benefit Arrangements except where such failure, alone or
in conjunction with any other failure, would not result in a Material Adverse
Change. Without limiting the generality of the foregoing, the Borrower shall
cause all of its Plans and all Plans maintained by any member of the ERISA Group
to be funded in accordance with the minimum funding requirements of ERISA and
shall make, and cause each member of the ERISA Group to make, in a timely
manner, all contributions due to Plans, Benefit Arrangements and Multiemployer
Plans.

              7.1.9 Compliance With Laws and Building Standards.

              Each Loan Party shall, and shall cause each of its Subsidiaries
to, comply with all applicable Laws, including without limitation all
Environmental Laws and consumer lending laws, and all applicable building
standards, including the National Manufactured Home Construction and Safety
Standards promulgated by the U.S. Department of Housing and Urban Development
and any other local building codes, in all respects, provided that it shall not
be deemed to be a violation of this Section 7.1.9 if any failure to comply with
any Law or building standard would not result in fines, penalties, remediation
costs, other similar liabilities or injunctive relief which, in the aggregate,
would constitute a Material Adverse Change.

              7.1.10 Use of Proceeds.

              The Loan Parties will use the Letters of Credit for general
corporate purposes supporting Obligations incurred by the Loan Parties in the
ordinary course of business . The Loan Parties shall use the proceeds of the
Loans only (i) for working capital purposes, (ii) to



                                      -50-

<PAGE>   51

finance the Borrower's and the Guarantors' purchase of raw materials and other
materials used in the manufacturing of their inventory, and (iii) for the
reimbursement of the Borrower and the Guarantors for amounts they have paid for
the purchase of raw materials and other materials used in the manufacturing of
their inventory which were made within three hundred sixty (360) days prior to
the applicable Revolving Credit Loan. The Loan Parties shall not use the Letters
of Credit or the proceeds of the Loans for any purpose which contravenes any
applicable Law or any provision hereof.

              7.1.11 Champion Development.

              Notwithstanding any other provision of this Agreement, Champion
Development and any Subsidiary of Champion Development shall not be considered a
"Subsidiary" of the Borrower or any Loan Party for the purpose of Sections 7.2.1
- 7.2.8, 8.1.5, 8.1.8 and 8.1.9. Further, the Borrower agrees to cause Champion
Development and any Subsidiary of Champion Development to, at all times, comply
with all the requirements set forth in the definition of Champion Development in
Section 1.1 hereof. The Borrower shall not and shall not permit Champion
Development any of its Subsidiaries to (i) pledge any shares owned by Champion
Development or any Subsidiary of Champion Development or (ii) to enter into any
to contract or other agreement that restricts the pledge of such shares.

              7.1.12 Stock Repurchases.

              The Loan Parties and each of their Subsidiaries may not make or
pay, or agree to become or remain liable to make or pay, distributions on
account of the purchase, redemption, retirement or acquisition of their
respective shares of capital stock (or warrants, options or rights therefor),
(the foregoing are collectively referred to as "Stock Repurchases"); provided
that notwithstanding the foregoing, the Borrower may make Stock Repurchases not
to exceed $3,000,000 in any fiscal year in connection with the repurchase of
stock of departing employees pursuant to employee benefit programs provided that
prior to and after giving effect to any such payment, the Borrower is not in
violation of Sections 7.2.14 or 7.2.15.

              7.1.13 Floor Plan Financing.

              The Borrower and the Guarantors shall continue to maintain at all
times Floor Plan Financing Availability of not less than $100,000,000 on terms
and conditions satisfactory to the Agent.

              7.1.14 Further Assurances.

              Each Loan Party shall, from time to time, at its expense,
faithfully preserve and protect the Agent's Lien on and Prior Security Interest
in the Collateral as a continuing first priority perfected Lien, subject only to
Permitted Liens, and shall do such other acts and things as the Agent in its
sole discretion may deem necessary or advisable from time to time in order to
preserve, perfect and protect the Liens granted under the Loan Documents and to
exercise and enforce its rights and remedies thereunder with respect to the
Collateral.



                                      -51-

<PAGE>   52

              7.1.15 Landlord's Waiver.

              Within forty-five (45) of the Closing Date, the Loan Parties shall
have delivered an executed Landlord's Waiver in substantially the form of
Exhibit 7.1.15 from the lessor for each leased Collateral location where the
Guarantors conduct manufacturing operations, as listed on Schedule A to the
Security Agreement.

              7.1.16 Financing Statement Deliveries.

              On or before January 19, 2001, the Loan Parties shall have caused
all financing statements of secured parties which no longer offer credit to the
Loan Parties to be terminated and shall have caused all financing statements
which incorporate accounts, general intangibles and related property as
collateral (which are not proceeds of inventory) or incorporate manufacturing
inventory to have been modified in a form satisfactory to Agent. On or before
January 15, 2001, the Loan Parties shall have provided legal descriptions for
all real property locations where the Loan Parties have manufacturing
facilities.

         7.2 Negative Covenants.

         The Loan Parties, jointly and severally, covenant and agree that until
payment in full of the Loans, Reimbursement Obligations and Letter of Credit
Borrowings and interest thereon, expiration or termination of all Letters of
Credit, satisfaction of all of the Loan Parties' other Obligations hereunder and
termination of the Commitments, the Loan Parties shall comply with the following
negative covenants:

              7.2.1 Indebtedness.

              Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time, create, incur, assume or suffer to exist any
Indebtedness, except:

                        (i) Indebtedness under the Loan Documents;

                        (ii) Indebtedness of a Loan Party to another Loan Party;

                        (iii) Indebtedness of a Loan Party or Subsidiary of a
Loan Party for Floor-Plan Financing Obligations which are unsecured or secured
by Purchase Money Security Interests as described in clause (viii) of the
definition of Permitted Liens, provided that the aggregate amount of all such
Indebtedness permitted under this Section 7.2.1 (iii) at any one time
outstanding shall not exceed from and after the Closing Date, $200,000,000;

                        (iv) Indebtedness of the Loan Parties and their
Subsidiaries for financing, the proceeds of which are used for capital
expenditures or in connection with capital leases made in the ordinary course of
business, which Indebtedness is secured by Purchase Money Security Interests or
mortgage Liens, provided that the aggregate amount of all such Indebtedness at
any one time outstanding shall not exceed the amount of $20,000,000.


                                      -52-


<PAGE>   53

                        (v) Unsecured Indebtedness of a Loan Party or a
Subsidiary of a Loan Party comprising Earn Out Obligations either (i) incurred
prior to the Closing Date and not in excess of the amount outstanding as of
September 30, 2000, which is $184,450,000, or (ii) incurred subsequent to the
Closing Date and not payable by the Loan Party (whether as normally scheduled or
as accelerated) prior to the Expiration Date.

                        (vi) Repurchase Obligations, provided that any material
amount of such Repurchase Obligations shall have terms no more burdensome to the
Loan Parties and their Subsidiaries than terms standard in the manufactured
housing industry at the time such Repurchase Obligations are incurred;

                        (vii) Existing Indebtedness set forth on Schedule 7.2.1,
provided that there is no increase in the amount thereof or other significant
change in the terms thereof unless otherwise specified on Schedule 7.2.1;

                        (viii) Indebtedness (other than as set forth above) of
the Borrower and its Subsidiaries in an amount not to exceed twelve and one-half
percent (12-1/2%) of Consolidated Net Worth in the aggregate at any one time
outstanding;

                        (ix) Permitted Unsecured Debt; and

                        (x) Surety or performance bonds given by a Loan Party or
Subsidiary thereof in the ordinary course of business in an amount not to exceed
$50,000,000 in the aggregate.

              7.2.2 Liens.

              Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time, create, incur, assume or suffer to exist any
Lien on any of its property or assets, tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except Permitted Liens.

              7.2.3 Guaranties.

              Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time, directly or indirectly, become or be liable in
respect of any Guaranty, or assume, guarantee, become surety for, endorse or
otherwise agree, become or remain directly or contingently liable upon or with
respect to any obligation or liability of any other Person, except for (i)
Guaranties of the Loan Parties and their Subsidiaries in favor of governmental
authorities in connection with required permitting of the Loan Parties and their
Subsidiaries by such authorities, (ii) Guaranties which in the aggregate do not
exceed $15,000,000 of Indebtedness at any one time outstanding; (iii) Guaranties
of Indebtedness permitted under Section 7.2.1(iii) and (v).



                                      -53-

<PAGE>   54

              7.2.4 Loans and Investments.

              Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time, make or suffer to remain outstanding any loan
or advance to, or purchase, acquire or own any stock, bonds, notes or securities
of, or any partnership interest (whether general or limited) or limited
liability company interest in, or any other investment or interest in, or make
any capital contribution to, any other Person, or agree, become or remain liable
to do any of the foregoing, except:

                        (i) trade credit extended on usual and customary terms
in the ordinary course of business;

                        (ii) advances to employees to meet expenses incurred by
such employees in the ordinary course of business;

                        (iii) Permitted Investments;

                        (iv) loans, advances and investments in wholly-owned
Subsidiaries of the Borrower which are Guarantors; provided, however, that
loans, advances or investments in Subsidiaries which constitute Retail Finance
Companies shall not exceed five percent (5%) of the Consolidated Net Worth in
the aggregate at any one time outstanding;

                        (v) loans, advances and investments in Subsidiaries of
the Borrower which are not wholly-owned Subsidiaries; provided, however, that
the aggregate of all such loans, advances and investments at any one time
outstanding shall not exceed $10,000,000;

                        (vi) loans, advances and investments in Affiliates which
are not Subsidiaries and which are permitted under Section 7.2.8; provided,
however, that the aggregate of all such loans, advances and investments at any
one time outstanding shall not exceed $10,000,000;

                        (vii) loans (including without limitation commitments to
lend), advances and investments in Champion Development and any Subsidiary of
Champion Development; provided, however, that the aggregate of all such loans
(including without limitation commitments to lend), advances and investments
shall not exceed, in the aggregate, the sum of (i) loan amounts outstanding as
of the Closing Date and (ii) a maximum of $5,000,000 per year thereafter; and

                        (viii) loans, advances and investments in retail dealers
of manufactured homes or other Persons doing business with any Loan Party or
Subsidiary of any Loan Party not to exceed $5,000,000 in the aggregate at any
one time.

              7.2.5 Liquidations, Mergers, Consolidations, Acquisitions.

              Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time, dissolve, liquidate or wind-up its affairs, or
become a party to any


                                      -54-

<PAGE>   55

merger or consolidation, or, except as permitted under Section 7.2.13, acquire
by purchase, lease or otherwise, all or substantially all of the assets or
capital stock of any other Person, provided that any Subsidiary of the Borrower
may consolidate or merge with any other Subsidiary of the Borrower and if any
such Subsidiary was a Guarantor hereunder, the surviving entity shall also be a
Guarantor.

              7.2.6 Dispositions of Assets or Subsidiaries.

              Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time, sell, sell and lease back, convey, assign,
lease, abandon or otherwise transfer or dispose of, voluntarily or
involuntarily, any of its properties or assets, tangible or intangible
(including sale, assignment, discount or other disposition of accounts, contract
rights, chattel paper, equipment or general intangibles with or without recourse
or of capital stock, shares of beneficial interest, partnership interests or
limited liability company interests of a Subsidiary of such Loan Party), except:

                        (i) transactions involving the sale of inventory in the
ordinary course of business;

                        (ii) any sale, transfer or lease of assets by any wholly
owned Subsidiary of such Loan Party to another Loan Party;

                        (iii) any sale, transfer or lease of assets, other than
those specifically excepted pursuant to clauses (i) and (ii) above, provided
that (i) at the time of any disposition, no Event of Default shall exist or
shall result from such disposition, and (ii) for all asset sales after the
Closing Date, to the extent that the gross consideration received for any asset
sale transaction exceeds $10,000,000, or to the extent that the gross
consideration received from all assets sales after the Closing Date exceeds
$25,000,000 in the aggregate, all of the net cash proceeds (i.e. gross proceeds
minus fees and expenses of such sale) in excess of the amounts set forth above
shall be applied as a mandatory prepayment of the Loans in accordance with
Section 2.10.1 [Sale of Assets].

              7.2.7 Affiliate Transactions.

                        (i) Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time, enter into or carry out any
transaction with any Affiliate (including purchasing property or services from
or selling property or services to any Affiliate of any Loan Party or other
Person) unless such transaction is not otherwise prohibited by this Agreement,
is entered into in the ordinary course of business upon fair and reasonable
arm's-length terms and conditions and is in accordance with all applicable Law.

                        (ii) Without limiting the generality of the foregoing
Clause (i) of this Section 7.2.7, each of the Loan Parties shall not, and shall
not permit any of its Subsidiaries to, at any time, enter into or carry out any
transaction or the like of any nature with Champion Development or any of its
Subsidiaries (including purchasing property or services from or selling property
or services to Champion Development or any of its Subsidiaries or



                                      -55-

<PAGE>   56

otherwise transferring, leasing, disposing, or the like of any property or
assets to or otherwise acquiring, receiving, or leasing any property or assets
from Champion Development or any of its Subsidiaries or otherwise providing
management, administrative, consulting, or other services to or receiving
management, administrative, consulting, or other services from Champion
Development or any of its Subsidiaries (but not including the provision of those
services rendered in the ordinary course of business for reasonable
consideration by or on behalf of a holding company for its organization as a
whole, such as accounting and legal services provided by in-house professionals
and staff)) unless such transaction is not otherwise prohibited by this
Agreement, is entered into in the ordinary course of business upon fair and
reasonable arm's-length terms and conditions and is in accordance with all
applicable Law.

              7.2.8 Subsidiaries, Partnerships and Joint Ventures.

              The Borrower shall not, and shall not permit any of its
Subsidiaries (other than Champion Development or subsidiaries of Champion
Development) to, own or create directly or indirectly any Subsidiaries (other
than Foreign Subsidiaries) other than any Subsidiary which has joined this
Agreement by executing the Guaranty or joined by executing a Guarantor Joinder
or any Subsidiary formed or acquired after the Closing Date which becomes a
Guarantor in accordance with Section 10.18 [Joinder of Guarantors]. The Borrower
shall cause any of its Subsidiaries which at any time becomes a Significant
Subsidiary to become a Guarantor in accordance with Section 10.18 [Joinder of
Guarantors]. Neither the Borrower nor any Subsidiary of the Borrower shall
become or agree to become a general or limited partner in any general or limited
partnership or become a member or manager of, or hold a limited liability
company interest in, a limited liability company, except that (i) the Borrower
or any Subsidiary may become a general or limited partner or member or manager
of, or hold a limited liability company interest in, other Loan Parties, and
(ii) the Borrower or any Subsidiary may become a limited partner or a member or
manager of, or hold a limited liability company interest in an Affiliate,
provided that the liability of the Borrower or such Subsidiary is limited to its
investment in such Affiliate and the aggregate of all such investments does not
violate Section 7.2.4(vi).

              7.2.9 Continuation of or Change in Business.

              Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time, engage in any business other than the
business, operated by any Loan Party or Subsidiary during the present fiscal
year, and such Loan Party or Subsidiary shall not permit any material change in
such business.

              7.2.10 Plans and Benefit Arrangements.

              Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time, engage in a Prohibited Transaction with any
Plan, Benefit Arrangement or Multiemployer Plan which, alone or in conjunction
with any other circumstances or set of circumstances resulting in liability
under ERISA or otherwise violate ERISA.



                                      -56-

<PAGE>   57

              7.2.11 Fiscal Year.

              The Borrower shall not, and shall not permit any Subsidiary of the
Borrower to, change its fiscal year from the twelve-month period ending on the
Saturday which is nearest to December 31 of each year.

              7.2.12 Certain Agreements.

              The Borrower has previously provided to the Agent each material
contract in effect as of Closing Date to which the Borrower or any Subsidiary is
a party relating to (i) the purchase of retail dealers with provisions
containing Earn Out Obligations, (ii) Floor-Plan Financing Obligations by any
Subsidiaries and (iii) any support agreement (whether containing Repurchase
Obligations or otherwise) with third party floor-plan financers.

              7.2.13 Capital Expenditures.

              Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, make any payments exceeding $20,000,000 in the aggregate in
any fiscal year on account of the purchase or lease of any assets which if
purchased would constitute fixed assets or which if leased would constitute a
capitalized lease, and all such capital expenditures and capitalized leases
shall be made under usual and customary terms and in the ordinary course of
business. The Loan Parties may include within such capital expenditures (and the
$20,000,000 annual limit thereon) the acquisition of substantially all the
assets of Persons engaged in the business of the distribution of manufactured
housing, provided that (i) each such purchase shall not exceed $1,000,000, (ii)
all such purchases in any year shall not exceed $5,000,000 in the aggregate,
(iii) the Loan Parties shall cause all assets so acquired to be subject to the
Prior Security Interest in favor of the Banks.

              7.2.14 Minimum Consolidated Cash Flow from Operations.

              The Loan Parties shall not permit the Consolidated Cash Flow from
Operations, as calculated at the end of each fiscal month of the Borrower for
the three (3) fiscal months then ended, to be less than the amounts set forth
below for the periods set forth below:
<TABLE>
<S>                                                 <C>
                 October, 2000                      $  7,100,000
                 November, 2000                     $    500,000
                 December, 2000                     ($ 8,500,000)
                 January, 2001                      ($10,600,000)
                 February, 2001                     ($ 9,500,000)
                 March, 2001                        ($ 3,250,000)
                 April, 2001                        $  2,000,000
                 May, 2001                          $  4,500,000
                 June, 2001                         $  5,500,000
                 July, 2001                         $ 10,500,000
                 August, 2001                       $ 14,500,000
                 September, 2001                    $ 18,500,000
</TABLE>



                                      -57-


<PAGE>   58


<TABLE>
<S>                                              <C>
              October, 2001                      $ 14,500,000
              November, 2001                     $ 11,500,000
              December, 2001                     $  8,800,000
              January, 2002                      $ 12,000,000
              February, 2002                     $ 14,000,000
              March, 2002                        $ 15,500,000
              April, 2002                        $ 16,750,000
              May, 2002                          $ 17,500,000
              June, 2002                         $ 18,500,000
              July, 2002                         $ 19,750,000
              August, 2002                       $ 21,500,000
              September, 2002                    $ 24,000,000
              October, 2002                      $ 24,000,000
              November, 2002                     $ 23,000,000
              December, 2002                     $ 19,000,000
              January, 2003
              and thereafter                     $ 15,000,000
</TABLE>

              7.2.15 Minimum Net Worth.

              The Borrower shall not permit Consolidated Net Worth to be less
than the following amounts for the periods set forth below, as calculated at the
end of each fiscal month of the Borrower commencing with the month ended
October, 2000.
<TABLE>
<S>                                                          <C>
----------------------------------------------------------------------------------------------------------------------
Closing Date through December 31, 2000                       $415,000,000
----------------------------------------------------------------------------------------------------------------------
January, 2001 through August, 2002                           $400,000,000
----------------------------------------------------------------------------------------------------------------------
September, 2002 and thereafter                               $415,000,000
----------------------------------------------------------------------------------------------------------------------
</TABLE>


         7.3 Reporting Requirements.

         The Loan Parties, jointly and severally, covenant and agree that until
payment in full of the Loans, Reimbursement Obligations and Letter of Credit
Borrowings and interest and fees thereon, expiration or termination of all
Letters of Credit, satisfaction of all of the Loan Parties' other Obligations
hereunder and under the other Loan Documents and termination of the Commitments,
the Loan Parties will furnish or cause to be furnished to the Agent and each of
the Banks:

              7.3.1 Monthly Financial Statements.

              As soon as available and in any event within thirty (30) calendar
days after the end of each fiscal month in each fiscal year (other than fiscal
quarter end), financial statements of the Borrower, consisting of a consolidated
balance sheet as of the end of such fiscal month and related consolidated
statements of income, stockholders' equity and cash flows for the

                                      -58-

<PAGE>   59

fiscal month then ended and the fiscal year through that date, all in reasonable
detail and certified (subject to normal year-end audit adjustments) by the Chief
Executive Officer, President or Chief Financial Officer of the Borrower as
having been prepared in accordance with GAAP, consistently applied, and setting
forth in comparative form the respective financial statements for the
corresponding date and period in the previous fiscal year.

              7.3.2 Quarterly Financial Statements.

              As soon as available and in any event within forty-five (45)
calendar days after the end of each of the first three fiscal quarters in each
fiscal year, financial statements of the Borrower, consisting of a consolidated
balance sheet as of the end of such fiscal quarter and related consolidated
statements of income, stockholders' equity and cash flows for the fiscal quarter
then ended and the fiscal year through that date, all in reasonable detail and
certified (subject to normal year-end audit adjustments) by the Chief Executive
Officer, President or Chief Financial Officer of the Borrower as having been
prepared in accordance with GAAP, consistently applied, and setting forth in
comparative form the respective financial statements for the corresponding date
and period in the previous fiscal year. The Loan Parties will be deemed to have
complied with the delivery requirements of this Section 7.3.2 if within
forty-five (45) days after the end of their fiscal quarter, the Borrower
delivers to the Agent and each of the Banks a copy of its Form 10-Q as filed
with the SEC and the financial statements contained therein meet the
requirements described in this Section 7.3.2.

              7.3.3 Annual Financial Statements.

              As soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, financial statements of the
Borrower consisting of a consolidated balance sheet as of the end of such fiscal
year, and related consolidated statements of income, stockholders' equity and
cash flows for the fiscal year then ended, all in reasonable detail and setting
forth in comparative form the financial statements as of the end of and for the
preceding fiscal year, and certified by independent certified public accountants
of nationally recognized standing satisfactory to the Agent. The certificate or
report of accountants shall be free of qualifications (other than any
consistency qualification that may result from a change in the method used to
prepare the financial statements as to which such accountants concur) and shall
not indicate the occurrence or existence of any event, condition or contingency
which would materially impair the prospect of payment or performance of any
covenant, agreement or duty of any Loan Party under any of the Loan Documents.
The Loan Parties will be deemed to have complied with the delivery requirements
of this Section 7.3.3 if within ninety (90) days after the end of their fiscal
year, the Borrower delivers to the Agent and each of the Banks a copy of its
Annual Report and Form 10-K as filed with the SEC and the financial statements
and certification of public accountants contained therein meet the requirements
described in this Section 7.3.3.

