AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1997
REGISTRATION NO. 333-35649
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HOMEUSA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 5271 76-0546715
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
CARY N. VOLLINTINE
CHIEF EXECUTIVE OFFICER
THREE RIVERWAY
SUITE 630
HOUSTON, TEXAS 77056
(713) 965-0520
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------------
COPIES TO:
WILLIAM D. GUTERMUTH RICHARD C. TILGHMAN, JR.
BRACEWELL & PATTERSON, L.L.P. PIPER & MARBURY, L.L.P.
SOUTH TOWER PENNZOIL PLACE 36 SOUTH CHARLES STREET
711 LOUISIANA STREET, SUITE 2900 BALTIMORE, MARYLAND 21201
HOUSTON, TEXAS 77002-2781 (410) 576-1678
(713) 221-1316
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION
OCTOBER __, 1997
5,000,000 SHARES
[LOGO]
HOMEUSA, INC.
COMMON STOCK
------------------
All of the 5,000,000 shares of Common Stock offered hereby are being
offered by HomeUSA, Inc. HomeUSA, Inc. was founded in 1996 to acquire nine
companies engaged in the retail distribution of manufactured homes (the
"Founding Companies") and has conducted no operations to date. Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price for the Common
Stock will be between $8.50 and $10.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for listing on The New York
Stock Exchange under the symbol "HSH" subject to official notice of issuance.
Of the net proceeds to the Company from the sale of the Common Stock offered
hereby, $22.2 million will be paid to the stockholders of the Founding
Companies, including the cash consideration to be paid in connection with the
acquisition of the Founding Companies. See "Use of Proceeds."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 12 HEREOF.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
PRICE UNDERWRITING
TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- --------------------------------------------------------------------------------
Per Share..................... $ $ $
- --------------------------------------------------------------------------------
Total(2)...................... $ $ $
================================================================================
(1) Before deducting expenses of the offering payable by the Company, estimated
at $4,000,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
750,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public as shown above. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
----------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, and if delivered to and accepted by them, subject to the
right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1997.
BT Alex. Brown
Bear, Stearns & Co. Inc.
NationsBanc Montgomery Securities, Inc.
Sanders Morris Mundy
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
HOMEUSA, INC.
THE FOUNDING COMPANIES
The Founding Companies serving the manufactured housing retail industry
are:
<TABLE>
<CAPTION>
NUMBER OF
FOUNDED IN HEADQUARTERS SALES CENTERS
---------- ----------------------------- -------------
<S> <C> <C> <C>
Universal Housing, Inc. ........ 1975 Jackson, Tennessee 15
AAA Homes....................... 1987 Hattiesburg, Mississippi 13
McDonald Mobile Homes, Inc...... 1987 Tulsa, Oklahoma 9
Patrick Home Center, Inc. ...... 1966 Corinth, Mississippi 7
Mobile World, Inc. ............. 1992 San Antonio, Texas 5
First American Homes, Inc. ..... 1981 Dothan, Alabama 4
Cooper's Mobile Homes, Inc. .... 1973 Wenatchee, Washington 7
Home Folks Housing Center....... 1972 Owensboro, Kentucky 1
WillMax Homes of Colorado....... 1994 Colorado Springs, Colorado 1
</TABLE>
HomeUSA has entered into agreements to acquire nine Founding Companies
simultaneously with the closing of this offering. In 1996, the Founding
Companies, which have been in business an average of 16 years, had pro forma
combined revenues of $202.3 million and served customers in 14 states. HomeUSA
was founded in 1996 to acquire the Founding Companies and has conducted no
operations to date. The consummation of this Offering will occur
contemporaneously with and is mutually conditioned on the acquisition of the
Founding Companies. Of the net proceeds to the Company from the sale of the
Common Stock offered hereby, $22.2 million will be paid to stockholders of the
Founding Companies, including the cash consideration to be paid in connection
with the acquisition of the Founding Companies. See "Use of Proceeds."
(Photograph of one Founding Company's facility)
(Photograph of certain type of home sold by Founding Companies)
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
(Photograph of one Founding Company's facility)
HomeUSA value-added services include:
o Selection of a home from a wide variety of styles and manufacturers
o Site location assistance
o Home financing
o Home owner's and other insurance
o Delivery and installation
o Retailer-installed options (e.g. appliances and furniture)
o Site amenities, (e.g. landscaping, driveways, carports)
o Warranty repairs
(Photographs of certain types of homes sold by Founding Companies)
(Photograph of one Founding Company's facility)
(Map of the United States identifying the location of the Founding Companies)
Serving customers in 14 states through a network of 62 sales centers, HomeUSA
provides value-added services for the manufactured home buyer.
(Photographs of certain types of homes sold by Founding Companies)
3
<PAGE>
PROSPECTUS SUMMARY
SIMULTANEOUSLY WITH AND AS A CONDITION TO THE CONSUMMATION OF THE OFFERING
MADE BY THIS PROSPECTUS (THIS "OFFERING"), HOMEUSA, INC. WILL ACQUIRE, IN
SEPARATE MERGER TRANSACTIONS (THE "MERGERS") IN EXCHANGE FOR CASH AND SHARES
OF ITS COMMON STOCK, NINE COMPANIES (EACH A "FOUNDING COMPANY" AND,
COLLECTIVELY, THE "FOUNDING COMPANIES") ENGAGED IN THE RETAIL DISTRIBUTION OF
MANUFACTURED HOMES. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE
"COMPANY" HEREIN INCLUDE THE FOUNDING COMPANIES AND OTHER ENTITIES
WHOLLY-OWNED BY HOMEUSA, AND REFERENCES HEREIN TO "HOMEUSA" MEAN HOMEUSA, INC.
PRIOR TO THE CONSUMMATION OF THE MERGERS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA COMBINED
AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, (I) ALL
SHARE, PER SHARE AND FINANCIAL INFORMATION SET FORTH HEREIN (a) HAVE BEEN
ADJUSTED TO GIVE EFFECT TO ALL OF THE MERGERS; (b) ASSUME AN INITIAL PUBLIC
OFFERING PRICE OF $9.25 PER SHARE; AND (c) ASSUME NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION; AND (II) ALL REFERENCES TO COMMON STOCK
INCLUDE BOTH COMMON STOCK, $0.01 PAR VALUE, AND RESTRICTED VOTING COMMON STOCK,
$0.01 PAR VALUE (THE "RESTRICTED COMMON STOCK"), OF THE COMPANY.
THE COMPANY
HomeUSA was founded to become the leading independent national retailer of
manufactured homes by pursuing consolidation of the highly fragmented
manufactured housing retail industry. A manufactured home is a single-family
house constructed entirely in a controlled factory environment, rather than at
the home site. The manufactured housing retail industry generated $14 billion in
sales in 1996 and is highly fragmented, with over 6,000 retail sales centers.
The vast majority of manufactured housing retailers are independently-owned
private companies operating a single sales center. The Company believes that
most of these retailers have not adopted a professional sales and marketing
approach and do not offer their customers the full range of available products
and services. Because many retailers have limited access to capital for the
modernization and expansion of their businesses and have few attractive
liquidity options, the Company believes that significant consolidation
opportunities exist. The Company believes that it will develop a competitive
advantage by offering manufacturers a substantial and stable distribution system
committed to maintaining high standards of professionalism in sales and
marketing, installation and service.
Upon consummation of this Offering, HomeUSA will acquire the nine Founding
Companies, which have been in business an average of 16 years and had pro forma
combined total revenue of $202.3 million in 1996 and $158.6 million in the first
nine months of 1997.
Manufactured housing continues to gain share in the market for new homes.
In 1996, manufactured homes accounted for approximately one-third of the new
single-family homes sold in the United States, up from approximately one-quarter
in 1991. Management attributes this growth to (i) the relatively low cost and
increasing quality of manufactured homes, (ii) broader consumer acceptance of
manufactured housing, (iii) greater availability of financing and (iv) favorable
demographic trends. The average sale price of a new manufactured home in 1996
was $38,400 (exclusive of land), as compared to $124,650 (exclusive of land) for
a new site-built home. Because increases in household incomes in the United
States have failed to keep pace with increases in prices for new site-built
homes, manufactured housing has become the only viable form of new home
ownership for an increasing number of households, particularly first time buyers
and retirees, groups which historically have represented a large percentage of
the purchasers of manufactured homes. As consumer awareness of the quality and
affordability of manufactured housing has grown, demand has shifted toward
larger, multi-section homes, which accounted for more than one-half of the
manufactured homes purchased in 1996. Multi-section homes have attracted a
higher income buyer than single section homes, and in 1996, approximately 40% of
manufactured home purchasers had family incomes above $40,000, as compared to
approximately 27% in 1986. Population shifts toward the South, Southwest and Far
West, where land costs are generally lower, zoning ordinances are less
restrictive and alternative forms of housing are in short supply, should
increase the demand for manufactured homes.
Today's manufactured homes offer customers similar quality to many
site-built homes at a much more affordable price. Manufactured homes are
constructed in a controlled factory environment, utilizing assembly line
techniques, which allow volume purchases of materials and components and more
efficient use of labor. As a result, manufactured homes, which typically range
in size from 900 square feet to 2,500
4
<PAGE>
square feet, are constructed for approximately one-half the cost per square foot
of new site-built homes. The quality of manufactured homes has increased
significantly over the past twenty years. Manufactured homes offer most of the
amenities of, and are generally built with the same materials as, site-built
homes. Many features associated with new site-built homes are included in
manufactured homes, such as central heating, name brand appliances, carpeting,
cabinets, wall coverings and porches. In addition, optional features include
such amenities as walk-in closets, fireplaces, vaulted ceilings, porches and
garages as well as retailer-installed options such as central air conditioning
and furniture packages.
The Company's objective is to become the leading independent national
retailer of manufactured housing. By utilizing professional merchandising
techniques, distribution strength and economies of scale, the Company believes
it will be able to differentiate itself from its smaller, less sophisticated
competitors. The key elements of its business strategy are:
EXPAND THROUGH ACQUISITIONS. The Company believes there are significant
opportunities for consolidation in the manufactured housing retail industry and
plans to pursue an aggressive acquisition program. See "Risk Factors -- Risks
Related to the Company's Acquisition Strategy." The key elements of the
Company's acquisition strategy are:
o ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand
into geographic markets not currently served by the Founding Companies by
selectively acquiring well-established manufactured home retailers that,
like the Founding Companies, are leaders in their regional markets, are
financially stable, have a strong customer base and can serve as
"platforms" for the future growth of the Company. Despite the
fragmentation in the industry, the Company believes there are established
retailers that have gained significant market share in their markets. The
Company anticipates that its platform acquisition candidates will each have
annual revenues of at least $15 million.
o BUILD REGIONAL DENSITY. The Company plans to build regional
density by pursuing acquisitions in markets it already serves as well as
markets served by future acquisitions. The Company believes that building
density in regional markets will allow it to manage inventories more
effectively, improve recruiting, training and retention of sales staffs,
develop regional advertising and marketing programs and manage the resale
of pre-owned homes more effectively. The Company believes that this
strategy will also allow the Company to dedicate sales centers in a
particular market to different types of homes which appeal to customers of
different demographic characteristics.
OPERATE ON DECENTRALIZED BASIS. The Company intends to manage the Founding
Companies and subsequently acquired companies on a decentralized basis, with
local management retaining responsibility for the day-to-day operations of sales
centers, profitability and internal growth of the business. While local
management will retain control of the day-to-day operations of the Company's
sales centers, HomeUSA's corporate management will have responsibility for
corporate strategy and acquisitions, banking arrangements, insurance, employee
benefit plans and shareholder relations and will share responsibility with local
management for marketing, recruiting and training.
INCREASE OPERATING EFFICIENCIES. The Company believes that the combination
of the Founding Companies presents significant opportunities to achieve
operating efficiencies, which should continue to improve as the Company grows
both through acquisitions and internally. These opportunities include:
o IMPROVED FLOOR PLAN FINANCING. The Company has obtained
commitments from two financial institutions for floor plan financing on
more favorable terms than any of the Founding Companies could individually
obtain. In 1996, the Founding Companies incurred total interest expense of
$4.2 million at a weighted average interest rate of 10.2%. On a pro forma
basis, interest expense would have been $3.3 million in 1996 at a weighted
average interest rate of 7.9% as a result of the planned refinancing of the
existing floor plan debt.
o MAXIMIZE REBATES. Several of the Founding Companies do not
currently qualify for the highest volume rebates offered by manufacturers.
By combining the sales volumes of the Founding Companies, the Company
expects to qualify for the maximum available manufacturers' volume rebates.
o VOLUME PURCHASING. By combining the sales volumes of the
Founding Companies, the Company believes that it will be able to realize
purchasing economies for retailer-installed options such as air
conditioning and appliances. Retailer-installed options and site amenities
can represent as
5
<PAGE>
much as ten percent of the sale price for a manufactured home. The Company
also believes that it will be able to reduce the total operating expenses
of the Founding Companies and other acquired businesses by centralizing the
Company's general liability and property insurance coverage. The Founding
Companies spent $2.0 million on insurance in 1996.
PROMOTE INTERNAL GROWTH. The Company believes there are opportunities to
increase the sales volume and profitability of the Founding Companies and
subsequently acquired businesses. See "Risk Factors -- Risks Related to
Operating and Internal Growth Strategies." The key elements of the Company's
internal growth strategy are:
o EXPAND VALUE-ADDED SERVICES PROVIDED. By expanding the range of
value-added services provided to customers, the Company believes it can
increase its sales and profitability, initially in the area of financing
and insurance arranged for customers. The Company believes that it can
expand other value-added services such as providing a full range of
retailer-installed options, assisting in locating home sites for customers
and installing site amenities such as wells, septic systems, carports,
decks, driveways and landscaping.
o OPEN NEW SALES CENTERS. An integral part of the Company's
internal growth strategy is the opening of additional sales centers in
geographic areas served by the Company. The Company will focus primarily on
small to mid-sized communities as well as outlying suburban areas where the
market for manufactured homes is greatest and there is less competition
from site-built housing. The Company anticipates opening approximately 20
new centers in the next 12 to 18 months. The Company has hired a Senior
Vice President of Real Estate and Construction with significant experience
in siting multi-unit retail centers to oversee the site selection and
relocation effort.
o ENHANCE CURB APPEAL. Marketing studies indicate that as many as
two-thirds of all people who visit a manufactured homes sales center do so
because of the center's "curb appeal." Historically, most sales centers
displayed model homes on gravel lots with few site improvements. The
Company intends to enhance curb appeal at its sales centers by utilizing
"residential displays" to feature professional landscaping,
fully-skirted, well-lit and furnished homes, and paved or elevated walkways
to allow direct access into homes.
o DEVELOP SOPHISTICATED MARKETING PROGRAM. The Company believes
that most consumers are unaware of the quality and affordability of
manufactured homes and that there is little manufacturer brand recognition
among consumers. Through the application of targeted marketing techniques
and image advertising, the Company believes it will be able to communicate
better the quality and affordability of manufactured homes to potential
customers. The Company intends to target groups such as newly-married
couples and retirees, primarily through radio, print and direct mail
advertising.
Following consummation of the Mergers and this Offering, the Company's
executive officers and directors, former stockholders of the Founding Companies
and entities affiliated with them will beneficially own 10,441,887 shares of
Common Stock, representing approximately 67.6% of the outstanding shares of
Common Stock (64.5% if the Underwriters' over-allotment option is exercised in
full). Notre, executive officers and directors of and consultants to HomeUSA
will own 3,174,943 shares, representing 20.6% of the outstanding shares of
Common Stock, for which they paid $0.01 per share, resulting in a value of
approximately $29.4 million. The Company's executive officers and directors,
former stockholders of the Founding Companies and Notre will control in the
aggregate 64.7% of the votes of all shares of Common Stock, and, if acting in
concert, will be able to control the Company's affairs, elect the entire Board
of Directors and control the outcome of any matter submitted to a vote of
stockholders. See "Principal Stockholders."
HomeUSA, Inc. was incorporated in Delaware in 1996. Its executive offices
are located at Three Riverway, Suite 630, Houston, Texas 77056, and its
telephone number is (713) 965-0520.
6
<PAGE>
THE OFFERING
Common Stock offered by the
Company............................ 5,000,000 Shares
Common Stock to be outstanding after
the Offering....................... 15,441,887 Shares(1)(2)
Use of Proceeds...................... Of the net proceeds, approximately 54%
will be used to pay the cash portion of
the purchase price for the Founding
Companies and the remainder will be used
to repay expenses incurred in connection
with the organization of HomeUSA and the
Offering, to repay or refinance the
long-term debt of the Founding Companies
and for working capital and future
acquisitions. See "Use of Proceeds."
NYSE symbol.......................... HSH
- ------------
(1) Includes (a) 7,266,944 shares of Common Stock to be issued in connection
with the Mergers, (b) 5,000,000 shares of Common Stock offered hereby, and
(c) 1,331,120 shares of Common Stock issued to management of and consultants
to the Company, but excludes 1,642,483 shares of Common Stock subject to
options to be granted in connection with this Offering at an exercise price
equal to the initial public offering price. See "Management -- 1997
Long-Term Incentive Plan" and "-- 1997 Non-Employee Directors' Stock
Plan."
(2) Includes 125,000 shares of Common Stock and 1,718,823 shares of Restricted
Common Stock held by Notre Capital Ventures II, L.L.C. ("Notre"). Each
share of Restricted Common Stock is entitled to 0.25 of one vote on all
matters submitted to stockholders. Restricted Common Stock is convertible
into Common Stock under certain circumstances. See "Description of capital
Stock -- Common Stock and Restricted Common Stock."
COMPANY ORGANIZATION
During 1996 and 1997, members of the management team and certain
consultants were assembled by Notre to pursue the consolidation of the Founding
Companies. Notre, a consolidator of highly-fragmented industries, provided the
Company with expertise regarding the consolidation process and advanced the
Company the funds needed to pay organizational and Offering expenses. In
connection therewith, during the nine months of 1997, HomeUSA sold an aggregate
of 1,331,120 shares of Common Stock to management of and consultants to the
Company for $0.01 per share. As a result, the Company has recorded
non-recurring, non-cash compensation charges of $8.6 million in the first nine
months of 1997, representing the difference between the amount paid for the
shares and the estimated fair value of the shares on the date of sale, as if the
Founding Companies were combined (collectively, the "Compensation Charge").
MERGER CONSIDERATION
The aggregate consideration to be paid by HomeUSA in the Mergers consists
of approximately $20.9 million in cash (approximately 54% of the net proceeds of
the Offering) and 7,266,944 shares of Common Stock. The consideration to be paid
by HomeUSA for each Founding Company was determined by arms-length negotiations
between HomeUSA and representatives of each Founding Company and was based
primarily on the pro forma adjusted net income of each Founding Company. The
purchase price of each of the Founding Companies will be adjusted to the extent
that its Excess Operating Capital is greater or less than zero. Excess Operating
Capital is defined as net working capital minus long-term debt, as of the
effective date of the Mergers. These distributions are referred to herein as the
"Owners' Distributions." For a more detailed description of these
transactions, see "Certain Transactions -- Organization of the Company."
7
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
HomeUSA will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, however, Universal, one of the Founding Companies, has
been identified as the "accounting acquiror." The following table presents
summary pro forma combined financial data for the Company, as adjusted for (i)
the effects of the Mergers, (ii) the effects of certain pro forma adjustments to
the historical financial statements described below, and (iii) the consummation
of this Offering and the application of the net proceeds therefrom. See
"Selected Financial Data," the Unaudited Pro Forma Combined Financial
Statements and the Notes thereto and the historical Financial Statements of the
Founding Companies and the Notes thereto included elsewhere in this Prospectus.
PRO FORMA COMBINED
--------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
STATEMENT OF OPERATIONS DATA(1):
Total revenue(2)................... $202,290 $158,603
Cost of sales...................... 158,639 124,165
Gross profit....................... 43,651 34,438
Selling, general and administrative
expenses(2)...................... 27,874 23,598
Goodwill amortization(3)........... 1,069 802
Operating income................... 14,708 10,038
Interest and other income
(expense), net(2)................ (2,825) (2,000)
Income before income taxes......... 11,883 8,038
Net income(4)(8)................... 6,839 4,638
Net income per share............... $0.50 $0.34
Shares used in computing pro forma
net income per share(5).......... 13,793,826 13,793,826
SEPTEMBER 30, 1997
----------------------------
PRO
FORMA
COMBINED AS ADJUSTED(7)
-------- --------------
BALANCE SHEET DATA(6):
Working capital (deficit)(8)....... $(16,215)(9) $ 18,158
Total assets....................... 111,083 117,447
Long-term debt, net of current
maturities(8)..................... 7,799 --
Stockholders' equity(8)............ 28,093 67,124
- ------------
(1) The Pro Forma Combined Statements of Operations Data assume that the Mergers
and the Offering were closed on January 1, 1996 and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results.
(2) The Pro Forma Combined Statements of Operations Data reflect (i) in revenue,
an aggregate of approximately $7.7 million and $3.0 million for the twelve
months ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, in pro forma reductions in revenue for the sales centers of
certain Founding Companies which will not be acquired in the Mergers and an
aggregate of approximately $9.7 million and $2.1 million for the twelve
months ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, in pro forma increases in revenue for the pre-acquisition
period of sales centers which were acquired by one of the Founding Companies
in April 1997; (ii) in selling, general and administrative expenses, an
aggregate of approximately $4.9 million and $0.7 million for the twelve
months ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, in pro forma reductions in salary, bonuses and benefits to the
owners of the Founding Companies to which they have agreed prospectively
(the "Compensation Differential"); and (iii) in interest and other income
(expense), net, an aggregate of approximately $0.9 million and $0.6 million
for the twelve months ended December 31, 1996 and the nine months ended
September 30, 1997, respectively, in pro forma reductions in interest
expense of the Founding Companies as the result of the planned refinancing
of the Founding Companies' existing floor plan financing (the "Interest
Differential"). The Pro Forma Combined Statements of Operations Data do not
include the non-recurring portion of the Compensation Charge of $8.3 million
for the nine months ended September 30, 1997.
(3) Consists of amortization of goodwill to be recorded as a result of the
Mergers computed on the basis described in Notes to the Unaudited Pro Forma
Combined Financial Statements.
(4) Assumes all income is subject to an effective corporate tax rate of 39%, and
the non-deductibility of goodwill.
(5) Includes (i) 7,266,944 shares to be issued to owners of the Founding
Companies, (ii) 1,331,120 shares issued to the management of and consultants
to HomeUSA, (iii) 1,843,823 shares issued to Notre and, (iv) 3,351,939 of
the 5,000,000 shares to be sold in the Offering necessary to pay the cash
portion of the Merger consideration and pay expenses of this Offering.
Excludes options to purchase 1,642,483 shares to be granted upon
consummation of this Offering at the initial public offering price.
(6) The Pro Forma Combined Balance Sheet Data assumes that the Mergers were
consummated on September 30, 1997.
(7) Adjusted for the sale of 5,000,000 shares of Common Stock offered hereby and
the application of the net proceeds therefrom. See "Use of Proceeds."
(8) The Founding Companies will make the Owners' Distributions to their
stockholders prior to the Mergers (which would have been $6.9 million as of
September 30, 1997). Additionally, prior to the Mergers, certain of the
Founding Companies will distribute to their stockholders certain real estate
and other assets and associated liabilities having a net book value of $0.6
million (the "Other Assets"). Accordingly, pro forma working capital has
been increased by $0.6 million, pro forma long-term debt has been increased
by $6.5 million, pro forma stockholders' equity has been reduced by $7.5
million at September 30, 1997, pro forma net income has been increased by
$0.1 million for the year ended December 31, 1996 and pro forma net income
has been increased by $0.2 million for the nine months ended September 30,
1997.
(9) Includes a $20.9 million payable, representing the cash portion of the
Merger consideration and the Owners' Distributions of $6.9 million.
8
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents summary financial data for each of the
individual Founding Companies for each of their three most recent fiscal years.
Each of the Founding Companies has a fiscal year end of December 31 for the
years presented. Income from operations has not been adjusted for the
anticipated increase in income attributable to the Compensation Differential or
Interest Differential or to take into account increased costs associated with
the Company's new corporate management and with being a public company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Introduction."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Universal:
Total revenue................... $ 48,458 $ 56,245 $ 51,683 $ 39,685 $ 39,996
Operating income................ 2,825 3,073 2,519 2,211 3,537
AAA Homes:
Total revenue................... $ 20,465 $ 27,551 $ 39,196 $ 31,107 $ 29,646
Operating income................ 982 1,482 2,381 2,034 1,723
McDonald:
Total revenue................... $ 20,673 $ 30,862 $ 29,847 $ 23,015 $ 22,776
Operating income................ 1,130 1,442 1,593 1,697 1,347
Patrick:
Total revenue................... $ 21,431 $ 28,933 $ 29,903 $ 24,595 $ 24,040
Operating income................ 530 739 1,739 1,549 1,630
Mobile World:
Total revenue................... $ 7,217 $ 11,843 $ 15,948 $ 12,372 $ 12,558
Operating income................ 58 577 663 609 458
First American:
Total revenue................... $ 10,340 $ 10,704 $ 12,438 $ 9,984 $ 10,106
Operating income (loss)......... 210 (41) 246 216 322
Cooper:
Total revenue................... $ 9,070 $ 9,026 $ 9,701 $ 6,693 $ 10,455
Operating income................ 545 474 859 590 508
Home Folks:
Total revenue................... $ 5,786 $ 7,997 $ 8,027 $ 5,875 $ 7,284
Operating income................ 214 294 365 434 668
WillMax:
Total revenue................... $ 144 $ 2,492 $ 3,560 $ 2,543 $ 2,623
Operating income (loss)......... 3 (22) 94 115 116
</TABLE>
9
<PAGE>
THE COMPANY
HomeUSA was founded in 1996 to become the leading independent national
retail distributor of manufactured homes but has conducted no operations to
date. HomeUSA has entered into agreements to acquire the Founding Companies
simultaneously with, and as a condition to, the consummation of this Offering.
In 1996, the Founding Companies, which have been in business an average of 16
years, had pro forma combined total revenue of $202.3 million. For a description
of the transactions pursuant to which these businesses will be acquired, see
"Certain Transactions -- Organization of the Company." The following is a
description of the Founding Companies:
UNIVERSAL HOUSING, INC. -- Universal Housing, Inc., Universal Housing of East
Tn., Inc. and Shaffer and Webb Insurance Agency, Inc. (together, "Universal"),
headquartered in Jackson, Tennessee, were founded in 1975, 1995 and 1979,
respectively. Universal operates 14 sales centers in central and eastern
Tennessee and one sales center in western Virginia. Of the 1,807 homes sold by
Universal in 1996, 76% were manufactured by Fleetwood Enterprises, Inc.