              7.3.4 Compliance Certificate of the Borrower.

              Concurrently with the financial statements of the Borrower
furnished to the Agent and to the Banks pursuant to Sections 7.3.1 [Monthly
Financial Statements], 7.3.2



                                      -59-

<PAGE>   60

[Quarterly Financial Statements] and 7.3.3 [Annual Financial Statements], a
certificate of the Borrower signed by the Chief Executive Officer, President or
Chief Financial Officer of the Borrower, in the form of Exhibit 7.3.4, to the
effect that, except as described pursuant to Section 7.3.5 [Notice of Default],
(i) the representations and warranties of the Borrower contained in Section 5.1
and in the other Loan Documents are true on and as of the date of such
certificate with the same effect as though such representations and warranties
had been made on and as of such date (except representations and warranties
which expressly relate solely to an earlier date or time), and the Loan Parties
have performed and complied with all covenants and conditions hereof, (ii) no
Event of Default or Potential Default exists and is continuing on the date of
such certificate, and (iii) covenanting compliance with and containing
calculations in sufficient detail to demonstrate compliance as of the date of
such financial statements with all financial covenants contained in Sections
7.2.13 [Capital Expenditures], 7.2.14 [Minimum Consolidated Cash Flows from
Operations] and 7.2.15 [Minimum Net Worth].

              7.3.5 Monthly Borrowing Base Certificates, Schedules of Accounts,
Inventory and Payables.

              As soon as available within thirty (30) days after the end of each
month, a Borrowing Base Certificate as of the end of the immediately preceding
month in the form of Exhibit 7.3.5 hereto, appropriately completed, executed and
delivered by an Authorized Officer, together with a Schedule of Accounts and
Schedule of Inventory as of the end of the immediately preceding month.

              7.3.6 Notice of Default.

              Promptly after any officer of any Loan Party has learned of the
occurrence of an Event of Default or Potential Default, a certificate signed by
the Chief Executive Officer, President or Chief Financial Officer of such Loan
Party setting forth the details of such Event of Default or Potential Default
and the action which such Loan Party proposes to take with respect thereto.

              7.3.7 Notice of Litigation.

              Promptly after the commencement thereof, notice of all actions,
suits, proceedings or investigations before or by any Official Body or any other
Person against any Loan Party or Subsidiary of any Loan Party, which relate to
the Collateral, involve a claim or series of claims in excess of $10,000,000 or
which if adversely determined would constitute a Material Adverse Change.

              7.3.8 Sale of Assets.

              At least five (5) calendar days prior thereto, notice with respect
to any proposed sale or transfer of assets pursuant to Section 7.2.6(iii) in
excess of $5,000,000.

              7.3.9 Budgets, Forecasts, Other Reports and Information.

              Promptly upon their becoming available to the Borrower:



                                      -60-

<PAGE>   61

                        (i) any reports, including management letters, submitted
to the Borrower or its board of directors by independent accountants in
connection with any annual, interim or special audit;

                        (ii) any reports, notices or proxy statements generally
distributed by the Borrower to its stockholders on a date no later than the date
supplied to such stockholders;

                        (iii) regular or periodic reports, including Forms 10-K,
10-Q and 8-K, registration statements and prospectuses, filed by the Borrower
with the SEC; or

                        (iv) such other reports and information as any of the
Banks may from time to time reasonably request. The Borrower shall also notify
the Banks promptly upon becoming aware of the enactment or adoption of any Law
which may result in a Material Adverse Change.

              7.3.10 Notices Regarding Plans and Benefit Arrangements.

                   7.3.10.1 Certain Events.

                   Promptly upon becoming aware of the occurrence thereof,
notice (including the nature of the event and, when known, any action taken or
threatened by the Internal Revenue Service or the PBGC with respect thereto) of:

                        (i) any Reportable Event with respect to the Borrower or
any other member of the ERISA Group (regardless of whether the obligation to
report said Reportable Event to the PBGC has been waived);

                        (ii) any Prohibited Transaction which could subject the
Borrower or any other member of the ERISA Group to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Internal Revenue Code in connection with any Plan, any Benefit Arrangement or
any trust created thereunder;

                        (iii) any assertion of material withdrawal liability
with respect to any Multiemployer Plan;

                        (iv) any partial or complete withdrawal from a
Multiemployer Plan by the Borrower or any other member of the ERISA Group under
Title IV of ERISA (or assertion thereof), where such withdrawal is likely to
result in material withdrawal liability;

                        (v) any cessation of operations (by the Borrower or any
other member of the ERISA Group) at a facility in the circumstances described in
Section 4062(e) of ERISA;

                        (vi) withdrawal by the Borrower or any other member of
the ERISA Group from a Multiple Employer Plan;


                                      -61-

<PAGE>   62

                        (vii) a failure by the Borrower or any other member of
the ERISA Group to make a payment to a Plan required to avoid imposition of a
Lien under Section 302(f) of ERISA;

                        (viii) the adoption of an amendment to a Plan requiring
the provision of security to such Plan pursuant to Section 307 of ERISA; or

                        (ix) any change in the actuarial assumptions or funding
methods used for any Plan, where the effect of such change is to materially
increase or materially reduce the unfunded benefit liability or obligation to
make periodic contributions.

                   7.3.10.2 Notices of Involuntary Termination and Annual
Reports.

                   Promptly after receipt thereof, copies of (a) all notices
received by the Borrower or any other member of the ERISA Group of the PBGC's
intent to terminate any Plan administered or maintained by the Borrower or any
member of the ERISA Group, or to have a trustee appointed to administer any such
Plan; and (b) at the request of the Agent or any Bank each annual report (IRS
Form 5500 series) and all accompanying schedules, the most recent actuarial
reports, the most recent financial information concerning the financial status
of each Plan administered or maintained by the Borrower or any other member of
the ERISA Group, and schedules showing the amounts contributed to each such Plan
by or on behalf of the Borrower or any other member of the ERISA Group in which
any of their personnel participate or from which such personnel may derive a
benefit, and each Schedule B (Actuarial Information) to the annual report filed
by the Borrower or any other member of the ERISA Group with the Internal Revenue
Service with respect to each such Plan.

                   7.3.10.3 Notice of Voluntary Termination.

                   Promptly upon the filing thereof, copies of any Form 5310, or
any successor or equivalent form to Form 5310, filed with the PBGC in connection
with the termination of any Plan.

                                   8. DEFAULT

         8.1 Events of Default.

         An Event of Default shall mean the occurrence or existence of any one
or more of the following events or conditions (whatever the reason therefor and
whether voluntary, involuntary or effected by operation of Law):

              8.1.1 Payments Under Loan Documents.

              The Borrower shall fail to pay any principal of any Loan
(including scheduled installments, mandatory prepayments or the payment due at
maturity), Reimbursement Obligation or Letter of Credit Borrowing when such
principal is due hereunder or shall fail to pay



                                      -62-

<PAGE>   63

any interest on any Loan, Reimbursement Obligation or Letter of Credit Borrowing
or any other amount owing hereunder or under the other Loan Documents after such
principal, interest or other amount becomes due in accordance with the terms
hereof or thereof;

              8.1.2 Breach of Warranty.

              Any representation or warranty made at any time by any of the Loan
Parties herein or by any of the Loan Parties in any other Loan Document, or in
any certificate, other instrument or statement furnished pursuant to the
provisions hereof or thereof, shall prove to have been false or misleading in
any material respect as of the time it was made or furnished;

              8.1.3 Breach of Certain Covenants.

              Any of the Loan Parties shall default in the observance or
performance of any covenant contained in Section 7.1.6 [Visitation Rights],
Section 7.1.10 [Use of Proceeds] or Section 7.2 [Negative Covenants];

              8.1.4 Breach of Other Covenants.

              Any of the Loan Parties shall default in the observance or
performance of any other covenant, condition or provision hereof or of any other
Loan Document, and such default shall continue unremedied for a period of ten
(10) Business Days after any officer of any Loan Party becomes aware of the
occurrence thereof (such grace period to be applicable only in the event such
default can be remedied by corrective action of the Loan Parties as determined
by the Agent in its sole discretion);

              8.1.5 Defaults in Other Agreements or Indebtedness.

              A default or event of default shall occur at any time under the
terms of any other agreement involving borrowed money or the extension of credit
or any other Indebtedness under which any Loan Party or Subsidiary of any Loan
Party may be obligated as a borrower or guarantor in excess of $5,000,000 in the
aggregate, and such breach, default or event of default consists of the failure
to pay (beyond any grace period permitted with respect thereto, whether waived
or not) any indebtedness when due (whether at stated maturity, by acceleration
or otherwise) or if such breach or default permits or causes the acceleration of
any indebtedness (whether or not such right shall have been waived) or the
termination of any commitment to lend;

              8.1.6 Final Judgments or Orders.

              Any final judgments or orders for the payment of money in excess
of $5,000,000 in the aggregate shall be entered against any Loan Party by a
court having jurisdiction in the premises, which judgment is not discharged,
vacated, bonded or stayed pending appeal within a period of thirty (30) days
from the date of entry;



                                      -63-

<PAGE>   64

              8.1.7 Loan Document Unenforceable.

              Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the party executing the same or such
party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or become or be declared ineffective or
inoperative or shall in any way be challenged or contested or cease to give or
provide the respective rights, titles, interests, remedies, powers or privileges
intended to be created thereby;

              8.1.8 Uninsured Losses; Proceedings Against Assets.

              There shall occur any material uninsured damage to or loss, theft
or destruction of any of the Collateral in excess of $2,500,000 or the
Collateral, or any other of the Loan Parties' or any of their Subsidiaries'
assets are attached, seized, levied upon or subjected to a writ or distress
warrant for liabilities which aggregate in excess of $5,000,000; or such come
within the possession of any receiver, trustee, custodian or assignee for the
benefit of creditors and the same is not cured within thirty (30) days
thereafter;

              8.1.9 Notice of Lien or Assessment.

              Any notices of Liens or assessments in excess of $5,000,000 in the
aggregate which are not Permitted Liens are filed of record with respect to all
or any part of any of the Loan Parties' or any of their Subsidiaries' assets by
the United States, or any department, agency or instrumentality thereof, or by
any state, county, municipal or other governmental agency, including the PBGC,
or any taxes or debts owing at any time or times hereafter to any one of these
becomes payable and the same is not paid within thirty (30) days after the same
becomes payable;

              8.1.10 Insolvency.

              The Borrower or any Guarantor ceases to be Solvent or admits in
writing its inability to pay its debts as they mature;

              8.1.11 Events Relating to Plans and Benefit Arrangements.

              Any of the following occurs: (i) any Reportable Event, which the
Agent determines in good faith constitutes grounds for the termination of any
Plan by the PBGC or the appointment of a trustee to administer or liquidate any
Plan, shall have occurred and be continuing; (ii) proceedings shall have been
instituted or other action taken to terminate any Plan, or a termination notice
shall have been filed with respect to any Plan; (iii) a trustee shall be
appointed to administer or liquidate any Plan; (iv) the PBGC shall give notice
of its intent to institute proceedings to terminate any Plan or Plans or to
appoint a trustee to administer or liquidate any Plan; and, in the case of the
occurrence of (i), (ii), (iii) or (iv) above, the Agent determines in good faith
that the amount of the Borrower's liability is likely to exceed 10% of its
Consolidated Tangible Net Worth; (v) the Borrower or any member of the ERISA
Group shall fail to make any contributions when due to a Plan or a Multiemployer
Plan; (vi) the Borrower or




                                      -64-

<PAGE>   65

any other member of the ERISA Group shall make any amendment to a Plan with
respect to which security is required under Section 307 of ERISA; (vii) the
Borrower or any other member of the ERISA Group shall withdraw completely or
partially from a Multiemployer Plan; (viii) the Borrower or any other member of
the ERISA Group shall withdraw (or shall be deemed under Section 4062(e) of
ERISA to withdraw) from a Multiple Employer Plan; or (ix) any applicable Law is
adopted, changed or interpreted by any Official Body with respect to or
otherwise affecting one or more Plans, Multiemployer Plans or Benefit
Arrangements and, with respect to any of the events specified in (v), (vi),
(vii), (viii) or (ix), the Agent determines in good faith that any such
occurrence would be reasonably likely to materially and adversely affect the
total enterprise represented by the Borrower and the other members of the ERISA
Group;

              8.1.12 Cessation of Business.

              Any Borrower or Guarantor ceases to conduct its business as
contemplated, except as expressly permitted under Section 7.2.5 [Liquidations,
Mergers, Etc.] or 7.2.6 [Dispositions of Assets or Subsidiaries], or any
Borrower or Guarantor is enjoined, restrained or in any way prevented by court
order from conducting all or any material part of its business and such
injunction, restraint or other preventive order is not dismissed within thirty
(30) days after the entry thereof;

              8.1.13 Change of Control.

                        (i) Any person or group of persons (within the meaning
of Sections 13(d) or 14(a) of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership of (within the meaning of Rule 13d-3
promulgated by the SEC under said Act) 30% or more of the voting capital stock
of the Borrower; or (ii) within a period of twelve (12) consecutive calendar
months, individuals who were directors of the Borrower on the first day of such
period shall cease to constitute a majority of the board of directors of the
Borrower other than as a result of voluntary resignation or retirement;

              8.1.14 Involuntary Proceedings.

              A proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of
the Borrower or any Guarantor in an involuntary case under any applicable
bankruptcy, insolvency, reorganization or other similar law now or hereafter in
effect, or for the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator, conservator (or similar official) of the Borrower or any
Guarantor for any substantial part of its property, or for the winding-up or
liquidation of its affairs, and such proceeding shall remain undismissed or
unstayed and in effect for a period of sixty (60) consecutive days or such court
shall enter a decree or order granting any of the relief sought in such
proceeding; or

              8.1.15 Voluntary Proceedings.

              The Borrower or any Guarantor shall commence a voluntary case
under any applicable bankruptcy, insolvency, reorganization or other similar law
now or hereafter in


                                      -65-

<PAGE>   66

effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or other similar official) of itself or for any substantial part of its
property or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take any
action in furtherance of any of the foregoing.

              8.1.16 Other Subsidiaries.

              It is not the intent that an involuntary proceeding as described
in Section 8.1.14 or a voluntary proceeding as described in Section 8.1.15 with
respect to a Subsidiary of the Borrower other than a Guarantor shall constitute
an Event of Default.

         8.2 Consequences of Event of Default.

              8.2.1 Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings.

              If an Event of Default specified under Sections 8.1.1 through
8.1.13 shall occur and be continuing, the Banks and the Agent shall be under no
further obligation to make Loans or issue Letters of Credit, as the case may be,
and the Agent may, and upon the request of the Required Banks, shall (i) by
written notice to the Borrower, declare the unpaid principal amount of the Loans
then outstanding and all interest accrued thereon, any unpaid fees and all other
Indebtedness of the Borrower to the Agent and the Banks hereunder and thereunder
to be forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Agent for the benefit of each Bank without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, and (ii) require the Borrower to, and the Borrower
shall thereupon, deposit in a noninterest-bearing account with the Agent, as
cash collateral for its Obligations under the Loan Documents, an amount equal to
the maximum amount currently or at any time thereafter available to be drawn on
all outstanding Letters of Credit, and the Borrower hereby pledges to the Agent
and the Banks, and grants to the Agent and the Banks a security interest in, all
such cash as security for such Obligations. Upon the curing of all existing
Events of Default to the satisfaction of the Required Banks, the Agent shall
return such cash collateral to the Borrower; and

              8.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.

              If an Event of Default specified under Section 8.1.14 [Involuntary
Proceedings] or 8.1.15 [Voluntary Proceedings] shall occur, the Banks and the
Agent shall be under no further obligations to make Loans hereunder or issue
Letters of Credit, as the case may me, and the unpaid principal amount of the
Loans then outstanding and all interest accrued thereon, any unpaid fees and all
other Indebtedness of the Borrower to the Agent and the Banks hereunder and
thereunder shall be immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived; and



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<PAGE>   67

              8.2.3 Set-off.

              If an Event of Default shall occur and be continuing, any Bank to
whom any Obligation is owed by any Loan Party hereunder or under any other Loan
Document or any participant of such Bank which has agreed in writing to be bound
by the provisions of Section 9.13 [Equalization of Banks] and any branch,
Subsidiary or Affiliate of such Bank or participant anywhere in the world shall
have the right, in addition to all other rights and remedies available to it,
without notice to such Loan Party, to set off against and apply to the
then-unpaid balance of all the Loans and all other Obligations of the Borrower
and the other Loan Parties hereunder or under any other Loan Document any debt
owing to, and any other funds held in any manner for the account of, the
Borrower or such other Loan Party by such Bank or participant or by such branch,
Subsidiary or Affiliate, including all funds in all deposit accounts (whether
time or demand, general or special, provisionally credited or finally credited,
or otherwise) now or hereafter maintained by the Borrower or such other Loan
Party for its own account (but not including funds held in custodian or trust
accounts) with such Bank or participant or such branch, Subsidiary or Affiliate.
Such right shall exist whether or not any Bank or the Agent shall have made any
demand under this Agreement or any other Loan Document, whether or not such debt
owing to or funds held for the account of the Borrower or such other Loan Party
is or are matured or unmatured and regardless of the existence or adequacy of
any Collateral, Guaranty or any other security, right or remedy available to any
Bank or the Agent; and

              8.2.4 Suits, Actions, Proceedings.

              If an Event of Default shall occur and be continuing, and whether
or not the Agent shall have accelerated the maturity of Loans pursuant to any of
the foregoing provisions of this Section 8.2, the Agent or any Bank, if owed any
amount with respect to the Loans, may proceed to protect and enforce its rights
by suit in equity, action at law and/or other appropriate proceeding, whether
for the specific performance of any covenant or agreement contained in this
Agreement or the other Loan Documents, including as permitted by applicable Law
the obtaining of the ex parte appointment of a receiver, and, if such amount
shall have become due, by declaration or otherwise, proceed to enforce the
payment thereof or any other legal or equitable right of the Agent or such Bank;
and

              8.2.5 Application of Proceeds.

              From and after the date on which the Agent has taken any action
pursuant to this Section 8.2 and until all Obligations of the Loan Parties have
been paid in full, any and all proceeds received by the Agent from any sale or
other disposition of the Collateral or from the exercise of any remedy by the
Agent shall be applied as follows:

                   (i) first, to reimburse the Agent and the Banks for
out-of-pocket costs, expenses and disbursements, including reasonable attorneys'
and paralegals' fees and legal expenses, incurred by the Agent or the Banks in
connection with collection of any Obligations of any of the Loan Parties under
any of the Loan Documents, including advances made by the Banks or any one of
them or the Agent for the reasonable maintenance, preservation, protection or
enforcement of, or realization upon, the Collateral, including advances for
taxes,

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<PAGE>   68



insurance, repairs and the like and reasonable expenses incurred to sell
or otherwise realize on, or prepare for sale or other realization on, any of the
Collateral;

                   (ii) second, to the repayment of all Obligations then due and
unpaid of the Loan Parties to the Banks incurred under this Agreement or any of
the other Loan Documents, whether of principal, interest, fees, expenses or
otherwise, in such manner as the Agent may determine in its discretion; and

                   (iii) the balance, if any, as required by Law.

              8.2.6 Other Rights and Remedies.

              In addition to all of the rights and remedies contained in this
Agreement or in any of the other Loan Documents, the Agent shall have all of the
rights and remedies under the Uniform Commercial Code or other applicable Law,
all of which rights and remedies shall be cumulative and nonexclusive, to the
extent permitted by Law. The Agent may, and upon the request of the Required
Banks shall, exercise all post-default rights granted to the Agent and the Banks
under the Loan Documents or applicable Law.

         8.3 Notice of Sale.

         Any notice required to be given by the Agent of a sale, lease, or other
disposition of the Collateral or any other intended action by the Agent, if
given ten (10) days prior to such proposed action, shall constitute commercially
reasonable and fair notice thereof to the Borrower.

                                  9. THE AGENT


         9.1 Appointment.

         Each Bank hereby irrevocably designates, appoints and authorizes PNC
Bank to act as Agent for such Bank under this Agreement and to execute and
deliver or accept on behalf of each of the Banks the other Loan Documents. Each
Bank hereby irrevocably authorizes the Agent to take such action on its behalf
under the provisions of this Agreement and the other Loan Documents and any
other instruments and agreements referred to herein, and to exercise such powers
and to perform such duties hereunder as are specifically delegated to or
required of the Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. PNC Bank agrees to act as the Agent on behalf of
the Banks to the extent provided in this Agreement.

         9.2 Delegation of Duties.

         The Agent may perform any of its duties hereunder by or through agents
or employees (provided such delegation does not constitute a relinquishment of
its duties as Agent) and, subject to Sections 9.5 [Reimbursement of Agent by
Borrower, Etc.] and 9.6 [Exculpatory Provisions; Limitation of Liability], shall
be entitled to engage and pay for the advice or services of any attorneys,
accountants or other experts concerning all matters pertaining to its duties
hereunder and to rely upon any advice so obtained.