("Fleetwood") and 24% were manufactured by Clayton Homes, Inc. ("Clayton").
Universal had 1996 total revenue of $51.7 million and operating income of $2.5
million, and had 118 employees as of September 30, 1997. Larry T. Shaffer will
sign a five-year employment agreement with Universal to continue his present
position as President of Universal following the consummation of this Offering
and will become a director of the Company.
AAA HOMES -- CSF&T, Inc. (d/b/a AAA Homes), Fordham Insurance Agency, Inc. and
AAA Homes, LLC (together, "AAA Homes"), headquartered in Hattiesburg,
Mississippi, were founded in 1987, 1994 and 1996, respectively, by Gary W.
Fordham and David E. Thompson. AAA Homes operates eight sales centers in
southern Mississippi and five sales centers in eastern Louisiana. Of the 1,306
homes sold by AAA Homes in 1996, 79% were manufactured by Fleetwood and 21% were
manufactured by other manufacturers. AAA Homes had 1996 total revenue of $39.2
million and operating income of $2.4 million, and had 129 employees as of
September 30, 1997. Mr. Fordham and Mr. Thompson will each sign a five-year
employment agreement with AAA Homes to continue in their present positions as
President and Chief Operating Officer, respectively, of AAA Homes following
consummation of this Offering and each will become a director of the Company.
MCDONALD MOBILE HOMES, INC. -- McDonald Mobile Homes, Inc. ("McDonald"),
headquartered in Tulsa, Oklahoma, was founded in 1987 by Frank C. McDonald and
operates three sales centers in Oklahoma, four sales centers in Missouri and one
sales center in each of Arkansas and Kansas. On July 1, 1997, McDonald
transferred two sales centers in Missouri to a former employee. Effective
September 30, 1997, McDonald transferred one sales center in Missouri to a
former employee. Of the 966 homes sold by McDonald in 1996, 30% were
manufactured by Belmont Homes Inc., 25% were manufactured by Champion
Enterprises, Inc. ("Champion"), 10% were manufactured by Liberty Homes Inc.
and 35% were manufactured by other manufacturers. McDonald had 1996 total
revenue of $30.1 million and operating income of $1.6 million, and had 91
employees as of September 30, 1997. Mr. McDonald will sign a five-year
employment agreement with McDonald to continue his present position as President
of McDonald following the consummation of this Offering and will become a
director of the Company.
PATRICK HOME CENTER, INC. -- Patrick Home Center, Inc. ("Patrick"),
headquartered in Corinth, Mississippi, was founded in 1966 by Harold K. Patrick.
Patrick operates six sales centers in northern Mississippi and one sales center
in Alabama. Effective January 1, 1997, Patrick transferred one sales center in
Tennessee to a former stockholder. Of the 905 homes sold by Patrick in 1996, 68%
were manufactured by Fleetwood, 28% were manufactured by Palm Harbor Homes, Inc.
("Palm Harbor") and 4% were manufactured by other manufacturers. Patrick had
1996 total revenue of $29.9 million and operating income of $1.7 million, and
had 101 employees as of September 30, 1997. Mr. Patrick will sign a five-year
employment agreement with Patrick to continue his present position as President
of Patrick following the consummation of this Offering and will become a
director of the Company.
MOBILE WORLD, INC. -- Mobile World, Inc. ("Mobile World"), headquartered in
San Antonio, Texas was founded in 1992 by Stanley Poisso. Mobile World operates
five sales centers in central Texas. Of the 446 homes sold by Mobile World in
1996, 56% were manufactured by Fleetwood, 23% were manufactured by
10
<PAGE>
Patriot Homes, Inc. and 21% were manufactured by other manufacturers. Mobile
World had 1996 total revenue of $15.9 million and operating income of $0.7
million, and had 45 employees as of September 30, 1997. Mr. Poisso will sign a
five-year employment agreement with Mobile World to continue in his present
position as President of Mobile World following the consummation of this
Offering and will become a director of the Company.
FIRST AMERICAN HOMES, INC. -- First American Homes, Inc., and its wholly-owned
subsidiary, Hall's Mobile Homes, Inc.; D&S, Inc. and Son Development Corporation
(together, "First American"), headquartered in Dothan, Alabama were founded in
1981, 1985, 1994 and 1993, respectively, by Joseph R. Copeland. First American
operates three sales centers in southern Alabama and one sales center in the
Florida panhandle. Of the 359 homes sold by First American in 1996, 38% were
manufactured by Fleetwood, 37% were manufactured by Champion, 21% were
manufactured by Palm Harbor, and 4% were manufactured by other manufacturers.
First American had 1996 total revenue of $12.4 million and operating income of
$0.2 million, and had 37 employees as of September 30, 1997. Mr. Copeland will
sign a five-year employment agreement with First American to remain in his
present position as President of First American following the consummation of
this Offering.
COOPER'S MOBILE HOMES, INC. -- Cooper's Mobile Homes, Inc. PacWest Management,
Inc. and Home USA, Inc. dba Contemporary Family Homes Center (together,
"Cooper"), headquartered in Wenatchee, Washington, were founded in 1973 and
1996, respectively, by Randle C. Cooper. Cooper operates a total of seven sales
centers in central Washington. All of the 186 homes sold by Cooper in 1996 were
manufactured by Fleetwood. Cooper had 1996 total revenue of $9.7 million and
operating income of $0.9 million, and had 72 employees as of September 30, 1997.
Mr. Cooper will sign a five-year employment agreement with Cooper to continue in
his present position as President of Cooper following the consummation of this
Offering and will become a director of the Company.
HOME FOLKS HOUSING CENTER, INC. -- Home Folks Housing Center, Inc. ("Home
Folks"), headquartered in Owensboro, Kentucky, was founded in 1972 by Richard
Berry. Home Folks operates one sales center in Owensboro, Kentucky. All of the
269 homes sold by Home Folks in 1996 were manufactured by Fleetwood. Home Folks
had 1996 total revenue of $8.0 million and operating income of $0.4 million, and
had 32 employees as of September 30, 1997. Mr. Berry will sign a five-year
employment agreement with Home Folks to continue in his present position as
President of Home Folks following the consummation of this Offering.
WILLMAX HOMES OF COLORADO LLC -- WillMax Homes of Colorado LLC ("WillMax"),
headquartered in Colorado Springs, Colorado, was founded in 1994 by Jack A.
Wensinger and Jeffrey D. Heyman. WillMax operates one sales center in, Colorado.
All of the 74 homes sold by WillMax in 1996 were manufactured by Fleetwood.
WillMax had 1996 total revenue of $3.6 million and operating income of $0.1
million, and had 13 employees as of September 30, 1997.
11
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN THE FOLLOWING RISK FACTORS, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS" AND ELSEWHERE IN
THIS PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING FOUNDING
COMPANIES. HomeUSA was founded in 1996 but has conducted no operations and
generated no sales to date. HomeUSA has entered into definitive agreements to
acquire the Founding Companies simultaneously with, and as a condition to, the
closing of this Offering. The Founding Companies have been operating as separate
independent entities, and there can be no assurance that the Company will be
able to integrate the operations of these businesses successfully or to
institute the necessary systems and procedures, including accounting and
financial reporting systems, to manage the combined enterprise on a profitable
basis and to report the results of operations of the combined entities on a
timely basis. The Company's management group has been assembled only recently,
and there can be no assurance that the management group will be able to manage
the combined entity or to implement effectively the Company's acquisition
program, operating strategy and internal growth strategy. The pro forma combined
historical financial results of the Founding Companies cover periods when the
Founding Companies and HomeUSA were not under common control or management and
may not be indicative of the Company's future financial or operating results.
The inability of the Company to integrate the Founding Companies successfully
would have a material adverse effect on the Company's business, financial
condition and results of operations and would make it unlikely that the
Company's acquisition program will be successful. See "Business -- Business
Strategy" and "Management."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends
to grow significantly through the acquisition of manufactured home retail
businesses as well as individual retail sales centers. The Company expects to
face competition for acquisition candidates, particularly from the large
vertically integrated manufacturers of manufactured housing that currently are
active acquirors of retail sales centers as well as any other manufacturers who
adopt an integration strategy in the future. This competition may limit the
number of acquisition opportunities and may lead to higher acquisition prices.
Upon completion of the Offering, the Company will have approximately $16.8
million of the net proceeds allocated for future acquisitions and working
capital. There can be no assurance, however, that the Company will be able to
identify, acquire or manage profitably additional businesses or to integrate
successfully any acquired businesses into the Company without substantial costs,
delays or other operational or financial difficulties. Further, acquisitions
involve a number of special risks, including failure of the acquired business to
achieve expected results, diversion of management's attention, failure to retain
key personnel of the acquired business and risks associated with unanticipated
events or liabilities, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
there can be no assurance that the businesses acquired in the future will
achieve anticipated net sales and earnings. See "Business -- Business
Strategy" and "Competition."
COMPETITION. The manufactured housing retail industry is highly
competitive and the capital requirements for entry are relatively small, with
inventory financing and customer financing generally available to a prospective
retailer from various lenders. The manufactured housing industry has over 6,000
retail sales centers, approximately ten percent of which are owned by the four
vertically integrated manufacturers. The principal competitive factors for
retail sales are price and terms of customer financing, marketing techniques,
range of products and services, product availability and ability to assist
purchasers in obtaining sites on which to locate purchased homes. The Company is
not able to estimate the total number of competitors in its marketing area, but
believes that minimal barriers to entry have contributed to a significant
increase in the number of new retailers over the past several years. A
continuation of this increase in the number of retailers is likely to lead to
greater competition, reduced profit margins and possibly a decline in home
sales. Recently, Fleetwood and Pulte Homes ("Pulte") announced a joint venture
whereby Fleetwood will sell its manufactured homes through Pulte retail sales
centers. The joint venture will have greater marketing experience, financial
resources and access to financing than the
12
<PAGE>
Company. In addition, the vertically integrated manufacturers have greater
resources than the Company in terms of existing dealer networks. In 1996, 72% of
homes sold by the Founding Companies were homes manufactured by the vertically
integrated manufacturers, including Fleetwood. If the vertically integrated
manufacturers or the joint venture between Fleetwood and Pulte restrict the
supply of manufactured homes to the Company in favor of their own retail
networks, the loss of product supply could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Competition."
DECLINES IN HOME SALES FROM CERTAIN EXISTING SALES CENTERS. A number of
the Company's existing sales centers experienced declines in home sales in 1996
and the first nine months of 1997 from the prior comparable periods. The Company
believes that the decline in home sales was attributable to several factors,
including increased competition from centers opened by competitors within the
market area of the affected sales centers, difficulty in obtaining an adequate
supply of manufactured homes from the Company's major supplier, the loss or
reassignment of sales personnel at several affected sales centers and the
opening of additional sales centers by the Company in the market areas of its
existing sales centers. Most of the factors affecting the decline in home sales
are beyond the Company's control. There can be no assurance that these sales
centers will improve or that other of the Company's sales centers will not
experience a similar decline in home sales which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Introduction," "Business -- Industry Overview" and
" -- Competition."
RISKS RELATED TO OPERATING AND INTERNAL GROWTH STRATEGIES. A key element
of the Company's strategy is to increase the profitability and sales volume of
the Founding Companies and any subsequently acquired businesses. Although the
Company intends to implement this strategy by various means, there can be no
assurance that the Company will be able to do so successfully. A key component
of the Company's strategy is to operate the Founding Companies and subsequently
acquired businesses on a decentralized basis, with local management retaining
responsibility for day-to-day operations of sales centers, profitability and the
internal growth of the business. If proper overall business controls are not
implemented, this decentralized operating strategy could result in inconsistent
operating and financial practices at the Founding Companies and subsequently
acquired businesses and the Company's overall profitability could be adversely
affected. The Company's ability to increase the sales of the Founding Companies
and any subsequently acquired businesses will be affected by various factors,
including the Company's ability to expand the range of products and value-added
services offered by each Founding Company and any subsequently acquired
businesses, competitive pressure in the Company's market areas, the availability
of manufactured homes, the Company's ability to attract and retain management
and sales personnel at each sales center and the Company's ability to open new
retail centers successfully in existing and new markets. Many of these factors
are beyond the control of the Company, and there can be no assurance that the
Company's strategies will be successful or that it will be able to generate cash
flow sufficient to fund its operations and to support internal growth. The
Company's inability to achieve internal earnings growth could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Strategy."
UNCERTAINTY OF PRODUCT AVAILABILITY; ABSENCE OF LONG-TERM CONTRACTS. As an
independent retailer of manufactured homes, the Company purchases homes for
resale from a number of manufacturers. The Company has no franchise agreements
or long-term supply contracts with these manufacturers which would assure the
Company a continued supply of homes to sell in the future. The Company's
agreements with manufacturers do not give the Company any priority right to
homes manufactured by these manufacturers and also are generally terminable at
will by either party upon short notice. While there are many manufacturers in
the marketplace, there can be no assurance that the Company will continue to be
able to obtain an adequate supply of homes. It is generally not economical to
transport manufactured homes more than 250 miles from a particular plant. As a
result, each of the Company's retail sales centers is dependent for its supply
of homes on only a few manufacturer's plants. Therefore, a shut-down or capacity
problem at a particular plant or other restriction on the Company's ability to
obtain product supply could adversely affect the Company's home sales and
profitability. During 1996 and the first half of 1997, several of the Founding
Companies experienced difficulties in obtaining an adequate supply of homes from
Fleetwood which led to lost sales and reduced profitability during those
periods. In 1996, approximately 60% of the
13
<PAGE>
homes sold by the Company were manufactured by Fleetwood. See
"Business -- Product Sourcing." In addition, some of the Founding Companies
sell both new and pre-owned manufactured homes. Pre-owned homes are typically
purchased, taken in trade or taken on consignment from national retail finance
companies. The Company has no contractual assurance that these pre-owned homes
will be available to the Company in the future. The Company's inability to
obtain an adequate supply of homes could have a material adverse effect on its
business, financial condition and results of operations. See "Business --
Product Sourcing."
LIMITED AVAILABILITY OF SITES FOR MANUFACTURED HOMES. Approximately 60% of
manufactured housing is located on purchaser-owned property, with the balance
located in parks where the homeowners rent the lot upon which the home is
located. For prospective purchasers without access to available land, siting
assistance is a necessity. In many markets, particularly those in proximity to
larger cities, there is a shortage of subdivision lots or communities on which
to site manufactured homes. Retailers who can provide prospective customers with
a site for their home have a significant advantage over their competitors who do
not have similar access to home sites. Several of the Founding Company owners
currently own and/or manage manufactured housing communities and subdivisions.
The Company intends to establish a relationship with the owners that would
provide purchasers of manufactured homes from the Company with access to these
lots on a preferential basis. In selected geographic markets, the Company
intends to seek sales arrangements with developers or owners of communities in
order to provide an adequate supply of home sites for customers. The Company may
consider the acquisition, development, or management of subdivisions or
communities in the future. There can be no assurance, however, that an adequate
supply of home sites will be available, that the Company will be able to enter
into favorable arrangements with land developers or owners or that the Company
can sucessfully pursue the acquisition, development or management of
manufactured housing communities or subdivisions. The failure of the Company to
provide a sufficient number of home sites for prospective customers could have a
material adverse effect on its business, financial condition and results of
operations. See "Business -- Value-Added Services Provided."
CYCLICAL NATURE OF MANUFACTURED HOUSING INDUSTRY; VARIABILITY OF OPERATING
RESULTS. The manufactured housing industry is highly cyclical and is affected
by many of the same national and regional economic and demographic factors that
affect demand in the housing industry generally. These factors include
inflation, the cost and availability of raw materials for manufacturing homes,
interest rates, the availability of financing, the availability of alternative
housing, national and regional employment trends, consumer confidence,
availability of manufactured home sites and general economic conditions, any of
which could have an adverse effect on sales of the Company's homes. Manufactured
homes compete with a variety of other forms of housing, particularly new and
existing site-built homes and rental apartments, and any decline in the cost of
site-built housing or apartment rents is likely to reduce demand for
manufactured housing. See "Business -- Industry Overview." The Company has
experienced and expects to continue to experience significant variability in
home sales and net income as a result of seasonality in the Company's business.
The manufactured housing industry and the Company's home sales are historically
seasonal in nature, with adverse weather typically affecting customer shopping
habits, sales and sitings in the first and fourth quarters of the year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
IMPORTANCE OF SALES PERSONNEL RETENTION. The process of selling a
manufactured home typically takes several months from the initial contact with a
prospective purchaser to the consummation of the sale. Salespeople are trained
to develop personal relationships with prospective customers. As a result, the
retention of sales people is important to the Company's ability to sell homes.
As the number of sales centers within the Company's market areas increases, the
Company can expect increased competition for experienced salespeople. When the
Company is required to replace an experienced salesperson, it may take an
extended period of time for a new salesperson to reach expected levels of
productivity. To the extent the Company experiences significant turnover of
sales personnel or is otherwise unable to attract and retain a sufficient number
of experienced salespeople, the Company may be unable to increase home sales at
existing sales centers and may experience declines in net sales and
profitability. See "Business -- Retail Operations."
DEPENDENCE ON CUSTOMER FINANCING. Nearly all of the Company's customers
finance the purchase of their manufactured homes. Accordingly, the Company's
sales are dependent to a significant extent on the availability and
affordability of customer financing. The availability of this financing and the
interest rates
14
<PAGE>
and other costs associated with it are dependent upon the creditworthiness of
the customer, the lending practices of various lenders, secondary market
availability, government policies and economic conditions, all of which are
beyond the control of the Company. Interest rates for manufactured home loans
are generally higher, and the terms of those loans are generally shorter, than
for site-built home mortgages, and there are fewer lending institutions that
finance manufactured homes. There can be no assurance that retail customer
financing in general will continue to be available at affordable rates or that
the Company will be able to continue its relationships with lending institutions
in order to assist customers in obtaining financing. The lack of affordable
financing for the Company's customers may have an adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Value-Added Services Provided."
DEPENDENCE ON ACQUISITION FINANCING. The timing, size and success of the
Company's acquisition efforts and the associated capital commitments cannot be
readily predicted. The Company currently intends to finance future acquisitions
by using shares of its Common Stock for all or a substantial portion of the
consideration to be paid. If the Common Stock does not maintain a sufficient
market value, or if potential acquisition candidates are otherwise unwilling to
accept Common Stock as part of the consideration for the sale of their
businesses, the Company may be required to utilize more of its cash resources,
if available, in order to initiate and maintain its acquisition program. After
payment of Merger and Offering expenses and the cash portion of the purchase
price for the Founding Companies, the Company will have approximately $16.8
million of net proceeds remaining for future acquisitions and working capital.
If the Company does not have sufficient cash resources, its growth could be
limited unless it is able to obtain additional capital through debt or equity
financings. The Company is negotiating a commitment from a bank for a line of
credit of $50 million for working capital and acquisitions. However, there can
be no assurance that the Company will be able to obtain the additional financing
it may need for its acquisition program on terms that the Company deems
acceptable. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Combined Liquidity and
Capital Resources."
NEED FOR COST-EFFECTIVE FLOOR PLAN FINANCING. The Founding Companies
currently finance their purchases of manufactured homes for inventory through
"floor plan" credit facilities with several national financial institutions.
These financial institutions advance funds for the purchase of inventory and
maintain a security interest in the home until it is sold. The Company has
obtained commitments from two financial institutions for lines of credit
totaling $125 million to refinance the Founding Companies' existing floor plan
loans and provide expansion capital. While the Company believes the new floor
plan financing will be available as needed to allow the Company to accomplish
its growth strategy, there can be no assurance that this availability will
continue or that, if available, this financing will be on terms favorable to the
Company. The availability of additional credit, applicable interest rates and
other costs of financing are factors beyond the control of the Company but will
have a substantial influence on the Company's ability to expand its retail sales
network. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Combined Liquidity and Capital Resources."
REGULATION. The production, sale and financing of manufactured homes are
affected by various federal, state and local laws and regulations. These include
comprehensive national construction standards established by the Department of
Housing and Urban Development ("HUD"), regulations prescribed by the United
States Consumer Product Safety Commission governing certain components of
manufactured homes, laws relating to the transportation and placement of
manufactured homes and laws governing the description and substance of product
warranties. Changes in these regulations could increase the cost of manufactured
homes, which could adversely affect consumer demand with a resulting decline in
the Company's sales and profitability. Further, because the Company arranges
financing for purchasers of manufactured homes, it is required to be licensed in
certain states in which it arranges financing and is subject to a number of
federal laws that deal with consumer credit practices, such as truth-in-lending,
disclosure requirements and non-discrimination. In addition, because the Company
sells insurance products, it is subject to various state insurance laws and
regulations which govern allowable charges and other insurance sales practices
and require the Company to have insurance broker's licenses. The Company's
failure to comply with applicable consumer finance or insurance laws and
regulations could result in substantial fines, the possible loss of these
licenses or litigation by government agencies or affected customers, any of
which may have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Regulation."
15
<PAGE>
RELIANCE ON KEY PERSONNEL. The Company will be highly dependent on the
continuing efforts of its executive officers and the senior management of the
Founding Companies, and the Company likely will depend on the senior management
of any significant business it acquires in the future. The business or prospects
of the Company could be affected adversely if any of these persons does not
continue in his management role until the Company is able to attract and retain
qualified replacements. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Following consummation of
the Mergers and this Offering, the Company's executive officers and directors,
former stockholders of the Founding Companies and entities affiliated with them
will beneficially own 10,441,887 shares of Common Stock, representing
approximately 67.6% of the outstanding shares of Common Stock (64.5% if the
Underwriters' over-allotment option is exercised in full). Notre, executive
officers and directors and consultants to HomeUSA will own 3,174,943 shares,
representing 20.6% of the outstanding shares of Common Stock following the
consummation of this Offering, for which they paid $0.01 per share, resulting in
a value of approximately $29.4 million. Of these shares, 1,718,823 shares are
Restricted Common Stock, which are entitled to elect one member of the Company's
Board of Directors and to 0.25 of one vote for each share held on all other
matters on which they are entitled to vote. Holders of Restricted Common Stock
are not entitled to vote on the election of any other directors. The Company's
executive officers and directors, former stockholders of the Founding Companies
and Notre will control in the aggregate 64.7% of the votes of all shares of
Common Stock, and, if acting in concert, will be able to control the Company's
affairs, elect the entire Board of Directors and control the outcome of any
matter submitted to a vote of stockholders. See "Principal Stockholders."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES OF FOUNDING
COMPANIES. Of the net proceeds of this Offering, $20.9 million, or 54% will be
paid as the cash portion of the purchase price for the Founding Companies.
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by their stockholders or by entities controlled by its
stockholders. Some of the recipients of these funds will become directors of the
Company or holders of more than 5% of the Common Stock. At September 30, 1997,
the aggregate amount of indebtedness of these Founding Companies that was
subject to personal guarantees was approximately $38.9 million. The Company
intends to use the net proceeds from this Offering, together with borrowings
available from the Company's revolving credit facility to repay or refinance
substantially all of the indebtedness of the Founding Companies. Additionally,
Notre has agreed to advance to HomeUSA until consummation of the Mergers and the
Offering such funds as are necessary to effect the Mergers and this Offering and
will be reimbursed from the proceeds of this Offering for these advances. As of
September 30, 1997, Notre had incurred $3.2 million of expenses on behalf of the
Company. See "Use of Proceeds" and "Certain Transactions."
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF SHARE PRICE. Prior to
this Offering, there has been no public market for the Common Stock. Therefore,
the initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Representatives of the Underwriters and
may bear no relationship to the price at which the Common Stock will trade after
the Offering. See "Underwriting" for the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on The New York Stock Exchange, subject to official
notice of issuance. However, there can be no assurance that an active trading
market will develop subsequent to this Offering or, if developed, that it will
be sustained. Lack of an active trading market could adversely affect the
liquidity of the Common Stock and, in turn, have a negative effect on the market
price of the Common Stock. After this Offering, the market price of the Common
Stock may be subject to significant fluctuations in response to numerous
factors, including the timing of any acquisitions by the Company, variations in
the Company's annual or quarterly financial results or those of its competitors,
changes by financial research analysts in their estimates of the future earnings
of the Company, conditions in the economy in general or in the Company's
industry in particular, unfavorable publicity or changes in applicable laws and
regulations (or judicial or administrative interpretations thereof) affecting
the Company or the manufactured housing industry. From time to time, the stock
market experiences significant price and volume volatility, which may affect the
market price of the Common Stock for reasons unrelated to the Company's
performance.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. Upon consummation of the Mergers and this Offering, 15,441,887 shares of
Common Stock will be outstanding. The 5,000,000
16
<PAGE>
shares sold in this Offering (other than any shares purchased by affiliates of
the Company) will be freely tradable. The remaining outstanding shares may be
resold publicly only following their registration under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an available exemption
from registration (such as provided by Rule 144 following a one year holding
period for previously unregistered shares). The holders of these remaining
shares have certain rights to have their shares registered in the future under
the Securities Act, but may not exercise such rights, and have agreed with the
Company that they will not sell, transfer or otherwise dispose of any of their
shares, for one year following the consummation of this Offering. On completion
of this Offering, the Company also will have outstanding options to purchase up
to a total of 1,642,483 shares of Common Stock. The Company intends to register
all the shares subject to these options under the Securities Act for public
resale. The Company also intends to register up to 20,000,000 additional shares
of Common Stock under the Securities Act within 90 days after completion of this
Offering for issuance in connection with future acquisitions. These shares
generally will be freely tradable after their issuance by persons not affiliated
with the Company unless the Company contractually restricts their resale. Sales,
or the availability for sale of, substantial amounts of the Common Stock in the
public market could adversely affect prevailing market prices and the future
ability of the Company to raise equity capital and complete any additional
acquisitions for Common Stock. See "Shares Eligible for Future Sale."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. HomeUSA's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such preferences, powers
and relative, participating, optional and other rights (including preferences
over the Common Stock respecting dividends, distributions and voting rights) as
the Board of Directors may determine. The issuance of this "blank-check"
preferred stock could render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest or
otherwise, which may limit the ability of stockholders to obtain the maximum
value for their shares of Common Stock. In addition, the Certificate of
Incorporation provides for a classified Board of Directors, which may also have
the effect of inhibiting or delaying a change in control of the Company. Certain
provisions of the Delaware General Corporation Law may also discourage takeover
attempts that have not been approved by the Board of Directors. See
"Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in this
Offering will experience immediate, substantial dilution in the net tangible
book value of their stock of $7.67 per share and may experience further dilution
in that value from issuances of Common Stock in connection with future
acquisitions. See "Dilution."
FORWARD-LOOKING STATEMENTS. There are a number of statements in this
Prospectus which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such matters
as the Company's strategy for internal growth and improved profitability,
additional capital expenditures (including the amount and nature thereof),
acquisitions of assets and businesses, industry trends and other such matters.
These statements are based on certain assumptions and analyses made by the
Company in light of its perception of historical trends, current business and
economic conditions and expected future developments as well as other factors it
believes are reasonable or appropriate. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including the Risk Factors
discussed in this Prospectus; general economic, market or business conditions;
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company; changes in laws or regulations and other factors, most
of which are beyond the control of the Company. Consequently, there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,000,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated Offering and Merger expenses, are estimated to be
$39.0 million ($45.5 million if the Underwriters' over-allotment option is
exercised in full).
Of the net proceeds, $20.9 million or approximately 54% will be used to pay
the cash portion of the purchase price for the Founding Companies, some of which
will be paid to persons who will become directors of the Company or will become
holders of more than 5% of the Common Stock. In addition, $1.3 million of the
net proceeds will be used to pay the portion of the $6.9 million Owners'
Distributions which would not have been funded through the Founding Companies'
existing cash balances had the distribution been made as of September 30, 1997.
The remaining net proceeds from this Offering, which are estimated to be
approximately $16.8 million, will be used, together with borrowings available
from the Company's revolving credit facilities discussed below, to repay the
$2.6 million of the long-term debt of the Founding Companies and for working
capital and acquisitions. The Founding Companies also had approximately $39.3
million of floor plan financing as of September 30, 1997 which will be
refinanced from the revolving credit facilities. The portion of this $41.9
million debt that was incurred during 1996 was $38.1 million and the use of
proceeds for such debt was to finance the opening of new sales centers and to
provide working capital. Approximately $37.1 million of the $41.9 million has
been personally guaranteed by stockholders of the Founding Companies who will
become officers, directors or beneficial owners of 5% or more of the Company's
Common Stock upon consummation of the Offering. Such indebtedness bore interest
at a weighted average per annum interest rate of 9.9% in 1996 and matures at
varying dates through September 2003. The remaining indebtedness bore interest
at a per annum interest rate of 8.5% in 1996 and matures at various dates
through November 1998.
The Company has obtained commitments from two financial institutions for
lines of credit totaling $125 million for floor plan financing, and is
negotiating to obtain a commitment from a bank for a line of credit of $50
million for working capital and acquisitions. These revolving credit facilities
are expected to be entered into following consummation of the Offering, and the
Company intends to refinance all of the Founding Companies' floor plan debt. The
floor plan portion of the credit facility may be used only to finance the
purchase of manufactured homes, and borrowings may not exceed the total purchase
price of the homes financed. The credit facilities will bear interest at various
rates not exceeding the prime rate. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of
Operations -- Combined."
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions and, therefore, does not anticipate paying any cash dividends on
its Common Stock for the foreseeable future. In addition, the Company expects
that its working capital and acquisitions credit facility will include
restrictions on the ability of the Company to pay cash dividends without the
consent of the lender.
Prior to the Mergers, certain of the Founding Companies will make Owners'
Distributions to their stockholders (which would have been $6.9 million as of
September 30, 1997) and distributions of the net assets in the amount of $0.6
million.
18
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and capitalization at September 30, 1997 (i) on a pro forma combined
basis to give effect to the Mergers, the Owners' Distributions and the
distribution of the Other Assets; and (ii) pro forma combined, as adjusted to
give effect to the Mergers, the Owners' Distributions, the distribution of the
Other Assets, this Offering and the application of a portion of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Company's Unaudited Pro Forma Combined Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
SEPTEMBER 30, 1997
--------------------------
PRO FORMA
COMBINED AS ADJUSTED
--------- -----------
(IN THOUSANDS OF DOLLARS)
Current maturities of long-term
obligations(1)........................ $21,726(2) $ --
========= ===========
Long-term debt, less current
maturities(1)......................... $ 7,799 $ --
Stockholders' equity:
Preferred Stock: $0.01 par value,
5,000,000 shares authorized; none
issued or outstanding............ -- --
Common Stock: $0.01 par value,
50,000,000 shares authorized;
10,441,887 issued and outstanding
pro forma combined; and
15,441,887 shares issued and
outstanding, pro forma as
adjusted(3)...................... 104 154
Additional paid-in capital......... 27,166 66,147
Retained earnings.................. 823 823
--------- -----------
Total stockholders' equity.... 28,093 67,124
--------- -----------
Total capitalization..... $35,892 $67,124
========= ===========
- ------------
(1) For a description of the Company's long-term obligations, see Notes to the
Company's Unaudited Pro Forma Combined Financial Statements and Notes to the
Founding Companies' Financial Statements.
(2) Includes $20.9 million payable to the owners of the Founding Companies,
which represents the cash portion of the Merger consideration to be paid
from a portion of the net proceeds of this Offering.
(3) Excludes 1,642,483 shares of Common Stock subject to options to be granted
upon consummation of this Offering with an exercise price equal to the
initial public offering price. See "Management -- 1997 Long-Term Incentive
Plan" and "-- 1997 Non-Employee Directors' Stock Plan."
19
<PAGE>
DILUTION
The deficit in pro forma net tangible book value of the Company at
September 30, 1997 was approximately $14.7 million, or $1.41 per share of Common
Stock. The deficit in net tangible book value per share represents the amount of
the Company's stockholders' equity, less intangible assets, divided by the
number of shares of Common Stock issued and outstanding after giving effect to
the Mergers. Net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of the Offering. After giving effect
to the sale of 5,000,000 shares of Common Stock by the Company in the Offering
and the application of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company as of September 30, 1997 would have been
$24.3 million, or $1.58 per share. This represents an immediate increase in pro
forma net tangible book value of $2.99 per share to stockholders as of September
30, 1997, and an immediate dilution in pro forma net tangible book value of
$7.67 per share to purchasers of Common Stock in the Offering. The following
table illustrates the dilution per share:
Assumed initial public offering price per share.... $ 9.25
Pro forma deficit in net tangible
book value per share before the
Offering......................... $ (1.41)
Increase in pro forma net tangible
book value per share attributable
to new investors.................. 2.99
---------
Pro forma net tangible book value per share after
the Offering..................................... 1.58
---------
Dilution per share to new investors................ 7.67
=========
The following table sets forth, on a pro forma basis to give effect to the
Mergers as of September 30, 1997, the number of shares of Common Stock purchased
from the Company, the aggregate cash consideration paid and the average price
per share paid to the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL AVERAGE
---------------------- CONSIDERATION(1) PRICE
NUMBER PERCENT AMOUNT PER SHARE
------------ ------- ---------------- ---------
<S> <C> <C> <C> <C>
Existing stockholders................... 10,441,887 67.6% $ (14,698,000) $ (1.41)
New investors........................... 5,000,000 32.4 46,250,000 9.25
------------ ------- ----------------
Total.............................. 15,441,887 100.0% $ 31,552,000
============ ================
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies before this Offering, reduced
to reflect: (i) the cash portion of the consideration payable to the
stockholders of the Founding Companies in connection with the Mergers; (ii)
Owners' Distributions of $6.9 million; and (iii) the distribution of the
assets having a book value of $0.6 million.
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
HomeUSA will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, Universal has been identified as the "accounting
acquiror." The following selected financial data for Universal as of December
31, 1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996 have
been derived from audited financial statements of Universal included elsewhere
in this Prospectus. The selected historical financial data as of December 31,
1992, 1993 and 1994 and September 30, 1997 and for the years ended December 31,
1992 and 1993 and for the nine months ended September 1996 and 1997 have been
derived from unaudited financial statements of Universal, which have been
prepared on the same basis as the audited financial statements and, in the
opinion of Universal, reflect all adjustments consisting of normal recurring
adjustments, necessary for a fair presentation of such data. The selected
unaudited pro forma combined financial data present data for the Company,
adjusted for (i) the effects of the Mergers, (ii) the effects of certain pro
forma adjustments to the historical financial statements described below and
(iii) the consummation of this Offering and the application of the net proceeds
therefrom. See the Unaudited Pro Forma Combined Financial Statements and the
Notes thereto and the historical Financial Statements of HomeUSA and certain of
the Founding Companies and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ --------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
UNIVERSAL
Total revenues ............ $ 30,118 $ 39,108 $ 48,458 $ 56,245 $ 51,683 $ 39,685 $ 39,996
Cost of sales ............. 23,865 30,716 37,844 43,041 39,820 31,075 31,277
Gross profit .............. 6,253 8,392 10,614 13,204 11,863 8,610 8,719
Selling, general and
administrative
expenses ................ 4,812 6,350 7,789 10,131 9,344 6,399 5,182
Operating income .......... 1,441 2,042 2,825 3,073 2,519 2,211 3,537
Other income (expense), net (193) 38 (170) 62 12 (100) (293)
Income before income taxes 1,248 2,080 2,655 3,135 2,531 2,111 3,244
Net income ................ 1,244 2,078 2,517 2,954 2,400 2,011 3,067
PRO FORMA COMBINED(1):
Total revenues(2)................................................... $202,290 $158,603
Cost of sales....................................................... 158,639 124,165
Gross profit........................................................ 43,651 34,438
Selling, general and administrative expenses(2)..................... 27,874 23,598
Goodwill amortization(3)............................................ 1,069 802
Operating income.................................................... 14,708 10,038
Interest and other income (expense), net(2)......................... (2,825) (2,000)
Income before income taxes.......................................... 11,883 8,038
Net income(2)(4).................................................... 6,839 4,638
Net income per share................................................ $ 0.50 $ 0.34
Shares used in computing pro forma net income per share(5).......... 13,793,826 13,793,826
BALANCE SHEET DATA (AT END OF
PERIOD):
UNIVERSAL
Working capital............. $ 3,574 $ 5,430 $ 8,216 $ 10,198 $ 9,339 $2,373
Total assets................ 8,407 11,486 12,759 14,455 19,329 13,550
Long-term debt, less
current maturities........ 60 30 -- -- -- --
Shareholders' equity........ 3,794 5,717 8,619 10,759 10,109 3,298
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
21
<PAGE>
- ------------
(1) The Pro Forma Combined Statements of Operations Data assume that the Mergers
and the Offering were closed on January 1, 1996 and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results.
(2) The Pro Forma Combined Statements of Operations Data reflect (i) in revenue,
an aggregate of approximately $7.7 million and $3.0 million for the twelve
months ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, in pro forma reductions in revenue for the sales centers of
certain Founding Companies which will not be acquired in the Mergers and an
aggregate of approximately $9.7 million and $2.1 million for the twelve
months ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, in pro forma increases in revenue for the pre-acquisition
period for sales centers which were acquired by one of the Founding
Companies in April 1997; (ii) in selling, general and administrative
expenses, an aggregate of approximately $4.9 million and $0.7 million for
the twelve months ended December 31, 1996 and the nine months ended
September 30, 1997, respectively, in pro forma reductions in salary, bonuses
and benefits to the owners of the Founding Companies to which they have
agreed prospectively (the "Compensation Differential"); and (iii) in
interest and other income (expense), net, an aggregate of approximately $0.9
million and $0.6 million for the twelve months ended December 31, 1996 and
the nine months ended September 30, 1997, respectively, in pro forma
reductions in interest expense of the Founding Companies as the result of
the planned refinancing of the Founding Companies' existing floor plan
financing (the "Interest Differential"). The Pro Forma Combined Statement
of Operations Data do not include the non-recurring portion of the
Compensation Charge of $8.3 million for the nine months ended September 30,
1997.
(3) Consists of amortization of goodwill to be recorded as a result of the
Mergers computed on the basis described in Notes to the Unaudited Pro Forma
Combined Financial Statements.
(4) Assumes all income is subject to an effective corporate tax rate of 39%, and
the non-deductibility of goodwill.
(5) Includes (i) 7,266,944 shares to be issued to owners of the Founding
Companies, (ii) 1,331,120 shares issued to the management of and consultants
to HomeUSA, (iii) 1,843,823 shares issued to Notre and, (iv) 3,351,939 of
the 5,000,000 shares to be sold in the Offering necessary to pay the cash
portion of the Merger consideration and to pay expenses of this Offering.
Excludes options to purchase 1,642,483 shares to be granted upon
consummation of this Offering, at the initial public offering price.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Founding Companies' Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's revenues will be derived from the retail sale of new and
pre-owned manufactured homes, loan origination fees, insurance commissions, as
well as construction-related revenue and repair and maintenance revenue.
Pre-owned homes accounted for approximately 4% of the Founding Companies' total
revenues in 1996. Consistent with industry trends, the Founding Companies have
experienced a shift in demand toward larger, multi-section manufactured homes.
Excluding sales of pre-owned homes, multi-section homes accounted for 64% of the
Founding Companies' revenue from home sales in the first nine months of 1997, up
from 54% in 1994.
The Founding Companies have operated throughout the periods presented as
privately-owned entities, and their results of operations reflect varying tax
structures (including S corporations, C corporations or LLCs), which have
influenced the historical level of owners' compensation. Accordingly, selling,
general and administrative expenses as a percentage of revenue may not be
comparable among the individual Founding Companies. The owners of the Founding
Companies have contractually agreed to certain reductions in their compensation
and benefits in connection with the Mergers. The Compensation Differential for
1996 and for the nine months ended September 30, 1997 of $4.9 million and $0.7
million, respectively, has been reflected as a pro forma adjustment in the
Unaudited Pro Forma Combined Statements of Operations presented elsewhere in
this Prospectus.
The Company has obtained commitments from two financial institutions for
floor plan revolving credit facilities totaling $125 million, a portion of which
will be used to refinance the Founding Companies' existing floor plan debt at a
lower interest rate. The Interest Differential for 1996 and for the nine months
ended September 30, 1997 of $0.9 million and $0.6 million, respectively, has
been reflected as a pro forma adjustment in the Unaudited Pro Forma Combined
Statements of Operations presented elsewhere in this Prospectus. The Company
also anticipates that following the Mergers, it will realize benefits from (i)
higher loan origination and participation fees and insurance commissions, (ii)
higher volume rebates from manufacturers and discounts from volume purchases on
retailer-installed options and (iii) centralizing general liability and property
insurance coverage and consolidation of some administrative functions. It is
anticipated that these benefits will be offset by costs related to the Company's
new corporate management and costs attributable to being a public company.
However, because these costs cannot be accurately quantified at this time, they
have not been included in the pro forma financial information included herein.
In 1997, the Company sold an aggregate of 1,331,120 shares of Common Stock
to management and consultants of the Company for $0.01 per share. Accordingly,
the Company has recorded a Compensation Charge of $8.6 million in the first nine
months of 1997, representing the difference between the amount paid for the
shares and the estimated fair value of the shares on the date of sale as if the
Founding Companies were combined.
The Mergers will be accounted for using the purchase method of accounting.
Universal has been designated as the "accounting acquiror" in the Mergers.
Accordingly, the excess of the fair value of the merger consideration paid of
$42.8 million over the fair value of the net assets acquired by Universal from
the other Founding Companies will be recorded as "goodwill." This goodwill
will be amortized over its estimated useful life of 40 years as a non-cash
charge to operating income. The pro forma effect of this amortization expense,
which is not deductible for tax purposes, is expected to be approximately $1.1
million per year. The amount of goodwill to be recorded and the related
amortization expense will depend in part on the actual Offering price. See
"Certain Transactions -- Organization of the Company."
23
<PAGE>
A brief description of the accounting classifications used to present the
results of operations of the Founding Companies is as follows.
HOME SALES. Home sales consist of sales of new and pre-owned manufactured
homes, retailer-installed options and set-up and delivery charges payable by
home buyers. Home sales are recorded for financial reporting purposes upon
passage of title, or, in the case of credit sales (which represent the majority
of the Company's retail sales), upon execution of the loan documentation and
receipt of a down payment. Construction-related revenue is recognized if
performed by the Founding Company or if the Founding Company acts as a general
contractor for the project. Revenue from home sales excludes any sales or use
taxes collected.
OTHER REVENUE. Other revenue includes loan origination fees, insurance
commissions, repair and maintenance revenue, commissions on consignment sales of
pre-owned homes and construction revenue not related to the construction of site
amenities.
COST OF SALES. Cost of sales consists of the cost of manufactured homes,
less any manufacturer rebates realized, as well as the cost of
retailer-installed options, set-up and delivery and site amenities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include sales commissions, owners' compensation and
other administrative costs. Sales personnel are compensated primarily on a
commission basis.
INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income)
expense, net consists principally of floor plan financing costs, as the Founding
Companies do not have significant amounts of long-term debt.
SEASONALITY AND CYCLICALITY
The Company has experienced and expects to continue to experience
significant variability in sales and net income as a result of seasonality in
the Company's business. The manufactured housing industry and the Company's
sales are historically seasonal in nature. Because sales centers are outdoors,
sales are higher in the second and third quarters when the weather is more
favorable. The manufactured housing industry also is highly cyclical and
affected by many of the same national and regional economic and demographic
factors that affect demand in the housing industry generally.
COMBINED RESULTS OF OPERATIONS
The combined results of operations of the Founding Companies for the
periods presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the home sales, other revenue, cost of sales, selling, general and
administrative expenses and interest and other expense, net of the individual
Founding Companies on a historical basis. The combined results also exclude the
effect of pro forma adjustments and may not be comparable to, and may not be
indicative of, the Company's post-combination results of operations because (i)
the Founding Companies were not under common control or management during the
periods presented; (ii) the Founding Companies used different tax structures
during the periods presented; (iii) the Company will incur incremental cost
related to its new corporate management and costs attributable to being a public
company; (iv) the Company will use the purchase method of accounting to record
the Mergers, resulting in the recording of goodwill which will be amortized over
40 years; and (v) the combined data do not reflect the Compensation Differential
or Interest Differential and potential benefits the Company expects to realize
when operating as a combined entity.
The manufactured housing industry's primary measure of activity is
"manufacturers' shipments" as reported by the Manufactured Housing Institute
(MHI). MHI is a national organization whose membership consists of
manufacturers, retailers, finance companies and others who serve the industry.
MHI reports shipments in units by state on a monthly and annual basis.
Manufacturers' shipments are not an accurate measure of industry unit or dollar
sales for any period because they do not include changes in retailers' inventory
levels. The industry has not yet developed a reliable method for reporting
manufactured housing dollar sales statistics on a monthly or quarterly basis.
24
<PAGE>
Management believes that comparisons of period to period changes in sales
by existing sales centers are not an appropriate measure of the Founding
Companies' operating results. The sale of a manufactured home has an extended
sales cycle of up to nine months, sales generally are not recurring and local
weather conditions and other factors beyond the Company's control can cause
significant shifts between the periods being compared. Additionally, most sales
centers service large geographic areas containing mostly rural communities which
are less economically diverse than urban communities and, as a result, the
effects of economic trends and factors are often magnified.
The Company believes that declining home sales at existing sales centers
are caused by: (i) competition, (ii) product availability, (iii) opening new
sales centers in markets served by existing sales centers, (iv) industry
cyclicality and (v) period to period comparison to years of record sales in
manufactured housing retail industry. As a result, both the Company's management
and the manufactured housing retail industry believe the change in a company's
or sales center's "market share" (measured as a percentage of sales) would be
a more appropriate measure of retailer success than existing sales center
comparisons. However, the MHI data reports only shipments of units into a state
rather than market share data. Accordingly, the Company believes that the
results of operations of the Founding Companies should be evaluated based on
sales from all of their centers rather than solely on comparable sales from
existing sales centers.
The following table sets forth the selected combined statement of
operations data of the Founding Companies on a historical basis and such results
as a percentage of total revenue, together with selected operating data for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------- ------------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF COMBINED
OPERATIONS DATA:
Revenue:
Home sales ....... $141,465 98.5% $183,168 98.6% $196,886 98.3% $153,631 98.6% $155,825 97.7%
Other revenue .... 2,119 1.5 2,513 1.4 3,417 1.7 2,238 1.4 3,659 2.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total revenue .. 143,584 100.0 185,681 100.0 200,303 100.0 155,869 100.0 159,484 100.0
Cost of sales ...... 113,812 79.3 147,004 79.2 156,809 78.3 122,620 78.7 124,806 78.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit ....... 29,772 20.7 38,677 20.8 43,494 21.7 33,249 21.3 34,678 21.7
Selling, general and
administrative
expenses ......... 23,275 16.2 30,762 16.6 33,035 16.5 23,794 15.3 24,369 15.3
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income from
operations ....... 6,497 4.5 7,915 4.2 10,459 5.2 9,455 6.0 10,309 6.4
Interest and other
expense, net ..... 1,836 1.3 2,868 1.5 3,505 1.7 2,935 1.9 2,713 1.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income before income
taxes ............ $ 4,661 3.2% $ 5,047 2.7% $ 6,954 3.5% $ 6,520 4.1% $ 7,596 4.7%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
OPERATING DATA:
Period end sales centers.............. 45 50 60 58 62
Homes sold............................ 5,345 6,157 6,318 4,940 4,919
Multi-section home sales.............. 54% 56% 56% 57% 64%
Average home sale price............... $ 26,467 $ 29,750 $ 31,163 $ 31,099 $ 31,678
</TABLE>
25
<PAGE>
COMBINED RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
HOME SALES. Combined home sales increased $2.2 million, or 1.4%, from
$153.6 million for the nine months ended September 30, 1996 to $155.8 million
for the nine months ended September 30, 1997. Home sales were affected in the
first nine months of 1997 by (i) the addition of six sales centers and
repositioning of two sales centers subsequent to September 30, 1996, which
contributed $13.3 million in incremental home sales, (ii) a decline of $14.1
million in home sales at sales centers open all of both periods, (iii) the full
period effect of seven sales centers opened in the first nine months of 1996,
which contributed $5.9 million in incremental home sales and (iv) the transfer
of one of Patrick's sales centers to a former shareholder in January 1997 and
the transfer of two of McDonald's sales centers to a former shareholder in July
1997, which in the aggregate reduced home sales by $2.9 million in the first
nine months of 1997. The decline in home sales from centers open all of both
periods was principally attributable to the Founding Companies' operations in
Mississippi and Alabama at AAA Homes, Patrick and First American. Home sales
increased at Cooper, Mobile World, Home Folks and WillMax.
OTHER REVENUE. Other revenue increased $1.5 million, or 63.4%, from $2.2
million for the nine months ended September 30, 1996 to $3.7 million for the
nine months ended September 30, 1997, due primarily to an increase in finance
and insurance revenue at Universal, AAA Homes and McDonald.
GROSS PROFIT. Combined gross profit increased $1.5 million, or 4.3%, from
$33.2 million for the nine months ended September 30, 1996, to $34.7 million for
the nine months ended September 30, 1997, due primarily to increases at AAA
Homes, Patrick and Cooper as well as smaller increases at Home Folks and
WillMax. As a percentage of combined total revenue, combined gross margin
increased from 21.3% in the nine months ended September 30, 1996 to 21.7% in the
nine months ended September 30, 1997 due to improved pricing policies and an
increase in finance and insurance revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $0.6 million, or 2.4%, from $23.8 million
for the nine months ended September 30, 1996 to $24.4 million for the nine
months ended September 30, 1997, due primarily to an increase in sales and
administrative personnel to staff six sales centers opened or acquired by AAA
Homes, McDonald, Patrick and Cooper partially offset by reduced owner's
compensation at Universal and Mobile World. As a percentage of combined total
revenue, combined selling, general and administrative expenses remained constant
at 15.3% in the nine months ended September 30, 1996 and the nine months ended
September 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net decreased
to $0.2 million, or 7.6%, from $2.9 million for the nine months ended September
30, 1996 to $2.7 million for the nine months ended September 30, 1997.
COMBINED RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Combined home sales increased $13.7 million, or 7.5%, from
$183.2 million in 1995 to $196.9 million in 1996. Home sales were affected in
1996 by (i) the addition of nine and repositioning of two sales centers which
contributed $10.8 million to home sales, (ii) a decline of $6.3 million in home
sales at sales centers open all of both periods and (iii) the full year effect
of six sales centers opened in 1995, which contributed $9.2 million in
incremental home sales in 1996. The decline in home sales from sales centers
open all of both periods was principally attributable to Universal, Patrick,
McDonald and Mobile World. Home sales increased at AAA Homes, First American and
WillMax.
OTHER REVENUE. Other revenue increased $0.9 million, or 36.0%, from $2.5
million in 1995 to $3.4 million in 1996, primarily due to higher finance and
insurance revenue at several of the Founding Companies.
GROSS PROFIT. Combined gross profit increased $4.8 million, or 12.5%, from
$38.7 million in 1995 to $43.5 million in 1996, due primarily to increases of
$2.7 million at AAA Homes, $1.1 million at Mobile World and $0.8 million at
Patrick. As a percentage of combined total revenue, combined gross margin
26
<PAGE>
increased from 20.8% in 1995 to 21.7% in 1996, due to higher finance and
insurance revenue and improved pricing policies at several of the Founding
Companies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $2.2 million, or 7.4%, from $30.8 million
in 1995 to $33.0 million in 1996, due primarily to higher sales commissions and
to an increase in sales and administrative personnel to staff additional sales
centers. As a percentage of combined total revenue, combined selling, general
and administrative expenses decreased from 16.6% in 1995 to 16.5% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.6 million, or 22.2%, from $2.9 million for 1995 to $3.5 million for 1996 as a
result of higher floor plan financing costs associated with higher average
inventory levels at most of the Founding Companies.
COMBINED RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Combined home sales increased $41.7 million, or 29.5%, from
$141.5 million in 1994 to $183.2 million in 1995. Home sales were affected in
1995 by (i) the addition of five sales centers in 1995, which contributed $7.7
million to home sales, (ii) a $26.2 million increase in home sales at sales
centers opened all of both periods, (iii) the closing of two sales centers in
1995, which reduced home sales by $1.0 million and (iv) the full year effect of
four sales centers opened in 1994 which contributed $8.8 million in incremental
home sales in 1995. The increase in home sales from centers open all of both
periods occurred primarily at Patrick, Universal, McDonald, Mobile World and AAA
Homes.
OTHER REVENUE. Other revenue increased $0.4 million, or 18.6%, from $2.1
million in 1994 to $2.5 million in 1995.
GROSS PROFIT. Combined gross profit increased $8.9 million, or 29.9%, from
$29.8 million in 1994 to $38.7 million in 1995, due primarily to higher home
sales at seven of the Founding Companies. As a percentage of total revenue,
combined gross margin increased from 20.7% in 1994 to 20.8% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $7.5 million, or 32.2%, from $23.3 million
in 1994 to $30.8 million in 1995, due primarily to higher sales commissions and
to an increase in sales and administrative personnel to staff five new sales
centers. As a percentage of combined total revenue, combined selling, general
and administrative expenses increased from 16.2% in 1994 to 16.6% in 1995.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$1.1 million, or 56.2%, from $1.8 million for 1994 to $2.9 million for 1995 as a
result of higher floor plan financing costs associated with higher average
inventory levels.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
On a combined basis, the Founding Companies generated $8.9 million of net
cash from operating activities for the nine months ended September 30, 1997. Net
cash used in investing activities was $1.1 million, primarily to open new sales
centers and purchase sales centers. Net cash used in financing activities was
$10.5 million and consisted primarily of S corporation distributions to
shareholders of Universal. At September 30, 1997, the combined Founding
Companies had working capital of $6.1 million and total long term debt of $2.5
million.