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<PAGE>   69





         9.3 Nature of Duties; Independent Credit Investigation.

         The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of this Agreement a
fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement except as
expressly set forth herein. Without limiting the generality of the foregoing,
the use of the term "agent" in this Agreement with reference to the Agent is not
intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable Law. Instead, such term is used
merely as a matter of market custom, and is intended to create or reflect only
an administrative relationship between independent contracting parties. Each
Bank expressly acknowledges (i) that the Agent has not made any representations
or warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of any of the Loan Parties, shall be deemed to constitute
any representation or warranty by the Agent to any Bank; (ii) that it has made
and will continue to make, without reliance upon the Agent, its own independent
investigation of the financial condition and affairs and its own appraisal of
the creditworthiness of each of the Loan Parties in connection with this
Agreement and the making and continuance of the Loans hereunder; and (iii)
except as expressly provided herein, that the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Bank
with any credit or other information with respect thereto, whether coming into
its possession before the making of any Loan or at any time or times thereafter.

         9.4 Actions in Discretion of Agent; Instructions From the Banks.

         The Agent agrees, upon the written request of the Required Banks, to
take or refrain from taking any action of the type specified as being within the
Agent's rights, powers or discretion herein, provided that the Agent shall not
be required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Required Banks, the Agent shall have
authority, in its sole discretion, to take or not to take any such action,
unless this Agreement specifically requires the consent of the Required Banks or
all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section 9.6
[Exculpatory Provisions, Etc.]. Subject to the provisions of Section 9.6, no
Bank shall have any right of action whatsoever against the Agent as a result of
the Agent acting or refraining from acting hereunder in accordance with the
instructions of the Required Banks, or in the absence of such instructions, in
the absolute discretion of the Agent.

         9.5 Reimbursement and Indemnification of the Agent by the Borrower.

         The Borrower unconditionally agrees to pay or reimburse the Agent and
hold the Agent harmless against (a) liability for the payment of all reasonable
out-of-pocket costs, expenses and disbursements, including fees and expenses of
counsel (including the allocated costs of staff counsel), appraisers and
environmental consultants, incurred by the Agent (i) in

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<PAGE>   70


connection with the development, negotiation, preparation, printing, execution,
administration, syndication, interpretation and performance of this Agreement
and the other Loan Documents, (ii) relating to any requested amendments, waivers
or consents pursuant to the provisions hereof, (iii) in connection with the
enforcement of this Agreement or any other Loan Document or collection of
amounts due hereunder or thereunder or the proof and allowability of any claim
arising under this Agreement or any other Loan Document, whether in bankruptcy
or receivership proceedings or otherwise, and (iv) in any workout or
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, and (b) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Agent, in its capacity as such, in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or omitted
by the Agent hereunder or thereunder, provided that the Borrower shall not be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements if the
same results from the Agent's gross negligence or willful misconduct, or if the
Borrower was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense (except that the Borrower
shall remain liable to the extent such failure to give notice does not result in
a loss to the Borrower), or if the same results from a compromise or settlement
agreement entered into without the consent of the Borrower, which shall not be
unreasonably withheld. In addition, the Borrower agrees to reimburse and pay all
reasonable out-of-pocket expenses of the Agent's regular employees and agents
engaged periodically to perform audits of the Loan Parties' books, records and
business properties. The Borrower agrees to pay or reimburse the Syndication
Agent for the payment of all reasonable out-of-pocket costs, expenses and
disbursements in connection with the development, negotiation and syndication of
this Agreement and the other Loan Documents,

         9.6 Exculpatory Provisions; Limitation of Liability.

         Neither the Agent nor any of its directors, officers, employees,
agents, attorneys or Affiliates shall (a) be liable to any Bank for any action
taken or omitted to be taken by it or them hereunder, or in connection herewith,
including pursuant to any Loan Document, unless caused by its or their own gross
negligence or willful misconduct, (b) be responsible in any manner to any of the
Banks for the effectiveness, enforceability, genuineness, validity or the due
execution of this Agreement or any other Loan Documents or for any recital,
representation, warranty, document, certificate, report or statement herein or
made or furnished under or in connection with this Agreement or any other Loan
Documents, or (c) be under any obligation to any of the Banks to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions hereof or thereof on the part of the Loan Parties, or the financial
condition of the Loan Parties, or the existence or possible existence of any
Event of Default or Potential Default. No claim may be made by any of the Loan
Parties, any Bank, the Agent or any of their respective Subsidiaries against the
Agent, any Bank or any of their respective directors, officers, employees,
agents, attorneys or Affiliates, or any of them, for any special, indirect or
consequential damages or, to the fullest extent permitted by Law, for any
punitive damages in respect of any claim or cause of action (whether based on
contract, tort, statutory liability or any other ground) based on, arising out
of or related to any Loan Document or the transactions

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<PAGE>   71


contemplated hereby or any act, omission or event occurring in connection
therewith, including the negotiation, documentation, administration or
collection of the Loans, and each of the Loan Parties (for itself and on behalf
of each of its Subsidiaries), the Agent and each Bank hereby waive, release and
agree never to sue upon any claim for any such damages, whether such claim now
exists or hereafter arises and whether or not it is now known or suspected to
exist in its favor. Each Bank agrees that, except for notices, reports and other
documents expressly required to be furnished to the Banks by the Agent hereunder
or given to the Agent for the account of or with copies for the Banks, the Agent
and each of its directors, officers, employees, agents, attorneys or Affiliates
shall not have any duty or responsibility to provide any Bank with any credit or
other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the Loan Parties
which may come into the possession of the Agent or any of its directors,
officers, employees, agents, attorneys or Affiliates.

         9.7 Reimbursement and Indemnification of the Agent by the Banks.

         Each Bank agrees to reimburse and indemnify the Agent (to the extent
not reimbursed by the Borrower and without limiting the Obligation of the
Borrower to do so) in proportion to its Ratable Share from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements, including attorneys' fees and disbursements
(including the allocated costs of staff counsel), and costs of appraisers and
environmental consultants, of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Agent, in its capacity as such, in any
way relating to or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by the Agent hereunder or thereunder, provided that
no Bank shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (a) if the same results from the Agent's gross negligence or
willful misconduct, or (b) if such Bank was not given notice of the subject
claim and the opportunity to participate in the defense thereof, at its expense
(except that such Bank shall remain liable to the extent such failure to give
notice does not result in a loss to the Bank), or (c) if the same results from a
compromise and settlement agreement entered into without the consent of such
Bank, which shall not be unreasonably withheld. In addition, each Bank agrees
promptly upon demand to reimburse the Agent (to the extent not reimbursed by the
Borrower and without limiting the Obligation of the Borrower to do so) in
proportion to its Ratable Share for all amounts due and payable by the Borrower
to the Agent in connection with the Agent's periodic audit of the Loan Parties'
books, records and business properties.

         9.8 Reliance by the Agent.

         The Agent shall be entitled to rely upon any writing, telegram, telex
or teletype message, resolution, notice, consent, certificate, letter,
cablegram, statement, order or other document or conversation by telephone or
otherwise believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon the advice and opinions of
counsel and other professional advisers selected by the Agent. The Agent shall
be fully justified in failing or refusing to take any action hereunder unless it
shall first be
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<PAGE>   72


indemnified to its satisfaction by the Banks against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action.

         9.9 Notice of Default.

         The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Potential Default or Event of Default unless the Agent has
received written notice from a Bank or the Borrower referring to this Agreement,
describing such Potential Default or Event of Default and stating that such
notice is a "notice of default."

         9.10 Notices.

         The Agent shall promptly send to each Bank a copy of all notices
received from the Borrower pursuant to the provisions of this Agreement or the
other Loan Documents promptly upon receipt thereof. The Agent shall promptly
notify the Borrower and the other Banks of each change in the Base Rate and the
effective date thereof.

         9.11 Banks in Their Individual Capacities.

         With respect to its Revolving Credit Commitment and the Revolving
Credit Loans made by it and any other rights and powers given to it as a Bank
hereunder or under any of the other Loan Documents, the Agent shall have the
same rights and powers hereunder as any other Bank and may exercise the same as
though it were not the Agent, and the term "Banks" shall, unless the context
otherwise indicates, include the Agent in its individual capacity. PNC Bank and
its Affiliates and each of the Banks and their respective Affiliates may,
without liability to account, except as prohibited herein, make loans to, accept
deposits from, discount drafts for, act as trustee under indentures of, and
generally engage in any kind of banking or trust business with, the Loan Parties
and their Affiliates, in the case of the Agent, as though it were not acting as
Agent hereunder and in the case of each Bank, as though such Bank were not a
Bank hereunder. The Banks acknowledge that, pursuant to such activities, the
Agent or its Affiliates may (i) receive information regarding the Loan Parties
(including information that may be subject to confidentiality obligations in
favor of the Loan Parties) and acknowledge that the Agent shall be under no
obligation to provide such information to them, and (ii) accept fees and other
consideration from the Loan Parties for services in connection with this
Agreement and otherwise without having to account for the same to the Banks.

         9.12 Holders of Notes.

         The Agent may deem and treat any payee of any Note as the owner thereof
for all purposes hereof unless and until written notice of the assignment or
transfer thereof shall have been filed with the Agent. Any request, authority or
consent of any Person who at the time of making such request or giving such
authority or consent is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.


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<PAGE>   73

         9.13 Equalization of the Banks.

         The Banks and the holders of any participations in any Commitments or
Loans or other rights or obligations of a Bank hereunder agree among themselves
that, with respect to all amounts received by any Bank or any such holder for
application on any Obligation hereunder or under any such participation, whether
received by voluntary payment, by realization upon security, by the exercise of
the right of set-off or banker's lien, by counterclaim or by any other non-pro
rata source, equitable adjustment will be made in the manner stated in the
following sentence so that, in effect, all such excess amounts will be shared
ratably among the Banks and such holders in proportion to their interests in
payments on the Loans, except as otherwise provided in 4.4.2 [Replacement of a
Bank] or 4.5 [Additional Compensation in Certain Circumstances]. The Banks or
any such holder receiving any such amount shall purchase for cash from each of
the other Banks an interest in such Bank's Loans in such amount as shall result
in a ratable participation by the Banks and each such holder in the aggregate
unpaid amount of the Loans, provided that if all or any portion of such excess
amount is thereafter recovered from the Bank or the holder making such purchase,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, together with interest or other amounts, if any, required by
law (including court order) to be paid by the Bank or the holder making such
purchase.

         9.14 Successor Agent.

         The Agent (i) may resign as Agent, or (ii) shall resign if such
resignation is requested by the Required Banks (if the Agent is a Bank, the
Agent's Loans and its Commitment shall be considered in determining whether the
Required Banks have requested such resignation) or required by Section 4.4.2
[Replacement of a Bank], in either case of (i) or (ii) by giving not less than
thirty (30) days' prior written notice to the Borrower. If the Agent shall
resign under this Agreement, then either (a) the Required Banks shall appoint
from among the Banks a successor agent for the Banks, subject to the consent of
the Borrower, such consent not to be unreasonably withheld, or (b) if a
successor agent shall not be so appointed and approved within the thirty (30)
day period following the Agent's notice to the Banks of its resignation, then
the Agent shall appoint, with the consent of the Borrower, such consent not to
be unreasonably withheld, a successor agent who shall serve as Agent until such
time as the Required Banks appoint and the Borrower consents to the appointment
of, a successor agent. Upon its appointment pursuant to either clause (a) or (b)
above, such successor agent shall succeed to the rights, powers and duties of
the Agent, and the term "Agent" shall mean such successor agent, effective upon
its appointment, and the former Agent's rights, powers and duties as Agent shall
be terminated without any other or further act or deed on the part of such
former Agent or any of the parties to this Agreement. After the resignation of
any Agent hereunder, the provisions of this Article 9 shall inure to the benefit
of such former Agent, and such former Agent shall not by reason of such
resignation be deemed to be released from liability for any actions taken or not
taken by it while it was an Agent under this Agreement.


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<PAGE>   74


         9.15 Agent's Fee.

         The Borrower shall pay to the Agent a nonrefundable fee (the "Agent's
Fee"), the annual administration fee and, for Letters of Credit with PNC Bank,
National Association as the Issuing Bank, the Letter of Credit fronting fees
under the terms of letters both dated March 27, 1998, and shall pay to the Agent
for the benefit of the Banks the closing fee (regarding Amendment No. 6 to the
Agreement) under the terms of the letter dated November 20, 2000 (collectively,
the "Agent's Letter") between the Borrower and Agent, as amended from time to
time.

         9.16 Availability of Funds.

         The Agent may assume that each Bank has made or will make the proceeds
of a Loan available to the Agent unless the Agent shall have been notified by
such Bank on or before the later of (1) the close of Business on the Business
Day preceding the Borrowing Date with respect to such Loan or two (2) hours
before the time on which the Agent actually funds the proceeds of such Loan to
the Borrower (whether using its own funds pursuant to this Section 9.16 or using
proceeds deposited with the Agent by the Banks and whether such funding occurs
before or after the time on which Banks are required to deposit the proceeds of
such Loan with the Agent). The Agent may, in reliance upon such assumption (but
shall not be required to), make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the Agent
by such Bank, the Agent shall be entitled to recover such amount on demand from
such Bank (or, if such Bank fails to pay such amount forthwith upon such demand,
then from the Borrower) together with interest thereon, in respect of each day
during the period commencing on the date such amount was made available to the
Borrower and ending on the date the Agent recovers such amount, at a rate per
annum equal to (i) the Federal Funds Effective Rate during the first three (3)
days after such interest shall begin to accrue, and (ii) the applicable interest
rate in respect of such Loan after the end of such three-day period.

         9.17 Calculations.

         In the absence of gross negligence or willful misconduct, the Agent
shall not be liable for any error in computing the amount payable to any Bank
whether in respect of the Loans, fees or any other amounts due to the Banks
under this Agreement. In the event an error in computing any amount payable to
any Bank is made, the Agent, the Borrower and each affected Bank shall,
forthwith upon discovery of such error, make such adjustments as shall be
required to correct such error, and any compensation therefor will be calculated
at the Federal Funds Effective Rate.

         9.18 Beneficiaries.

         Except as expressly provided herein, the provisions of this Article 9
are solely for the benefit of the Agent and the Banks, and the Loan Parties
shall not have any rights to rely on or enforce any of the provisions hereof. In
performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be

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<PAGE>   75


deemed to have assumed any obligation toward or relationship of agency or trust
with or for any of the Loan Parties.

                               10. MISCELLANEOUS

         10.1 Modifications, Amendments or Waivers.

         With the written consent of the Required Banks, the Agent, acting on
behalf of all the Banks, and the Borrower, on behalf of the Loan Parties, may
from time to time enter into written agreements amending or changing any
provision of this Agreement or any other Loan Document or the rights of the
Banks or the Loan Parties hereunder or thereunder, or may grant written waivers
or consents to a departure from the due performance of the Obligations of the
Loan Parties hereunder or thereunder. Any such agreement, waiver or consent made
with such written consent shall be effective to bind all the Banks and the Loan
Parties; provided, that, without the written consent of all the Banks, no such
agreement, waiver or consent may be made which will:

              10.1.1 Increase of Commitment; Extension or Expiration Date.

              Increase the amount of the Revolving Credit Commitment of any Bank
hereunder or extend the Expiration Date or extend the expiration date of Letter
of Credit which is not secured by cash beyond the Expiration Date;

              10.1.2 Extension of Payment; Reduction of Principal Interest or
Fees; Modification of Terms of Payment.

              Whether or not any Loans are outstanding, extend the time for
payment of principal or interest of any Loan, the Commitment Fee or any other
fee payable to any Bank, or reduce the principal amount of or the rate of
interest borne by any Loan or reduce the Commitment Fee or any other fee payable
to any Bank, or otherwise affect the terms of payment of the principal of or
interest of any Loan, Reimbursement Obligation, the Commitment Fee or any other
fee payable to any Bank;

              10.1.3 Release of Collateral or Guarantor.

              Except for sales of assets permitted by Section 7.2.6
[Dispositions of Assets or Subsidiaries], release any Collateral consisting of
capital stock or other ownership interests of any Loan Party or its Subsidiary
or substantially all of the assets of any Loan Party, any Guarantor from its
Obligations under the Guaranty Agreement or any other security for any of the
Loan Parties' Obligations; or

              10.1.4 Miscellaneous

              Amend Section 4.2 [Pro Rata Treatment of the Banks], 9.6
[Exculpatory Provisions, Etc.] or 9.13 [Equalization of the Banks] or this
Section 10.1, alter any provision regarding the pro rata treatment of the Banks,
change the definition of Required Banks, or change

                                      -75-

<PAGE>   76



any requirement providing for the Banks or the Required Banks to authorize the
taking of any action hereunder; provided, further, that no agreement, waiver or
consent which would modify the interests, rights or obligations of the Agent in
its capacity as Agent shall be effective without the written consent of the
Agent and no agreement, waiver or consent which would modify the interests,
rights or obligations of any Issuing Bank as the issuer of Letters of Credit
shall be effective without the written consent of such Issuing Bank.

         10.2 No Implied Waivers; Cumulative Remedies; Writing Required.

         No course of dealing and no delay or failure of the Agent or any Bank
in exercising any right, power, remedy or privilege under this Agreement or any
other Loan Document shall affect any other or future exercise thereof or operate
as a waiver thereof, nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power, remedy or
privilege preclude any further exercise thereof or of any other right, power,
remedy or privilege. The rights and remedies of the Agent and the Banks under
this Agreement and any other Loan Documents are cumulative and not exclusive of
any rights or remedies which they would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of any Bank of any
breach or default under this Agreement or any such waiver of any provision or
condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing.

         10.3 Reimbursement and Indemnification of the Banks by the Borrower;
Taxes.

         The Borrower agrees unconditionally upon demand to pay or reimburse to
each Bank (other than the Agent, as to which the Borrower's Obligations are set
forth in Section 9.5 [Reimbursement and Indemnification of the Agent by the
Borrower]) and to save such Bank harmless against (i) liability for the payment
of all reasonable out-of-pocket costs, expenses and disbursements (including
fees and expenses of counsel (including allocated costs of staff counsel) for
each Bank except with respect to (a) and (b) below), incurred by such Bank (a)
in connection with the administration and interpretation of this Agreement, and
other instruments and documents to be delivered hereunder, (b) relating to any
amendments, waivers or consents pursuant to the provisions hereof, (c) in
connection with the enforcement of this Agreement or any other Loan Document, or
collection of amounts due hereunder or thereunder or the proof and allowability
of any claim arising under this Agreement or any other Loan Document, whether in
bankruptcy or receivership proceedings or otherwise, and (d) in any workout or
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Bank, in its capacity as such, in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or omitted
by such Bank hereunder or thereunder, provided that the Borrower shall not be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (A) if
the same results from such Bank's gross negligence or willful misconduct, or (B)
if the Borrower was not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense

                                      -76-

<PAGE>   77


(except that the Borrower shall remain liable to the extent such failure to give
notice does not result in a loss to the Borrower), or (C) if the same results
from a compromise or settlement agreement entered into without the consent of
the Borrower, which shall not be unreasonably withheld. The Banks will attempt
to minimize the fees and expenses of legal counsel for the Banks which are
subject to reimbursement by the Borrower hereunder by considering the usage of
one law firm to represent the Banks and the Agent if appropriate under the
circumstances. The Borrower agrees unconditionally to pay all stamp, document,
transfer, recording or filing taxes or fees and similar impositions now or
hereafter determined by the Agent or any Bank to be payable in connection with
this Agreement or any other Loan Document, and the Borrower agrees
unconditionally to save the Agent and the Banks harmless from and against any
and all present or future claims, liabilities or losses with respect to or
resulting from any omission to pay or delay in paying any such taxes, fees or
impositions.

         10.4 Holidays.

         Whenever payment of a Loan to be made or taken hereunder shall be due
on a day which is not a Business Day, such payment shall be due on the next
Business Day, and such extension of time shall be included in computing interest
and fees, except that the Loans shall be due on the Business Day preceding the
Expiration Date if the Expiration Date is not a Business Day. Whenever any
payment or action to be made or taken hereunder (other than payment of the
Loans) shall be stated to be due on a day which is not a Business Day, such
payment or action shall be made or taken on the next following Business Day, and
such extension of time shall not be included in computing interest or fees, if
any, in connection with such payment or action.

         10.5 Funding by Branch, Subsidiary or Affiliate.

              10.5.1 [Intentionally Omitted].

              10.5.2 Actual Funding.

              Each Bank shall have the right from time to time to make or
maintain any Loan by arranging for a branch, Subsidiary or Affiliate of such
Bank to make or maintain such Loan subject to the last sentence of this Section
10.5.2. If any Bank causes a branch, Subsidiary or Affiliate to make or maintain
any part of the Loans hereunder, all terms and conditions of this Agreement
shall, except where the context clearly requires otherwise, be applicable to
such part of the Loans to the same extent as if such Loans were made or
maintained by such Bank, but in no event shall any Bank's use of such a branch,
Subsidiary or Affiliate to make or maintain any part of the Loans hereunder
cause such Bank or such branch, Subsidiary or Affiliate to incur any cost or
expenses payable by the Borrower hereunder or require the Borrower to pay any
other compensation to any Bank (including any expenses incurred or payable
pursuant to Section 4.5 [Additional Compensation in Certain Circumstances])
which would otherwise not be incurred.

         10.6 Notices.

              All notices, requests, demands, directions and other
communications (as used in this Section 10.6, collectively referred to as
"notices") given to or made upon any party hereto

                                      -77-

<PAGE>   78


under the provisions of this Agreement shall be by telephone or in writing
(including telex or facsimile communication) unless otherwise expressly
permitted hereunder and shall be delivered or sent by telex or facsimile to the
respective parties at the addresses and numbers set forth under their respective
names on Schedule 1.1(B) hereof or in accordance with any subsequent unrevoked
written direction from any party to the others. All notices shall, except as
otherwise expressly herein provided, be effective (a) in the case of telex or
facsimile, when received, (b) in the case of hand-delivered notice, when
hand-delivered, (c) in the case of telephone, when telephoned, provided,
however, that in order to be effective, telephonic notices must be confirmed in
writing no later than the next day by letter, facsimile or telex, (d) if given
by mail, four (4) days after such communication is deposited in the mail with
first-class postage prepaid, return receipt requested, and (e) if given by any
other means (including by air courier), when delivered; provided, that notices
to the Agent shall not be effective until received. Any Bank giving any notice
to any Loan Party shall simultaneously send a copy thereof to the Agent, and the
Agent shall promptly notify the other Banks of the receipt by it of any such
notice.