On a combined basis, the Founding Companies generated $11.6 million of net
cash from operating activities during 1996. Net cash used in investing
activities was $2.7 million, primarily to open new sales centers. Net cash used
in financing activities was $3.9 million and consisted of S corporation
distributions to shareholders of $3.4 million and payments on debt of $0.5
million. At December 31, 1996, the combined Founding Companies had working
capital of $11.3 million and total long-term debt of $2.3 million.
Prior to the Mergers, certain Founding Companies will make Owners'
Distributions. The pro forma combined financial statements as of September 30,
1997 included elsewhere in this Prospectus, reflect pro forma adjustments for
the estimated amount of these Owners' Distributions had they occurred in their
27
<PAGE>
entirety as of September 30, 1997. These pro forma adjustments reflect $6.9
million of Owners' Distributions.
The Company intends to pursue an aggressive acquisition program. The
Company expects to fund future acquisitions through the issuance of additional
Common Stock, borrowings under the proposed credit facility discussed in the
following paragraph, and cash flow from operations. The Company anticipates that
its cash flow from operations will provide cash in excess of the Company's
normal working capital needs, debt service requirements and planned capital
expenditures for the forseeable future.
The Company has commitments from two financial institutions for revolving
credit facilities totaling $125 million for floor plan financing and is
negotiating a commitment from a bank for a $50 million credit facility for
working capital and acquisitions. The floor plan portion of the credit facility
may be used only to finance the purchase of manufactured homes, and borrowings
may not exceed the total purchase price of the homes financed. The credit
facilities will bear interest at various rates not exceeding the prime rate. The
credit facilities will likely require the Company to comply with various loan
covenants including (i) maintenance of certain financial ratios, (ii)
restrictions on additional indebtedness, and (iii) restrictions on liens,
guarantees, advances and dividends, and be subject to customary drawing
conditions and the consummation of the Offering.
UNIVERSAL RESULTS OF OPERATIONS
Universal, headquartered in Jackson, Tennessee, was founded in 1975 and
operates 14 sales centers in central and eastern Tennessee and one sales center
in western Virginia.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- ----------------------------------
1994 1995 1996 1996 1997
--------------- ----------------- ----------------- --------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales ................. $48,232 99.5% $ 56,039 99.6% $ 51,330 99.3% $39,451 99.4% $39,488 98.7%
Other revenue .............. 226 0.5 206 0.4 353 0.7 234 0.6 508 1.3
------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total revenue ............ 48,458 100.0 56,245 100.0 51,683 100.0 39,685 100.0 39,996 100.0
Cost of sales ................ 37,844 78.1 43,041 76.5 39,820 77.0 31,075 78.3 31,277 78.2
------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Gross profit ................. 10,614 21.9 13,204 23.5 11,863 23.0 8,610 21.7 8,719 21.8
Selling, general and
administrative expenses .... 7,789 16.1 10,131 18.0 9,344 18.1 6,399 16.1 5,182 13.0
------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Income from operations ....... 2,825 5.8 3,073 5.5 2,519 4.9 2,211 5.6 3,537 8.8
Interest and other (income)
expense, net ............... 170 0.3 (62) (0.1) (12) 0.0 100 0.3 293 0.7
------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Income before income taxes ... $ 2,655 5.5% $ 3,135 5.6% $ 2,531 4.9% $ 2,111 5.3% $ 3,244 8.1%
======= ===== ======== ===== ======== ===== ======= ===== ======= =====
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Period end sales centers.............. 14 15 15 15 15
Homes sold............................ 1,997 2,060 1,807 1,390 1,405
Multi-section home sales.............. 52% 56% 62% 62% 71%
Average home sale price............... $ 24,152 $ 27,203 $ 28,406 $ 28,382 $ 28,105
</TABLE>
28
<PAGE>
UNIVERSAL RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
HOME SALES. Home sales remained constant at $39.5 million for the nine
months ended September 30, 1996 and the nine months ended September 30, 1997.
Home sales were affected in the period by a 1% increase in the number of homes
sold, offset by a 1% decline in the average sale price per home. The decline in
average sale price per home resulted from the sale of a lower end, multi-section
home during the nine months ended September 30, 1997.
OTHER REVENUE. Other revenue increased $0.3 million, or 117.1%, from $0.2
million for the nine months ended September 30, 1996 to $0.5 million for the
nine months ended September 30, 1997 as a result of higher finance revenue.
GROSS PROFIT. Gross profit increased $0.1 million, or 1.3%, from $8.6
million for the nine months ended September 30, 1996 to $8.7 million for the
nine months ended September 30, 1997. As a percentage of total revenue, gross
margin increased from 21.7% in the nine months ended Sepember 30, 1996 to 21.8%
in the nine months ended September 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $1.2 million, or 19.0%, from $6.4 million for
the nine months ended September 30, 1996 to $5.2 million for the nine months
ended September 30, 1997, due to a reduction in owner's compensation. As a
percentage of total revenue, selling, general and administrative expenses
decreased from 16.1% in the nine months ended September 30, 1996 to 13.0% in the
nine months ended September 30, 1997.
INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income)
expense, net increased $0.2 million, or 193.0%, from $0.1 million for the nine
months ended September 30, 1996 to $0.3 million for the nine months ended
September 30, 1997, primarily as a result of increased interest expense
associated with maintaining higher floor plan balances during 1997.
UNIVERSAL RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales decreased $4.7 million, or 8.4%, from $56.0 million
in 1995 to $51.3 million in 1996, resulting primarily from a 14% decline in
homes sold at centers open all of both periods, partially offset by a 4%
increase in the average price per home. The 4% increase in the average price per
home was due to the increase in multi-section homes sold as a percentage of
total homes sold.
OTHER REVENUE. Other revenue increased $0.2 million, or 71.4%, from $0.2
million in 1995 to $0.4 million in 1996.
GROSS PROFIT. Gross profit decreased $1.3 million, or 10.2%, from $13.2
million in 1995 to $11.9 million in 1996. As a percentage of total revenue,
gross margin decreased from 23.5% in 1995 to 23.0% in 1996. This decrease was
due to higher costs associated with delivery of multi-section homes and certain
inventory sold at lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.8 million, or 7.8%, from $10.1 million in
1995 to $9.3 million in 1996, due primarily to lower sales commissions. As a
percentage of total revenue, selling, general and administrative expenses
increased slightly from 18.0% in 1995 to 18.1% in 1996.
INTEREST AND OTHER (INCOME), EXPENSE, NET. Interest and other (income)
expense, net remained constant at less than $0.1 million in both periods.
UNIVERSAL RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Home sales increased $7.8 million, or 16.2%, from $48.2
million in 1994 to $56.0 million in 1995. The increase in net sales resulted
from the opening of one sales center in May 1995, which contributed $1.7 million
of the increase, and an increase in sales at centers open all of both periods,
which contributed $6.1 million of the increase. The increase in sales at centers
open all of both periods resulted primarily from a 12% increase in the average
price per home, attributable to an increase in multi-section
29
<PAGE>
homes sold as a percentage of total homes sold, and a manufacturer's price
increase which was passed through to customers by Universal.
OTHER REVENUE. Other revenue remained constant at $0.2 million in 1995 and
1994.
GROSS PROFIT. Gross profit increased $2.6 million, or 24.4%, from $10.6
million in 1994 to $13.2 million in 1995. As a percentage of total revenue,
gross margin increased from 21.9% in 1994 to 23.5% in 1995, primarily due to an
increase in the percentage of sales of higher margin multi-section homes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.3 million, or 30.1%, from $7.8 million in
1994 to $10.1 million in 1995, primarily as a result of increased owner's
compensation as well as higher sales commissions. As a percentage of total
revenue, selling, general and administrative expenses increased from 16.1% in
1994 to 18.0% in 1995.
INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income)
expense, net improved by $0.3 million from $0.2 million of expense in 1994 to
$0.1 million of income in 1995, primarily due to management's decision to
finance inventory out of working capital in 1995.
UNIVERSAL LIQUIDITY AND CAPITAL RESOURCES
Universal generated $5.5 million of net cash from operating activities for
the nine months ended September 30, 1997. Net cash used in investing activities
was $0.2 million, principally for purchases of property and equipment. Net cash
used in financing activities was $9.9 million and consisted primarily of S
corporation distributions to shareholders. At September 30, 1997, Universal had
working capital of $2.4 million and no long-term debt.
Universal generated $9.2 million of net cash from operating activities
during 1996. Net cash used in investing activities was $0.3 million, principally
for purchases of property and equipment. Net cash used in financing activities
was $3.0 million and consisted primarily of S corporation distributions to
shareholders. At December 31, 1996, Universal had working capital of $9.3
million and no long-term debt.
AAA HOMES RESULTS OF OPERATIONS
AAA Homes, headquartered in Hattiesburg, Mississippi, was founded in 1987
and operates eight sales centers in southern Mississippi and five sales centers
in eastern Louisiana.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------- ----------------------------------
1994 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales ...................... $20,159 98.5% $27,166 98.6% $38,584 98.4% $30,692 98.7% $28,562 96.3%
Other revenue ................... 306 1.5 385 1.4 612 1.6 415 1.3 1,084 3.7
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total revenue ................. 20,465 100.0 27,551 100.0 39,196 100.0 31,107 100.0 29,646 100.0
Cost of sales ..................... 16,113 78.7 21,604 78.4 30,543 77.9 24,484 78.7 22,648 76.4
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit ...................... 4,352 21.3 5,947 21.6 8,653 22.1 6,623 21.3 6,998 23.6
Selling, general and
administrative
expenses ........................ 3,370 16.5 4,465 16.2 6,272 16.0 4,589 14.8 5,275 17.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from
operations ...................... 982 4.8 1,482 5.4 2,381 6.1 2,034 6.5 1,723 5.8
Interest and other
expense, net .................... 382 1.9 627 2.3 950 2.4 795 2.6 557 1.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income before income
taxes ........................... $ 600 2.9% $ 855 3.1% $ 1,431 3.7% $ 1,239 3.9% $ 1,166 3.9%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Period end sales centers.............. 7 8 10 10 13
Homes sold............................ 828 979 1,306 1,042 995
Multi-section home sales.............. 33% 33% 36% 36% 37%
Average home sale price............... $ 24,347 $ 27,749 $ 29,544 $ 29,455 $ 28,706
</TABLE>
AAA HOMES RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
HOME SALES. Home sales decreased $2.1 million, or 6.9%, from $30.7 million
for the nine months ended September 30, 1996 to $28.6 million for the nine
months ended September 30, 1997. The decrease in home sales resulted from a $6.8
million decline in sales at centers open all of both periods, offset by $3.2
million of home sales from three sales centers purchased in the second quarter
of 1997, and the full period effect of two sales centers opened in April and May
1996, which contributed $1.5 million in incremental home sales in the first nine
months of 1997.
OTHER REVENUE. Other revenue increased $0.7 million, or 161.2%, from $0.4
million in the nine months ended September 30, 1996, to $1.1 million for the
nine months ended September 30, 1997. This increase was primarily attributable
to higher finance and insurance revenue, resulting from the addition of seven
finance and insurance managers at seven of AAA Homes' sales centers.
GROSS PROFIT. Gross profit increased $0.4 million, or 5.7%, from $6.6
million in the nine months ended September 30, 1996, to $7.0 million for the
nine months ended September 30, 1997. As a percentage of total revenue, gross
margin increased from 21.3% in the nine months ended September 30, 1996 to 23.6%
in the nine months ended September 30, 1997, due to increased finance and
insurance revenue, improved pricing policies and sales of homes with higher
margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million, or 14.9%, from $4.6 million for
the nine months ended September 30, 1996 to $5.3 million for the nine months
ended September 30, 1997, primarily as the result of the hiring of seven finance
and insurance managers. As a percentage of total revenue, selling, general and
administrative expenses increased from 14.8% in the nine months ended September
30, 1996 to 17.8% in the nine months ended September 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net decreased
$0.2 million, or 29.9%, from $0.8 million for the first nine months of 1996 to
$0.6 million for the first nine months of 1997, as a result of lower floor plan
financing costs associated with lower average inventory levels.
AAA HOMES RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales increased $11.4 million, or 42.0%, from $27.2
million in 1995 to $38.6 million in 1996. The increase in home sales resulted
from the opening of two sales centers in 1996, which contributed $2.8 million of
the increase, an increase in sales at centers open all of both periods, which
contributed $3.7 million to the increase, and the full year effect of a sales
center opened in October 1995, which contributed $4.9 million in incremental
home sales. The increase in sales from centers open all of both periods resulted
from a 10% increase in the number of homes sold in 1996 and a 4% increase in the
average price per home, consistent with an increase in the percentage of higher
priced multi-section homes sold.
OTHER REVENUE. Other revenue increased $0.2 million, or 59.0%, from $0.4
million in 1995 to $0.6 million in 1996.
GROSS PROFIT. Gross profit increased $2.8 million, or 45.5%, from $5.9
million in 1995 to $8.7 million in 1996. As a percentage of total revenue, gross
margin increased from 21.6% in 1995 to 22.1% in 1996, reflecting higher finance
and insurance revenues in the latter half of 1996, improved pricing policies and
sales of homes with higher margins.
31
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.8 million, or 40.5%, from $4.5 million in
1995 to $6.3 million in 1996, due primarily to higher sales commissions and
costs associated with two new sales centers. As a percentage of total revenue,
selling, general and administrative expenses decreased from 16.2% in 1995 to
16.0% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.4 million, or 51.5%, from $0.6 million for 1995 to $1.0 million in 1996, as a
result of higher floor plan financing costs associated with higher average
inventory levels.
AAA HOMES RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Home sales increased $7.0 million, or 34.8%, from $20.2
million in 1994 to $27.2 million in 1995. The increase in home sales resulted
from the opening of one sales center in October 1995, which contributed $0.5
million of the increase, higher sales at centers open all of both periods, which
contributed $3.7 million of the increase, and the full year effect of a sales
center opened in November 1994, which contributed $2.8 million in incremental
home sales. The increase in sales at existing sales centers resulted from a 3%
increase in the number of homes sold in 1995 and a 16% increase in the average
sale price per home, which resulted from AAA Homes passing through a
manufacturer's price increase.
GROSS PROFIT. Gross profit increased $1.5 million, or 36.6%, from $4.4
million in 1994 to $5.9 million in 1995. As a percentage of total revenue, gross
margin increased from 21.3% in 1994 to 21.6% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.1 million, or 32.5%, from $3.4 million in
1994 to $4.5 million in 1995, primarily due to higher sales commissions. As a
percentage of total revenue, selling, general and administrative expenses
decreased from 16.5% in 1994 to 16.2% in 1995.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.2 million, or 64.1%, from $0.4 million for 1994 to $0.6 million in 1995, as a
result of higher floor plan financing costs associated with higher average
inventory levels.
AAA HOMES LIQUIDITY AND CAPITAL RESOURCES
AAA Homes used $0.1 million of net cash in operating activities for the
nine months ended September 30, 1997. Net cash used in investing activities was
$0.4 million, principally for purchases of sales centers and property and
equipment. Net cash generated from financing activities was $0.2 million. At
September 30, 1997, AAA Homes had working capital of $1.4 million and $0.3
million of long-term debt.
AAA Homes generated $0.4 million of net cash from operating activities in
1996. Net cash used in investing activities was $0.5 million, principally for
purchases of property and equipment. Net cash used in financing activities was
negligible. At December 31, 1996, AAA Homes had working capital of $0.7 million
and $0.1 million of long-term debt.
32
<PAGE>
MCDONALD RESULTS OF OPERATIONS
McDonald, headquartered in Tulsa, Oklahoma, was founded in 1987 and
operates three sales centers in Oklahoma, four sales centers in Missouri and one
sales center in each of Arkansas and Kansas. On July 1, 1997, McDonald
transferred two sales centers in Missouri to a former employee. Effective
October 1, 1997, McDonald will transfer one sales center in Missouri to a former
employee.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------- ----------------------------------
1994 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales ...................... $20,480 99.1% $30,626 99.2% $29,451 98.7% $22,731 98.8% $22,217 97.5%
Other revenue ................... 193 0.9 236 0.8 396 1.3 284 1.2 559 2.5
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total revenue ................. 20,673 100.0 30,862 100.0 29,847 100.0 23,015 100.0 22,776 100.0
Cost of sales ..................... 16,819 81.4 25,214 81.7 24,329 81.5 18,483 80.3 18,220 80.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit ...................... 3,854 18.6 5,648 18.3 5,518 18.5 4,532 19.7 4,556 20.0
Selling, general and
administrative
expenses ........................ 2,724 13.2 4,206 13.6 3,925 13.2 2,835 12.3 3,209 14.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from
operations ...................... 1,130 5.4 1,442 4.7 1,593 5.3 1,697 7.4 1,347 5.9
Interest and other
expense, net .................... 321 1.6 765 2.5 750 2.5 568 2.5 528 2.3
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income before income
taxes ........................... $ 809 3.8% $ 677 2.2% $ 843 2.8% $ 1,129 4.9% $ 819 3.6%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
OPERATING DATA:
Period end sales centers........... 8 11 11 11 9
Homes sold......................... 765 1,035 966 752 686
Multi-section home sales........... 41% 44% 46% 52% 57%
Average home sale price............ $ 26,771 $ 29,590 $ 30,488 $ 30,227 $ 32,386
</TABLE>
MCDONALD RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
HOME SALES. Home sales decreased $0.5 million, or 2.3%, from $22.7 million
for the nine months ended September 30, 1996 to $22.2 million for the nine
months ended September 30, 1997. The decrease in home sales resulted from a $1.5
million decline in sales at centers open all of both periods, a $0.3 million
decrease attributable to the transfer of two sales centers to a former
stockholder in July 1997 partially offset by the opening of one sales center in
April 1997, which contributed $1.3 million to home sales. The decrease in sales
from centers open all of both periods resulted from a 9% decline in the number
of homes sold. This decrease was partially offset by a 7% increase in the
average price per home.
OTHER REVENUE. Other revenue increased $0.3 million, or 96.8%, from $0.3
million for the nine months ended September 30, 1996 to $0.6 million for the
nine months ended September 30, 1997, primarily due to an increase in finance
and insurance revenue.
GROSS PROFIT. Gross profit increased $0.1 million, or 0.5%, from $4.5
million for the nine months ended September 30, 1996 to $4.6 million for the
nine months ended September 30, 1997. As a percentage of total revenue, gross
margin increased from 19.7% in the nine months ended September 30, 1996 to 20.0%
in the nine months ended September 30, 1997.
33
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.4 million, or 13.2%, from $2.8 million for
the nine months ended September 30, 1996 to $3.2 million for the nine months
ended September 30, 1997, primarily due to an increase in sales and
administrative personnel associated with the sales center opened in April 1997
and management personnel added to support planned growth. As a percentage of
total revenue, selling, general and administrative expenses increased from 12.3%
in the nine months ended September 30, 1996 to 14.1% in the nine months ended
September 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net decreased
$0.1 million, or 7.0%, from $0.6 million for the nine months ended September 30,
1996 to $0.5 million for the nine months ended September 30, 1997 due to an
interest rate reduction on floor plan financing.
MCDONALD RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales decreased $1.1 million, or 3.8%, from $30.6 million
in 1995 to $29.5 million in 1996, resulting primarily from a $1.9 million
decline in sales at existing sales centers, partially offset by the full year
effect of three sales centers opened in 1995, which contributed $0.8 million in
incremental home sales. The decrease in sales from centers open all of both
periods resulted from a 15% decline in the number of homes sold, partially
offset by a 3% increase in the average price per home, reflecting a shift toward
multi-section homes.
OTHER REVENUE. Other revenue increased $0.2 million, or 67.8%, from $0.2
million in 1995 to $0.4 million in 1996, primarily due to increases in finance
and insurance revenue and higher commissions on pre-owned home consignment
sales.
GROSS PROFIT. Gross profit decreased $0.1 million, or 2.3%, from $5.6
million in 1995 to $5.5 million in 1996. As a percentage of total revenue, gross
margin increased from 18.3% in 1995 to 18.5% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.3 million, or 6.7%, from $4.2 million in
1995 to $3.9 million in 1996 due to a decrease in owners' compensation. As a
percentage of total revenue, selling, general and administrative expenses
decreased from 13.6% in 1995 to 13.2% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at $0.8 million in 1995 and 1996.
MCDONALD RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Home sales increased $10.1 million, or 49.5%, from $20.5
million in 1994 to $30.6 million in 1995. The increase in home sales resulted
from the opening of three sales centers in 1995, which contributed $5.3 million
of the increase and an increase in sales from centers open all of both periods,
which contributed $4.8 million in incremental home sales. The 35% increase in
the number of homes sold resulted from strong demand, combined with the opening
of three new sales centers during 1995. The average sales price increased 11%
due to an increase of multi-section homes sold as a percentage of total homes
sold.
OTHER REVENUE. Other revenue remained constant at $0.2 million in 1994 and
1995.
GROSS PROFIT. Gross profit increased $1.7 million, or 46.5%, from $3.9
million in 1994 to $5.6 million in 1995. As a percentage of total revenue, gross
margin decreased from 18.6% in 1994 to 18.3% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.5 million, or 54.4%, from $2.7 million in
1994 to $4.2 million in 1995, primarily due to higher sales commissions as well
as costs required to support three new sales centers. As a percentage of total
revenue, selling, general and administrative expenses increased from 13.2% in
1994 to 13.6% in 1995.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.5 million, or 138.3%, from $0.3 million in 1994 to $0.8 million in 1995, as a
result of higher floor plan financing costs associated with higher average
inventory levels.
34
<PAGE>
MCDONALD LIQUIDITY AND CAPITAL RESOURCES
McDonald generated $0.6 million of net cash from operating activities for
the nine months ended September 30, 1997. Net cash used in investing activities
was $0.9 million, primarily for new sales centers. Net cash generated from
financing activities was $0.4 million and consisted of proceeds from the
collections on notes receivable from shareholders and long-term borrowings. At
September 30, 1997, McDonald had working capital of $1.3 million and $0.6
million of long-term debt.
Net cash used from operating activities during 1996 was negligible. Net
cash used in investing activities was $0.2 million, principally for new sales
centers. Net cash used in financing activities was negligible. At December 31,
1996, McDonald had working capital of $1.2 million and $0.4 million of long-term
debt.
PATRICK RESULTS OF OPERATIONS
Patrick, headquartered in Corinth, Mississippi, was founded in 1966 and
operates six sales centers in Mississippi and one sales center in Alabama.
Effective January 1, 1997, Patrick transferred one sales center in Tennessee to
a former stockholder.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------- ----------------------------------
1994 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales ...................... $20,707 96.6% $28,184 97.4% $28,946 96.8% $24,015 97.6% $23,406 97.4%
Other revenue ................... 724 3.4 749 2.6 957 3.2 580 2.4 634 2.6
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total revenue ................ 21,431 100.0 28,933 100.0 29,903 100.0 24,595 100.0 24,040 100.0
Cost of sales ..................... 17,554 81.9 23,664 81.8 23,858 79.8 19,704 80.1 18,747 78.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit ...................... 3,877 18.1 5,269 18.2 6,045 20.2 4,891 19.9 5,293 22.0
Selling, general and
administrative
expenses ........................ 3,347 15.6 4,530 15.6 4,306 14.4 3,342 13.6 3,663 15.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from
operations ...................... 530 2.5 739 2.6 1,739 5.8 1,549 6.3 1,630 6.8
Interest and other
expense, net .................... 296 1.4 464 1.6 564 1.9 524 2.1 298 1.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income before income
taxes ........................... $ 234 1.1% $ 275 1.0% $ 1,175 3.9% $ 1,025 4.2% $ 1,332 5.6%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
OPERATING DATA:
Period end sales centers............ 6 6 7 7 7
Homes sold.......................... 758 913 905 738 688
Multi-section home sales............ 73% 74% 66% 69% 78%
Average home sale price............. $ 27,318 $ 30,870 $ 31,985 $ 32,541 $ 34,020
</TABLE>
PATRICK RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
HOME SALES. Home sales decreased $0.6 million, or 2.5%, from $24.0 million
for the nine months ended September 30, 1996 to $23.4 million for the nine
months ended September 30, 1997. The decrease in home sales resulted from a $4.1
million decrease in home sales at centers open all of both periods, a $2.6
million decrease attributable to the transfer of one sales center to a former
stockholder in January 1997, partially offset by the opening of one sales center
in January 1997, which contributed $5.4 million to home sales, and the full
period effect of a sales center opened in April of 1996 which contributed $0.7
million in
35
<PAGE>
incremental home sales. Excluding sales in both periods from the transferred
sales center, home sales for the nine months ended September 30, 1997 would have
increased by 8%. The decrease in home sales from centers open all of both
periods resulted from a 7% decline in the number of homes sold, partially offset
by a 5% increase in the average sale price per home.
OTHER REVENUE. Other revenue remained constant at $0.6 million for the
nine months ended September 30, 1996 and for the nine months ended September 30,
1997.
GROSS PROFIT. Gross profit increased $0.4 million, or 8.2%, from $4.9
million for the nine months ended September 30, 1996 to $5.3 million for the
nine months ended September 30, 1997. As a percentage of total revenue, gross
margin increased from 19.9% in the nine months ended September 30, 1996 to 22.0%
in the nine months ended September 30, 1997, due to increased sales of
multi-section homes as well as improved pricing policies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.4 million, or 9.6%, from $3.3 million for
the nine months ended September 30, 1996 to $3.7 million for the nine months
ended September 30, 1997, primarily due to an increase in sales and
administrative personnel associated with the sales center opened in January 1997
and administrative personnel added to support planned growth. As a percentage of
total revenue, selling, general and administrative expenses increased from 13.6%
in the nine months ended September 30, 1996 to 15.2% in the nine months ended
September 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net decreased
$0.2 million, or 43.1%, from $0.5 million for the nine months ended September
30, 1996 to $0.3 million for the nine months ended September 30, 1997 primarily
as a result of lower floor plan financing cost associated with lower average
inventory levels.
PATRICK RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales increased $0.7 million, or 2.7%, from $28.2 million
in 1995 to $28.9 million in 1996. The increase in home sales resulted primarily
from the opening of one sales center in April 1996, which contributed $1.9
million to home sales and the full year effect of a sales center opened in
October of 1995, which contributed $2.5 million in incremental home sales in
1997, partially offset by a decline of $3.7 million in sales at centers open all
of both periods. The decrease in sales from centers open all of both periods
resulted from a 13% decline in the number of homes sold at existing sales
centers, partially offset by a 4% increase in the average sales price per home
as a result of increased sales of higher priced single and multi-section homes.
OTHER REVENUE. Other revenue increased $0.3 million, or 27.8%, from $0.7
million in 1995 to $1.0 million in 1996, primarily due to an increase in repair
and maintenance revenue and finance and insurance revenue.
GROSS PROFIT. Gross profit increased $0.7 million, or 14.7%, from $5.3
million in 1995 to $6.0 million in 1996. As a percentage of total revenue, gross
margin increased from 18.2% in 1995 to 20.2% in 1996, reflecting increased sales
of higher margin homes and improved pricing policies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $0.2 million, or 4.9%, from $4.5 million in
1995 to $4.3 million in 1996, primarily due to a decrease in owner's
compensation. As a percentage of total revenue, selling, general and
administrative expenses decreased from 15.6% in 1995 to 14.4% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.1 million, or 21.6%, from $0.5 million for 1995 to $0.6 million in 1996 as a
result of higher floor plan financing costs associated with higher average
inventory levels.
PATRICK RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Home sales increased $7.5 million, or 36.1%, from $20.7
million in 1994 to $28.2 million in 1995. The increase in home sales resulted
primarily from the full year effect of one sales center
36
<PAGE>
opened in September 1994, which contributed $3.6 million of incremental home
sales partially offset by the closing of one sales center, which decreased
incremental home sales by $0.4 million, as well as higher sales from centers
open all of both periods, which contributed $4.3 million of the increase.
OTHER REVENUE. Other revenue remained constant at $0.7 million in 1994 and
in 1995.
GROSS PROFIT. Gross profit increased $1.4 million, or 35.9%, from $3.9
million in 1994 to $5.3 million in 1995. As a percentage of total revenue, gross
margin increased from 18.1% in 1994 to 18.2% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.2 million, or 35.3%, from $3.3 million in
1994 to $4.5 million in 1995 due to higher owner's compensation and higher sales
commissions consistent with higher sales volumes. As a percentage of total
revenue, selling, general and administrative expenses remained constant at 15.6%
from 1994 to 1995.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.2 million, or 56.8%, from $0.3 million for 1994 to $0.5 million for 1995 as a
result of higher floor plan financing costs associated with higher average
inventory levels.
PATRICK LIQUIDITY AND CAPITAL RESOURCES
Patrick generated $2.1 million of net cash from operating activities for
the nine months ended September 30, 1997. Net cash generated from investing
activities was $0.5 million, primarily from the sale of equipment. Net cash used
in financing activities was $1.0 million and consisted of distributions to
shareholders of $0.6 million and payments on debt of $0.4 million. At September
30, 1997, Patrick had working capital of $1.3 million and $0.4 million of
long-term debt.
Patrick generated $1.0 million of net cash from operating activities during
1996. Net cash used in investing activities was $0.8 million, principally for
new sales centers. Net cash used in financing activities was $0.5 million and
consisted of distributions to shareholders of $0.3 million and payments on debt
of $0.2 million. At December 31, 1996, Patrick had working capital of $0.1
million and $0.8 million of long-term debt.
MOBILE WORLD RESULTS OF OPERATIONS
Mobile World, headquartered in San Antonio, Texas, was founded in 1992 and
operates five sales centers in central Texas.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ----------------------------------------
1995 1996 1996 1997
----------------- ----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales ....................... $11,838 100.0% $15,836 99.3% $12,315 99.5% $12,438 99.0%
Other revenue .................... 5 0.0 112 0.7 57 0.5 120 1.0
------- ----- ------- ----- ------- ----- ------- -----
Total
revenue ..................... 11,843 100.0 15,948 100.0 12,372 100.0 12,558 100.0
Cost of sales ...................... 9,349 78.9 12,360 77.5 9,660 78.1 10,189 81.1
------- ----- ------- ----- ------- ----- ------- -----
Gross profit ....................... 2,494 21.1 3,588 22.5 2,712 21.9 2,369 18.9
Selling, general and
administrative
expenses ......................... 1,917 16.2 2,925 18.3 2,103 17.0 1,911 15.2
------- ----- ------- ----- ------- ----- ------- -----
Income from
operations ....................... 577 4.9 663 4.2 609 4.9 458 3.7
Interest and other
expense, net ..................... 300 2.6 435 2.8 311 2.5 276 2.2
------- ----- ------- ----- ------- ----- ------- -----
Income before income
taxes ............................ $ 277 2.3% $ 228 1.4% $ 298 2.4% $ 182 1.5%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
37
<PAGE>
YEAR ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
OPERATING DATA:
Period end sales centers.... 3 5 5 5
Homes sold.................. 356 446 345 340
Multi-section home sales.... 59% 57% 56% 63%
Average home sale price..... $ 33,253 $ 35,507 $ 35,696 $ 36,582
MOBILE WORLD RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
HOME SALES. Home sales increased $0.1 million, or 1.0%, from $12.3 million
for the nine months ended September 30, 1996 to $12.4 million for the nine
months ended September 30, 1997. This increase was due to the opening of two
sales centers in April 1996, which contributed $1.1 million in incremental home
sales, partially offset by a $1.0 million decline in home sales from centers
open all of both periods. The decrease in sales from centers open all of both
periods resulted from a 6% decline in the number of homes sold.
GROSS PROFIT. Gross profit decreased $0.3 million, or 12.6%, from $2.7
million for the nine months ended September 30, 1996 to $2.4 million for the
nine months ended September 30, 1997. As a percentage of total revenue, gross
margin decreased from 21.9% in the nine months ended September 30, 1996 to 18.9%
in the nine months ended September 30, 1997, primarily due to an increase in the
cost of delivery and set up and, to a lesser extent, the sale of older inventory
at reduced margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.2 million, or 9.1% from $2.1 million for
the nine months ended September 30, 1996 to $1.9 million for the nine months
ended September 30, 1997. As a percentage of total revenue, selling, general and
administrative expenses decreased from 17.0% in the nine months ended September
30, 1996 to 15.2% in the nine months ended September 30, 1997, primarily as a
result of reduced owners' compensation.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at $0.3 million for the nine months ended September 30, 1996 and for
the nine months ended September 30, 1997.
MOBILE WORLD RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales increased $4.0 million, or 33.8%, from $11.8
million in 1995 to $15.8 million in 1996 due to the opening of two sales centers
in April 1996, which contributed $5.0 million of increased home sales, partially
offset by a $1.0 million decrease in sales from centers open all of both
periods. The decrease in sales from centers open all of both periods resulted
from an 11% decrease in the number of homes sold, partially offset by a 7%
increase in the average selling price per unit consistent with fewer sales of
pre-owned homes.
GROSS PROFIT. Gross profit increased $1.1 million, or 43.9%, from $2.5
million in 1995 to $3.6 million in 1996. As a percentage of total revenue, gross
margin increased from 21.1% in 1995 to 22.5% in 1996 primarily due to an
increase in finance and insurance revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.0 million, or 52.6%, from $1.9 million in
1995 to $2.9 million in 1996, primarily due to increased owner's compensation.
As a percentage of total revenue, selling, general and administrative expenses
increased from 16.2% in 1995 to 18.3% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.1 million, or 45.0%, from $0.3 million in 1995 to $0.4 million in 1996 as a
result of higher floor plan financing interest costs associated with higher
average inventory levels.
MOBILE WORLD LIQUIDITY AND CAPITAL RESOURCES
Mobile World used $0.6 million of net cash in operating activities for the
nine months ended September 30, 1997. Net cash generated from investing
activities was $0.2 million, primarily proceeds from
38
<PAGE>
the sale of equipment. Net cash used in financing activities was $0.1 million
for payment of long-term debt. At September 30, 1997, Mobile World had working
capital of $0.2 million and no long-term debt.
Mobile World generated $0.5 million of net cash from operating activities
during 1996. Net cash used in investing activities was $0.2 million, principally
for new sales centers. Net cash used in financing activities was negligible. At
December 31, 1996, Mobile World had a working capital deficit of $0.2 million
and $0.1 million of long-term debt.
FIRST AMERICAN RESULTS OF OPERATIONS
First American, headquartered in Dothan, Alabama, was founded in 1981 and
operates three sales centers in southern Alabama and one sales center in the
Florida panhandle.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------- ---------------------------------
1996 1996 1997
----------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales ........ $ 12,419 99.8% $9,969 99.8% $10,061 99.6%
Other revenue ..... 19 0.2 15 0.2 45 0.4
-------- ----- ------ ----- ------- -----
Total revenue .. 12,438 100.0 9,984 100.0 10,106 100.0
Cost of sales ....... 9,994 80.4 8,139 81.5 8,368 82.8
-------- ----- ------ ----- ------- -----
Gross profit ........ 2,444 19.6 1,845 18.5 1,738 17.2
Selling, general and
administrative
expenses .......... 2,198 17.6 1,629 16.3 1,416 14.0
-------- ----- ------ ----- ------- -----
Income from
operations ........ 246 2.0 216 2.2 322 3.2
Interest and other
expense, net ...... 295 2.4 209 2.1 183 1.8
-------- ----- ------ ----- ------- -----
Income (loss) before
income taxes ...... $ (49) (0.4)% $ 7 0.1% $ 139 1.4%
======== ===== ====== ===== ======= =====
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ --------------------
1996 1996 1997
------------ --------- ---------
OPERATING DATA:
Period end sales centers.............. 4 4 4
Homes sold............................ 359 287 302
Multi-section home sales.............. 57% 60% 62%
Average home sale price............... $ 34,593 $ 34,735 $ 33,315
FIRST AMERICAN RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
HOME SALES. Home sales increased by $0.1 million, or 0.9%, from $10.0
million for the nine months ended September 30, 1996 to $10.1 million for the
nine months ended September 30, 1997. The increase in home sales resulted from
the opening of a sales center in 1996, which contributed $1.6 million in
incremental home sales, partially offset by a $1.5 million decline in home sales
from centers open all of both periods. The decrease in home sales from centers
open all of both periods resulted from a 14% decline in the number of homes
sold. In addition, First American experienced a 4% decline in the average price
per home due primarily to a 46% increase in the number of pre-owned homes sold.
GROSS PROFIT. Gross profit decreased $0.1 million, or 5.8%, from $1.8
million for the nine months ended September 30, 1996 to $1.7 million for the
nine months ended September 30, 1997. As a percentage of total revenue, gross
margin decreased from 18.5% in the nine months ended September 30, 1996 to 17.2%
in the nine months ended September 30, 1997, reflecting lower margins on homes
sold as management sought to sell more sites at a subdivision owned by First
American (this subdivision is not being acquired by the Company in the Mergers).
39
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.2 million, or 13.1%, from $1.6 million for
the nine months ended September 30, 1996 to $1.4 million for the nine months
ended September 30, 1997, primarily due to lower management fees paid to an
affiliated entity. As a percentage of total revenue, selling, general and
administrative expenses decreased from 16.3% in the nine months ended September
30, 1996 to 14.0% in the nine months ended September 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at $0.2 million for the nine months ended September 30, 1996 and the
nine months ended September 30, 1997.
FIRST AMERICAN LIQUIDITY AND CAPITAL RESOURCES
First American generated $0.3 million of net cash from operating activities
for the nine months ended September 30, 1997. Net cash used by investing
activities was negligible. Net cash used in financing activities was $0.1
million, representing payments on long-term debt. At September 30, 1997, First
American had a working capital deficit of $0.2 million and $0.3 million of
long-term debt.
First American used $0.1 million of net cash in operating activities during
1996. Net cash used in investing activities was $0.1 million, principally to
open a sales center. Net cash used in financing activities was negligible. At
December 31, 1996, First American had a working capital deficit of $0.1 million
and $0.4 million of long-term debt.
COOPER RESULTS OF OPERATIONS
Cooper, headquartered in Wenatchee, Washington, was founded in 1973 and
operates a total of seven sales centers in central Washington.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
-------------- ---------------- -------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales ....................... $8,435 93.0% $ 8,123 90.0% $8,823 91.0% $6,101 91.2% $ 9,964 95.3%
Other revenue .................... 635 7.0 903 10.0 878 9.0 592 8.8 491 4.7
------ ----- ------- ----- ------ ----- ------ ----- ------- -----
Total revenue .................. 9,070 100.0 9,026 100.0 9,701 100.0 6,693 100.0 10,455 100.0
Cost of sales ...................... 6,651 73.3 6,824 75.6 6,829 70.4 4,505 67.3 7,782 74.4
------ ----- ------- ----- ------ ----- ------ ----- ------- -----
Gross profit ....................... 2,419 26.7 2,202 24.4 2,872 29.6 2,188 32.7 2,673 25.6
Selling, general and
administrative
expenses ......................... 1,874 20.7 1,728 19.1 2,013 20.8 1,598 23.9 2,165 20.7
------ ----- ------- ----- ------ ----- ------ ----- ------- -----
Income from
operations ....................... 545 6.0 474 5.3 859 8.8 590 8.8 508 4.9
Interest and other
expense, net ..................... 267 2.9 499 5.5 311 3.2 254 3.8 461 4.4
------ ----- ------- ----- ------ ----- ------ ----- ------- -----
Income (loss) before
income taxes ..................... $ 278 3.1% $ (25) (0.2)% $ 548 5.6% $ 336 5.0% $ 47 0.5%
====== ===== ======= ===== ====== ===== ====== ===== ======= =====
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
OPERATING DATA:
Period end sales centers........... 3 3 6 4 7
Homes sold......................... 191 178 186 130 200
Multi-section home sales........... 84% 85% 88% 87% 92%
Average home sale price............ $ 44,162 $ 45,635 $ 47,435 $ 46,931 $ 49,820
</TABLE>
40
<PAGE>
COOPER RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1996
HOME SALES. Home sales increased $3.9 million, or 63.3%, from $6.1 million
for the nine months ended September 30, 1996 to $10.0 million for the nine
months ended September 30, 1997. The increase in home sales resulted primarily
from the opening of one sales center in 1997, the opening of one sales center in
the second half of 1996 and the repositioning of two sales centers in the latter
half of 1996 by transferring higher priced inventory to two new "residential
display" sales centers and the conversion of two existing sales centers to
focus on lower priced homes. The number of homes sold increased 54% during the
first nine months of 1997 as a result of the increase in the number of sales
centers. In addition, the average sales price per home increased 6% during the
first nine months of 1997, primarily as a result of an increase in the number of
triple-wide homes sold.
OTHER REVENUE. Other revenue decreased $0.1 million, or 17.1%, from $0.6
million for the nine months ended September 30, 1996 to $0.5 million for the
nine months ended September 30, 1997, primarily due to a decrease in
construction-related revenue.
GROSS PROFIT. Gross profit increased $0.5 million, or 22.2%, from $2.2
million for the nine months ended September 30, 1996 to $2.7 million for the
nine months ended September 30, 1997. As a percentage of total revenue, gross
margin decreased from 32.7% for the nine months ended September 30, 1996 to
25.6%, for the nine months ended September 30, 1997 as a result of reduced
margins on selected homes sold in order to reduce inventory levels and a
reduction in construction revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 35.5%, from $1.6 million for
the nine months ended September 30, 1996 to $2.2 million for the nine months
ended September 30, 1997, primarily due to higher sales commissions consistent
with higher sales volume and to a lesser extent, the hiring of management and
administrative employees to support planned growth. As a percentage of total
revenue, selling, general and administrative expenses decreased from 23.9% for
the nine months ended September 30, 1996 to 20.7% for the nine months ended
September 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.2 million, or 81.5%, from $0.3 million for the first nine months of 1996 to
$0.5 million for the first nine months of 1997, as a result of higher floor plan
financing costs associated with higher average inventory levels.
COOPER RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales increased $0.7 million, or 8.6%, from $8.1 million
in 1995 to $8.8 million in 1996. The increase in home sales resulted from an
increase in sales at centers open all of both periods. The increase in sales
from centers open all of both periods resulted from a 15% increase in the number
of homes sold in 1996 and a 4% increase in the average sales price per home.
OTHER REVENUE. Other revenue remained constant at $0.9 million in 1995 and
1996.
GROSS PROFIT. Gross profit increased $0.7 million, or 30.4%, from $2.2
million in 1995 to $2.9 million in 1996. As a percentage of total revenue, gross
margin increased from 24.4% in 1995 to 29.6% in 1996, primarily due to higher
margins from construction-related activities in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.3 million, or 16.5%, from $1.7 million in
1995 to $2.0 million in 1996, primarily due to the higher costs associated with
the opening of one new sales center and the repositioning of two sales centers
in 1996. As a percentage of total revenue, selling, general and administrative
expenses increased from 19.1% in 1995 to 20.8% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net decreased
$0.2 million, or 37.7%, from $0.5 million for 1995 to $0.3 million in 1996, due
to more favorable floor plan financing terms.
41
<PAGE>
COOPER RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Home sales decreased $0.3 million or 3.7%, from $8.4 million
in 1994 to $8.1 million in 1995. The decline in home sales resulted from a 7%
decline in the number of homes sold partially offset by a 3% increase in the
average sales price per home.
OTHER REVENUE. Other revenue increased $0.3 million, or 42.2%, from $0.6
million in 1994 to $0.9 million in 1995 due primarily to an increase in
construction revenue.
GROSS PROFIT. Gross profit decreased $0.2 million, or 9.0%, from $2.4
million in 1994 to $2.2 million in 1995. As a percentage of total revenue, gross
margin decreased from 26.7% in 1994 to 24.4% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.2 million, or 7.8%, from $1.9 million in
1994 to $1.7 million in 1995. As a percentage of total revenue, selling, general
and administrative expenses decreased from 20.7% in 1994 to 19.1% in 1995.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.2 millon, or 86.9%, from $0.3 million in 1994 to $0.5 million in 1995.
COOPER LIQUIDITY AND CAPITAL RESOURCES
Net cash generated from operating activities for the nine months ended
September 30, 1997 was $0.4 million. Net cash used in investing activities was
$0.4 million, principally for the purchase of property and equipment. Net cash
generated from financing activities was $0.1 million and consisted primarily of
proceeds from long-term debt. At September 30, 1997, Cooper had working capital
of $0.1 million and $0.5 million of long-term debt.
Cooper generated $0.1 million of net cash from operating activities during
1996. Net cash used in investing activities was $0.5 million, principally for
new sales centers. Net cash generated from financing activities was $0.4 million
and consisted of proceeds from short-term and long-term borrowings. At December
31, 1996, Cooper had working capital of $0.3 million and $0.4 million of
long-term debt.
HOME FOLKS RESULTS OF OPERATIONS
Home Folks, headquartered in Owensboro, Kentucky, was founded in 1972 and
operates one sales center in Owensboro, Kentucky.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------- ------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales....................... $ 7,985 99.5% $ 5,862 99.8% $ 7,205 98.9%
Other revenue.................... 42 0.5 13 0.2 79 1.1
--------- --------- --------- --------- --------- ---------
Total revenue.................. 8,027 100.0 5,875 100.0 7,284 100.0
Cost of sales...................... 6,121 76.3 4,507 76.7 5,584 76.7
--------- --------- --------- --------- --------- ---------
Gross profit....................... 1,906 23.7 1,368 23.3 1,700 23.3
Selling, general and administrative
expenses......................... 1,541 19.2 934 15.9 1,032 14.2
--------- --------- --------- --------- --------- ---------
Income from operations............. 365 4.5 434 7.4 668 9.1
Interest and other expense, net.... 112 1.4 99 1.7 52 0.7
--------- --------- --------- --------- --------- ---------
Income before income taxes......... $ 253 3.1% $ 335 5.7% $ 616 8.4%
========= ========= ========= ========= ========= =========
</TABLE>
42
<PAGE>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ --------------------
1996 1996 1997
------------ --------- ---------
OPERATING DATA:
Period end sales centers........... 1 1 1
Homes sold......................... 269 206 246
Multi-section homes sales.......... 55% 51% 66%
Average home sale price............ $ 29,684 $ 28,456 $ 29,289
HOME FOLKS RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
HOME SALES. Home sales increased $1.3 million, or 22.9%, from $5.9 million
for the nine months ended September 30, 1996 to $7.2 million for the nine months
ended September 30, 1997. This increase resulted from a 19% increase in the
number of homes sold, and a 3% increase in the average price per home,
reflecting a strong local market and improvements to the sales center's curb
appeal.
GROSS PROFIT. Gross profit increased $0.3 million, or 24.3%, from $1.4
million for the nine months ended September 30, 1996 to $1.7 million for the
nine months ended September 30, 1997. As a percentage of total revenue, gross
margin remained constant at 23.3% in the nine months ended September 30, 1996
and the nine months ended September 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 10.5%, from $0.9 million for
the nine months ended September 30, 1996 to $1.0 million for the nine months
ended September 30, 1997 due to increased sales commissions. As a percentage of
total revenue, selling, general and administrative expenses decreased from 15.9%
in the nine months ended September 30, 1996 to 14.2% in the nine months ended
September 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at $0.1 million in the nine months ended September 30, 1996 and the
nine months ended September 30, 1997.
HOME FOLKS LIQUIDITY AND CAPITAL RESOURCES
Home Folks generated $0.5 million net cash from operating activities for
the nine months ended September 30, 1997. Net cash used in investing activities
was negligible. Net cash used in financing activities was $0.2 million primarily
for dividends paid to the sole shareholder. At September 30, 1997, Home Folks
had working capital of $0.7 million and no long-term debt.
Home Folks generated $0.6 million of net cash from operating activities
during 1996. Net cash used in investing activities was $0.1 million, principally
for purchases of property and equipment. Net cash used in financing activities
was $0.6 million and consisted of principal payments on short-term debt. At
December 31, 1996, Home Folks had working capital of $0.3 million and no
long-term debt.
43
<PAGE>
WILLMAX RESULTS OF OPERATIONS
WillMax, headquartered in Colorado Springs, Colorado, was founded in 1994
and operates one sales center in Colorado Springs, Colorado.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------- ------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales........... $ 3,512 98.7% $ 2,495 98.1% $ 2,484 94.7%
Other revenue........ 48 1.3 48 1.9 139 5.3
--------- --------- --------- --------- --------- ---------
Total revenue...... 3,560 100.0 2,543 100.0 2,623 100.0
Cost of sales.......... 2,955 83.0 2,063 81.1 1,991 75.9
--------- --------- --------- --------- --------- ---------
Gross profit........... 605 17.0 480 18.9 632 24.1
Selling, general and
administrative
expenses............... 511 14.4 365 14.4 516 19.7
--------- --------- --------- --------- --------- ---------
Income from
operations............. 94 2.6 115 4.5 116 4.4
Interest and other
expense, net........... 100 2.8 75 2.9 65 2.4
--------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes........... $ (6) (0.2)% $ 40 1.6% $ 51 2.0%
========= ========= ========= ========= ========= =========
</TABLE>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ --------------------
1996 1996 1997
------------ --------- ---------
OPERATING DATA:
Period end sales centers.............. 1 1 1
Homes sold............................ 74 51 57
Multi-section home sales.............. 61% 65% 59%
Average home sale price............... $ 47,459 $ 48,922 $ 43,579
WILLMAX RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
HOME SALES. Home sales remained constant at $2.5 million for the nine
months ended September 30, 1996 and for the nine months ended September 30,
1997. Home sales were affected by a 12% increase in the number of homes sold,
offset by an 11% decrease in the average sale price per home due to management's
decision to increase its focus on sales of single-section homes and pre-owned
homes.
GROSS PROFIT. Gross profit increased $0.1 million, or 31.7%, from $0.5
million for the nine months ended September 30, 1996 to $0.6 million for the
nine months ended September 30, 1997. As a percentage of total revenue, gross
margin increased from 18.9% in the nine months ended September 30, 1996 to 24.1%
in the nine months ended September 30, 1997 due to increased commissions on
consignment sales and an increase in the number of pre-owned homes sold, which
have a higher gross margin than new homes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 41.4%, from $0.4 million for
the nine months ended September 30, 1996 to $0.5 million for the nine months
ended September 30, 1997. As a percentage of total revenue, selling, general and
administrative expenses increased from 14.4% in the nine months ended September
30, 1996 to 19.7% in the nine months ended September 30, 1997, due primarily to
increased commissions to sales personnel for consignment sales.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at $0.1 million for each of the nine month periods ended September 30,
1996 and 1997.
WILLMAX LIQUIDITY AND CAPITAL RESOURCES
Net cash generated from operating activities for the nine months ended
September 30, 1997 was less than $0.1 million. Net cash used in investing
activities and financing activities was negligible during the first nine months
of 1997. At September 30, 1997, Willmax had working capital of $0.1 million and
less than $0.1 million in long-term debt.
Net cash from operating activities and investing activities was negligible
during 1996. Net cash used in financing activities was less than $0.1 million.
At December 31, 1996, Willmax had a working capital deficit of less than $0.1
million and $0.1 million in long-term debt.
44
<PAGE>
BUSINESS
HomeUSA was founded to become the leading independent national retailer of
manufactured homes by pursuing an aggressive consolidation of the highly
fragmented manufactured housing retail industry. The manufactured housing retail
industry generated $14 billion in sales in 1996 and is highly fragmented, with
over 6,000 retail sales centers. The vast majority of manufactured housing
retailers are independently-owned private companies operating a single sales
center. The Company believes that most of these retailers have not adopted a
professional sales and marketing approach and do not offer their customers the
full range of available products and services. Because many retailers have
limited access to capital for the modernization and expansion of their
businesses and have few attractive liquidity options, the Company believes that
significant consolidation opportunities exist. The Company believes that it will
develop a competitive advantage by offering manufacturers a substantial and
stable distribution system committed to maintaining high standards of
professionalism in sales and marketing, installation and service.
Upon consummation of this Offering, HomeUSA will acquire the nine Founding
Companies, which have been in business an average of 16 years and had pro forma
combined total revenue of $202.3 million in 1996 and $158.6 million in the first
nine months of 1997.
PRODUCT OVERVIEW
A manufactured home is a single-family house constructed entirely in a
controlled factory environment, rather than at the home site. Manufactured homes
are built in sections, with homes consisting of one or more sections. Assembly
line techniques are utilized during construction, allowing volume purchases of
materials and components and more efficient use of labor. As a result,
manufactured homes are constructed for approximately one-half the cost per
square foot of new site-built homes. The construction of manufactured homes has
benefited greatly from improved design, better materials and the positive
effects of the Department of Housing and Urban Development ("HUD")
Manufactured Home Construction and Safety Standards (the "HUD Code"), which
established national standards covering all aspects of manufactured home
construction.