         10.7 Severability.

         The provisions of this Agreement are intended to be severable. If any
provision of this Agreement shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.

         10.8 Governing Law.

         Each Letter of Credit and Section 2.9 [Letter of Credit Subfacility]
shall be subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500, as the
same may be revised or amended from time to time, and to the extent not
inconsistent therewith, the internal laws of the Commonwealth of Pennsylvania
without regard to its conflict of laws principles, and the balance of this
Agreement shall be deemed to be a contract under the Laws of the Commonwealth of
Pennsylvania and for all purposes shall be governed by and construed and
enforced in accordance with the internal laws of the Commonwealth of
Pennsylvania without regard to its conflict of laws principles.

         10.9 Prior Understanding.

         This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and therein,
including any prior confidentiality agreements and commitments, but do not
supersede the Agent's Letter.

         10.10 Duration; Survival.


         All representations and warranties of the Loan Parties contained herein
or made in connection herewith shall survive the making of Loans and issuance of
Letters of Credit and shall


                                      -78-

<PAGE>   79


not be waived by the execution and delivery of this Agreement, any investigation
by the Agent or the Banks, the making of Loans, issuance of Letters of Credit or
payment in full of the Loans. All covenants and agreements of the Loan Parties
contained in Sections 7.1 [Affirmative Covenants], 7.2[Negative Covenants] and
7.3 [Reporting Requirements] herein shall continue in full force and effect from
and after the date hereof so long as the Borrower may borrow or request Letters
of Credit hereunder and until termination of the Commitments and payment in full
of the Loans and expiration or termination of all Letters of Credit. All
covenants and agreements of the Borrower contained herein relating to the
payment of principal, interest, premiums, additional compensation or expenses
and indemnification, including those set forth in Article 4 [Payments] and
Sections 9.5 [Reimbursement and Indemnification of the Agent by the Borrower],
9.7 [Reimbursement and Indemnification of the Agent by the Banks] and 10.3
[Reimbursement and Indemnification of the Banks by the Borrower], shall survive
payment in full of the Loans, expiration or termination of the Letters of Credit
and termination of the Commitments.

         10.11 Successors and Assigns.


                   (i) This Agreement shall be binding upon and shall inure to
the benefit of the Banks, the Agent, the Issuing Banks, the Loan Parties and
their respective successors and assigns, except that none of the Loan Parties
may assign or transfer any of its rights and Obligations hereunder or any
interest herein. Each Bank may, at its own cost, make assignments of or sell
participations in all or any part of its Commitments or the Loans made by it to
one or more banks or other entities, subject to the consent of the Borrower and
the Agent with respect to any assignee, such consent not to be unreasonably
withheld, provided that (1) no consent of the Borrower shall be required (A) if
an Event of Default exists and is continuing, or (B) in the case of an
assignment by a Bank to an Affiliate of such Bank, and (2) any assignment by a
Bank to a Person other than an Affiliate of such Bank may not be made in amounts
less than the lesser of $2,500,000 or the amount of the assigning Bank's
Commitment. In the case of an assignment, upon receipt by the Agent of the
Assignment and Assumption Agreement, the assignee shall have, to the extent of
such assignment (unless otherwise provided therein), the same rights, benefits
and obligations as it would have if it had been a signatory Bank hereunder, the
Commitments shall be adjusted accordingly, and upon surrender of any Note
subject to such assignment, the Borrower shall execute and deliver a new Note to
the assignee, if such assignee requests such a Note in an amount equal to the
amount of the Revolving Credit Commitment assumed by it and a new Revolving
Credit Note to the assigning Bank, if the assigning Bank requests such a Note,
in an amount equal to the Revolving Credit Commitment retained by it hereunder.
Any Bank which assigns any or all of its Commitment or Loans to a Person other
than an Affiliate of such Bank shall pay to the Agent a service fee in the
amount of $3,500 for each assignment. In the case of a participation, the
participant shall only have the rights specified in Section 8.2.3 [Set off] (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto and not to include any voting rights except with
respect to changes of the type referenced in Section 10.1.1 [Increase of
Commitment, Etc.], 10.1.2 [Extension of Payment, Etc.] or 10.1.3 [Release of
Collateral or Guarantor]), all of such Bank's obligations under this Agreement
or any other Loan Document shall remain

                                      -79-

<PAGE>   80


unchanged, and all amounts payable by any Loan Party hereunder or thereunder
shall be determined as if such Bank had not sold such participation.

                   (ii) Any assignee or participant which is not incorporated
under the Laws of the United States of America or a state thereof shall deliver
to the Borrower and the Agent the form of certificate described in Section 10.17
[Tax Withholding Clause] relating to federal income tax withholding. Each Bank
may furnish any publicly available information concerning any Loan Party or its
Subsidiaries and any other information concerning any Loan Party or its
Subsidiaries in the possession of such Bank from time to time to assignees and
participants (including prospective assignees or participants), provided that
such assignees and participants agree to be bound by the provisions of Section
10.12 [Confidentiality].

                   (iii) Notwithstanding any other provision in this Agreement,
any Bank may at any time pledge or grant a security interest in all or any
portion of its rights under this Agreement, its Note (if any) and the other Loan
Documents to any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S. Treasury Regulation 31 CFR Section 203.14 without notice to or consent
of the Borrower or the Agent. No such pledge or grant of a security interest
shall release the transferor Bank of its obligations hereunder or under any
other Loan Document.

         10.12 Confidentiality.

               10.12.1 General.


               The Agent and the Banks each agree to keep confidential all
information obtained from any Loan Party or its Subsidiaries which is nonpublic
and confidential or proprietary in nature (including any information the
Borrower specifically designates as confidential), except as provided below, and
to use such information only in connection with their respective capacities
under this Agreement and for the purposes contemplated hereby. The Agent and the
Banks shall be permitted to disclose such information (i) to outside legal
counsel, accountants and other professional advisors who need to know such
information in connection with the administration and enforcement of this
Agreement, subject to agreement of such Persons to maintain the confidentiality,
(ii) to assignees and participants as contemplated by Section 10.11, (iii) to
the extent requested by any bank regulatory authority or, with notice to the
Borrower, as otherwise required by applicable Law or by any subpoena or similar
legal process, or in connection with any investigation or proceeding arising out
of the transactions contemplated by this Agreement, (iv) if it becomes publicly
available other than as a result of a breach of this Agreement or becomes
available from a source not subject to confidentiality restrictions, or (v) if
the Borrower shall have consented to such disclosure.

               10.12.2 Sharing Information With Affiliates of the Banks.

               Each Loan Party acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Borrower or one or more of its Affiliates (in connection with this Agreement
or otherwise) by any Bank or by one or more Subsidiaries or Affiliates of such
Bank, and each of the Loan Parties hereby authorizes each

                                      -80-

<PAGE>   81


Bank to share any information delivered to such Bank by such Loan Party and its
Subsidiaries pursuant to this Agreement, or in connection with the decision of
such Bank to enter into this Agreement, to any such Subsidiary or Affiliate of
such Bank, it being understood that any such Subsidiary or Affiliate of any Bank
receiving such information shall be bound by the provisions of Section 10.12.1
as if it were a Bank hereunder. Such authorization shall survive the repayment
of the Loans and other Obligations and the termination of the Commitments.

         10.13 Counterparts.

         This Agreement may be executed by different parties hereto on any
number of separate counterparts, each of which, when so executed and delivered,
shall be an original, and all such counterparts shall together constitute one
and the same instrument.

         10.14 Agent's or Bank's Consent.

         Whenever the Agent's or any Bank's consent is required to be obtained
under this Agreement or any of the other Loan Documents as a condition to any
action, inaction, condition or event, the Agent and each Bank shall be
authorized to give or withhold such consent in its sole and absolute discretion
and to condition its consent upon the giving of additional collateral, the
payment of money or any other matter.

         10.15 Exceptions.

         The representations, warranties and covenants contained herein shall be
independent of each other, and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.

         10.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.

         EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED
STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH LOAN
PARTY AT THE ADDRESSES PROVIDED FOR AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN
AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE.
EACH LOAN PARTY, THE AGENT AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED
TO THIS AGREEMENT, ANY OTHER LOAN

                                      -81-

<PAGE>   82


DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.

         10.17 Tax Withholding Clause.

         Each Bank or assignee or participant of a Bank that is not incorporated
under the Laws of the United States of America or a state thereof agrees that it
will deliver to each of the Borrower and the Agent two (2) duly completed copies
of the following: (i) Internal Revenue Service Form W-9, 4224 or 1001, or other
applicable form prescribed by the Internal Revenue Service, certifying that such
Bank, assignee or participant is entitled to receive payments under this
Agreement and the other Loan Documents without deduction or withholding of any
United States federal income taxes, or is subject to such tax at a reduced rate
under an applicable tax treaty, or (ii) Internal Revenue Service Form W-8 or
other applicable form or a certificate of such Bank, assignee or participant
indicating that no such exemption or reduced rate is allowable with respect to
such payments. Each Bank, assignee or participant required to deliver to the
Borrower and the Agent a form or certificate pursuant to the preceding sentence
shall deliver such form or certificate as follows: (A) each Bank which is a
party hereto on the Closing Date shall deliver such form or certificate at least
five (5) Business Days prior to the first date on which any interest or fees are
payable by the Borrower hereunder for the account of such Bank; (B) each
assignee or participant shall deliver such form or certificate at least five (5)
Business Days before the effective date of such assignment or participation
(unless the Agent in its sole discretion shall permit such assignee or
participant to deliver such form or certificate less than five (5) Business Days
before such date in which case it shall be due on the date specified by the
Agent). Each Bank, assignee or participant which so delivers a Form W-8, W-9,
4224 or 1001 further undertakes to deliver to each of the Borrower and the Agent
two (2) additional copies of such form (or a successor form) on or before the
date that such form expires or becomes obsolete or after the occurrence of any
event requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent, either certifying that such Bank,
assignee or participant is entitled to receive payments under this Agreement and
the other Loan Documents without deduction or withholding of any United States
federal income taxes or is subject to such tax at a reduced rate under an
applicable tax treaty or stating that no such exemption or reduced rate is
allowable. The Agent shall be entitled to withhold United States federal income
taxes at the full withholding rate unless the Bank, assignee or participant
establishes an exemption or that it is subject to a reduced rate as established
pursuant to the above provisions.

         10.18 Joinder of Guarantors.

         Any Subsidiary of the Borrower which is required to join this Agreement
as a Guarantor pursuant to Section 7.2.8 [Subsidiaries, Partnerships and Joint
Ventures] shall execute and deliver to the Agent and each Bank (i) a Guarantor
Joinder in substantially the form attached hereto as Exhibit 1.1(G)(1) pursuant
to which it shall join as a Guarantor each of the documents to which the
Guarantors are parties; (ii) documents in the forms described in Section 6.1
[First Loans and Letters of Credit] modified as appropriate to relate to such
Subsidiary; and (iii) documents necessary to grant and perfect Prior Security
Interests to the Agent for the benefit of the Banks in all Collateral held by
such Subsidiary. The Loan Parties shall deliver such

                                      -82-

<PAGE>   83


Guarantor Joinder and related documents to the Agent within five (5) Business
Days after the date of the filing of such Subsidiary's articles of incorporation
if the Subsidiary is a corporation, the date of the filing of its certificate of
limited partnership if it is a limited partnership or the date of its
organization if it is an entity other than a limited partnership or corporation.
The Borrower shall deliver such Guarantor Joinder and related documents to the
Agent within five (5) Business Days after the formation or acquisition of any
Subsidiary by the Borrower.

         10.19 Syndication Agent, Documentation Agent and Co-Agents.

         Except for those fees paid to the Syndication Agent on or before the
Closing Date, the Syndication Agent, the Documentation Agent and the Co-Agents
shall have no duties, obligations or liabilities in their respective capacities
as Syndication Agent, Documentation Agent or Co-Agents and shall not be entitled
to any fees in respect of their status as Syndication Agent, Documentation Agent
or Co-Agents.



                                      -83-

<PAGE>   84






                                 SCHEDULE 1.1(B)

                 COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES

                                   Page 1 of 5

PART 1 - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES TO BANKS

<TABLE>
<CAPTION>

                                                                    AMOUNT OF
                                                                REVOLVING CREDIT
                             BANK                                   COMMITMENT                       RATABLE SHARE
                             ----                                   ----------                       -------------
<S>                                                             <C>                                 <C>


NAME:  PNC Bank, National Association
ADDRESS: One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Louis Cestello                                         $ 8,307,640                            9.2307%
Telephone: (412) 762-8239
Telecopy:  (412) 762-7353

NAME:  Comerica Bank
ADDRESS: 500 Woodward Avenue
Detroit, MI 48226
Attention: Robert Porterfield
Telephone: (313) 222-7802
Telecopy:  (313) 222-9514                                         $ 8,307,639                            9.2307%


NAME:  Bank One, Michigan
ADDRESS: 611 Woodward Avenue, 2nd Floor
Detroit, MI 48226
Attention: Thomas A. Gamm
Telephone: (313) 225-2531
Telecopy:  (313) 225-2290                                         $12,184,572                           13.5384%



NAME:  National City Bank
ADDRESS: 1001 South Worth Street
Birmingham, MI 48009
Attention: Carolann M. Morykwas
Telephone: (248) 901-2110                                         $ 6,923,077                            7.6923%
Telecopy:  (248) 901-2033

</TABLE>



<PAGE>   85


                                 SCHEDULE 1.1(B)
                                   (CONTINUED)

                                   Page 2 of 5



PART 1 - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES TO BANKS

<TABLE>
<CAPTION>

                                                                    AMOUNT OF
                                                                REVOLVING CREDIT
                             BANK                                   COMMITMENT                       RATABLE SHARE
                             ----                                   ----------                       -------------
<S>                                                             <C>                                  <C>

NAME:  Harris Trust and Savings Bank
ADDRESS: 111 West Monroe
Chicago, IL 60603
Attention: Danjuma Gibson
Telephone: (312) 461-7100
Telecopy:  (312) 461-5225                                             $6,923,077                       7.6923%


NAME:  KeyBank National Association
ADDRESS: 127 Public Square
Cleveland, OH 44114-1306
Attention: Nadine Eames
Telephone: (216) 689-4370                                             $6,923,077                       7.6923%
Telecopy:  (216) 689-4981

NAME:  Bank of America, N.A.
ADDRESS: 231 South LaSalle Street, 9th Floor
Chicago, IL 60697
Attention: William A. Uruba
Telephone: (312) 923-6190
Telecopy:  (312) 987-0303                                             $6,923,077                       7.6923%


NAME:  Wachovia Bank, N.A.
ADDRESS: 181 Peachtree Street N.E.
Atlanta, GA 30303
Attention: Katie S. Proctor
Telephone: (404) 332-4036                                             $6,923,077                       7.6923%
Telecopy:  (404) 332-6898

</TABLE>

                                      -2-
<PAGE>   86


                                 SCHEDULE 1.1(B)
                                   (CONTINUED)

                                   Page 3 of 5

PART 1 - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES TO BANKS

<TABLE>
<CAPTION>

                                                                       AMOUNT OF
                                                                    REVOLVING CREDIT
                             BANK                                     COMMITMENT                     RATABLE SHARE
                             ----                                     ----------                     -------------
<S>                                                                <C>                               <C>


NAME:  Standard Federal Bank
ADDRESS: 2600 West Big Beaver, 4th Fl
Troy, MI 48084
Attention: Gregory E. Castle
Telephone: (248) 822-5683
Telecopy:  (248) 637-5003                                             $4,984,654                       5.5385%


NAME:  The Bank of Tokyo-Mitsubishi, Ltd.,
         Chicago Branch
ADDRESS: 227 W. Monroe St, Ste. 2300
Chicago, IL 60606
Attention: Thomas Denio
Telephone: (312) 696-4665
Telecopy:  (312) 696-4535                                             $4,984,654                       5.5385%


NAME:  Michigan National Bank
ADDRESS: 27777 Inkster Road
Farmington Hills, MI 48334
Attention: Daniel Forhan
Telephone: (248) 473-4336
Telecopy:  (248) 473-3220                                             $4,984,654                       5.5385%


NAME:  The Bank of Nova Scotia
ADDRESS: 181 W. Madison St., Ste. 3700
Chicago, IL 60602
Attention: Thomas P. Myhre
Telephone: (312) 201-4186
Telecopy:  (312) 201-4108                                             $3,876,934                       4.3077%

</TABLE>

                                      -3-

<PAGE>   87


                                 SCHEDULE 1.1(B)
                                   (CONTINUED)

                                   Page 4 of 5

PART 1 - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES TO BANKS

<TABLE>
<CAPTION>


                                                                    AMOUNT OF
                                                                 REVOLVING CREDIT
                             BANK                                   COMMITMENT                       RATABLE SHARE
                             ----                                   ----------                       -------------
<S>                                                              <C>                                 <C>

NAME:  Hibernia National Bank
ADDRESS:  313 Carondelet Street, 12th Fl
New Orleans, LA 70130
Attention: Lloyd Drumm
Telephone: 504) 533-2263
Telecopy:  (504) 533-5344                                           $ 3,876,934                       4.3077%

NAME:  Credit Suisse First Boston
ADDRESS: 11 Madison Avenue
New York, NY 10010-3629
Attention: David Kratovil
Telephone: (212) 325-9155
Telecopy:  (212) 325-8815                                           $ 3,876,934                       4.3077%
                                                                    -----------                       ------
         Total                                                      $90,000,000                          100%
                                                                    ===========                       ======

</TABLE>

                                      -4-
<PAGE>   88


                                 SCHEDULE 1.1(B)

                 COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES

                                   Page 5 of 5



PART 2 - ADDRESSES FOR NOTICES TO BORROWER AND GUARANTORS:


AGENT

Name:  PNC Bank, National Association
Address: One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Louis Cestello
Telephone: (412) 762-8239
Telecopy: (412) 762-7353



BORROWER:

CHAMPION ENTERPRISES, INC., a Michigan corporation
Address:  2701 Cambridge Court, Suite 300
Auburn Hills, MI 48326
Attention: Treasurer
With a copy to:  John J. Collins, Jr., Esq.
Telephone: (248) 340-7717
Telecopy:  (248) 340-7773



GUARANTORS:

[GUARANTORS]

A-1 HOMES GROUP, INC., a Michigan corporation

ACCENT MOBILE HOMES, INC., a North Carolina corporation

ALPINE HOMES, INC., a Colorado corporation

AMERICAN TRANSPORT, INC., a Nevada corporation

ART RICHTER INSURANCE, INC., a Kentucky corporation

AUBURN CHAMP, INC., a Michigan corporation

BRYAN MOBILE HOMES, INC., a Texas corporation

BUILDERS CREDIT CORPORATION, a Michigan corporation

CAC FUNDING CORPORATION, a Michigan corporation



                                     -5-
<PAGE>   89

CAL-NEL, INC., a Texas corporation

CARE FREE HOMES, INC., a Michigan corporation

CHI, INC., A Kansas corporation

CENTRAL MISSISSIPPI MANUFACTURED HOUSING, INC., a Mississippi corporation

CHAMPION FINANCIAL CORPORATION, a Michigan corporation

CHAMPION GP, INC., a Michigan corporation

CHAMPION HOME BUILDERS CO., a Michigan corporation

CHAMPION HOME COMMUNITIES, INC., a Michigan corporation

CHAMPION MOTOR COACH, INC., a Michigan corporation

CHAMPION RETAIL, INC., a Michigan corporation

CHANDELEUR HOMES, INC., a Michigan corporation

CLIFF AVE. INVESTMENTS, INC., a South Dakota corporation

COLONIAL HOUSING, INC., a Texas corporation

COUNTRY ESTATE HOMES, INC., an Oklahoma corporation

COUNTRYSIDE HOMES, INC., a North Dakota corporation

CREST RIDGE HOMES, INC., a Michigan corporation

CRESTPOINTE FINANCIAL SERVICES, INC., a Delaware corporation

DUTCH HOUSING, INC., a Michigan corporation

FACTORY HOMES OUTLET, INC., an Idaho corporation

FLEMING COUNTY INDUSTRIES, INC., a Kentucky corporation

GATEWAY ACCEPTANCE CORP., a South Dakota corporation

GATEWAY MOBILE & MODULAR HOMES, INC., a Nebraska corporation

GATEWAY PROPERTIES CORP., a South Dakota corporation

GEM HOMES, INC., a Delaware corporation

GENESIS HOME CENTERS, LIMITED PARTNERSHIP, a Michigan limited partnership

GRAND MANOR, INC., a Michigan corporation

HEARTLAND HOMES, INC., a Texas corporation

HOMEPRIDE FINANCE CORP., a Michigan corporation

HOMES AMERICA FINANCE, INC., a Nevada corporation

HOMES AMERICA OF ARIZONA, INC., an Arizona corporation

HOMES AMERICA OF CALIFORNIA, INC., a California corporation

HOMES AMERICA OF OKLAHOMA, INC., an Oklahoma corporation

HOMES AMERICA OF PHOENIX, LLC, a Michigan limited liability company


                                      -6-

<PAGE>   90



HOMES AMERICA OF UTAH, INC., a Utah corporation

HOMES AMERICA OF WYOMING, INC., a Wyoming corporation

HOMES AMERICA, INC., a Michigan corporation

HOMES OF KENTUCKIANA, L.L.C., a Kentucky limited liability company

HOMES OF LEGEND, INC., a Michigan corporation

HOMES OF MERIT, INC., a Florida corporation

I.D.A., INCORPORATED, an Oklahoma corporation

IMPERIAL HOUSING, INC., a Texas corporation

INVESTMENT HOUSING, INC., a Texas corporation

ISEMAN CORP., a South Dakota corporation

JASPER MOBILE HOMES, INC., a Texas corporation

LAKE COUNTRY LIVING, INC., a Texas corporation

LAMPLIGHTER HOMES, INC., a Washington corporation

LAMPLIGHTER HOMES (OREGON), INC., an Oregon corporation

M&J SOUTHWEST DEVELOPMENT CORP., a Texas corporation

MANUFACTURED HOUSING OF LOUISIANA, INC., a Michigan corporation

MOBILE FACTORY OUTLET, INC., a Texas corporation

MODULINE INTERNATIONAL, INC., a Washington corporation

NORTHSTAR CORPORATION, a South Dakota corporation

PHILADELPHIA HOUSING CENTER, INC., a Mississippi corporation

PRAIRIE RIDGE, INC., a Kansas corporation

PREMIER HOUSING, INC., a Texas corporation

REDMAN BUSINESS TRUST, a Delaware business trust

REDMAN HOMES MANAGEMENT COMPANY, INC., a Delaware corporation

REDMAN HOMES, INC., a Delaware corporation

REDMAN INDUSTRIES, INC., a Delaware corporation

REDMAN INVESTMENT, INC., a Delaware corporation

REDMAN MANAGEMENT SERVICES BUSINESS TRUST, a Delaware business trust

REDMAN RETAIL, INC., a Delaware corporation

REGENCY SUPPLY COMPANY, INC., a Delaware corporation

SAN JOSE ADVANTAGE HOMES, INC., a California corporation

SERVICE CONTRACT CORPORATION, a Michigan corporation

SOUTHERN SHOWCASE FINANCE, INC., a Michigan corporation


                                      -7-

<PAGE>   91

SOUTHERN SHOWCASE HOUSING, INC., a North Carolina corporation

STAR FLEET, INC., an Indiana corporation

THE OKAHUMPKA CORPORATION, a Florida corporation

THOMAS HOMES OF AUSTIN, INC., a Texas corporation

THOMAS HOMES OF BUDA, INC., a Texas corporation

THOMAS HOMES OF TEXAS, INC., a Texas corporation

TOM TERRY ENTERPRISES, INC., a Nevada corporation

TRADING POST MOBILE HOMES, INC., a Kentucky corporation

U.S.A. MOBILE HOMES, INCORPORATED, an Oregon corporation

VICTORY INVESTMENT CO., an Oklahoma corporation

VIDOR MOBILE HOME CENTER, INC., a Texas corporation

WESTERN HOMES CORPORATION, a Delaware corporation

WHITWORTH MANAGEMENT, INC., a Nevada corporation

WRIGHT'S MOBILE HOMES, INC., a Texas corporation




Address: 2701 University Drive, Suite 300
Auburn Hills, MI 48326
Attention: Treasurer
With a copy to: John J. Collins, Jr., Esq.
Telephone: (248) 340-7717
Telecopy:  (248) 340-7773

                                      -8-

<PAGE>   92






                                 SCHEDULE 1.1(C)
                               Qualified Accounts

       Upon delivery to the Agent of each Schedule of Accounts, the Agent
shall make a determination, in its sole discretion (which may include, without
limitation, information received from any audit of the accounts and inventory
made pursuant to Section 7.1.6), as to which Accounts listed thereon shall be
deemed Qualified Accounts. An Account shall not be considered a Qualified
Account unless the Agent determines, in its sole discretion, that such Account
has met the following minimum requirements:

         1. the Account represents a complete bona fide transaction for goods
sold and delivered or services rendered (but excluding any amounts in the nature
of a service charge added to the amount due on an invoice because the invoice
has not been paid when due) which requires no further act under any
circumstances on the part of the Loan Parties to make such Account payable by
the Account Debtor; the Account arises from an arm's-length transaction in the
ordinary course of the Loan Parties' business between the applicable Loan Party
and an Account Debtor which is not an Affiliate of the Loan Parties or an
officer, stockholder or employee of any Loan Party or any Affiliate of any Loan
Party, or a member of the family of an officer, stockholder or employee of the
any Loan Party or any Affiliate of any Loan Party;

         2. the Account shall not (a) be or have been unpaid more than ninety
(90) days from the invoice date, (b) be delinquent more than sixty (60) days, or
(c) be payable by an Account Debtor (1) more than 50% of whose Accounts have
remained unpaid for more than ninety (90) days from the invoice date or are
delinquent more than sixty (60) days, or (2) whose Accounts constitute, in the
Agent's determination, an unduly high percentage of the aggregate amount of all
outstanding Accounts;

         3. the goods the sale of which gave rise to the Account were shipped or
delivered or provided to the Account Debtor on an absolute sale basis and not on
a bill and hold sale basis, a consignment sale basis, a guaranteed sale basis, a
sale or return basis, or on the basis of any other similar understanding, and no
part of such goods has been returned or rejected;

         4. the Account is not evidenced by chattel paper or an instrument of
any kind which has not been delivered to the Agent;

         5. the Account Debtor with respect to the Account (a) is Solvent, (b)
is not the subject of any bankruptcy or insolvency proceedings of any kind or of
any other proceeding or action, threatened or pending, which might have a
materially adverse effect on its business, and (c) is not, in the sole
discretion of the Agent, deemed ineligible for credit for other reasons
(including, without limitation, unsatisfactory past experiences of the Loan
Parties or any of the Banks with the Account Debtor or unsatisfactory reputation
of the Account Debtor);

         6. the Account Debtor is not located outside the continental United
States of America;

         7. (a) the Account Debtor is not the government of the United States of
America, or any department, agency or instrumentality thereof, or (b) if the
Account Debtor is

                                      -9-

<PAGE>   93



an entity mentioned in clause (vii)(a), the Federal Assignment of Claims Act (or
applicable similar legislation) has been fully complied with so as to validly
perfect the Banks' Prior Security Interest to the Agent's satisfaction;

         8.  the Account is a valid, binding and legally enforceable obligation
of the Account Debtor with respect thereto and is not subject to any dispute,
condition, contingency, offset, recoupment, reduction, claim for credit,
allowance, adjustment, counterclaim or defense on the part of such Account
Debtor, and no facts exist which may provide a basis for any of the foregoing in
the present or future;

         9.  the Account is subject to the Agent's and the Banks' Prior Security
Interest and is not subject to any other Lien, claim, encumbrance or security
interest whatsoever;

         10. the Account is evidenced by an invoice or other documentation and
arises from a contract which is in form and substance satisfactory to the Agent;

         11. the Borrower has observed and complied with all laws of the state
in which the Account Debtor or the Account is located which, if not observed and
complied with, would deny to the applicable Loan Party access to the courts of
such state;

         12. the Account is not subject to any provision prohibiting its
assignment or requiring notice of or consent to such assignment;

         13. the goods giving rise to the Account were not, at the time of sale
thereof, subject to any Lien or encumbrance except the Agent and the Banks'
Prior Security Interest;

         14. the Account is payable in freely transferable United States
Dollars; and

         15. the Account is not, or should not be, disqualified for any other
reason generally accepted in the commercial finance business.

In addition to the foregoing requirements, Accounts of any Account Debtor which
are otherwise Qualified Accounts shall be reduced to the extent of any accounts
payable (including, without limitation, the Agent's estimate of any contingent
liabilities) by the Loan Parties to such Account Debtor ("Contras"); provided
that the Agent, in its sole discretion, may determine that none of the Accounts
in respect to such Account Debtor shall be Qualified Accounts in the event that
there exists an unreasonably large amount of payables owing to such Account
Debtor.

                                      -10-


<PAGE>   94



                                 SCHEDULE 1.1(D)
                               Qualified Inventory

         Upon delivery to the Agent of each Schedule of Inventory, the Agent
shall make a determination, in its sole discretion (which may include, without
limitation, information received from any audit of the accounts and inventory
made pursuant to Section 7.1.6), as to which Inventory listed thereon shall be
deemed Qualified Inventory. Inventory shall not be considered Qualified
Inventory unless the Agent determines, in its sole discretion, that such
Inventory has met the following minimum requirements:

         1. the Inventory is either (a) finished manufacturing inventory prior
to any sale to any Loan Parties, Subsidiaries of Loan Parties, Affiliates or
third parties which are in the business of retail sales of manufactured housing
products, or (b) raw materials other than supplies, but excluding in both cases
(a) and (b) any goods which have been shipped, delivered, sold by, purchased by
or provided to the Loan Parties on a bill and hold, consignment sale, guaranteed
sale, or sale or return basis, or any other similar basis or understanding other
than an absolute sale;

         2. the Inventory is new, of good and merchantable quality, and
represents no more than a twelve (12) month supply of such finished goods or raw
materials;

         3. the Inventory is located on premises listed on Schedule A to the
Security Agreement and, with respect to inventory locations at facilities leased
to the Loan Parties, the Agent has received a Landlord's Waiver in favor of the
Agent substantially in the form of Exhibit 6.1.14 hereto, or is Inventory which
is in transit and is so identified on the relevant Schedule of Inventory;

         4. the Inventory is not stored with a bailee, warehouseman, consignee
or similar party unless the Agent has given its prior written consent and the
Loan Parties have caused such bailee, warehouseman, consignee or similar party
to issue and deliver to the Agent, in form and substance acceptable to the
Agent, warehouse receipts or similar type documentation therefor in the Agent's
name;

         5. the Inventory is subject to the Agent's and the Banks' Prior
Security Interest and is not subject to any other Lien

         6. the Inventory has not been manufactured in violation of any federal
minimum wage or overtime laws, including, without limitation, the Fair Labor
Standards Act, 29 U.S.C.ss. 215(a)(1); and

         7. the Inventory is not, and should not be, disqualified for any other
reason generally accepted in the commercial finance business.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>3
<FILENAME>k60964ex10-4.txt
<DESCRIPTION>SEVENTH AMENDMENT DATED FEBRUARY 13, 2001
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.4



AMENDMENT NO. 7 TO CREDIT AGREEMENT


              THIS AMENDMENT NO. 7 TO CREDIT AGREEMENT (the "Amendment") dated
as of February 13, 2001, by and among Champion Enterprises, Inc., a Michigan
corporation, (the "Borrower"), each of the Guarantors (as defined in the Credit
Agreement which is hereinafter defined), the Banks (as defined in the Credit
Agreement), PNC Bank, National Association, in the capacity as Agent, Bank One,
Michigan, successor to NBD Bank, in the capacity as Syndication Agent, Comerica
Bank, in the capacity as Documentation Agent, and National City Bank, Harris
Trust and Savings Bank, Keybank, National Association, Bank of America, N.A. and
Wachovia Bank, N.A., as Co-Agents.

                              W I T N E S S E T H:

              WHEREAS, the parties hereto are parties to that certain Credit
Agreement dated as of May 5, 1998, as amended, (the "Credit Agreement"),
pursuant to which the Banks provide a $90,000,000 revolving credit facility to
the Borrower; and

              WHEREAS, the Borrower, the Banks and the Agent desire to amend the
Credit Agreement as hereinafter provided.

              NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:

     1. Definitions.

     Defined terms used herein unless otherwise defined herein shall have the
meanings ascribed to them in the Credit Agreement, as hereby amended.

     2. Amendment of Credit Agreement.

         A. Section 1.1 [Definitions] of the Credit Agreement is hereby amended
by deleting the definitions of "Base Rate", "Borrowing Base", "Business Day",
"Consolidated Cash Flow from Operations", "Consolidated Net Worth", "Federal
Funds Effective Rate" and "Principal Office in their entirety and inserting in
lieu thereof the following:

              "Base Rate shall mean the greater of (i) the interest rate per
annum equal to the prime rate of interest announced from time to time by Bank
One, Michigan or its parent (which is not necessarily the lowest rate charged to
any customer), changing when and as said prime rate changes), or (ii) the
Federal Funds Effective Rate plus 1/2% per annum."

              "Borrowing Base shall mean at any time the sum of (i) 85% of
Qualified Accounts ("Accounts Portion"), plus (ii) 65% of Qualified Inventory
("Inventory Portion"). Effective on January 1, 2002 and thereafter, the percent
of Qualified Inventory included in the Borrowing Base shall be reduced to 50%.
Effective on January 1, 2003 and thereafter, the percent of Qualified



<PAGE>   2
Accounts included in the Borrowing Base shall be reduced to 80%. From time to
time in the exercise of the Agent's reasonable discretion based upon changes
which the Agent deems to be appropriate as a result of the collateral audits
which may be performed from time to time pursuant to Section 7.1.6 of this
Agreement, the Agent may (i) decrease the foregoing advance rates and (ii)
establish reserves with respect to the Borrowing Base. The Borrower consents to
any such decreases and reserves and acknowledges that decreasing the advance
rates or establishing reserves may limit or restrict Revolving Credit Loans and
the issuance of Letters of Credit requested by the Borrower. The Agent shall
give the Borrower five (5) days prior written notice of its intention to
decrease any advance rate or establish any reserve as provided for above."

              "Business Day shall mean any day other than a Saturday or Sunday
or a legal holiday on which commercial banks are authorized or required to be
closed for business in Detroit, Michigan."

              "Consolidated Cash Flow From Operations for any period of
determination shall mean (i) the sum of net income, depreciation, amortization,
interest expense, income tax expense, and, without duplication, Approved
Non-Cash Charges and Plant Closing Charges, minus (ii) noncash credits to net
income and gains on the disposition of assets to the extent included in net
income but not included in operating income, in each case of the Borrower and
its Subsidiaries for such period determined and consolidated in accordance with
GAAP."

              "Consolidated Net Worth shall mean as of any date of determination
total stockholders' equity of the Borrower and its Subsidiaries as of such date
determined and consolidated in accordance with GAAP."

              "Federal Funds Effective Rate shall mean, for any day, an interest
rate per annum equal to the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers on such day, as published for such day (of if such day is
not a Business Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations at approximately 10:00 a.m.
(Chicago time) on such day on such transactions received by the Agent from three
federal funds brokers of recognized standing selected by the Agent in its sole
discretion."

              Principal Office shall mean the main banking office of the Agent
in Detroit, Michigan."

         B. Section 1.1 [Definitions] of the Credit Agreement is hereby amended
by the insertion of the following new definition in alphabetical order:

              "Plant Closing Charges shall mean charges to net income of the
Borrower and its Subsidiaries, determined and consolidated in accordance with
GAAP, attributable to the closing of facilities of the Borrower and its
Subsidiaries from and after February 13, 2001, provided however, it is expressly
agreed that such charges shall not exceed $10,000,000 in the aggregate."

         C. Section 7.1.15 of the Credit Agreement is hereby amended and
restated as follows:





                                      -2-
<PAGE>   3
              "7.1.15 Landlord's Waiver.

              On or before March 31, 2001, the Loan Parties shall have delivered
an executed Landlord's Waiver in substantially the form of Exhibit 7.1.15, or in
such other form satisfactory to the Agent, from the lessor for each leased
Collateral location where the Guarantors conduct manufacturing operations, as
listed on Schedule A to the Security Agreement."

         D. Section 7.1.16 of the Credit Agreement is hereby amended and
restated as follows:

              "7.1.16 Financing Statement Deliveries.

              On or before January 19, 2001, the Loan Parties shall have caused
all financing statements of secured parties which no longer offer credit to the
Loan Parties to be terminated and shall have caused all financing statements
which incorporate accounts, general intangibles and related property as
collateral (which are not proceeds of inventory) or incorporate manufacturing
inventory to have been modified in a form satisfactory to Agent. On or before
February 28, 2001, the Loan Parties shall have provided legal descriptions for
all real property locations where the Loan Parties have manufacturing
facilities."

         E. Section 7.2.14 of the Credit Agreement is hereby amended and
restated as follows:

              "7.2.14 Minimum Consolidated Cash Flow from Operations.

              The Loan Parties shall not permit the Consolidated Cash Flow from
Operations, as calculated at the end of each fiscal month of the Borrower for
the three (3) fiscal months then ended, to be less than the amounts set forth
below for the periods set forth below:

<TABLE>
<S>                                                <C>
                           October, 2000            $ 7,100,000
                           November, 2000           $   500,000
                           December, 2000          ($ 8,500,000)
                           January, 2001           ($15,600,000)
                           February, 2001          ($22,000,000)
                           March, 2001             ($24,000,000)
                           April, 2001             ($14,000,000)
                           May, 2001               ($ 5,000,000)
                           June, 2001               $ 5,000,000
                           July, 2001               $10,500,000
                           August, 2001             $14,500,000
                           September, 2001          $18,500,000
                           October, 2001            $14,500,000
                           November, 2001           $11,500,000
                           December, 2001           $ 8,800,000
                           January, 2002            $12,000,000
                           February, 2002           $14,000,000
                           March, 2002              $15,500,000
                           April, 2002              $16,750,000
                           May, 2002                $17,500,000
                           June, 2002               $18,500,000
                           July, 2002               $19,750,000
                           August, 2002             $21,500,000
                           September, 2002          $24,000,000
                           October, 2002            $24,000,000
                           November, 2002           $23,000,000
                           December, 2002           $19,000,000
                           January, 2003
                           and thereafter           $15,000,000."
</TABLE>


                                      -3-

<PAGE>   4

         F. Section 7.2.15 of the Credit Agreement is hereby amended and
restated as follows:

              "7.2.15 Minimum Net Worth.

              The Borrower shall not permit Consolidated Net Worth to be less
than the following amounts for the periods set forth below, as calculated at the
end of each fiscal month of the Borrower commencing with the month ended
December, 2000.

<TABLE>
----------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>
December 31, 2000 through August 31,                         $240,000,000
2002

----------------------------------------------------------------------------------------------------------------------
September 1, 2002 and thereafter                             $255,000,000"
----------------------------------------------------------------------------------------------------------------------
</TABLE>
         G. Section 9.1 of the Credit Agreement is hereby amended and restated
as follows:

              "9.1 Appointment.

         Each Bank hereby irrevocably designates, appoints and authorizes Bank
One, Michigan to act as Agent for such Bank under this Agreement and to execute
and deliver or accept on behalf of each of the Banks the other Loan Documents.
Each Bank hereby irrevocably authorizes the Agent to take such action on its
behalf under the provisions of this Agreement and the other Loan Documents and
any other instruments and agreements referred to herein, and to exercise such
powers and to perform such duties hereunder as are specifically delegated to or
required of the Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. Bank One, Michigan agrees to act as the Agent on
behalf of the Banks to the extent provided in this Agreement. In its capacity as
the Banks' contractual representative, the Agent (i) is a "representative" of
the Banks within the meaning of Section 9-105 of the Uniform Commercial Code,
and (ii) is acting as an independent contractor, the rights and duties of which
are limited to those expressly set forth in this Agreement and the other Loan
Documents. The Agent shall have no implied duties to the Banks, or any
obligations to the Banks to take any action thereunder except any action
specifically provided by the Loan Documents to be taken by the Agent, together
with such powers as are reasonably incidental thereto."

         H. Section 9.2 of the Credit Agreement is hereby amended and restated
as follows:

              "9.2 Delegation of Duties.

         The Agent may perform any of its duties hereunder by or through agents
or employees (provided such delegation does not constitute a relinquishment of
its duties as Agent) and, subject to Sections 9.5 [Reimbursement of Agent by
Borrower, Etc.] and 9.6 [Exculpatory Provisions; Limitation of Liability], shall
be entitled to engage and pay for the advice or services of any attorneys,
accountants or other experts concerning all matters pertaining to its duties
hereunder and to rely upon any advice so obtained. Any such agent (which may be
an Affiliate of the Agent) or employee which performs duties in connection with
this Agreement shall be entitled to the same benefits of the indemnification,
waiver and other protective provisions to which the Agent is entitled under
Articles 9 and 10."


                                      -4-
<PAGE>   5

         I. Section 9..15 of the Credit Agreement is hereby amended and restated
as follows:

              "9.15 Agent's Fee.

         The Borrower shall pay to Bank One, Michigan the fees (the "Agent's
Fee") provided for under the terms of the letter dated February 13, 2001, as
amended from time to time (the "Agent's Letter"). The Borrower shall pay for
Letters of Credit with PNC Bank, National Association, as the Issuing Bank, the
Letter of Credit fees under the terms of letters both dated March 27, 1998."

         J. The following new Sections 9.19 and 9.20 are inserted in the Credit
Agreement immediately following Section 9.18:

              "9.19 Execution of Collateral Documents.

         The Banks hereby empower and authorize the Agent to execute and deliver
to the Borrower on their behalf the Security Agreement, the Pledge Agreement,
the Collateral Assignment, the Patent, Trademark and Copyright Assignment and
all related financing statements and any financing statements, agreements,
documents or instruments as shall be necessary or appropriate to effect the
purposes of such documents. Neither the Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify the validity, enforceability, effectiveness,
sufficiency or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith or the value, sufficiency, creation,
perfection or priority of any Lien in any collateral security."

              "9.20 Collateral Releases.

         The Banks hereby empower and authorize the Agent to execute and deliver
to the Borrower on their behalf any agreements, documents or instruments as
shall be necessary or appropriate to effect any releases of Collateral which
shall be permitted by the terms hereof or of any other Loan Document or which
shall otherwise have been approved by the Required Banks (or, if required by
their terms of Section 10.1, all the Banks) in writing."