The quality of today's manufactured homes, both structurally and
aesthetically, is far superior to the "mobile homes" of the past, and in most
cases the appearance of manufactured homes closely resembles more traditional
site-built homes. A 1993 study conducted by the University of Michigan concluded
that there are no major quality differences between manufactured and site-built
housing in terms of structural performance and maintenance records. Manufactured
homes can be customized to meet individual customer needs and offer most of the
amenities of, and are generally built with the same materials as, site-built
homes. Many features associated with site-built homes are included in
manufactured homes, such as central heating, name brand appliances, carpeting,
cabinets and wall coverings. Optional features include such amenities as walk-in
closets, fireplaces, whirlpool baths and vaulted ceilings, as well as
retailer-installed options such as central air conditioning and furniture
packages.
INDUSTRY OVERVIEW
Total retail sales of manufactured homes in 1996 were approximately $14
billion, and industry analysts forecast that industry sales will increase by
approximately 6% per year through the year 2000. Manufactured housing continues
to gain share in the market for new homes. In 1996, manufactured homes accounted
for approximately one-third of all new single-family homes sold in the United
States, up from approximately one-quarter in 1991. Management attributes this
growth to (i) the relatively low cost and increasing quality of manufactured
homes, (ii) broader consumer acceptance of manufactured housing, (iii) greater
availability of financing and (iv) favorable demographic trends. The average
sale price of a new manufactured home in 1996 was $38,400 (exclusive of land),
as compared to $124,650 (exclusive of land) for a new site-built home. Because
increases in household incomes in the United States have failed to keep pace
with increases in the prices for new site-built homes, manufactured housing has
become the only viable form of new home ownership for an increasing number of
households, particularly first time buyers and retirees, groups which
historically have represented a large percentage of the purchasers of
manufactured homes. As consumer awareness of the quality and affordability of
manufactured housing has grown, demand has
45
<PAGE>
shifted toward larger, multi-section homes, which accounted for more than
one-half of the manufactured houses purchased in 1996. Multi-section homes have
attracted a higher income buyer than single section homes, and in 1996,
approximately 40% of manufactured home purchasers had family incomes above
$40,000, as compared to approximately 27% in 1986. Population shifts toward the
South, Southwest and Far West, where land costs are generally lower, zoning
ordinances are less restrictive and alternative forms of housing are in short
supply, should increase the demand for manufactured homes. Coinciding with this
regional shift in the population, the number of young adults and retirement age
persons is expected to more than double between 1997 and 2010, in contrast to
1991 through 1996, when the number of persons in these age groups remained
relatively constant.
Financing has become readily available to qualified manufactured home
buyers from a variety of lenders. A number of these lenders have established
securitization programs for consumer loans. Both the Federal Housing
Administration's and the Department of Veterans Affairs' guaranteed loan
programs permit loans for the purchase of manufactured housing. In addition, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation accept manufactured housing mortgage loans and allow these mortgage
loans to be pooled with traditional real estate mortgage loans. Alternatively,
manufactured homes may be financed as secured personal property loans in
instances where the buyer does not own the land upon which the home will be
sited.
The manufactured housing retail industry is highly fragmented, with over
6,000 retail sales centers. Retail sales of manufactured homes are primarily
conducted through independently-owned retailers, the vast majority of which
operate a single sales center. Four manufacturers have vertically integrated
into retail sales. Oakwood Homes Corporation, Clayton, Palm Harbor and American
Homestar Corporation own and operate approximately ten percent of the total
number of sales centers, and their sales centers typically sell only homes
produced by them. In 1996, 12% of homes sold by the Founding Companies were
homes manufactured by these vertically integrated manufacturers. Since
manufactured homes can only be economically transported within approximately 250
miles of a manufacturing facility, these manufacturers are geographically
constrained as to the location of the sales centers which they own. In addition
to their owned sales centers, these manufacturers (as well as those
manufacturers which are not vertically integrated) sell their homes through
networks of independent retailers. The two largest manufacturers, Fleetwood and
Champion, neither of which currently owns a significant number of sales centers,
accounted for 40% of all manufactured home shipments in 1996, and the ten
largest manufacturers accounted for 70% of all manufactured home shipments in
1996. Recently, Fleetwood and Pulte announced a joint venture whereby Fleetwood
will sell its manufactured homes through Pulte retail sales centers. The Pulte
retail sales centers will have greater brand name recognition than those of the
Company, and the joint venture will have greater marketing experience, financial
resources and access to financing than the Company. Of the 6,318 homes sold by
the Company in 1996, 60% were manufactured by Fleetwood. Management believes,
however, that there is adequate supply of homes from other manufacturers and
that the Company is not dependent on Fleetwood products. Management also
believes that there is little manufacturer brand recognition in the industry.
From 1991 through 1996, the manufactured home retail industry experienced a
significant increase in the number of homes sold. The manufactured housing
industry's primary measure of activity is "manufacturers' shipments" as
reported by the MHI. MHI reports shipments in units into each state on a monthly
and annual basis. However, manufacturers' shipments are not an accurate measure
of actual industry unit or dollar sales for any period because they do not take
into account changes in retailers' inventory levels. Industry shipments were
approximately 171,000 homes in 1991 compared to 363,000 homes in 1996. During
the first half of 1997, industry shipments declined approximately 3% from the
first half of 1996, although total sectional shipments remained constant, due to
the shift toward larger, multi-section homes. The growth in sales from 1991 to
1996 and the low capital requirements for market entry have attracted a
significant number of new retailers into the industry during the past several
years. New sales centers have been opened by independently-owned operators, many
of whom have little capital or retail experience, as well as the four vertically
integrated manufacturers. Consistent with other industries with low barriers to
entry, the industry experienced influxes of new independent retailers in the
past when manufactured housing
46
<PAGE>
market conditions became more favorable and has experienced a subsequent
reduction in the number of sales centers as market conditions became less
favorable.
INDUSTRY CONSOLIDATION
The manufactured housing retail industry generated approximately $14
billion in sales in 1996 with no single independent retailer accounting for more
than 1% of total industry sales. The vast majority of independent retailers are
independently-owned private companies operating a single sales center. The
Company believes that the marketing practices of most independent retailers have
not kept pace with advances in the quality and aesthetic appeal of manufactured
housing, the increasing sophistication of target customers or the range of
products and services available. Because many industry retailers have limited
access to capital for modernization and expansion of their businesses and have
few attractive liquidity options, the Company believes that significant
consolidation opportunities exist for a well-capitalized, independent national
retailer utilizing professional marketing and sales techniques.
To date, the primary acquirors of sales centers in the retail manufactured
housing industry have been the four large vertically integrated manufacturers.
In addition to acquiring existing sales centers, these companies have been
opening new sales centers and are continuing to affiliate with independent
retailers. The Company believes that its decentralized operating strategy will
make it more attractive to acquisition candidates than vertically integrated
manufacturers, which typically install their own operating systems, procedures
and management and eliminate the acquired retailer's separate identity, thereby
effectively converting the business into a branch office. In contrast, the
Company intends to preserve much of the autonomy and identity of the acquired
businesses. By allowing the former owners of acquired companies the opportunity
to continue to manage their businesses and to increase their focus on customer
service and professional marketing and sales techniques rather than
administration, the Company believes it offers these owners an appealing
alternative to the integrated manufacturers. In addition, the Company believes
it will be regarded by acquisition candidates as an attractive acquiror because
of: (i) the Company's strategy for creating a national, professionally managed
manufactured home retailer; (ii) the lack of other attractive liquidity options
and viable exit strategies for owners of target businesses; (iii) the
opportunity for meaningful equity positions in the Company for the owners of
acquired businesses, thereby allowing them to participate in the Company's
growth; (iv) the Company's increased visibility and its access to financial
resources as a public company; and (v) the potential for increased profitability
and sales of the acquired company through access to capital to upgrade its sales
centers, purchasing economies and access to best marketing and sales practices.
The most important criteria for choosing an acquisition candidate will be
(i) the caliber of the candidate's management and sales personnel, (ii) the
location of the business, the market area served and the potential for
expansion, (iii) the candidate's sales and profitability and (iv) the brand of
manufactured homes sold by the candidate. The principals of the Founding
Companies have substantial experience in the industry and are personally
acquainted with the owners of numerous acquisition targets. Within the past
several months, the Company has contacted the owners of a number of acquisition
candidates, several of whom have expressed interest in having their businesses
acquired by the Company. The Company currently has no agreements to effect any
acquisitions other than the Founding Companies.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors in establishing the purchase price being historical operating results,
future prospects of the target and the ability of the target to complement the
products and services offered by the Company. The Company is negotiating a
commitment from a bank for a $50 million credit facility for working capital and
acquisitions. Within 90 days following the completion of this Offering, the
Company intends to register up to 20,000,000 additional shares of Common Stock
under the Securities Act for its use in connection with future acquisitions. The
Company believes that it can structure its larger acquisitions as tax-free
reorganizations by using its Common Stock as consideration, which will be
attractive to those targeted business owners with a low tax basis in the stock
of their businesses.
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BUSINESS STRATEGY
The Company's objective is to become the leading independent national
retailer of manufactured housing by consolidating the industry through an
aggressive acquisition strategy, operating on a decentralized basis, increasing
operating efficiencies and promoting internal growth. The Company believes that
it will develop a competitive advantage by offering to manufacturers a
substantial and stable retail distribution system that is committed to
maintaining high standards of professionalism in sales and marketing,
installation and service.
EXPAND THROUGH ACQUISITIONS. The Company believes there are significant
opportunities for consolidation in the manufactured housing retail industry and
plans to pursue an aggressive acquisition program. The key elements of the
Company's acquisition strategy are:
o ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand
into geographic markets not currently served by the Founding Companies by
selectively acquiring well-established manufactured home retailers that,
like the Founding Companies, are leaders in their regional markets, are
financially stable, have a strong customer base and can serve as
"platforms" for the future growth of the Company. Despite the
fragmentation in the industry, the Company believes there are established
retailers that have gained significant market share in their markets. The
Company anticipates that its platform acquisition candidates will each have
annual revenues of at least $15 million.
o BUILD REGIONAL DENSITY. The Company plans to build regional
density by pursuing acquisitions in markets it already serves as well as
markets served by future acquisitions. The Company believes that building
density in regional markets will allow it to manage inventories more
effectively, improve recruiting, training and retention of sales staffs,
develop regional advertising and marketing programs and manage the resale
of pre-owned homes more effectively. The Company believes that this
strategy will also allow the Company to dedicate sales centers in a
particular market to different types of homes which appeal to customers of
different demographic characteristics.
OPERATE ON DECENTRALIZED BASIS. The Company intends to manage the Founding
Companies and subsequently acquired companies on a decentralized basis, with
local management retaining responsibility for the day-to-day operations of sales
centers, profitability and internal growth of the business. The Company believes
that, while maintaining strong operating and financial controls, a decentralized
operating structure will retain the entrepreneurial culture present in each of
the Founding Companies and will allow the Company to capitalize on the
considerable local and regional market knowledge, name recognition and customer
relationships already established by each of the Founding Companies and
subsequently acquired businesses. While local management will retain control of
the day-to-day operations of the Company's sales centers, the Company's
corporate management will have responsibility for corporate strategy and
acquisitions, banking arrangements, insurance, shareholder relations and
employee benefit plans and will share responsibility with local management for
marketing, recruiting and training.
INCREASE OPERATING EFFICIENCIES. The Company believes that the combination
of the Founding Companies presents significant opportunities to achieve
operating efficiencies, which should continue to improve as the Company grows
both through acquisitions and internally. These opportunities include:
o IMPROVED FLOOR PLAN FINANCING. The Company has obtained
commitments from two financial institutions for floor plan financing on
more favorable terms than any of the Founding Companies could individually
obtain. In 1996, the Founding Companies incurred total interest expense of
$4.2 million at a weighted average interest rate of 10.2%. On a pro forma
basis, interest expense would have been $3.3 million in 1996 at a weighted
average interest rate of 7.9% as a result of the planned refinancing of the
existing floor plan debt.
o MAXIMIZE REBATES Several of the Founding Companies do not
currently qualify for the highest volume rebates offered by manufacturers.
By combining the sales volumes of the Founding Companies, the Company
expects to qualify for the maximum available manufacturers' volume rebates.
The Company also believes that it will be able to improve its access to
product by offering manufacturers the opportunity to deal with a single,
large distribution network for its products.
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o VOLUME PURCHASING. By combining the sales volumes of the
Founding Companies, the Company believes that it will be able to realize
purchasing economies for retailer-installed options such as air
conditioning and appliances. Retailer-installed options and site amenities
can represent as much as ten percent of the sale price for a manufactured
home. The Company also believes that it will be able to reduce the total
operating expenses of the Founding Companies and other acquired businesses
by centralizing the Company's general liability and property insurance
coverage. The Founding Companies spent $2.0 million on insurance in 1996.
PROMOTE INTERNAL GROWTH. The Company believes there are opportunities to
increase the sales volume and profitability of the Founding Companies and
subsequently acquired businesses. The key elements of the Company's internal
growth strategy are:
o EXPAND VALUE-ADDED SERVICES PROVIDED. By expanding the range of
value-added services provided to customers, the Company believes it can
increase its sales and profitability, initially in the area of financing
and insurance arranged for customers. The Company believes that it can
expand other value-added services such as providing a full range of
retailer-installed options, assisting in locating home sites for customers
and installing site amenities such as wells, septic systems, carports,
decks, driveways and landscaping.
o OPEN NEW SALES CENTERS. An integral part of the Company's
internal growth strategy is the opening of additional sales centers in
geographic areas served by the Company. The Company will focus primarily on
small to mid-sized communities as well as outlying suburban areas where the
market for manufactured homes is greatest and there is less competition
from site-built housing. The Company anticipates opening up to
approximately 20 new centers in the next 12 to 18 months. The Company has
hired a Senior Vice President of Real Estate and Construction with
significant experience in siting multi-unit retail centers to oversee the
site selection and relocation effort.
o ENHANCE CURB APPEAL. Marketing studies indicate that as many as
two-thirds of all people who visit a manufactured homes sales center do so
because of the center's "curb appeal." Historically, most sales centers
displayed model homes on gravel lots with few site improvements. The
Company intends to enhance curb appeal by utilizing "residential
displays" to feature professional landscaping, fully-skirted, well-lit and
furnished homes, and paved or elevated walkways to allow direct access into
homes.
o DEVELOP SOPHISTICATED MARKETING PROGRAM. The Company believes
that most consumers are unaware of the quality and affordability of
manufactured homes and that there is little manufacturer brand recognition
among consumers. Through the application of targeted marketing techniques
and image advertising, the Company believes it will be able to communicate
better the quality and affordability of manufactured homes to potential
customers. The Company intends to target groups such as newly-married
couples and retirees, primarily through radio, print and direct mail
advertising.
RETAIL OPERATIONS
RETAIL SALES CENTERS. As of September 30, 1997, the Company had 62 sales
centers in 14 states, most of which were located in small to mid-size markets
(communities having populations of 12,000 to 100,000) in the South, Southwest
and Far West. Following the Offering, all of the aforementioned sales centers
will be on leased land. A typical sales center is situated on approximately two
to four acres along a major local thoroughfare or highway, with a sales office
and between five to ten model homes. Sales centers also typically carry as many
as ten additional homes in inventory. The particular selection of model homes
displayed at the Company's sales centers is tailored to meet local demand. Most
of the Founding Companies' sales centers utilize "residential displays" where
model homes are displayed in a residential setting to create maximum curb
appeal.
SALES FORCE. The Company's sales centers are typically staffed with a
manager and three to five salespeople. The Founding Companies have established
incentive-based compensation packages for sales center managers and salespeople,
based on total sales targets within gross margin limitations. The Company will
emphasize professional customer service throughout all levels of its
organization, which it believes will
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be a distinguishing characteristic from most of its competitors. In addition to
sales personnel, some of the Founding Companies employ finance and insurance
managers whose responsibility is to arrange financing and insurance for
customers. The Company intends to attract and retain quality salespeople and
sales center managers by providing them with (i) additional training to improve
sales professionalism, (ii) an enhanced career path from working for a larger
company, (iii) the opportunity to realize a more stable income and (iv) improved
benefits packages.
SALES PROCESS. When most potential buyers of a manufactured home visit a
sales center for the first time, they have limited knowledge about the quality
and affordability of the homes and typically do not own a lot upon which to site
a home. As a result, the salesperson with whom they interact is critical.
Salespeople are trained to develop a personal relationship with prospective
customers as it may often take several months to close a sale, particularly of a
multi-section, higher-priced home. Several of the Founding Companies have
implemented successful retailing techniques such as the use of promotional
videos and brochures, sales appointments, initial "needs-assessment"
interviews and sophisticated sales-prospect tracking software.
SITE SELECTION. Marketing studies indicate that as many as two-thirds of
all people who visit a manufactured homes sales center do so because of the
center's "curb appeal." Location is, therefore, critical to the success of
each sales center. The Company's sales centers are typically located in
high-traffic areas along major thoroughfares or highways, primarily in small to
mid-size communities or outlying suburban areas. Before selecting a sales center
location, the Company analyzes local market conditions, demographics, traffic
flows, regional shopping patterns, the availability of land and manufactured
housing sites and employment trends. The Company has hired a Senior Vice
President of Real Estate and Construction with significant experience in siting
multi-unit retail operations to oversee the site selection and relocation
effort.
PRE-OWNED HOME SALES CENTERS. The availability of pre-owned manufactured
homes has increased significantly in recent years. Retail lenders typically
contract on a consignment basis with manufactured home retailers to transport,
clean and resell pre-owned manufactured homes. Retailers either earn a
commission for selling the home or buy the home from the lender for resale.
McDonald has one sales center in Tulsa, Oklahoma devoted exclusively to
pre-owned home sales and plans to develop a refurbishing and sales center on
forty acres near Springfield, Missouri in early 1998. The Company will consider
opening additional pre-owned home sales centers in other regions.
VALUE-ADDED SERVICES PROVIDED
FINANCE AND INSURANCE. The Founding Companies have established
relationships with national financing sources, including Green Tree Financial
Corporation, Associates First Capital Corporation and Bank of America. The
volume of loans originated by the Founding Companies should enable the Company
to obtain better financing terms for its customers while increasing the
Company's loan origination and participation fee income. Following the Mergers,
the Company believes it will have an advantage over those integrated
manufactured housing retailers who have captive financing sources. The Company
believes it will be able to obtain the best available interest rates and terms
for its customers by marketing its customer loans to several lenders. Most of
the Founding Companies currently serve as insurance agents for homeowner's
insurance and mortgage and credit-life insurance. The Company believes there is
a significant opportunity to increase commission income on both initial
insurance policy sales and policy renewals. Currently, most of the Founding
Companies receive insurance commissions only from initial policy sales. The
Company has hired a Vice President of Financial Services to concentrate on
finance and insurance.
SITING ASSISTANCE. Approximately 60% of manufactured housing is located on
purchaser-owned property, with most of the balance located in manufactured home
communities where the homeowners rent the lot upon which the home is sited. For
purchasers without access to available land, siting assistance is a necessity.
In many markets, particularly those in proximity to larger cities, there is a
shortage of subdivision lots or communities on which to site manufactured homes.
Retailers who can provide customers a site for their home have a significant
advantage over their competitors who do not have similar access to home
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sites. Four of the Founding Company owners or their affiliates currently own
and/or manage manufactured housing communities and subdivisions. The Company
intends to establish relationships with the owners of those communities and
subdivisions to provide purchasers of manufactured homes from the Company with
access to these lots on a preferential basis. See "Certain Transactions." In
selected markets where the Company has a sufficient number of sales centers and
the need for siting assistance is particularly important, the Company intends to
seek relationships with developers to meet customers' needs. The Company may
consider the acquisition or development of manufactured housing communities in
the future.
PERMITTING. Many manufactured home buyers require assistance with the
time-consuming process of obtaining permits and approvals required to site a
manufactured home. As a full service retailer of manufactured housing, the
Company assists its customers in obtaining all necessary permits, approvals and
title work required by lenders, including zoning approvals, building permits and
well and septic or sewer permits.
TRANSPORTATION AND INSTALLATION. The manufacturer's price for most
manufactured homes does not include the cost of transporting the home.
Therefore, the Company provides for the transportation and installation of new
homes, the cost of which is included in the sales price of the home. The
Founding Companies either utilize their own employees or independent contractors
to perform these services. Homes are transported to the site on a chassis. Homes
are set either on concrete block piers, continuous foundations or on basements
and connected to site utilities such as electric, gas, water and sewer or
septic. Company personnel add skirting and entry stairs and, when requested,
will also arrange for the construction of wells, septic systems, driveways,
carports, porches and decks as well as landscaping.
RETAILER-INSTALLED OPTIONS. The Company offers retailer-installed options,
including central air conditioning, washers, dryers, dishwashers, ceiling fans,
stereo systems and various furniture packages. In most instances, the Founding
Companies purchase these items from local distributors as customer orders are
received. The Company believes it may be able to obtain these items at lower
cost through volume purchasing.
WARRANTIES. Manufacturers of manufactured housing provide a one-year
warranty on the home and the components they install. Fleetwood and Palm Harbor
also provide limited five-year warranties on the structural components of the
homes they manufacture. The Founding Companies, as part of their customer
service focus, arrange for the repair of items subject to manufacturer's
warranties, and seek reimbursement for repair costs from the manufacturer. To
date, unreimbursed warranty repair costs have not been material.
PRODUCTS AND PRODUCT SOURCING
The Company sells single and multi-section homes manufactured by a number
of manufacturers, representing a range of home sizes, floor plans and decors
that can be customized to fit a particular customer's needs. Single section
homes are typically 16 to 18 feet wide and 70 to 80 feet long, with between 960
to 1,300 square feet of living space. Current retail prices for single section
homes sold by the Company, without land, range from approximately $21,000 to
$38,000. Multi-section homes consist of two or more floor sections that are
joined at the home-site and contain between 1,200 and 2,500 square feet. Current
retail prices of multi-section homes sold by the Company, without land,
typically range from $26,000 to $62,000, depending upon floor plan, options and
size. Multi-section homes represented approximately 56% of the Company's new
home sales in 1996.
Manufactured homes contain from two to five bedrooms and have a living
room, dining room, kitchen and one or more bathrooms. Larger homes also may have
a family room or den. Homes feature central heating, electric and plumbing
systems, a range, refrigerator, carpeting and cabinets and may have draperies
and wall coverings. Other amenities that can be purchased by the home buyer
include air conditioning, dishwasher, washer, dryer and furniture package and
cabinets, many of which are retailer-installed options. Some manufacturers offer
other optional features associated with site-built homes such as walk-in
closets, fireplaces, whirlpool baths, sky-lights and vaulted ceilings. The chief
components used in manufactured homes are generally of the same kind and quality
as those used in conventional site-built homes.
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The Company currently purchases manufactured homes primarily from
Fleetwood, Champion, Palm Harbor and Belmont. In 1996, approximately 60% of the
Company's new home sales were homes manufactured by Fleetwood. The Founding
Companies limit the number of manufacturers from whom they purchase homes based
on geographical proximity to manufacturers' plants, range of products and
ability to qualify for maximum manufacturer rebates.
The Company does not have contracts with manufacturers which would assure a
continuing supply of homes. The Company's agreements with manufacturers
generally have terms of one to three years and are terminable upon short notice
by either party. Some agreements with Fleetwood cover only a specific sales
center, and some of these agreements contain annual sales, inventory and
market-share targets, require the retailer to maintain a specified percentage of
the manufacturer's product in inventory and to achieve minimum scores on
customer satisfaction surveys. The sales center's failure to meet these targets
may result in reduced rebates from the manufacturer. Some manufacturer
agreements give a particular sales center the exclusive right to sell the
manufacturer's product within a particular Basic Trade Area as long as only that
manufacturer's products are sold at that sales center and specified sales and
customer satisfaction targets are met. Each of the Founding Companies'
agreements with manufacturers contain provisions prohibiting the assignment of
the agreement without the manufacturer's prior written consent. In addition,
agreements with Fleetwood prohibit a substantial change of ownership or control
of a retailer's business, including the merger of the retailer or the sale of
substantially all of its assets, without the prior approval of Fleetwood. The
Company expects to obtain any required consents to the Mergers.
MARKETING
The Company believes that most consumers are unaware of the quality and
affordability of manufactured homes. Marketing studies indicate that as many as
two-thirds of all people who visit a manufactured homes sales center do so
because of the center's "curb appeal." Additionally, the Company believes that
there is little manufacturer brand name recognition by consumers. As a result,
the Company's principal marketing objectives are to improve the curb appeal of
its sales centers, to inform prospective buyers better of the quality and
affordability of manufactured housing and to instill in prospective customers
name recognition of the Company or one of its acquired businesses as a leading
retailer of manufactured homes.
The Company intends to utilize target marketing aimed particularly at
newly-married couples and recently retired persons. Advertising will include
radio commercials, print ads, billboards, direct mail, telemarketing and
mall-based kiosks. Advertising will be concentrated from March through October,
typically the strongest selling season for the manufactured home industry. The
Company also expects to display models at various events, such as state fairs.
Since customer referrals are a frequent source of new sales, the Company expects
to increase the use of customer satisfaction surveys.
Current advertising activities vary among the Founding Companies although
expenditures have been approximately 1% of home sales. Consistent with the
Company's decentralized operating strategy, the Founding Companies will retain a
large degree of discretion over their advertising programs, within annual
budgets approved by the Company. As the Company increases in size, it will
consider establishing a national marketing program to assist the Founding
Companies and other businesses in the preparation of advertising, media
purchases and signage.
MANAGEMENT INFORMATION SYSTEMS
Sophisticated management information systems have typically not been used
in the manufactured housing retail industry. Soon after the completion of the
Offering, the Company intends to assess the accounting and management
information systems used by the Founding Companies and to implement a
Company-wide voice and data communication system linking sales centers to
regional offices and to the Company's headquarters. The Company intends to focus
on revenue enhancing systems applications such as (i) a manufacturers' online
ordering and order status system, (ii) an online credit verification and loan
application submittal system, (iii) a sales prospect tracking system with the
capability to download new sales prospects from Company-developed or purchased
data bases and (iv) a construction management system to monitor the status of
site delivery, set-up and amenity construction. The Company has hired a
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Vice President and Chief Technology Officer with significant experience in
systems integration to develop these systems.
COMPETITION
The manufactured housing retail industry is highly competitive and the
capital requirements for entry are relatively small, with inventory financing
and customer financing generally available to a prospective retailer from
various lenders. The manufactured housing industry has over 6,000 retail sales
centers, approximately ten percent of which are owned by the four vertically
integrated manufacturers. Manufactured homes compete with a variety of
alternative forms of housing, particularly new and existing site-built homes and
rental apartments, and any decline in the cost of site-built housing is likely
to reduce demand for manufactured housing. The principal competitive factors for
retail sales are price, marketing techniques, range of products and services,
product availability, price and terms of customer financing, and ability to
assist purchasers in obtaining sites on which to locate purchased homes. The
Company is not able to estimate the total number of competitors in its marketing
area, but believes that minimal barriers to entry have contributed to a
significant increase in the number of new retailers over the past several years.
A continuation of this increase in the number of retailers is likely to lead to
greater competition, reduced profit margins and possibly a decline in the
Company's home sales. The Company also may be required to compete for
acquisition candidates, particularly with the four vertically integrated
manufacturers of manufactured housing that are or may become active in making
acquisitions of retail sales centers. The vertically integrated manufacturers
have greater resources than the Company in terms of existing dealer networks as
well as greater financial strength.
The Company will seek to differentiate itself from other independent
retailers. This differentiation strategy includes the Company's: (i) purchasing
power advantages, such as volume rebates from manufacturers, and floor plan
financing, (ii) attractive residential displays of homes targeted to the markets
served, (iii) more highly-trained and motivated sales force and (iv) ability to
offer customers a comprehensive package of products and services from a single
retail source.
The Company is not able to estimate the total number of competitors in its
market areas but believes that minimal barriers to entry have contributed to a
significant increase in the number of retailers over the past several years. A
continuation of the increase in the number of retailers is likely to lead to
greater competition, reduced profit margins and possibly a decline in the
Company's home sales.
REGULATION
Construction of manufactured housing is governed by the National Mobile
Home Construction and Safety Standards Act of 1974. In 1976, HUD issued
regulations under this Act, known as the "HUD Code," which established
comprehensive national construction standards to preempt conflicting state and
local regulations. The HUD Code covers all aspects of manufactured home
construction, including structural integrity, energy efficiency, fire safety,
air-quality and thermal protection and is periodically updated to reflect new
technologies and construction methods. The HUD Code requires that homes sold in
hurricane-prone areas be designed to withstand 110 miles per hour winds.
Detailed inspections of homes during manufacture are mandated by HUD to insure
compliance with the HUD Code, which are conducted by independent, HUD-designated
inspection agencies. Certain components of manufactured homes are also subject
to regulation by the Consumer Product Safety Commission (the "CPSC") which is
empowered, in certain circumstances, to ban the use of component materials
believed to be hazardous to health and to require manufacturers to repair
construction defects. In addition to the HUD Code and the CPSC, Federal Trade
Commission regulations require disclosure of a manufactured home's insulation
specification.
The Company is subject to various laws applicable to consumer financing.
The Federal Consumer Credit Protection Act, also known as the "Truth-in-Lending
Act," and Regulation Z promulgated thereunder require written disclosure of
information relating to such financing, including the amount of the annual
percentage rate and the finance charges. The Federal Equal Credit Opportunity
Act and Regulation B promulgated thereunder prohibit discrimination against any
credit applicant based on certain specified grounds. Among other things,
Regulation B requires the Company to provide a customer whose credit
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request has been denied with a statement of reasons for the denial. The Federal
Fair Credit Reporting Act also requires disclosure of certain information used
as a basis to deny credit. The Federal Trade Commission has issued or proposed
various regulations dealing with unfair credit practices, collection efforts,
preservation of consumers' claims and defenses. In addition, before it may
arrange financing for its customers, the Company is required, under certain
state laws, to obtain a mortgage or consumer finance broker's license. The sale
of insurance products by the Company is subject to various state insurance laws
and regulations which govern allowable charges and other insurance sales
practices. The Company must be licensed as an insurance broker in each state
where it arranges insurance for its customers. The Company's failure to comply
with applicable consumer finance or insurance laws and regulations could result
in substantial fines, the possible loss of these licenses or litigation by
government agencies or affected customers, any of which may have a material
adverse effect on the Company's business, financial condition and results of
operations.
The transportation of manufactured homes is subject to federal and state
highway use laws and regulations. The laws and regulations impose limitations on
the width, length and weight of the load.
The siting of manufactured homes is subject to local zoning ordinances and,
in some jurisdictions, local building codes. Many local zoning ordinances
restrict manufactured homes from subdivisions containing site-built homes and
require variances to place a manufactured home outside of a community previously
zoned for manufactured housing. However, at least 20 states now prohibit
exclusionary and discriminatory zoning applicable only to manufactured homes.
EMPLOYEES
As of September 30, 1997, the Company employed 638 persons. Of these, 65
were sales center managers, 207 were sales persons, 201 were employed in service
and 165 were executive and administrative personnel. The Company does not have
any collective bargaining agreements and considers its employee relations to be
good.
PROPERTIES
As of September 30, 1997, the Company operated 62 sales centers located in
14 states, all of which will be leased upon completion of the Offering. See
"Certain Transactions." The sales centers consist of two to ten acres, on
which manufactured homes are displayed, each with a sales office containing
approximately 2,200 square feet. The leases of these sales centers provide for
monthly rentals ranging from $1,200 to $4,900 and initial terms of one to two
years. The Company does not anticipate difficulty in renewing leases as they
expire or in obtaining alternate sites as necessary. The Company leases its
principal executive and administrative offices in Houston, Texas.
RISK MANAGEMENT; LITIGATION
The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. Upon completion of this Offering, the
Company intends to maintain Company-wide policies of liability insurance for
bodily injury and third-party property damage and workers' compensation
coverage, in amounts which it considers sufficient to protect the Company
against these risks, subject to self-insured amounts.
The Company is, from time to time, a party to litigation arising in the
normal course of its business. In the opinion of the Company, the ultimate
liability, if any, with respect to any pending litigation is not currently
expected to have a material adverse effect on the financial condition or the
results of operations of the Company. However, the ultimate resolution of these
matters could result in losses in excess of current estimates.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers.
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------
Cary N. Vollintine............ 55 Chairman of the Board, Chief Executive
Officer and President
Michael F. Loy................ 52 Senior Vice President, Chief Financial
Officer and Director
Frank W. Montfort............. 47 Senior Vice President of Market Development
Philip deMena................. 57 Senior Vice President of Real Estate and
Construction
Don A. Palmour................ 42 Vice President and Chief Technology Officer
Philip Campbell............... 36 Vice President and Controller
Donald D. Moseley............. 52 Vice President of Financial Services
Larry T. Shaffer.............. 56 President of Universal, Director*
Gary W. Fordham............... 42 President of AAA Homes, Director*
David E. Thompson............. 44 Chief Operating Officer of AAA Homes,
Director*
Frank C. McDonald............. 46 President of McDonald, Director*
Harold K. Patrick............. 59 President of Patrick, Director*
Stanley Poisso................ 66 President of Mobile World, Director*
Randle C. Cooper.............. 37 President of Cooper, Director*
Steven S. Harter.............. 35 Director
Thomas N. Amonett............. 54 Director*
James J. Blosser.............. 59 Director*
Stephen F. Smith.............. 56 Director*
Richard Berry................. 56 President of Home Folks
Joseph R. Copeland............ 47 President of First American
- ------------
* Election as a director of the Company effective as of the consummation of this
Offering.
Cary N. Vollintine has served as Chairman of the Board, Chief Executive
Officer, President and Director of the Company since January 1997 and has been
involved in the organization of the Company, the acquisition of the Founding
Companies and this Offering. From March 1989 until January 1995, Mr. Vollintine
held various positions with Blockbuster Entertainment Corp. ("Blockbuster")
including Assistant to the Vice-Chairman, Managing Director of
Integration-Europe and Corporate Controller. Prior to its acquisition by Viacom,
Inc. in 1995, Blockbuster was a publicly-traded company in the video rental and
related businesses. Prior to that, Mr. Vollintine spent 22 years in various
positions at Arthur Andersen LLP, including Partner-in-Charge of Mergers and
Acquisitions -- Southwest United States and Partner-in-Charge of the Fort Worth,
Texas office.
Michael F. Loy has served as Senior Vice President and Chief Financial
Officer and a Director of the Company since May 1997. From 1992 through 1996,
Mr. Loy was Vice President of Finance, Chief Financial Officer and Secretary of
Proler International Corp., a publicly-traded metals recycling company, which
was acquired in December 1996. From 1990 to 1992, Mr. Loy served as President of
MFL Consulting Group, Inc., a private financial consulting firm. Prior to that,
Mr. Loy held the positions of Vice President, Chief Financial Officer and
Director of Cabot Energy Corp., a holding company for Cabot Corp.'s energy
operations, Senior Vice President of Finance and Chief Financial Officer of MCO
Resources, Inc., a publicly-traded energy company, and was an Audit Partner with
Arthur Andersen LLP.
Frank W. Montfort has served as Senior Vice President of Market Development
of the Company since April 1997. From 1995 until 1997, Mr. Montfort was a
consultant to a publicly-traded consolidator in the heating, ventilation and air
conditioning business. From 1992 until 1995, Mr. Montfort served as Regional
Vice President of American Ecology Corp., a publicly-traded waste services
company. Prior to that, Mr. Montfort held various executive positions with
Browning-Ferris Industries, Inc. and Holiday Inns, Inc.
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Philip deMena has served as Senior Vice President of Real Estate and
Construction of the Company since May 1997. From 1995 until 1997, Mr. deMena was
Senior Vice President of Development for Papa John's U.S.A., Inc., a
publicly-traded restaurant company. From 1994 to 1995, Mr. deMena served as
Senior Vice President of Development for Kenny Rogers Roasters, Inc. a
restaurant company. From 1988 through 1993, Mr. deMena held various positions
with Blockbuster, including Vice President -- Real Estate and Construction.
Prior to that, Mr. deMena held various real estate development positions with
Kentucky Fried Chicken, a unit of Pepsico, Inc., Burger Chef System, Inc., and
British Petroleum Oil Corporation.
Don A. Palmour has served as Vice President and Chief Technology Officer of
the Company since August 1997. From September 1991 until August 1997, Mr.
Palmour was a director of BSG Alliance/IT, Inc., a national systems integration
consulting company. Prior to that, he specialized in systems integration for
Price Waterhouse Consulting and Andersen Consulting.
Philip Campbell has served as Vice President and Controller of the Company
since May 1997. From 1990 until 1997, Mr. Campbell was Vice President and Chief
Financial Officer of Deck The Walls, Inc., an art and framing retail store
chain. Prior to that, Mr. Campbell was an Audit Manager with Arthur Andersen
LLP.
Donald D. Moseley has served as Vice President of Financial Services of the
Company since August 1997. From 1993 until 1997, Mr. Moseley was the Executive
Vice President and Chief Financial Officer of Mortgage Quote Service, Inc., a
developer and marketer of computer software systems for the real estate and
mortgage banking industries. From 1991 until 1993, Mr. Moseley was Executive
Vice President and Chief Financial Officer of Wedge Energy Group, Inc., an
international oil field service and manufacturing company. Prior to that, he
held various positions with Western Industrial Gas Co., Kelso-Lambert Royalty
Company and Arthur Andersen LLP.
Larry T. Shaffer will become a director of the Company upon consummation of
this Offering. He has been President of Universal since 1977 and will continue
in that capacity following the consummation of this Offering.
Gary W. Fordham will become a director of the Company upon consummation of
this Offering. He has been President of AAA Homes since 1988 and will continue
in that capacity following the consummation of this Offering. Mr. Fordham was
President of the Mississippi Manufactured Housing Association in 1991 and 1992
and has served on its Board of Directors since 1988. Mr. Fordham was a founder
of AAA Homes in 1987. Mr. Fordham was appointed in 1995 to the Board of
Directors of the Mississippi Home Corporation, the housing agency for the State
of Mississippi.
David E. Thompson will become a director of the Company upon consummation
of this Offering. He has been Chief Operating Officer of AAA Homes since January
1988 and will continue in that capacity following the consummation of this
Offering. Mr. Thompson was a founder of AAA Homes in 1987. In Mississippi, Mr.
Thompson served as President of the Mississippi Manufactured Housing Association
in 1994, Vice-President in 1993 and a director from 1993 to 1995.
Frank C. McDonald will become a director of the Company upon the
consummation of this Offering. Mr. McDonald founded McDonald in 1987. He has
served as the President and Chairman of the Board of McDonald since that time
and will continue as President of McDonald following consummation of this
Offering. He is currently a member of the Board of Directors, the Executive
Committee and is Chairman of the Federated States Division of the Manufactured
Housing Institute (the manufactured housing industry's national trade
association); a member and past President of the Manufactured Housing
Association of Oklahoma; and a Commissioner of the agency that regulates
manufactured housing in Oklahoma.
Harold K. Patrick will become a director of the Company upon consummation
of this Offering. He founded Patrick in 1966. He has served as President of
Patrick since that time and will continue in that capacity following the
consummation of this Offering. He is past President of and currently a director
of the Mississippi Manufactured Housing Association and a past Director of the
Southeastern Manufactured Housing Institute.
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Stanley Poisso will become a director of the Company upon consummation of
this Offering. He has been President of Mobile World, Inc. since 1992 and
President of Showcase of Homes, Inc. since 1996 and will continue in those
capacities following the consummation of this Offering. From 1988 to 1994, Mr.
Poisso was President of South Fort Homes. Prior to that, he was President of Sam
L. Ives Mobile Home Sales, Inc.
Randle C. Cooper will become a director of the Company upon consummation of
this Offering. He has been President of Cooper since 1981, and will continue in
that capacity following the consummation of this Offering. He is currently a
member of the Washington Manufactured Housing Association and the North Central
Washington Homebuilders Association.
Steven S. Harter has been a director of the Company since July 1996. Mr.
Harter is the President of Notre. Prior to becoming the President of Notre, Mr.
Harter was Senior Vice President of Notre Capital Ventures, Ltd. From 1989 to
1993, Mr. Harter was Director of Mergers and Acquisitions for Allwaste, Inc., a
publicly-traded environmental services company. From 1984 to 1989, Mr. Harter
was a certified public accountant with Arthur Andersen LLP. Mr. Harter also
serves as a director of Coach USA, Inc., Comfort Systems USA, Inc. and Metals
USA, Inc.
Thomas N. Amonett will become a director of the Company upon consummation
of this Offering. Mr. Amonett served as President and Chief Executive Officer of
Weatherford Enterra, Inc., a publicly-held diversified international energy
service and manufacturing company, from 1996 to 1997. From 1992 to 1996, he
served as Chairman of the Board and President of Reunion Resources Company, a
publicly-traded company currently engaged in the manufacture of plastic
products. Prior to that time, Mr. Amonett served as Chairman of Weatherford
International Incorporated (presently, Weatherford Enterra, Inc.) and President
of Houston Oil Fields Co., and was Of Counsel with Fulbright & Jaworski, an
international law firm. Mr. Amonett also serves as a director of Weatherford
Enterra, Inc., Reunion Industries, Inc., PetroCorp, Inc., ITEQ, Inc. and
American Residential Services, Inc.
James J. Blosser will become a director of the Company upon consummation of
this Offering. Since 1995, Mr. Blosser has been the Executive Vice President of
Huizenga Holdings, a private investment company. From 1994 until 1995, Mr.
Blosser was the President of the Blockbuster Park Division of Blockbuster. From
1990 to 1994, Mr. Blosser was the General Counsel of Huizenga Holdings. Prior to
1990, Mr. Blosser was engaged in the private practice of law.
Stephen F. Smith will become a director of the Company upon consummation of
this Offering. Mr Smith was a co-founder in 1996 of Energy Consolidation, Inc.,
a company engaged in the acquisition of oil and gas service companies, and has
served as its President since inception. Mr. Smith is also the co-founder of The
Abbey Group, a consolidator of event production and party equipment rental
companies. From 1980 to 1996, Mr. Smith was a co-founder, Executive Vice
President and Chief Operating Officer of Sandefer Oil & Gas, Inc., an
independent oil and gas exploration and production company. Prior to 1980, Mr.
Smith was an Audit Partner with Arthur Andersen & Co.
Richard Berry founded Home Folks in October 1968. He has served as
President of Home Folks since its inception and will continue in that capacity
following consummation of this Offering. Mr. Berry has served as a director of
the Kentucky Manufactured Housing Institute at various times since 1969 and
served two terms as its President. He was a member of the Manufactured Housing
Institute from 1991 to 1996.
Joseph R. Copeland founded First American Homes in August 1981. He has
served as President of First American since its inception and will continue in
that capacity following consummation of this Offering. Mr. Copeland is currently
Chairman of the Alabama Manufactured Housing Commission and is a member and past
director of the Alabama Manufactured Housing Institute.
Effective upon consummation of this Offering, the Board of Directors will
be divided into three classes of five, four and four directors, respectively,
with directors serving staggered three-year terms, expiring at the annual
meeting of stockholders in 1998, 1999 and 2000, respectively. At each annual
meeting of stockholders, one class of directors will be elected for a full term
of three years to succeed that class of directors whose terms are expiring. The
Company's Certificate of Incorporation permits the holders of the
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Restricted Common Stock to elect one director. Mr. Harter is the director
elected by the holders of the Restricted Common Stock. All officers serve at the
discretion of the Board of Directors.
The Board of Directors has established an Audit Committee, a Compensation
Committee, a Nominating Committee and an Executive Committee. Effective upon
consummation of this Offering, the members of the Audit and Compensation
Committees will be Messrs. Blosser, Amonett and Smith. The members of the
Executive Committee and the Nominating Committee will be selected following the
consummation of this Offering. The Executive Committee will include at least one
outside director and the Nominating Committee will include three members, two of
whom will be directors from the Founding Companies.
DIRECTORS COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $2,000 for attendance at each Board of Directors' meeting and $1,000 for
each committee meeting (unless held on the same day as a Board of Directors'
meeting). In addition, under the Company's 1997 Non-Employee Directors' Stock
Plan, each non-employee director will automatically be granted an option to
acquire 10,000 shares of Common Stock upon such person's initial election as a
director, and an annual option to acquire 5,000 shares at each annual meeting of
the Company's stockholders thereafter at which such director is re-elected or
remains as a director, unless such annual meeting is held within three months of
such person's initial election as a director. Each non-employee director also
may elect to receive shares of Common Stock or credits representing "deferred
shares" in lieu of cash directors' fees. See "-- 1997 Non-Employee Directors'
Stock Plan." Directors are also reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof.
EXECUTIVE COMPENSATION, EMPLOYMENT AGREEMENTS, COVENANTS NOT-TO-COMPETE
The Company was incorporated in July 1996, has conducted no operations,
other than those associated with this Offering, and generated no revenue to date
and will not pay any of its executive officers any compensation prior to the
consummation of this Offering. The Company anticipates that during 1997 its most
highly compensated executive officers (other than those employed by a Founding
Company) will be Messrs. Vollintine, Loy, Montfort, deMena and Palmour.
Each of Messrs. Vollintine, Loy, Montfort and deMena will enter into an
employment agreement with the Company upon consummation of this Offering
providing for an annual base salary of $150,000. Mr. Palmour will enter into an
employment agreement with the Company upon consummation of this Offering
providing for an annual base salary of $125,000. Each employment agreement will
be for a term of three years, and unless terminated or not renewed by the
Company or not renewed by the employee, the term will continue thereafter on a
year-to-year basis on the same terms and conditions existing at the time of
renewal. Each of these agreements will provide that, in the event of a
termination of employment by the Company without cause, the employee will be
entitled to receive from the Company an amount equal to one year's salary,
payable in one lump sum on the effective date of termination. In the event of a
change in control of the Company (as defined in the agreement) during the
initial three-year term, if the employee is not given at least five days' notice
of such change in control, the employee may elect to terminate his employment
and receive in one lump sum three times the amount he would receive pursuant to
a termination without cause during such initial term. The non-competition
provisions of the employment agreement do not apply to a termination without
such notice. In the event the employee is given at least five days' notice of
such change in control, the employee may elect to terminate his employment and
receive in one lump sum two times the amount he would receive pursuant to a
termination without cause during such initial term. In such event, the
non-competition provisions of the employment agreement would apply for two years
from the effective date of termination. Each employment agreement contains a
covenant not-to-compete with the Company for a period of two years immediately
following termination of employment or, in the case of a termination by the
Company without cause in the absence of a change in control, for a period of one
year following termination of employment.
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Each of Messrs. McDonald, Patrick, Shaffer, Fordham, Thompson, Cooper,
Poisso, Berry and Copeland will enter into an employment agreement with his
Founding Company providing for an annual base salary of $150,000. Each
employment agreement will be for a term of five years, and unless terminated or
not renewed by the Founding Company or not renewed by the employee, the term
will continue thereafter on a year-to-year basis on the same terms and
conditions existing at the time of renewal. Each of these agreements will
provide that, in the event of a termination of employment by the Founding
Company without cause during the first three years of the employment term (the
"Initial Term"), the employee will be entitled to receive from the Founding
Company an amount equal to his then current salary for the remainder of the
Initial Term or for one year, whichever is greater. In the event of a
termination of employment without cause during the final two years of the
initial five-year term of the employment agreement, the employee will be
entitled to receive an amount equal to his then current salary for one year. In
either case, payment is due in one lump sum on the effective date of
termination. In the event of a change in control of the Company (as defined in
the agreement) during the Initial Term, if the employee is not given at least
five days' notice of such change in control, the employee may elect to terminate
his employment and receive in one lump sum three times the amount he would
receive pursuant to a termination without cause during the Initial Term. The
non-competition provisions of the employment agreement do not apply to a
termination without such notice. In the event the employee is given at least
five days' notice of such change in control, the employee may elect to terminate
his employment agreement and receive in one lump sum two times the amount he
would receive pursuant to a termination without cause during the Initial Term.
In such event, the non-competition provisions of the employment agreement would
apply for two years from the effective date of termination. Each employment
agreement contains a covenant not-to-compete with the Company for a period of
two years immediately following termination of employment or, in the case of a
termination by the Company without cause in the absence of a change in control,
for a period of one year following termination of employment.
1997 LONG-TERM INCENTIVE PLAN
No stock options were granted to, exercised by or held by any executive
officer in 1996. In July 1997, the Board of Directors and the Company's
stockholders approved the Company's 1997 Long-Term Incentive Plan (the
"Plan"). The purpose of the Plan is to provide directors, officers, key
employees, consultants and other service providers with additional incentives by
increasing their ownership interests in the Company. Individual awards under the
Plan may take the form of one or more of: (i) either incentive stock options or
non-qualified stock options ("NQSOs"), (ii) stock appreciation rights; (iii)
restricted or deferred stock, (iv) dividend equivalents and (v) other awards not
otherwise provided for, the value of which is based in whole or in part upon the
value of the Common Stock.
The Compensation Committee will administer the Plan and select the
individuals who will receive awards and establish the terms and conditions of
those awards. The maximum number of shares of Common Stock that may be subject
to outstanding awards, determined immediately after the grant of any award, may
not exceed the greater of 2,000,000 shares or 15% of the aggregate number of
shares of Common Stock outstanding. Shares of Common Stock which are
attributable to awards which have expired, terminated or been canceled or
forfeited are available for issuance or use in connection with future awards.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
At the closing of this Offering, NQSOs to purchase a total of 650,000
shares of Common Stock will be granted as follows: 200,000 shares to Mr.
Vollintine, 100,000 shares to Mr. Loy, 100,000 shares to Mr. Montfort, 100,000
shares to Mr. deMena, 50,000 shares to Mr. Campbell, 50,000 shares to Mr.
Palmour and 50,000 shares to Mr. Moseley. In addition, at the consummation of
this Offering, options to purchase 952,483 shares will be granted to certain
employees of the Founding Companies. Each of the foregoing options will have an
exercise price equal to the initial public offering price per share. These
options will
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vest at the rate of 20% per year, commencing on the first anniversary of this
Offering, and will expire at the earlier of ten years from the date of grant or
three months following termination of employment.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in July 1997, provides for (i) the automatic grant to
each non-employee director serving at the consummation of this Offering of an
option to purchase 10,000 shares, (ii) the automatic grant to each other
non-employee director of an option to purchase 10,000 shares upon such person's
initial election as a director, and (iii) an automatic annual grant to each
non-employee director of an option to purchase 5,000 shares at each annual
meeting of stockholders thereafter at which such director is re-elected or
remains as a director, unless such annual meeting is held within three months of
such person's initial election as a director. All options will have an exercise
price per share equal to the fair market value of the Common Stock on the date
of grant and are immediately vested and expire on the earlier of ten years from
the date of grant or one year after termination of service as a director. The
Directors' Plan also permits non-employee directors to elect to receive, in lieu
of cash directors' fees, shares or credits representing "deferred shares" at
future settlement dates, as selected by the director. The number of shares or
deferred shares received will equal the number of shares of Common Stock which,
at the date the fees would otherwise be payable, will have an aggregate fair
market value equal to the amount of such fees.
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of the Company, HomeUSA issued to Notre a
total of 1,843,823 shares (as adjusted for a 90.7127-to-one stock dividend) of
Common Stock for an aggregate cash consideration of $18,439. Mr. Harter is the
President of Notre and a director of the Company. In August 1997, Notre
exchanged 1,718,823 shares of Common Stock for 1,718,823 shares of Restricted
Common Stock. See "Description of Capital Stock." Notre has agreed to advance
whatever funds are necessary to effect the Mergers and this Offering, all of
which will be on a non-interest-bearing basis. As of September 30, 1997, Notre
had incurred expenses on behalf of the Company in the aggregate amount of $3.2
million. All of Notre's advances will be repaid from the net proceeds of this
Offering.
From July 1996 through September 1997, the Company issued a total of
876,226 shares of Common Stock (as adjusted for a 90.7127-to-one stock dividend)
at $.01 per share to various members of management, as follows: Mr.
Vollintine -- 380,226 shares, Mr. Loy -- 110,000 shares, Mr. Montfort -- 121,000
shares, Mr. deMena -- 110,000 shares, Mr. Campbell -- 55,000 shares, Mr.
Palmour -- 50,000 shares and Mr. Moseley -- 50,000 shares. The Company also
issued 454,894 shares of Common Stock at $0.01 per share to consultants to the
Company, including a total of 30,000 shares of Common Stock to persons who will
become directors of the Company upon consummation of this Offering. The Company
also granted options to purchase 10,000 shares of Common Stock under the
Directors' Plan, effective upon the consummation of this Offering, to Mr.
Harter, a director of the Company, and to Messrs. Amonett, Blosser and Smith,
who will become directors of the Company upon the consummation of this Offering.