     1. Replacement of Administrative Agent.

     The Borrower hereby acknowledges receipt from PNC Bank of its written
notice of resignation as the administrative agent for the Banks (the "Agent").
The Borrower hereby waives the requirement that PNC Bank provide to the Borrower
30 days prior written notice in accordance with Section 9.14 of the Credit
Agreement and consents to the appointment by the Banks of Bank One, Michigan as
the successor Agent. Upon the effective date of this Amendment, the Banks hereby
appoint Bank One, Michigan as the successor administrative agent for the Banks,
and from and after the effective date hereof: (i) the definition of Agent shall
refer to Bank One, Michigan, its successors and assigns, and (ii) Bank One,
Michigan shall, without further action being required, be deemed to be
substituted on all the other Loan Documents in place of PNC Bank. After the
effective date of this Amendment, (i) PNC Bank shall deliver to Bank One,
Michigan the Pledged Collateral and any other Collateral in the possession of
PNC Bank, and (ii) PNC Bank, the Borrower and the Guarantors shall assign all
Uniform Commercial Code financing statements from PNC Bank to Bank One, Michigan
and take all other actions reasonably necessary to effect the transfer of such
Collateral to the successor Agent, the cost and expense of which shall
reimbursed by the Borrower and shall be an additional Obligation under the
Credit Agreement. From and after the effective date of




                                      -5-
<PAGE>   6

this Amendment, the notice address for the Agent set forth on Schedule 1.1(B) to
the Credit Agreement shall be as follows:

                  Bank One, Michigan
                  611 Woodward Avenue, 2nd Floor
                  Detroit, MI 48226
                  Attention: Thomas A. Gamm
                  Telephone: (313) 225-2531
                  Telecopy: (313) 225-2290

     2. Amendment Fee.

     The Borrower shall pay to the Agent, for the benefit of the approving
Banks, an amendment fee in an amount equal to one fourth of one percent (1/4%)
the aggregate Revolving Credit Commitments of the Banks which have executed and
delivered this Amendment on or before 7:00 p.m., on February 13, 2001 (Eastern
time), such fee to be allocated to such approving Banks in accordance with their
respective Ratable Share.

     3. Conditions of Effectiveness of Amendment. The effectiveness of this
Amendment is expressly conditioned upon satisfaction of each of the following
conditions precedent:

         A. The representations and warranties of the Borrower contained in
Article V of the Credit Agreement shall be true and accurate on the date hereof
with the same effect as though such representations and warranties had been made
on and as of such date (except representations and warranties which relate
solely to an earlier date or time, which representations and warranties shall be
true and correct on and as of the specific dates or times referred to therein),
and the Borrower and the Guarantors shall have performed and complied with all
covenants and conditions under the Loan Documents and hereof; no Event of
Default or Potential Default under the Credit Agreement and the other Loan
Documents shall have occurred and be continuing or shall exist other than those
specific Events of Default and Potential Defaults which have been expressly
waived by the Banks; and an Authorized Officer shall have delivered to the Agent
for the benefit of each Bank a duly executed certificate dated the date hereof
certifying as to the items in this Section 5.A.

         B. There shall be delivered to the Agent for the benefit of each Bank a
certificate, dated as of the date hereof and signed by the Secretary or an
Assistant Secretary of the Borrower and each Guarantor, certifying as
appropriate as to:

                        (a) all action taken by such party in connection with
this Amendment and the other Loan Documents;

                        (b) the names of the officer or officers authorized to
sign this Amendment and the other documents executed and delivered in connection
herewith and described in this Section 5 and the true signatures of such officer
or officers and, in the case of the Borrower, specifying the Authorized Officers
permitted to act on behalf of the Borrower for purposes of the Loan Documents
and the true signatures of such officers, on which the Agent and each Bank may
conclusively rely; and

                        (c) copies of its organizational documents, including
its certificate of incorporation and bylaws if it is a corporation, its
certificate of partnership and partnership agreement if it is a partnership, and
its certificate of organization and limited liability company operating
agreement if it is a limited liability company, in each case as in



                                      -6-
<PAGE>   7

effect on the date hereof, certified by the appropriate state official where
such documents are filed in a state office together with certificates from the
appropriate state officials as to the continued existence and good standing of
the Borrower and each Guarantor in each state where organized; provided that the
Borrower and each of the Guarantors may, in lieu of delivering copies of the
foregoing organizational documents and good standing certificates, certify that
the organizational documents and good standing certificates previously delivered
by the Borrower and the Guarantors to the Agent on May 5, 1998, remain in effect
and have not been amended.

         C. The Borrower shall pay or cause to be paid the amendment fee
described in Section 4 above and all other costs and expenses accrued through
the date hereof and the costs and expenses of the Agent and the Banks including,
without limitation, reasonable fees of the Agent's counsel.

         D. All consents required to effectuate the transactions contemplated
hereby shall have been obtained and copies thereof shall have been delivered to
the Agent for the benefit of the Banks.

         E. On the date hereof there shall have been no Material Adverse Change,
and since January 1, 2000, no Material Adverse Change shall have occurred with
respect to the operations or financial condition of the Borrower or any of its
Significant Subsidiaries.

         F. On the date hereof no action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain or prohibit,
or to obtain damages in respect of, the Credit Agreement, or any Loan Documents
or the consummation of the transactions contemplated hereby or which, in the
Agent's reasonable discretion, could result in a Material Adverse Change.

         G. Each of the Guarantors, by its execution below of this Amendment,
hereby confirms its continuing obligations under the Guaranty Agreement, and
each of the Guarantors hereby confirms its continuing obligations under the
Guaranty by execution and delivery of this Amendment. Each of the Guarantors
represents and warrants that it is a party the Guaranty Agreement, either by
execution of the Guaranty Agreement or by joinder to the Guaranty Agreement in
accordance with the provisions of Section 10.18 of the Credit Agreement.

         H. All legal details and proceedings in connection with the
transactions contemplated by this Amendment shall be in form and substance
satisfaction to the Agent, the Agent shall have received from the Borrower and
the Required Banks an executed original of this Amendment and the Agent shall
have received all such other counterpart originals or certified or other copies
of such documents and proceedings in connection with such transactions, in form
and substance satisfactory to the Agent.

     4. Force and Effect. Except as otherwise expressly modified by this
Amendment, the Credit Agreement and the other Loan Documents are hereby ratified
and confirmed and shall remain in full force and effect after the date hereof.

     5. Governing Law. This Amendment shall be deemed to be a contract under the
laws of the Commonwealth of Pennsylvania and for all purposes shall be governed
by and construed and enforced in accordance with the internal laws of the
Commonwealth of Pennsylvania without regard to its conflict of laws principles.






                                      -7-
<PAGE>   8

     6. Effective Date; Certification of the Borrower. This Amendment shall be
dated as of and shall be binding, effective and enforceable upon the date of (i)
satisfaction of all conditions set forth in Section 5 hereof and (ii) receipt by
the Agent of duly executed original counterparts of this Amendment from the
Borrower, the Guarantors and the Required Banks, and from and after such date
this Amendment shall be binding upon the Borrower, the Guarantors, each Bank and
the Agent, and their respective successors and assigns permitted by the Credit
Agreement.


                              [INTENTIONALLY BLANK]





                                      -8-
<PAGE>   9


                   [SIGNATURE PAGE 1 OF 15 TO AMENDMENT NO. 7]



     IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Amendment as of the day and year first above
written.



                                   [BORROWER]


                                           CHAMPION ENTERPRISES, INC.


                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------[Seal]




                                  [GUARANTORS]


                                           EACH GUARANTOR LISTED ON SCHEDULE 1
                                           HERETO


                                           By:
                                              ----------------------------------

                                                --------------------------------
                                           Title:
                                                 -------------------------[Seal]
                                                 of each Guarantor listed on
                                                 Schedule 1



                                      -1-
<PAGE>   10


                   [SIGNATURE PAGE 2 OF 15 TO AMENDMENT NO. 7]

                               [BANKS AND AGENTS]


                                           BANK ONE, MICHIGAN, individually and
                                           as successor Administrative Agent
                                           and Syndication Agent



                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------











<PAGE>   11


                   [SIGNATURE PAGE 3 OF 15 TO AMENDMENT NO. 7]





                                           COMERICA BANK, individually and as
                                           Documentation Agent



                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------







<PAGE>   12


                   [SIGNATURE PAGE 4 OF 15 TO AMENDMENT NO. 7]





                                           PNC BANK, NATIONAL ASSOCIATION,
                                           individually and as resigning
                                           Administrative Agent



                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------







<PAGE>   13


                   [SIGNATURE PAGE 5 OF 15 TO AMENDMENT NO. 7]





                                           NATIONAL CITY BANK, individually and
                                           as Co-Agent




                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------







<PAGE>   14


                   [SIGNATURE PAGE 6 OF 15 TO AMENDMENT NO. 7]





                                           HARRIS TRUST AND SAVINGS BANK,
                                           individually and as Co-Agent



                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------




<PAGE>   15


                   [SIGNATURE PAGE 7 OF 15 TO AMENDMENT NO. 7]





                                           KEYBANK NATIONAL ASSOCIATION,
                                           individually and as Co-Agent




                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------







<PAGE>   16


                   [SIGNATURE PAGE 8 OF 15 TO AMENDMENT NO. 7]





                                           BANK OF AMERICA, N.A., individually
                                           and as Co-Agent




                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------







<PAGE>   17


                   [SIGNATURE PAGE 9 OF 15 TO AMENDMENT NO. 7]





                                           WACHOVIA BANK, N.A., individually
                                           and as Co-Agent



                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------





<PAGE>   18


                  [SIGNATURE PAGE 10 OF 15 TO AMENDMENT NO. 7]



                                           STANDARD FEDERAL BANK




                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------







<PAGE>   19


                  [SIGNATURE PAGE 11 OF 15 TO AMENDMENT NO. 7]





                                           THE BANK OF TOKYO-MITSUBISHI, LTD.,
                                           CHICAGO BRANCH




                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------




<PAGE>   20


                  [SIGNATURE PAGE 12 OF 15 TO AMENDMENT NO. 7]





                                           MICHIGAN NATIONAL BANK



                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------







<PAGE>   21


                  [SIGNATURE PAGE 13 OF 15 TO AMENDMENT NO. 7]





                                           THE BANK OF NOVA SCOTIA



                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------







<PAGE>   22


                  [SIGNATURE PAGE 14 OF 15 TO AMENDMENT NO. 7]





                                           HIBERNIA NATIONAL BANK



                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------







<PAGE>   23


                  [SIGNATURE PAGE 15 OF 15 TO AMENDMENT NO. 7]





                                           CREDIT SUISSE FIRST BOSTON



                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------



                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------


<PAGE>   24



                                   SCHEDULE 1


[GUARANTORS]

A-1 HOMES GROUP, INC., a Michigan corporation

ACCENT MOBILE HOMES, INC., a North Carolina corporation

ALPINE HOMES, INC., a Colorado corporation

AMERICAN TRANSPORT, INC., a Nevada corporation

ART RICHTER INSURANCE, INC., a Kentucky corporation

AUBURN CHAMP, INC., a Michigan corporation

BRYAN MOBILE HOMES, INC., a Texas corporation

BUILDERS CREDIT CORPORATION, a Michigan corporation

CAC FUNDING CORPORATION, a Michigan corporation

CAL-NEL, INC., a Texas corporation

CARE FREE HOMES, INC., a Michigan corporation

CHI, INC., A Kansas corporation

CENTRAL MISSISSIPPI MANUFACTURED HOUSING, INC., a Mississippi corporation

CHAMPION FINANCIAL CORPORATION, a Michigan corporation

CHAMPION GP, INC., a Michigan corporation

CHAMPION HOME BUILDERS CO., a Michigan corporation

CHAMPION HOME COMMUNITIES, INC., a Michigan corporation

CHAMPION MOTOR COACH, INC., a Michigan corporation

CHAMPION RETAIL, INC., a Michigan corporation

CHANDELEUR HOMES, INC., a Michigan corporation

CLIFF AVE. INVESTMENTS, INC., a South Dakota corporation

COLONIAL HOUSING, INC., a Texas corporation

COUNTRY ESTATE HOMES, INC., an Oklahoma corporation

COUNTRYSIDE HOMES, INC., a North Dakota corporation

CREST RIDGE HOMES, INC., a Michigan corporation

CRESTPOINTE FINANCIAL SERVICES, INC., a Delaware corporation

DUTCH HOUSING, INC., a Michigan corporation

FACTORY HOMES OUTLET, INC., an Idaho corporation

FLEMING COUNTY INDUSTRIES, INC., a Kentucky corporation

GATEWAY ACCEPTANCE CORP., a South Dakota corporation

GATEWAY MOBILE & MODULAR HOMES, INC., a Nebraska corporation

GATEWAY PROPERTIES CORP., a South Dakota corporation

GEM HOMES, INC., a Delaware corporation

GENESIS HOME CENTERS, LIMITED PARTNERSHIP, a Michigan limited partnership
(Champion GP, Inc. is General Partner authorized to execute documents on behalf
of limited partnership)

GRAND MANOR, INC., a Michigan corporation


<PAGE>   25

HEARTLAND HOMES, L.P., a Texas limited partnership

HOMEPRIDE FINANCE CORP., a Michigan corporation

HOMES AMERICA FINANCE, INC., a Nevada corporation

HOMES AMERICA OF ARIZONA, INC., an Arizona corporation

HOMES AMERICA OF CALIFORNIA, INC., a California corporation

HOMES AMERICA OF OKLAHOMA, INC., an Oklahoma corporation

HOMES AMERICA OF PHOENIX, LLC, a Michigan limited liability company
(Homes America of Arizona, Inc. is sole member/manager authorized to execute
documents on behalf of limited liability company)

HOMES AMERICA OF UTAH, INC., a Utah corporation

HOMES AMERICA OF WYOMING, INC., a Wyoming corporation

HOMES AMERICA, INC., a Michigan corporation

HOMES OF KENTUCKIANA, L.L.C., a Kentucky limited liability company
(Trading Post Mobile Homes, Inc. is sole member authorized to execute documents
on behalf of limited liability company)

HOMES OF LEGEND, INC., a Michigan corporation

HOMES OF MERIT, INC., a Florida corporation

I.D.A., INCORPORATED, an Oklahoma corporation

IMPERIAL HOUSING, INC., a Texas corporation

INVESTMENT HOUSING, INC., a Texas corporation

ISEMAN CORP., a South Dakota corporation

JASPER MOBILE HOMES, INC., a Texas corporation

LAKE COUNTRY LIVING, INC., a Texas corporation

LAMPLIGHTER HOMES, INC., a Washington corporation

LAMPLIGHTER HOMES (OREGON), INC., an Oregon corporation

M&J SOUTHWEST DEVELOPMENT CORP., a Texas corporation

MANUFACTURED HOUSING OF LOUISIANA, INC., a Michigan corporation

MOBILE FACTORY OUTLET, INC., a Texas corporation

MODULINE INTERNATIONAL, INC., a Washington corporation

NORTHSTAR CORPORATION, a South Dakota corporation

PHILADELPHIA HOUSING CENTER, INC., a Mississippi corporation

PRAIRIE RIDGE, INC., a Kansas corporation

PREMIER HOUSING, INC., a Texas corporation

REDMAN BUSINESS TRUST, a Delaware business trust

REDMAN HOMES MANAGEMENT COMPANY, INC., a Delaware corporation

REDMAN HOMES, INC., a Delaware corporation

REDMAN INDUSTRIES, INC., a Delaware corporation

REDMAN INVESTMENT, INC., a Delaware corporation

REDMAN MANAGEMENT SERVICES BUSINESS TRUST, a Delaware business trust

REDMAN RETAIL, INC., a Delaware corporation



                                      -2-
<PAGE>   26

REGENCY SUPPLY COMPANY, INC., a Delaware corporation

SAN JOSE ADVANTAGE HOMES, INC., a California corporation

SERVICE CONTRACT CORPORATION, a Michigan corporation

SOUTHERN SHOWCASE FINANCE, INC., a Michigan corporation

SOUTHERN SHOWCASE HOUSING, INC., a North Carolina corporation

STAR FLEET, INC., an Indiana corporation

THE OKAHUMPKA CORPORATION, a Florida corporation

THOMAS HOMES OF AUSTIN, INC., a Texas corporation

THOMAS HOMES OF BUDA, INC., a Texas corporation

THOMAS HOMES OF TEXAS, INC., a Texas corporation

TOM TERRY ENTERPRISES, INC., a Nevada corporation

TRADING POST MOBILE HOMES, INC., a Kentucky corporation

U.S.A. MOBILE HOMES, INCORPORATED, an Oregon corporation

VICTORY INVESTMENT CO., an Oklahoma corporation

VIDOR MOBILE HOME CENTER, INC., a Texas corporation

WESTERN HOMES CORPORATION, a Delaware corporation

WHITWORTH MANAGEMENT, INC., a Nevada corporation

WRIGHT'S MOBILE HOMES, INC., a Texas corporation











                                      -3-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>4
<FILENAME>k60964ex10-20.txt
<DESCRIPTION>LETTER AGREEMENT DATED OCTOBER 17, 2000
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10.20


                                October 17, 2000


Anthony S. Cleberg
1505 Harrison Boulevard
Boise, ID  83702

Dear Tony:

         The purpose of this letter is to give the general guidelines of an
offer to join Champion Enterprises and the major terms of employment.

1.       The position is Executive Vice President and Chief Financial Officer of
         Champion Enterprises, Inc., based in Auburn Hills, MI. You will report
         to me.

2.       The base salary is $350,000 annually, paid monthly. You will receive a
         salary review in February 2002.

3.       You will receive the following one-time cash incentive during the first
         year.

                  A) You will receive $50,000 cash, 60 days after your first day
         of employment.

                  B) You will receive $100,000 cash 12 months after your first
         day of employment.

         Both of these incentives will be paid only if you are an active
         employee.

4.       The 2001 annual incentive program is yet to be determined, but will
         have a range of up to 150% of base salary.

5.       The equity program will be formalized in a separate non-qualified stock
         option agreement to cover a total of 600,000 shares of Champion
         Enterprises stock vesting over the next five years. The general terms
         of the equity program will be as follows:

         a)       50,000 shares at 40% of market price on date of grant to be
                  purchased within 75 days of employment. These shares will vest
                  at a rate of 25% each six months. If you leave the company
                  during the two year period you will lose the prorated gain
                  amount remaining. You will have tax consequences of the
                  difference between purchase and market price. Once you
                  exercise this portion, you will be eligible for the following:



<PAGE>   2
         b)       50,000 shares at 40% of market price on date of grant to be
                  purchased either during the first 75 days of employment or
                  after 12 months up to two years of date of grant. These have
                  the same terms as in Section 4 (a).

         c)       500,000 shares at market price on date of grant to be vested
                  and exercisable over five years at 100,000 shares vested on
                  each anniversary for the five years:

                  As part of this option agreement, there will be a change of
         control provision that immediately vests the outstanding, unvested
         options, as well as confidentiality and non-compete provisions.

6.       You will be eligible for the company's normal medical, dental, life
         insurance and long term disability benefits at the first of the month
         following your start date with the letters you provided, we have
         covered all "preconditions" issues. In case of your death, Champion's
         obligation under this agreement will terminate but any amount owed you
         under this agreement or bonus plan plus all vested options at time of
         your death will be paid to your estate. There is no defined benefits
         retirement program, but we do have a 401(k) tax deferred savings
         program. We have a deferred income program for base compensation and
         annual bonuses. You will be entitled to four weeks vacation per year.
         We do not pay cash in lieu of vacations.

7.       In order to expedite and assist your family's move before April 2001
         from Idaho to Michigan, we will:

         -        Employ a relocation management firm to market and sell your
                  Idaho home. If required, they will purchase your home if not
                  sold in 90 days. In either case, normal, real estate fees for
                  selling your Idaho home will be paid.

         -        Pay for normal closing costs for purchasing your home in
                  Michigan

         -        Pay for physical moving of all household goods from Idaho to
                  Michigan.

         -        Pay for temporary housing and transportation expenses during
                  the commuting period.

8.       You will be an "at will" employee which means your employment may be
         terminated at any time, by you or Champion, for any reason, with or
         without cause and without any further obligation.



<PAGE>   3

9.       You will be given a "change of control" agreement granting you 24
         months of base and incentives in the event of a change of control.

         If the terms are acceptable, please sign below and return one copy to
me. Tony, I look forward to you joining the Champion team.


                                      Very truly yours,




                                      Walter R. Young



------------------------------------------
         Anthony S. Cleberg




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>5
<FILENAME>k60964ex10-21.txt
<DESCRIPTION>CHANGE IN CONTROL SEVERANCE AGREEMENT
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10.21

                           CHAMPION ENTERPRISES, INC.
                      CHANGE IN CONTROL SEVERANCE AGREEMENT


         THIS AGREEMENT, dated as of November 30, 2000, is between Champion
Enterprises, Inc. (the "Company") and Anthony S. Cleberg, who is currently
employed by the Company in the position of Executive Vice President and Chief
Financial Officer (the "Executive").

WITNESSETH:

         WHEREAS, the Company believes that it is in the best interests of the
Company and its Shareholders if the Executive is assured that he will receive
appropriate financial protection in the event of a Change in Control (as defined
in Section 4 below), thus ensuring that the Executive will have an incentive to
perform valuable services for the Company and will not be distracted in the
event of an actual or threatened Change in Control; and

         WHEREAS, the Company believes that the assurance of appropriate
financial protection to the Executive in the event of a Change in Control will
encourage the Executive to remain in the employ of the Company through the
transition period following a Change in Control, which is the best interests of
the Company and its Shareholders; and

         WHEREAS, the Executive is willing to provide dedicated services to the
Company on the condition that he receives adequate assurance that he will
receive appropriate financial protection in the event of a Change in Control;

         NOW THEREFORE, in consideration of the premises and mutual covenants,
the parties hereto agree as follows:

         1.   Operation of Agreement. This Agreement sets forth the severance
compensation that the Company shall pay the Executive if the Executive's
employment with the Company terminates under one of the applicable provisions
set forth herein following a Change in Control.

         2.   Term of the Agreement. This Agreement shall be effective upon its
execution by both parties and shall terminate upon the first of the following
events to occur: (a) five years from the date hereof if a Change in Control has
not occurred within such five-year period; (b) the termination of the
Executive's employment with the Company prior to a Change in Control except
under the circumstances described in Section 6 hereunder; (c) the expiration of
two years following a Change in Control (or two years following the later of one






                                        1

<PAGE>   2



or more successive Changes in Control that occur within the two year period
immediately following the initial Change in Control); (d) the termination of the
Executive's employment with the Company following a Change in Control due to the
Executive's death, Disability (as defined in Section 3(a) below) or Retirement
(as defined in Section 3(b) below); (e) the termination of the Executive's
employment by the Company for Cause (as defined in Section 3(c) below) following
a Change in Control; or (f) termination of employment by the Executive for other
than Good Reason (as defined in Section 5) following the date of a Change in
Control. Unless the Agreement has first terminated under clauses (a) through (f)
hereof, commencing on the fifth anniversary of the date of this Agreement, and
each one-year anniversary thereafter, this Agreement shall be extended for one
additional year, unless at least 30 days prior to each such anniversary, the
Company notifies the Executive in writing that it will not extend the term of
this Agreement.

         3.   Defined Terms. For purposes of this Agreement, the following
terms shall have the meanings set forth below:

              (a)  "Disability" shall mean the Executive's total and permanent
disability which prevents the Executive from performing the duties he was
assigned immediately prior to the Change in Control for a continuous period
exceeding 9 months. The termination of Disability shall be made by a medical
board certified physician mutually acceptable to the Company and the Executive
(or the Executive's legal representative, if one has been appointed), and if the
parties cannot mutually agree to the selection of a physician, then each party
shall select such a physician and the two physicians so selected shall select a
third physician who shall make this determination.

              (b)  "Retirement" shall mean retirement on or after age 65.

              (c)  "Cause" shall mean the Executive's willful gross misconduct,
willful and material breach of his duties or an act of fraud or dishonesty by
the Executive that directly or indirectly results in material harm to the
Company.

         4.   Change in Control. A Change in Control shall be deemed to have
occurred upon the occurrence of any of the following events:

              (a)  the acquisition of ownership by a person, firm or
corporation, or a group acting in concert, of 51%, or more, of the outstanding
common stock of the Company in a single transaction or a series of related
transactions within a one-year period;

              (b)  a sale of all or substantially all of the assets of the
Company to any person, firm or corporation through a single transaction or
multiple transactions;





                                        2

<PAGE>   3



or

              (c)  a merger, consolidation or similar transaction between the
Company and another entity if shareholders of the Company do not own a majority
of the voting stock of the corporation surviving the transaction.

         5.   Termination of Employment Following a Change in Control. Subject
to Sections 6 and 11(a) hereunder, the Executive shall be entitled to severance
payments under this Agreement only if there has been a Change in Control and the
Executive has incurred a Termination of Employment.

              (a)  For purposes of this Agreement during the two-year period
following any Change in Control that occurs during the term of this Agreement,
"Termination of Employment" shall be defined as:

                   (i)  The Executive's involuntary termination by the Company
for any reason other than death, Disability, Retirement or Cause; or

                   (ii) The Executive's termination for "Good Reason," defined
as the occurrence of any of the following events without the Executive's written
consent:

                        (A) Any reassignment of the Executive to duties
         inconsistent with his position, title, duties, responsibilities and
         status with the Company immediately prior to the Change in Control, or
         a change in the Executive's reporting responsibilities, including a
         change in the identity or the corporate position to which the Executive
         reports, or a change in title (except for a promotion) in effect
         immediately prior to the Change in Control;

                        (B) Any reduction in the Executive's base salary in
         effect immediately prior to the Change in Control, or failure by the
         Company to continue any bonus, stock or incentive plans in effect
         immediately prior to the Change in Control (without the implementation
         of a comparable successor plan which provides the same benefits), or
         any removal of the Executive from participation in such aforementioned
         plans;

                        (C) The discontinuance or reduction in benefits to the
         Executive of any qualified or non-qualified retirement or welfare plan
         maintained by the Company immediately prior to the Change in Control,
         or the discontinuance of any fringe benefits or other perquisites which
         the Executive received immediately prior to the Change in Control:

                        (D) Required business travelling by the Executive on a
         significantly more frequent basis and for significantly longer periods
         of time than the Executive was required to travel immediately prior to
         the




                                        3

<PAGE>   4


         Change in Control unless the increase in required business travelling
         is on account of the Executive's promotion;

                        (E) Any reassignment of the Executive's duties that
         would require the Executive to relocate the Executive's primary
         residence; or

                        (F) The Company's breach of any provision in this
         Agreement.

              (b)  If the Executive believes that the Executive is entitled to a
Termination of Employment for Good Reason as defined in subparagraph (a)(ii)
above, he may apply in writing to the Company for confirmation of such
entitlement prior to the Executive's actual separation from employment, by
following the claims procedure set forth in Section 15 hereof. The submission of
such a request by the Executive shall not constitute "Cause" for the Company to
terminate the Executive as defined under Section 3(c) hereof. If the Executive's
request for a Good Reason Termination of Employment is denied under both the
request and appeal procedures set forth in paragraphs (b) and (c) of Section 15
hereof, then the parties shall use their best efforts to resolve the claim
within 90 days after the claim is submitted to arbitration pursuant to Section
15(d).

         6.   Termination Prior to Change in Control. If within a period of 180
days prior to the first public announcement of a proposed Change in Control the
Company terminates the employment of the Executive for reasons other than the
Executive's death, Disability, Retirement or Cause, and a Change in Control
event subsequently occurs, unless the Company establishes that the Executive's
termination was not in connection with the Change in Control, the Executive's
termination shall be deemed to have been in connection with the Change in
Control, and the Executive shall be entitled to severance payments under this
Agreement, to be paid in cash within 10 days following the Change in Control.

         7.   Severance Payment.

              (a) Upon satisfaction of the requirements set forth in Sections
5, 6 and 11(a) hereof and with respect to any one or more Changes in Control
that may occur during the term of this Agreement, the Executive shall be
entitled to a cash severance benefit equal to two times the highest annual cash
compensation (including base salary and incentive compensation or similar award)
paid or payable to the Executive by the Company for any of the three fiscal
years ended immediately prior to the date of termination of Executive's
employment, plus the unpaid prorated portion of his annual bonus (but excluding
commissions and other nonrecurring cash compensation payments)

              (b)  In addition to the cash payment described in paragraph (a)
above, upon satisfaction of the requirements set forth in Sections 5, 6 and
11(a) hereof,






                                       4

<PAGE>   5


the Executive shall be entitled to continued participation in the Company's
hospitalization, medical, life insurance and disability insurance programs until
the earlier of the first anniversary of the Executive's termination of
employment or the commencement of comparable coverage from another corporation
or partnership.

              (c)  The cash value of the severance benefits provided in
paragraphs (a) and (b) above, when aggregated with any other "golden parachute"
amounts (defined under Section 280G of the Internal Revenue Code of 1986, as
amended [the "Code"] as compensation that becomes payable or accelerated due to
a Change in Control) payable under any other plans, agreements or policies of
the Company, shall be reduced to the highest amount permissible under Sections
280G and 4999 of the Code before the Executive becomes subject to the excess
parachute payment excise tax under Section 4999 of the Code and the Company
loses all or part of its compensation deduction for such payments.

         8.   Time of Payment. Subject to Sections 6 and 11(a) hereof, the
Executive's severance benefit under Section 7(a) shall be paid in a lump sum
cash payment within 10 days following the Executive's Termination of Employment,
as defined in Section 5. Any payment made later than 10 days following the
Executive's Termination of Employment (or applicable due dates under Sections 6
and 11(a) hereof) for whatever reason, shall include interest at the prime rate
plus two percent, which shall begin accruing on the 10th day following the
Executive's Termination of Employment (or applicable due dates under Sections 6
and 11(a) hereof). For purposes of this Section 8, "prime rate" shall be
determined by reference to the prime rate established by Comerica Bank (or its
successor), in effect from time to time commencing on the 10th day following the
Executive's Termination of Employment (or applicable due dates under Sections 6
and 11(a) hereof).

         9.   No mitigation or duty to seek reemployment. The Executive shall be
under no duty or obligation to seek or accept other employment after Termination
of Employment and, subject to Section 7(b) hereof, shall not be required to
mitigate the amount of any payments provided for by this Agreement by seeking
employment or otherwise.

         10.  Tax Withholdings. The Company may withhold from any cash amounts
payable to the Executive under this Agreement to satisfy all applicable Federal,
State, local or other income and employment withholding taxes. In the event the
Company fails to withhold such sums for any reason, or withholding is required
for the non-cash payments provided in Section 7(b) hereof, the Company may
require the Executive to promptly remit to the Company sufficient cash to
satisfy all applicable income and employment withholding taxes.

         11.  Binding Effect.

              (a)  This Agreement shall be binding upon the successors and
assigns of the Company. The Company shall take whatever actions are necessary to
ensure that any successor to its operations (whether by purchase, merger,






                                        5

<PAGE>   6



consolidation, sale of substantially all assets or otherwise) assumes the
obligations under this Agreement and will cause such successor to evidence the
assumption of such obligations in an agreement satisfactory to the Executive.
Notwithstanding any other provisions in this Agreement, if the Company fails to
obtain an agreement evidencing the assumption of the Company's obligations by
any such successor, the Executive shall be entitled to immediate payment of the
severance compensation provided under Section 7, irrespective of whether his
employment has then terminated. For purposes of implementing the foregoing, the
date on which any succession becomes effective shall be deemed to constitute the
date of the Executive's Termination of Employment.

              (b)  This Agreement shall be binding upon the Executive and shall
inure to the benefit of and be enforceable by his legal representative and
heirs. However, the rights of the Executive under this Agreement shall not be
assigned, transferred, pledged, hypothecated or otherwise encumbered, except by
operation of law.

         12.  Amendment of Agreement. This Agreement may not be modified or
amended except by instrument in writing signed by the parties hereto.

         13.  Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall continue in full force and effect.

         14.  Limitations on Rights.

              (a)  This Agreement shall not be deemed to create a contract of
employment between the Company and the Executive and shall create no right in
the Executive to continue in the Company's employment for any specific period of
time, or to create any other rights in the Executive or obligations on the part
of the Company, except as set forth herein. This Agreement shall not restrict
the right of the Company to terminate the Executive, or restrict the right of
the Executive to terminate his employment.

              (b)  This Agreement shall not be construed to exclude the
Executive from participation in any other compensation or benefit programs in
which he is specifically eligible to participate either prior to or following
the execution of this Agreement, or any such programs that generally are
available to other executive personnel of the Company, nor shall it affect the
kind and amount of other compensation to which the Executive is entitled.

              (c)  The rights of the Executive under this Agreement shall be
solely those of an unsecured general creditor of the Company.







                                        6

<PAGE>   7
         15.  Claims Procedure.

              (a)  The administrator for purposes of this Agreement shall be the
Company ("Administrator"), whose address is Champion Enterprises, Inc., 2701
University Drive, Suite 320, Auburn Hills, MI 48326 and whose telephone number
is (248) 340-9090. The "Named Fiduciary" as defined in Section 402(a)(2) of
ERISA, also shall be the Company. The Company shall have the right to designate
one or more Company employees as the Administrator and the Named Fiduciary at
any time, and to change the address and telephone number of the same. The
Company shall give the Executive written notice of any change in the
Administrator and Named Fiduciary, or in the address or telephone number of the
same.

              (b)  The Administrator shall make all determinations as to the
right of any person to receive benefits under the Agreement. Any denial by the
Administrator of a claim for benefits by the Executive ("the claimant") shall be
stated in writing by the Administrator and delivered or mailed to the claimant
within 10 days after receipt of the claim, unless special circumstances require
an extension of time for processing the claim. If such an extension is required,
written notice of the extension shall be furnished to the claimant prior to the
termination of the initial 10-day period. In no event shall such extension
exceed a period of 10 days from the end of the initial period. Any notice of
denial shall set forth the specific reasons for the denial, specific reference
to pertinent provisions of this Agreement upon which the denial is based, a
description of any additional material or information necessary for the claimant
to perfect his claim, with an explanation of why such material or information is
necessary, and any explanation of claim review procedures, written to the best
of the Administrator's ability in a manner that may be understood without legal
or actuarial counsel.

              (c)  A claimant whose claim for benefits has been wholly or
partially denied by the Administrator may request, within 10 days following the
date of such denial, in a writing addressed to the Administrator, a review of
such denial. The claimant shall be entitled to submit such issues or comments in
writing or otherwise, as he shall consider relevant to a determination of his
claim, and he may include a request for a hearing in person before the
Administrator. Prior to submitting his request, the claimant shall be entitled
to review such documents as the Administrator shall agree are pertinent to his
claim. The claimant may, at all stages of review, be represented by counsel,
legal or otherwise, of his choice. All requests for review shall be promptly
resolved. The Administrator's decision with respect to any such review shall be
set forth in writing and shall be mailed to the claimant not later than 10 days
following receipt by the Administrator of the claimant's request unless special
circumstances, such as the need to hold a hearing, require an extension of time
for processing, in which case the Administrator's decision shall be so mailed
not later than 20 days after receipt of such request.

              (d)  A claimant who has followed the procedure in paragraphs (b)
and (c) of this section, but who has not obtained full relief on his claim for
benefits, may, within 60 days following his receipt of the Administrator's
written decision on review, apply in writing to the Administrator for binding
arbitration of his claim before an






                                        7

<PAGE>   8


arbitrator mutually acceptable to both parties, the arbitration to be held in
Detroit, Michigan, in accordance with the commercial arbitration rules of the
American Arbitration Association, as then in effect. If the parties are unable
to mutually agree upon an arbitrator, then the arbitration proceedings shall be
held before three arbitrators, one of which shall be designated by the Company,
one of which shall be designated by the claimant and the third of which shall be
designated by the first two arbitrators in accordance with the commercial
arbitration rules referenced above. The arbitrator(s) sole authority shall be to
interpret and apply the provisions of this Agreement; the arbitrator(s) shall
not change, add to, or subtract from, any of its provisions. The arbitrator(s)
shall have the power to compel attendance of witnesses at the hearing. Any court
having jurisdiction may enter a judgment based upon such arbitration. All
decisions of the arbitrator(s) shall be final and binding on the claimant and
the Company without appeal to any court. Upon execution of this Agreement, the
Executive shall be deemed to have waived his right to commence litigation
proceedings outside of arbitration without the express written consent of the
Company.

         16.  Legal Fees and Expenses. In the event any arbitration or
litigation is brought to enforce any provision of this Agreement and the
Executive prevails, then he shall be entitled to recover from the Company his
reasonable costs and expenses of such arbitration or litigation, including
reasonable fees and disbursements of counsel (both at trial and in appellate
proceedings). If the Company prevails, then each party shall be responsible for
its/his respective costs, expenses and attorneys fees, and the costs of
arbitration shall be equally divided. In the event that it is determined that
the Executive is entitled to compensation, legal fees and expenses hereunder, he
also shall be entitled to interest thereon, payable to him at the prime rate of
interest plus two percent. For purposes of this Section 16, "prime rate" shall
be determined by the reference to the prime rate established by Comerica Bank as
in effect from time to time during the period from the date such amounts should
have been paid to the date of actual payment. For purposes of the determining
the date when legal fees and expenses are payable, such amounts are not due
until 30 days after notification to the Company of such amounts.

         17.  Nonalienation of Benefits. Except in so far as this provision may
be contrary to applicable law, no sale, transfer, alienation, assignment,
pledge, collateralization or attachment of any benefits under this Agreement
shall be valid or recognized by the Company.

         18.  ERISA. This Agreement is an unfunded compensation arrangement for
a member of a select group of the Company's management and any exemptions under
ERISA, as applicable to such an arrangement shall be applicable to this
Agreement.

         19.  Reporting and Disclosure. The Company, from time to time, shall
provide government agencies with such reports concerning this Agreement as may
be required by law, and the Company shall provide the Executive with such
disclosure concerning this Agreement as may be required by law or as the Company
may deem appropriate.




                                        8

<PAGE>   9
         20.  Notices. Any notice required or permitted by this Agreement shall
be in writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at the Company's then principal office,
or to the Executive at the Executive's last address on file with the Company, as
the case may be, or to such other address or addresses as any party hereto may
from time to time specify in writing for the purpose of this Agreement in a
notice given to the other parties in compliance with this Section 20. Notices
shall be deemed given when received.

         21.  Miscellaneous/Severability. A waiver of the breach of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
subsequent breach of the same or any other term or condition. This Agreement is
intended to be performed in accordance with, and only to the extent permitted
by, all applicable laws, ordinances, rules and regulations. To the extent that
any provision or benefit under this Agreement is not deemed to be in accordance
with any applicable law, ordinance, rule or regulation, the noncomplying
provision shall be construed, or benefit limited, to the extent necessary to
comply with all applicable laws, ordinances and regulations and any such
provision or benefit shall not affect the validity of any other provision or
benefit provided by this Agreement. The headings in this Agreement are inserted
for convenience of reference only and shall not be a part of or control or
affect the meaning of any provision hereof.

         22.  Governing Law. To the extent not preempted by Federal law, this
Agreement shall be governed and construed in accordance with the laws of the
State of Michigan.

         23.  Entire Agreement. This document represents the entire agreement
and understanding of the parties with respect to the subject matter of the
Agreement and it may not be altered or amended except by an Agreement in
writing.

              IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.


                               CHAMPION ENTERPRISES, INC.


                               By:
                                   -----------------------------------
                                     Walter R. Young, Chairman,
                                     President and Chief Executive Officer


                               By:
                                   -----------------------------------
                                     Anthony S. Cleberg




                                        9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.32
<SEQUENCE>6
<FILENAME>k60964ex10-32.txt
<DESCRIPTION>LETTER AGREEMENT DATED APRIL 7, 2000
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10.32


                                  April 7, 2000


John C. Collins
Vice President & General Counsel
Champion Enterprises

         This letter is to confirm our conversation for you to manage our
development organizations, as well as the Law Department. While the announcement
will be made during the week of April 10, the effective date of the compensation
will be April 1. The following terms apply:

         1)       The position will be Senior Vice President and General Counsel
                  reporting directly to me. Your additional reporting
                  responsibilities will be all of our development activities
                  under Steve Adler and Jim Casterline.

         2)       The base salary is $250,000 annually, made monthly, an
                  increase of $30,000 annually.

         3)       As an incentive to take this responsibility, you will
                  immediately receive payment of $50,000 and receive 5,000
                  shares of restricted stock (2 year vesting).

         4)       Your incentive plan for 2000 will be modified as follows:

                  A)       The base salary increases to $250,000

                  B)       For 2000, you will be guaranteed a minimum of
                           $100,000 payment

                  C)       For your development activities, you will receive
                           next February (February 2001) $100 for each
                           Champion-built home that is sold and funded in our
                           managed developments between April 1- December 31,
                           2000. You will receive $50 for each Non-Champion
                           built home.

         John, I am as excited as you for you to take on this operating
responsibility that is so important to our future. Congratulations and good
luck.

                   Very truly yours.





                   Walter R. Young, Jr.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.35
<SEQUENCE>7
<FILENAME>k60964ex10-35.txt
<DESCRIPTION>AGREEMENT AND GENERAL RELEASE
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10.35


                          AGREEMENT AND GENERAL RELEASE


         This Agreement and General Release (the "Agreement") is made and
entered into as of the 5th day of September, 2000, by and between Champion
Enterprises, Inc. a Michigan corporation whose address is 2701 Cambridge Court,
Suite 300, Auburn Hills, Michigan, 48326, and its subsidiaries, affiliates, and
related entities, and any divisions thereof (together, the "Employer") and
Joseph H. Stegmayer (the "Employee").

         WHEREAS, Employee has been employed by Employer, and Employee has
elected to conclude such employment on or about September 5, 2000; and

         WHEREAS, Employee voluntarily and with full knowledge of Employee's
rights and the provisions herein, now desires to waive Employee's rights and to
settle, compromise, and dispose of any claims that Employee has or might have
against Employer (or its affiliates) as set forth herein upon the terms and
conditions hereinafter set forth;

         NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, and other valuable consideration, it is hereby covenanted and
agreed as follows:

         1. Releases.

         (a)  Employee (for Employee and Employee's family, heirs, executors,
              administrators, personal representatives, legal representatives,
              successors and assigns), hereby forever and fully releases,
              acquits, and discharges Employer together with all of the
              officers, directors, agents, employees, successors or assigns of
              Employer, of and from any and all claims, causes of action,
              agreements, or any other liability of any nature whatsoever,
              whether known or unknown, foreseen or unforeseen, arising out of
              any matter or event occurring on or prior to the date hereof,
              including, but not limited to, claims related in any way to
              employment, wrongful discharge, negligent or intentional
              infliction of emotional distress, defamation, age discrimination
              or any other form of discrimination, breach of contract, claims
              for unused vacation pay, or any and all other claims of any nature
              arising out of or in any way relating to any employment agreement
              that Employee has had with the Employer (including claims for any
              payments now or hereafter owed under any such employment
              agreement), any other contract or agreement between Employee and
              Employer, or Employee's employment with the Employer or conclusion
              thereof, including any and all claims under any federal, state or
              local laws, regulations, rules or ordinances, including any claims
              under the Age Discrimination in Employment Act of 1967 (as
              amended), claims for any other benefit, or for violation of the
              Employee Retirement Income Security Act of 1974 (as amended).
              Employer and Employee recognize and agree that this release does
              not prejudice (i) Employee's rights as a shareholder of Employer,
              (ii) any rights of Employee under the Champion Enterprises, Inc.



                                        1
<PAGE>   2

              Deferred Compensation Plan and the Champion Enterprises, Inc.
              Corporate Officer Stock Purchase Plan, (iii) any rights of
              Employee (through the date of conclusion of employment) to salary
              and benefits as specified in the July 3, 2000 letter by and
              between the parties, or (iv) or any indemnification rights
              Employee may have under law or Employer's by-laws. Employee does
              not release any such rights.

         (b)  Employer and all of the officers, directors, agents, employees,
              successors and assigns of Employer hereby forever and fully
              releases, acquits and discharges Employee (and his family, heirs,
              executors, administrators, personal representatives, legal
              representatives, successors and assigns) of and from any and all
              claims, causes of action, agreements, or any other liability of
              any nature whatsoever, whether known or unknown, foreseen or
              unforeseen, arising out of any matter or event occurring on or
              prior to the date hereof. The itemization of certain claims in
              subpart (a) but not this subpart (b) does not limit in any way the
              scope of this release.

         2. Unknown Damages or Injuries. It is expressly understood and agreed
by the parties that this is a full and final general release of all matters
whatsoever and that this general release is intended to and does embrace not
only all known and anticipated damages and injury, but also all unknown and
unanticipated damages, injuries or complications that may later develop or be
discovered, including all effects and consequences thereof.

         3. Lawsuit Forever Barred by Either Party. It is the intention and
understanding of the parties that this Agreement will forever and for all time
bar any action, claim or administrative proceeding whatsoever which arose or
which might arise in the future from any acts, omissions, agreements or other
occurrences on or prior to the date hereof including the incidents described
above, and that no lawsuit ever will be asserted against any person or entity
hereby released for any injury or damage, whether known or unknown, sustained or
to be sustained, as a result of the foregoing incidents.

         4. No Right to Reemployment. Employee waives all right to reinstatement
or reemployment with Employer, its subsidiaries, affiliates, divisions, and
related entities and further agrees that Employee will never apply for
employment with Employer, and that, if Employee does apply, such institutions
may deny Employee such employment and such denial shall not constitute any
violation of any laws, rules or orders of any state or of the United States.

         5. Confidential. Employee agrees that Employee will keep strictly
confidential and will not communicate or disclose, except to Employee's
immediate family, Employee's attorneys, tax and financial planners or as
required by law or upon prior written consent of Employer, the contents of any
term or provision contained in this Agreement.

         6. Settlement Amount. Upon Employee's execution and delivery to
Employer of this Agreement and the expiration of the revocation period without
revocation of this Agreement by Employee, Employer shall pay the Employee the
lump-



                                        2
<PAGE>   3

sum amount listed on Exhibit A and become liable for the other obligations
listed on Exhibit A under the terms set forth on Exhibit A hereto.

         7. Full and Final Settlement. Following the discharge by Employer of
all obligations listed on Exhibit A under the terms set forth on Exhibit A, and
except as specifically set forth in Paragraph1(a), no further payment or
consideration of any kind in connection with the release and settlement of the
above-described claims is contemplated or required herein. Employer and Employee
are, as of this same date, executing a consulting agreement. The effectiveness
of this Agreement is contingent on the execution of that Consulting Agreement.

         8. Covenant Not to Compete. Employee is currently subject to certain
agreements (the "Employment Agreements") which contain restrictions on
Employee's ability to compete with Employer. The parties agree that those
restrictions shall continue in full force and effect until January 1, 2001 but
only as to the following six companies (or their affiliates or successors):
American Homestar Corporation, Cavalier Homes, Inc. Clayton Homes, Inc.,
Fleetwood Enterprises, Inc., Oakwood Homes Corporation, or Palm Harbor Homes,
Inc. Without limiting the foregoing, Employee agrees that during that same
period, he shall not personally, directly or indirectly act as a consultant,
director, agent, partner, joint venturer or advisor of any of the six listed
companies. Otherwise all such restrictions on Employee's ability to compete
shall cease when this Agreement becomes effective. For purposes of this
Agreement and the Consulting Agreement also being signed today, the term
"Employment Agreements" shall mean: (i) Employee's original letter of employment
dated December 15, 1997, (ii) the January 12, 1998 Non-Qualified Stock Option
Agreement between the parties, (iii) the September 10, 1998 Stock Option
Agreement under the Champion Enterprises, Inc. 1995 Stock Option and Incentive
Plan, and (iv) the January 12, 1998 Champion Enterprises, Inc. Change in Control
Severance Agreement, as amended February 18, 1999.

         9. Proprietary Information and Confidentiality. Employee acknowledges
that under the Employment Agreements he is currently subject to various
covenants and duties obligating him to retain as confidential "Confidential
Information" in his possession or of which he is aware. Those obligations shall
continue according to their terms even though Employer no longer employs
Employee.

         10. Basic Understandings. Employee understands and agrees that
Employee:

                  (a)      has read this Agreement carefully and understands all
                           of its terms;

                  (b)      is advised to consult with an attorney prior to
                           executing this Agreement; and

                  (c)      may take 21 days to consider this Agreement.

         11. Revocation Period. Employee understands and agrees that Employee
may revoke this Agreement for a period of seven (7) calendar days following his
execution of this Agreement. The Agreement is not effective until this
revocation period has expired without such revocation taking place. Employee
understands that any revocation, to be effective, must be in writing and either
(a) received by mail, overnight



                                       3
<PAGE>   4

courier service or fax transmission within seven (7) days after his execution of
this Agreement and addressed to John J. Collins, Jr. at the address set forth
above for Employer or (b) hand delivered within seven (7) days after the
execution of this Agreement to John J. Collins, Jr.

         12. Return of Property. Employee agrees that on September 5, 2000 (or
such earlier date as Employer reasonably requests) he will tender to Employer
all credit cards, documents or any other Employer property in Employee's
possession and submit for review and reimbursement by Employer any outstanding
ordinary and necessary business related expenses incurred on behalf of Employer.

         13. No Effect on 401(k) Plan. This Agreement shall not affect
Employee's rights under the terms of the Employer 401(k) Plan (if any). The
terms of the 401(k) Plan shall remain effective as to Employee during the
existence of such plan

         14. Stock and Stock Options. Employee's stock options that are vested
but not exercised are hereby immediately canceled, as are those stock options
that are not vested. Employee shall retain free and clear any other Employer
stock which Employee owns and which is vested as of the execution of this
Agreement.

         15. Settlement in Compromise. It is expressly understood by the parties
that this Agreement is a compromise and settlement and that none of its terms
and conditions is it to be construed as an admission of liability or wrongdoing
on the part of Employer or Employee.

         16. Complete Agreement. This Agreement contains the complete
understanding of the parties and no representations, inducements, promises,
agreements, arrangements or undertakings relating to the matters set forth
herein, whether oral or written, express or implied, between the parties not
herein embodied shall have any force or effect. No modifications or amendments
hereto may be made except by a writing signed by both the parties. On its
effective date, this Agreement will supercede and replace any inconsistent term
or provision of the July 3, 2000 letter between the parties. This Agreement
shall be deemed to be a Michigan contract, and shall be governed by the laws of
the State of Michigan. This Agreement may be executed in counterparts. Facsimile
signatures shall be deemed to be originals.

         17. No Inconsistent Action. Each party hereto agrees that they will
take no action (including, but not limited to, an appeal or institution of a
separate lawsuit) inconsistent with this Agreement or which seeks to challenge
any provisions of this Agreement or any document provided for herein.

         18. Ongoing Cooperation. Employee agrees that when and if necessary he
will reasonably cooperate and assist Employer in connection with ongoing
projects, program or litigation.

         19. Potential Invalidity. Should any covenant or other provision of
this Agreement be declared invalid, illegal or unenforceable by any court of
competent jurisdiction, by administrative order or by reason of any rule of law
or public policy, all other provisions shall nevertheless remain in full force
and effect and no provision shall be deemed dependent upon any other provision
unless so specified.



                                       4
<PAGE>   5

                  20. Enforcement. In the event that either party breaches any
of its duties or obligations under this Agreement, the other party may, at its
sole option, (i) terminate this Agreement by giving written notice of
termination to the other whereupon the nonbreaching party shall be released and
discharged of all liabilities, duties and obligations hereunder whatsoever; (ii)
sue for specific performance of the duties and obligations hereunder; (iii) seek
injunctive relief to prevent activities prohibited hereby; and/or (iv) exercise
any other right or remedy available at law, in equity or otherwise. The parties
acknowledge and agree that the injury from the breach of certain provisions of
this Agreement will be incalculable and irremediable and that it will be
extremely difficult, if not impossible, to accurately measure the damage from
any such breach. Accordingly, the parties agree that upon any breach of this
Agreement remedies at law may be inadequate. The parties further agree that the
nonbreaching party shall be entitled, in addition to any other rights or
remedies available to it, as a matter of right, to institute legal proceedings
in Oakland County Circuit Court, Pontiac, Michigan and obtain equitable and
legal relief.

         (b) No failure by a party to exercise any right, power or remedy
hereunder or under applicable law shall affect such right, power or remedy, nor
shall any single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or remedy hereunder or under
applicable law. The rights and remedies of the parties are cumulative to all
rights and remedies under applicable law.

         21. Mutual Knowing and Voluntary Waiver. The parties acknowledge that
this is a knowing and voluntary waiver of the rights specified in this
Agreement, that each has completely read and understands all of the terms and
provisions of this Agreement and that signing this Agreement is each party's
free act and deed. The parties further acknowledge that they have not relied
upon the representations of any party hereby released or by that party's
representatives concerning the subject matter hereof.









                       THIS SPACE INTENTIONALLY LEFT BLANK





         IN WITNESS WHEREOF, the parties have voluntarily and willingly executed
this Agreement as of the date first set forth above.



         EMPLOYER:                      Champion Enterprises, Inc.


                                       5
<PAGE>   6

                                        a Michigan corporation, on
                                        behalf of itself, its subsidiaries,
                                        affiliates, and related entities


                                        By:  ___________________________
                                                 Its:  Chairman, President & CEO


         EMPLOYEE:                      ______________________________
                                             Joseph H. Stegmayer




                                       6

<PAGE>   7

                                     WAIVER


         Employee specifically waives the 21-day review period set forth in
Paragraph 10 to consider the Agreement and understands that this Agreement shall
not become effective for seven (7) days following the date it is signed by him,
during which time Employee may revoke the Agreement by written notice to
Employer.


                                    ______________________________
                                         Joseph H. Stegmayer
                                         Date:  September 5, 2000





                                       7

<PAGE>   8




                                    EXHIBIT A



1.       Champion will pay the sum of $100,000 as severance paid in a lump sum.

2.       In addition, in the event that Employee has not commenced employment in
         a new position on or before December 31, 2000, Champion will pay
         Employee an additional sum of up to $150,000, paid in six equal monthly
         installments of $25,000, starting January 1, 2001. These six additional
         monthly payments will continue only until Employee commences new
         employment.

3.       Champion will continue until June 30, 2001 Employee's health care
         insurance on the same terms and conditions as may be in effect from
         time to time for Champion Enterprises, Inc. officers. This continued
         coverage will, however, cease if Employee commences new employment
         prior to that date. This provision will not effect Employee's COBRA
         rights.

4.       Employer agrees to provide to Employee free of charge
         PricewaterhouseCoopers tax services for the preparation of Employee's
         personal tax returns for the 2000 calendar year.









                                       8
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.36
<SEQUENCE>8
<FILENAME>k60964ex10-36.txt
<DESCRIPTION>CONSULTING AGREEMENT
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 10.36

                              CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (the "Agreement"), is made and entered into as of
September 5, 2000, by and between Champion Enterprises, Inc, a Michigan
corporation (the "Corporation"), and Joseph H. Stegmayer ("Consultant").

                              W I T N E S S E T H:

WHEREAS, Consultant is experienced in the financial matters of large, publicly
held companies and the business of the Corporation; and

WHEREAS, the Corporation desires to retain Consultant and has offered to engage
Consultant to render consulting and advisory services to the Corporation.

NOW, THEREFORE, in consideration of the premises, as well as for other good and
valuable consideration (the receipt and sufficiency of which is hereby
acknowledged), the Corporation and Consultant agree as follows:

1. Services to be Performed. The Corporation engages Consultant to perform, and
Consultant hereby accepts such engagement and agrees to perform, services as a
consultant and advisor to the Corporation as may reasonably be requested by the
President of the Corporation from time to time.

2. Extent and Place of Services. During the term of this Agreement, Consultant
shall make available to the Corporation the benefit of his knowledge, experience
and advice on such matters, at such times and in such manner as shall be
requested by the President of the Corporation. Services to be performed by
Consultant pursuant to this Agreement shall be performed at such times and at
such places as shall reasonably be determined by the President of the
Corporation but shall not require relocation or extensive travel.

3. Compensation and Expenses. As compensation for Consultant's services
hereunder, the Corporation shall pay to Consultant 75,000 shares of the common
stock of Corporation. The shares shall be transferred to Consultant on or
shortly after January 2, 2001 and Corporation will promptly undertake to
register the shares for federal securities laws purposes. Corporation shall
reimburse Consultant for reasonable out of pocket expenses incurred by
Consultant in connection with the performance of services pursuant to this
Agreement. Payments to Consultant under this Agreement shall not be subject to
withholding taxes unless required by law. Consultant shall be responsible for
any income, employment, self-employment or similar taxes due and owing as a
result of payments under this Agreement.

4. Term. This Agreement shall commence on the date of conclusion of employment
and shall continue in full force and effect until December 31, 2000.



                                       1
<PAGE>   2

5. Independent Contractor Status. In the performance of services under this
Agreement, Consultant is an independent contractor. Nothing in this Agreement
shall either constitute, or be deemed to constitute, Consultant to be an
employee, officer, agent, partner, principal, or joint venturer of the
Corporation for any purpose whatsoever, or give rise to a relationship between
Consultant and the Corporation other than one of independent contractor to the
Corporation. In any action on behalf of the Corporation Consultant shall
represent himself only as an independent contractor.

6. Proprietary Information and Confidentiality. Consultant hereby agrees to keep
in strict confidence all Confidential Information of which he becomes aware
during the term of this Agreement. Consultant shall not use the Confidential
Information for any purpose except as necessary for performance under this
Agreement. Consultant shall not in any manner, either directly or indirectly,
divulge, disclose or communicate to any person or entity the Confidential
Information. The term "Confidential Information" shall have the meaning ascribed
to that term in the Employment Agreements, as defined in the Agreement and
General Release executed today by and between the parties.

7. Enforcement. (a) In the event that either party breaches any of its duties or
obligations under this Agreement, the other party may, at its sole option, (i)
terminate this Agreement by giving written notice of termination to the other
whereupon the nonbreaching party shall be released and discharged of all
liabilities, duties and obligations hereunder whatsoever; (ii) sue for specific
performance of the duties and obligations hereunder; (iii) seek injunctive
relief to prevent activities prohibited hereby; and/or (iv) exercise any other
right or remedy available at law, in equity or otherwise. The parties
acknowledge and agree that the injury from the breach of certain provisions of
this Agreement will be incalculable and irremediable and that it will be
extremely difficult, if not impossible, to accurately measure the damage from
any such breach. Accordingly, the parties agree that upon any breach of this
Agreement remedies at law may be inadequate. The parties further agree that the
nonbreaching party shall be entitled, in addition to any other rights or
remedies available to it, as a matter of right, to institute legal proceedings
in any court of competent jurisdiction and seek equitable and legal relief.
         (b) No failure by a party to exercise any right, power or remedy
hereunder or under applicable law shall affect such right, power or remedy, nor
shall any single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or remedy hereunder or under
applicable law. The rights and remedies of the parties are cumulative to all
rights and remedies under applicable law.

8. Notices. Any notice, report or other statement required or permitted to be
given under this Agreement shall be deemed to have been given and received for
all purposes if personally delivered, sent by fax or sent by first class mail,
postage prepaid, to the address of the respective party set forth below:

If to the Corporation:              Champion Enterprises, Inc
                                    2701 Cambridge Court, Suite 300
                                    Auburn Hills, MI  48326
                                    Attn: Walter R. Young   Fax: 248-340-9345
If to Consultant:                   Joseph H. Stegmayer


                                       2
<PAGE>   3

                                    2023 Hickory Trail
                                    Rochester Hills, MI 48309

9. Applicable Law. This Agreement shall be governed by Michigan law.

10. Integration. This writing constitutes the entire agreement between the
parties and shall supersede all previous or contemporaneous negotiation,
commitments, agreements, understandings and writing with respect to the matters
set forth herein.

11. Modification. This Agreement shall be amended, modified or restated only by
a writing indicating on its face that it is an amendment, modification or
restatement of this Agreement and signed by each party.

12. Successors and Assigns. This Agreement shall inure to the benefit of and
shall be binding upon the Corporation and its successors. The duties,
obligations, powers and responsibilities of Consultant under this Agreement are
personal unto Consultant and shall not be assigned or otherwise transferred.

13. Headings; Severability. The section headings herein are included solely for
convenience and shall in no event affect, or be used in connection with, the
interpretation of the Agreement. Each section and subsection of this Agreement
shall be treated as severable. If any section or subsection shall be found
illegal, invalid or unenforceable, this Agreement shall be interpreted, and
shall remain in full force and effect, as though such section had never been
contained in this Agreement.

14. Waiver. No waiver of any provision of, or breach of, this Agreement shall be
either construed as a continuing waiver, or constitute a waiver of any other
provision or breach.







                       THIS SPACE INTENTIONALLY LEFT BLANK



                                       3
<PAGE>   4






         IN WITNESS WHEREOF, this Agreement has been executed on behalf of the
Corporation and by Consultant as of the day and year first above written.


                                        Champion Enterprises, Inc.
                                        A Michigan corporation


                                        By: _____________________________
                                                 Walter R. Young, Jr.
                                                 Chairman, President and CEO



                                        Consultant

                                        _________________________________
                                                 Joseph H. Stegmayer












                                      4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>9
<FILENAME>k60964ex11.txt
<DESCRIPTION>STMT. REGARDING COMPUTATION OF PER SHARE EARNNGS
<TEXT>

<PAGE>   1
                                                                      EXHIBIT 11





Statement Regarding Computation of Per Share Earnings

<TABLE>
<CAPTION>
                                               Fourth Quarter Ended                 Year Ended
(in 000's, except per share amounts)      Dec. 30, 2000     Jan 1, 2000      Dec. 30, 2000   Jan 1, 2000
                                          -------------     -----------      -------------   -----------
<S>                                       <C>               <C>              <C>             <C>
Weighted average shares outstanding           47,257            47,643            47,252         48,227

Effect of dilutive securities-options           -                  179              -               662
                                           ---------        ----------        ----------     ----------

Shares for diluted EPS                        47,257            47,822            47,252         48,889
                                           =========        ==========        ==========     ==========



Net income (loss)                          ($147,482)           $5,584         ($147,332)       $50,042
                                           =========        ==========        ==========     ==========

Per share amounts:

   Basic                                      ($3.12)            $0.12            ($3.12)         $1.04
                                           =========        ==========        ==========     ==========

   Diluted                                    ($3.12)            $0.12            ($3.12)         $1.02
                                           =========        ==========        ==========     ==========
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>10
<FILENAME>k60964ex21-1.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 21.1



                         SUBSIDIARIES OF THE COMPANY



        Name of Subsidiary(s)                           Names under which
[state of incorporation or organization]                  business done

Champion Home Builders Co. [Michigan]                   Atlantic Homes
                                                        Titan Homes
                                                        Gateway Homes
                                                        Summit Crest Homes
                                                        Advantage Homes
                                                        Redman Home Builders
                                                        Genesis Homes
Chandeleur Homes, Inc. [Michigan]                                -
Crest Ridge Homes, Inc. [Michigan]                               -
Dutch Housing, Inc. [Michigan]                          Fortune Homes
Fleming County Industries, Inc. [Kentucky]              Bluegrass Housing
Grand Manor, Inc. [Michigan]                            Grand View Homes
Homes of Legend, Inc. [Michigan]                                 -
Homes of Merit, Inc. [Florida]                                   -
Moduline International, Inc. [Washington]                        -
  Lamplighter Homes, Inc. [Washington]                           -
  Lamplighter Homes (Oregon), Inc. [Oregon]                      -
  Moduline Industries (Canada) Ltd.                     New Horizon Homes
   [British Columbia,Canada]
Redman Industries, Inc. [Delaware]                               -
  Redman Homes, Inc. [Delaware]                         Champion Homes
                                                             Moduline Industries
                                                                   Genesis Homes
  Western Homes Corporation [Delaware]                  Silvercrest Homes
                                                                   Genesis Homes
Champion Retail, Inc. [Michigan]                                 -
  59 wholly-owned subsidiaries of this entity operate in
  the retail business of manufactured housing or related
  finance and insurance activities in the United States
  (none in foreign countries)
HomePride Finance Corp. [Michigan]                               -
Champion Development Corp. [Michigan]                            -
  18 wholly-owned or majority-owned subsidiaries
  of this entity operate in the manufactured housing
  development business in the United States
  (none in foreign countries)


Companies not included above, if considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.

                    ----------------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>11
<FILENAME>k60964ex23-1.txt
<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS LLP.
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 23.1


                       CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-93052, 2-93052-99, 33-36511, 33-38470, 33-41957,
33-41959, 33-75244, 33-58973, 333-03439, 333-14797, 333-62427, 333-63431,
333-63545, 333-72973, 333-52904, 333-52906, 333-52908, 333-52910 and 333-52912)
and the Prospectus constituting part of the Registration Statements on Form S-3
(Nos. 33-54192, 33-82544, 333-46237, 333-44170 and 333-53978) of Champion
Enterprises, Inc., of our report dated February 13, 2001, relating to the
financial statements, which appear in this Form 10-K.


/s/ PricewaterhouseCoopers LLP

Detroit, Michigan
March 28, 2001

</TEXT>
</DOCUMENT>
</SUBMISSION>