Simultaneously with the consummation of this Offering, HomeUSA will acquire
by merger all of the issued and outstanding stock of the Founding Companies, at
which time each Founding Company will become a wholly-owned subsidiary of the
Company. The aggregate consideration to be paid by HomeUSA in the Mergers
consists of $20.9 million in cash and 7,266,944 shares of Common Stock. In
addition, prior to the Mergers certain of the Founding Companies will make the
Owners' Distributions of $6.9 million and distribute certain real estate and
non-operating assets and liabilities having a net book value of $0.6 million.
The consummation of each Merger is subject to customary conditions. These
conditions include, among others, the continuing accuracy on the closing date of
the Mergers of the representations and warranties of the Founding Companies and
the principal stockholders thereof and of HomeUSA, the performance by each of
them of all covenants included in the agreements relating to the Mergers and the
absence of a material adverse change in the results of operations, financial
condition or business of each Founding Company.
There can be no assurance that the conditions to closing of the Mergers
will be satisfied or waived or that the acquisition agreements will not be
terminated prior to consummation. If any of the Mergers is terminated for any
reason, the Company does not intend to consummate this Offering on the terms
described herein.
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The following table sets forth the consideration to be paid by HomeUSA for
each of the Founding Companies. These amounts do not include the Owners'
Distributions or distributions of Other Assets. (Dollars in thousands.)
SHARES OF
COMPANY CASH COMMON STOCK
- ---------------------------------------- --------- ------------
Universal............................... $ 7,090 2,299,311
AAA Homes............................... 3,174 1,165,901
McDonald................................ 2,562 1,015,074
Patrick................................. 2,886 936,058
Mobile World............................ 1,607 521,101
First American.......................... 888 288,123
Cooper.................................. 1,599 691,308
Home Folks.............................. 767 248,620
Willmax................................. 313 101,448
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain officers, directors and holders of more than 5%
of the outstanding shares of the Company, together with trusts for which they
act as trustees, will receive cash and shares of Common Stock of the Company as
follows. These amounts do not include any Owners' Distributions or Distributions
of Other Assets. (Dollars in thousands.)
SHARES OF
NAME CASH COMMON STOCK
- ---------------------------------------- --------- ------------
Larry T. Shaffer(1)..................... $ 7,017 2,271,915
Gary W. Fordham......................... 1,634 600,000
David E. Thompson....................... 1,541 565,901
Frank C. McDonald....................... 1,541 610,416
Harold K. Patrick....................... 2,886 936,058
Stanley Poisso.......................... 1,366 521,101
Randle C. Cooper........................ 1,439 691,308
- ------------
(1) Includes 323,956 shares of Common Stock issued to Larry T. Shaffer, Jr.
which may be deemed to be beneficially owned by Larry T. Shaffer, but as
to which he disclaims beneficial ownership. Larry T. Shaffer, Jr. has
sole voting power with respect to these shares.
Pursuant to the agreements to be entered into in connection with the
Mergers, the stockholders of the Founding Companies have agreed not to compete
with the Company for five years, commencing on the date of consummation of this
Offering.
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by their stockholders or by entities controlled by their
stockholders. At September 30, 1997, the aggregate amount of indebtedness of
these Founding Companies that was subject to personal guarantees was
approximately $38.9 million. The Company intends to use its revolving credit
facility to refinance this indebtedness.
LEASES OF REAL PROPERTY BY FOUNDING COMPANIES
Following the Mergers, the Company will lease Universal's facilities
located in Bristol, Virginia, Cookeville, Tennessee, Jefferson City, Tennessee,
two facilities in Kingsport, Tennessee, Powell, Tennessee and Murfreesboro,
Tennessee from Larry T. Shaffer, one of his immediate family members or an
entity controlled by Larry T. Shaffer. Larry T. Schaffer will remain President
of Universal following the consummation of this Offering and will become a
director of the Company. Each of the leases is for an initial term of five
years, expiring in October 2002 and contains one five-year renewal option. The
annual rental for the first year of the initial lease terms ranges from $8,900
to $48,000. The rental for each subsequent year of each initial lease term and
each year of each renewal period of the leases will be adjusted
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in accordance with the CPI, not to exceed five percent of the rental for the
immediately preceding lease year. The Company will pay for all utilities, taxes
and insurance on the leased property. The Company believes that the economic
terms of the leases do not exceed fair market value.
Following the Mergers, the Company will lease AAA Homes' facilities located
in Gulfport, and Pearl West, Mississippi from A-1 Realty, L.P. ("A-1"), a
Mississippi limited partnership controlled by Gary Fordham and David Thompson,
who will remain as President and Chief Operating Officer, respectively, of AAA
Homes following the consummation of this Offering and who each will become a
director of the Company. Each of the leases is for an initial term of five
years, expiring in October 2002 and contains three five-year renewal options.
The annual rental for each of the initial lease terms is $58,800 and $54,000,
respectively. The rental for each renewal period of the leases will be adjusted
in accordance with the CPI, not to exceed five percent of the rental for the
immediately preceding lease term or renewal period, as applicable. The Company
will pay for all utilities, taxes and insurance on the leased property. The
Company believes that the economic terms of the leases do not exceed fair market
value.
Following the Mergers, the Company will lease Patrick's facilities located
in Millington, Tennessee; Corinth and Como, Mississippi from H&P Development,
Inc. ("H&P"), a corporation of which Harold Patrick, who will remain as
President of Patrick following the consummation of this Offering and who will
become a director of the Company, is a controlling person. The Millington lease
is for an initial term of three years, expiring in October 2000, and contains
two three-year renewal options. Each of the Corinth and Como leases is for an
initial term of five years, expiring in October 2002, and contains three
five-year renewal options. The annual rental for each of the initial lease terms
ranges from $19,200 to $46,800. The rental for each renewal period of the leases
will be adjusted in accordance with the CPI, not to exceed ten percent in the
case of the Millington lease, and five percent in the cases of Corinth and Como
leases, of the rental for the immediately preceding lease term or renewal
period, as applicable. The Company will pay for all utilities, taxes and
insurance on the leased property. The Company believes that the economic terms
of the leases do not exceed fair market value.
Following the Mergers, the Company will lease Cooper's facilities located
in Yakima, Moses Lake, Okanogan and three facilities in Wenatchee, Washington
from Randle Cooper, one of his immediate family members or an entity controlled
by Randle Cooper. Randle Cooper will remain as President of Cooper following the
consummation of this Offering and who will become a director of the Company.
Each of the leases is for a term of five years, expiring in October 2002. The
annual rental for each of the lease terms ranges from $18,000 to $30,000,
respectively. The Company will pay for all utilities, taxes and insurance on the
leased property. The Company believes that the economic terms of the lease do
not exceed fair market value.
Following the Mergers, the Company will lease McDonald's facilities located
in Tulsa and Muskogee, Oklahoma and Cape Girardeau, Poplar Bluff and
Springfield, Missouri from Frank C. McDonald, who will remain as President of
McDonald following the consummation of this Offering and will become a director
of the Company. Each of the leases is for an initial term of five years,
expiring in October 2002, and contains three five-year renewal options. The
annual rental for each of the initial lease terms ranges from $15,000 to
$60,000. The rental for each renewal period of the leases will be adjusted in
accordance with CPI, not to exceed five percent of the rental for the
immediately preceding lease term or renewal period, as applicable. The Company
will pay for all utilities, taxes and insurance on the leased property. The
Company believes that the economic terms of the leases do not exceed fair market
value.
The Company has adopted a policy that, whenever possible, it will not own
any real estate. Accordingly, in connection with future acquisitions, the
Company may require the distribution of real property owned by acquired
companies to its stockholders and the leaseback of such property at fair market
value.
OTHER TRANSACTIONS
Mr. McDonald and Mr. Cooper, who will become directors of the Company upon
consummation of the Offering, own interests in manufactured housing developments
in Missouri and Washington, respectively.
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The Company intends to enter into arrangements with Mr. McDonald and Mr. Cooper,
pursuant to which purchasers of manufactured homes from the Company would have
access to lots within these developments on a preferential basis. The terms of
these arrangements will be no less favorable to the Company than those available
to unrelated purchases of lots.
Patrick purchases all of its office supplies from Office Pro, a company of
which the son-in-law of Mr. Patrick is a one-third owner. Patrick receives a
discount from Office Pro on its purchases. In 1996, Patrick purchased $78,265 of
office supplies from Office Pro.
In April 1997, Mr. Poisso, who is the President of Mobile World and who
will become a director of the Company upon consummation of this Offering,
borrowed $72,491 from Mobile World on a non-interest bearing basis. As of
September 30, 1997, the entire balance had been repaid to the Company.
At various times during 1994, 1995, 1996 and 1997, Mr. Cooper, or entities
of which he is a controlling person, borrowed a total of $465,000 from Cooper.
As of September 30, 1997, the aggregate outstanding balance of these loans was
$380,000. The loans bear interest at the rate of 7% per annum, all of the loans
are unsecured and none has a stated maturity date. All of these loans will be
repaid upon the closing of this Offering.
The Company has agreed to indemnify Notre for liabilities arising in
connection with actions taken by it in its role as a promoter prior to and
during the Offering.
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal, and must be approved in advance by
a majority of disinterested members of the Board of Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock, after giving effect to the Mergers and this
Offering, by (i) each person known to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each Company director and person who
has consented to be named as a director ("named directors"); (iii) each named
executive officer; and (iv) all executive officers, directors and named
directors as a group. All persons listed have an address c/o the Company's
principal executive offices and have sole voting and investment power with
respect to their shares unless otherwise indicated.
SHARES BENEFICIALLY
OWNED AFTER OFFERING
-----------------------
NUMBER PERCENT
----------- -------
Notre Capital Ventures II, L.L.C. ...... 1,843,823 11.9%
Steven S. Harter(1)..................... 1,853,823 12.0
Cary N. Vollintine(2)................... 416,590 2.7
Michael F. Loy(3)....................... 114,545 *
Frank W. Montfort....................... 121,000 *
Philip deMena........................... 110,000 *
Philip Campbell......................... 55,000 *
Don A. Palmour.......................... 50,000 *
Donald D. Moseley....................... 50,000 *
Larry T. Shaffer(5)..................... 2,271,915 14.7
Gary W. Fordham......................... 600,000 3.9
David E. Thompson....................... 565,901 3.7
Frank C. McDonald....................... 610,416 4.0
Harold K. Patrick....................... 936,058 6.1
Stanley Poisso.......................... 521,101 3.4
Randle C. Cooper........................ 691,308 4.5
Thomas N. Amonett(4).................... 10,000 *
James J. Blosser(4)..................... 10,000 *
Stephen F. Smith(4)..................... 10,000 *
All executive officers, directors and
named directors as a group (18
persons).............................. 8,740,345 56.6%
- ------------
* Less than 1%.
(1) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan and 1,843,823 shares of Common Stock
issued to Notre. Mr. Harter is the President of Notre.
(2) Includes 36,364 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.
(3) Includes 4,545 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.
(4) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan.
(5) Includes 323,956 shares of Common Stock issued to Larry T. Shaffer, Jr.
which may be deemed to be beneficially owned by Larry T. Shaffer, but as to
which he disclaims beneficial ownership. Larry T. Shaffer, Jr. has sole
voting power with respect to these shares.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 60,000,000 shares
of capital stock, consisting of 50,000,000 shares of Common Stock, 5,000,000
shares of Restricted Common Stock and 5,000,000 shares of Preferred Stock
("Preferred Stock"). Upon completion of the Mergers and this Offering, the
Company will have outstanding 15,441,887 shares of Common Stock, including
1,718,823 shares of Restricted Common Stock and no shares of Preferred Stock.
The following discussion is qualified in its entirety by reference to the
Restated Certificate of Incorporation of HomeUSA, which is included as an
exhibit to the Registration Statement of which this Prospectus is a part.
COMMON STOCK AND RESTRICTED COMMON STOCK
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and to 0.25 of one vote for each share held on all other matters on
which they are entitled to vote. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors. Upon consummation of
this Offering, the Board of Directors will be classified into three classes as
nearly equal in number as possible, with the term of each class expiring on a
staggered basis. The classification of the Board of Directors may make it more
difficult to change the composition of the Board of Directors and thereby may
discourage or make more difficult an attempt by a person or group to obtain
control of the Company. Cumulative voting for the election of directors is not
permitted. Any director, or the entire Board of Directors, may be removed at any
time, with cause, by a majority of the aggregate number of votes which may be
cast by the holders of outstanding shares of Common Stock and Restricted Common
Stock entitled to vote for the election of directors, provided, however, that
only the holders of the Restricted Common Stock may remove the director such
holders are entitled to elect.
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Restricted Common Stock are entitled to participate
pro rata in such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock and
Restricted Common Stock are entitled to share ratably in the net assets of the
Company upon liquidation after payment or provision for all liabilities and any
preferential liquidation rights of any Preferred Stock then outstanding. Holders
of Common Stock and holders of Restricted Common Stock have no preemptive rights
to purchase shares of stock of the Company. Shares of Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. Shares of Restricted Common Stock are not subject to
any redemption provisions but are convertible into Common Stock, on the
occurrence of certain events. All outstanding shares of Common Stock and
Restricted Common Stock are, and the shares of Common Stock to be issued
pursuant to this Offering and the Mergers will be upon payment therefor, fully
paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (ii) in the
event any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock, or (iii) in the event any person offers to acquire 15%
or more of the total number of outstanding shares of Common Stock. After October
1, 1998, the Board of Directors may elect to convert any outstanding shares of
Restricted Common Stock into shares of Common Stock in the event 80% or more of
the originally outstanding shares of Restricted Common Stock have been
previously converted into shares of Common Stock.
The Common Stock has been approved for listing on The New York Stock
Exchange under the symbol "HSH" to official notice of issuance. The Restricted
Common Stock will not be listed on any exchange.
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PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock and Restricted Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock or may
otherwise adversely affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
Additionally, the Certificate of Incorporation of the Company provides that
directors and officers of the Company shall be, and at the discretion of the
Board of Directors non-officer employees and agents may be, indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in
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the future be amended, against all expenses and liabilities actually and
reasonably incurred in connection with service for or on behalf of the Company
and further permits the advancing of expenses incurred in defense of claims.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual or special
meeting of stockholders must be effected at a duly called meeting and may not be
taken or effected by a written consent of stockholders in lieu thereof. The
Company's Bylaws provide that a special meeting of stockholders may be called
only by the Chief Executive Officer, by a majority of the Board of Directors or
by a majority of the Executive Committee of the Board of Directors. The Bylaws
provide that only those matters set forth in the notice of the special meeting
may be considered or acted upon at that special meeting. To amend or repeal the
Company's Bylaws, an amendment or repeal thereof must first be approved by the
Board of Directors or by the affirmative vote of the holders of at least 66 2/3%
of the total votes eligible to be cast by holders of voting stock with respect
to such amendment or repeal.
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure"). The Nomination Procedure requires that a stockholder give prior
written notice, in proper form, of a planned nomination for the Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the Company's Bylaws. If the Chairman of
the Board of Directors determines that a person was not nominated in accordance
with the Nomination Procedure, such person will not be eligible for election as
a director. Under the Business Procedure, a stockholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of the Company. The requirements as to the form
and timing of that notice are specified in the Company's Bylaws. If the Chairman
of the Board of Directors determines that the other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.
Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, LLC.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Mergers and completion of this Offering, the
Company will have outstanding 15,441,887 shares of Common Stock. The 5,000,000
shares sold in this Offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely tradable without
restriction unless acquired by affiliates of the Company. None of the remaining
outstanding shares of Common Stock or Restricted Common Stock have been
registered under the Securities Act, which means that they may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company or the date on which they were acquired from
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an affiliate, the holder of such restricted securities (including an affiliate)
is entitled to sell a number of shares within any three-month period that does
not exceed the greater of (i) one percent of the then outstanding shares of the
Common Stock (approximately 154,418 shares upon completion of this Offering) or
(ii) the average weekly reported volume of trading of the Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain requirements pertaining to the manner of such sales, notices
of such sales and the availability of current public information concerning the
Company. Affiliates may sell shares not constituting restricted securities in
accordance with the foregoing volume limitations and other requirements but
without regard to the one year holding period. Under Rule 144(k), if a period of
at least two years has elapsed between the later of the date on which restricted
securities were acquired from the Company and the date on which they were
acquired from an affiliate, a holder of such restricted securities who is not an
affiliate at the time of the sale and who has not been an affiliate for at least
three months prior to the sale is entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
The Company and its officers, directors and certain stockholders who
beneficially own 10,441,887 shares in the aggregate have agreed not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated, except that the Company may issue Common Stock in connection with
acquisitions or in connection with the Plan and the Directors' Plan (the
"Plans") or upon conversion of shares of the Restricted Common Stock. See
"Underwriting." In addition, all of the stockholders of the Founding
Companies, certain other stockholders and the Company's officers and directors
have agreed with the Company that they will not sell any of their shares for a
period of one year after the closing of this Offering. These stockholders,
however, have the right, in the event the Company proposes to register under the
Securities Act any Common Stock for its own account or for the account of
others, subject to certain exceptions, to require the Company to include their
shares in the registration, subject to the right of the Company to exclude some
or all of the shares in the offering upon the advice of the managing
underwriter. In addition, certain of such stockholders have certain limited
demand registration rights to require the Company to register shares held by
them following the second anniversary of the consummation of this Offering.
Within 90 days after the consummation of this Offering, the Company intends
to register up to 20,000,000 shares of its Common Stock under the Securities Act
for use by the Company in connection with future acquisitions. Upon such
registration, these shares will generally be freely tradeable after their
issuance. In some instances, however, the Company may contractually restrict the
sale of shares issued in connection with future acquisitions. The piggyback
registration rights described above do not apply to the registration statement
relating to these 20,000,000 shares.
Prior to this Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
BT Alex. Brown Incorporated, Bear, Stearns & Co. Inc., Montgomery Securities and
Sanders Morris Mundy Inc. (together, the "Representatives"), have severally
agreed to purchase from the Company the following respective number of shares of
Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------- ---------
BT Alex. Brown Incorporated ............
Bear, Stearns & Co. Inc. ...............
NationsBanc Montgomery Securities, Inc.
Sanders Morris Mundy Inc. ..............
---------
Total.............................. 5,000,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any of such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain other dealers. After commencement of the
initial public offering, the offering price and other selling terms may be
changed by the Representatives.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 750,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it in the above table bears to 750,000, and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 5,000,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company regarding certain liabilities,
including liabilities under the Securities Act.
To facilitate the Offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with this Offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such
over-allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common
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Stock in the open market. Any of these activities may maintain the market price
of the Common Stock at a level above that which might otherwise prevail in the
open market. The Underwriters are not required to engage in these activities,
and, if commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.
The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
BT Alex. Brown Incorporated, except for shares issued (i) in connection with
acquisitions, (ii) pursuant to the exercise of options granted under the Plans,
and (iii) upon conversion of shares of Restricted Common Stock. Further, the
Company's directors, officers and certain stockholders who beneficially own
10,441,887 shares in the aggregate have agreed not to directly or indirectly
sell or offer for sale or otherwise dispose of any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
BT Alex. Brown Incorporated.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
A principal of Sanders Morris Mundy Inc., one of the Representatives, is an
investor in Notre. In July 1997, that principal purchased a note from Notre
which is convertible into shares of Common Stock upon consummation of this
Offering. The shares of Common Stock beneficially owned by that principal
represent less than 1% of the Common Stock to be outstanding after the
consummation of this Offering. Additionally, Sanders Morris Mundy will receive a
finder's fee from the Company as a result of having introduced one of the
Founding Companies to the Company.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives.
Among the factors considered in such negotiations were prevailing market
conditions, the results of operations of the Founding Companies in recent
periods, the market capitalization and stages of development of other companies
which the Company and the Representatives believed to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant by the Company
and the Representatives.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas. Certain legal matters
related to this Offering will be passed on for the Underwriters by Piper &
Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The financial statements of HomeUSA, Universal, AAA Homes, Patrick, Mobile
World, First American, Cooper, Home Folks and WillMax, included elsewhere in
this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. The financial statements of McDonald included elsewhere in this
Prospectus have been included herein in reliance upon the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus, which
is part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the SEC. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract,
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agreement or other document filed as an exhibit to the Registration Statement,
reference is hereby made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. For further information with respect to the Company,
reference is hereby made to the Registration Statement and such exhibits and
schedules filed as a part thereof, which may be inspected, without charge, at
the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The SEC maintains a web site that contains reports, proxy and information
statements regarding registrants that file electronically with the SEC. The
address of this web site is (http://www.sec.gov). Copies of all or any portion
of the Registration Statement may be obtained from the Public Reference Section
of the SEC, upon payment of the prescribed fees.
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INDEX TO FINANCIAL STATEMENTS
PAGE
-----
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Basis of Presentation........... F-3
Unaudited Pro Forma Combined
Balance Sheet as of September
30, 1997....................... F-4
Unaudited Pro Forma Combined
Statement of Operations for the
Year Ended December 31, 1996... F-5
Unaudited Pro Forma Combined
Statement of Operations for the
Nine months ended September 30,
1997........................... F-6
Notes to Unaudited Pro Forma
Combined Financial
Statements..................... F-7
HISTORICAL FINANCIAL STATEMENTS
HOMEUSA, INC.
Report of Independent Public
Accountants.................... F-12
Balance Sheets.................. F-13
Statement of Operations......... F-14
Statements of Stockholders'
Equity......................... F-15
Statement of Cash Flows......... F-16
Notes to Financial Statements... F-17
UNIVERSAL HOUSING GROUP
Report of Independent Public
Accountants.................... F-20
Combined Balance Sheets......... F-21
Combined Statements of
Operations..................... F-22
Combined Statements of
Shareholders' Equity........... F-23
Combined Statements of Cash
Flows.......................... F-24
Notes to Combined Financial
Statements..................... F-25
AAA HOMES GROUP
Report of Independent Public
Accountants.................... F-32
Combined Balance Sheets......... F-33
Combined Statements of
Operations..................... F-34
Combined Statements of
Shareholders' Equity........... F-35
Combined Statements of Cash
Flows.......................... F-36
Notes to Combined Financial
Statements..................... F-37
MCDONALD MOBILE HOMES, INC.
Report of Independent Public
Accountants.................... F-45
Balance Sheets.................. F-46
Statements of Operations........ F-47
Statements of Shareholders'
Equity......................... F-48
Statements of Cash Flows........ F-49
Notes to Financial Statements... F-50
PATRICK HOME CENTER, INC.
Report of Independent Public
Accountants.................... F-56
Balance Sheets.................. F-57
Statements of Operations........ F-58
Statements of Shareholders'
Equity......................... F-59
Statements of Cash Flows........ F-60
Notes to Financial Statements... F-61
F-1
<PAGE>
PAGE
-----
MOBILE WORLD GROUP
Report of Independent Public
Accountants.................... F-68
Combined Balance Sheets......... F-69
Combined Statements of
Operations..................... F-70
Combined Statements of
Shareholder's Equity........... F-71
Combined Statements of Cash
Flows.......................... F-72
Notes to Combined Financial
Statements..................... F-73
FIRST AMERICAN HOMES GROUP
Report of Independent Public
Accountants.................... F-79
Combined Balance Sheets......... F-80
Combined Statements of
Operations..................... F-81
Combined Statements of
Shareholders' Equity........... F-82
Combined Statements of Cash
Flows.......................... F-83
Notes to Combined Financial
Statements..................... F-84
COOPER'S MOBILE HOMES GROUP
Report of Independent Public
Accountants.................... F-91
Combined Balance Sheets......... F-92
Combined Statements of
Operations..................... F-93
Combined Statements of
Shareholders' Equity........... F-94
Combined Statements of Cash
Flows.......................... F-95
Notes to Combined Financial
Statements..................... F-96
HOME FOLKS HOUSING CENTER, INC.
Report of Independent Public
Accountants.................... F-104
Balance Sheets.................. F-105
Statements of Operations........ F-106
Statements of Shareholder's
Equity......................... F-107
Statements of Cash Flows........ F-108
Notes to Financial Statements... F-109
WILLMAX HOMES OF COLORADO LLC
Report of Independent Public
Accountants.................... F-114
Balance Sheets.................. F-115
Statements of Operations........ F-116
Statements of Members' Equity... F-117
Statements of Cash Flows........ F-118
Notes to Financial Statements... F-119
F-2
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the mergers by HomeUSA, Inc. (HomeUSA or the Company), of substantially all
of the outstanding capital stock of Universal Housing, Inc. (Universal), CSF&T,
Inc., d.b.a. AAA Homes (AAA Homes), McDonald Mobile Homes, Inc. (McDonald),
Patrick Home Center, Inc. (Patrick), Mobile World, Inc. (Mobile World), First
American Homes, Inc. (First American), Cooper's Mobile Homes, Inc. (Cooper),
Home Folks Housing Center, Inc. (Home Folks) and WillMax Homes of Colorado LLC
(Willmax) (together, the Founding Companies). HomeUSA and the Founding Companies
are hereinafter referred to as the Company. These mergers (the Mergers) will
occur simultaneously with the closing of HomeUSA's initial public offering (the
Offering) and will be accounted for using the purchase method of accounting.
Universal, one of the Founding Companies, has been identified as the accounting
acquiror in accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 97 which states that the combining company which receives the
largest portion of voting rights in the combined corporation is presumed to be
the accquiror for accounting purposes. The unaudited pro forma combined
financial statements also give effect to the issuance of common stock in
connection with the Offering and as partial consideration for the acquisitions
to the sellers of the Founding Companies. These pro forma statements are based
on the historical financial statements of the Founding Companies included
elsewhere in this Prospectus and the estimates and assumptions set forth below
and in the notes to the unaudited pro forma combined financial statements.
The unaudited pro forma combined balance sheet gives effect to the the
Mergers and the Offering as if they had occurred on September 30, 1997. The
unaudited pro forma combined statements of operations give effect to these
transactions as if they had occurred on January 1, 1996.
HomeUSA has preliminarily analyzed the benefits that it expects to be
realized from reductions in salaries and certain benefits to the owners. To the
extent the owners of the Founding Companies have agreed prospectively to
reductions in salary, bonuses and benefits, these reductions have been reflected
in the pro forma combined statements of operations. With respect to other
potential benefits, HomeUSA has not and cannot quantify these benefits until
completion of the combination of the Founding Companies. It is anticipated that
these benefits will be offset by costs related to HomeUSA's new corporate
management and by the costs associated with being a public company. However,
because these costs cannot be accurately quantified at this time, they have not
been included in the pro forma financial information of HomeUSA.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The unaudited pro forma combined financial data presented herein do
not purport to represent what the Company's financial position or results of
operations would have actually been had such events occurred at the beginning of
the periods presented, as assumed, or to project the Company's financial
position or results of operations for any future period or the future results of
the Founding Companies. The unaudited pro forma combined financial statements
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this Prospectus. Also see "Risk Factors"
included elsewhere herein.
F-3
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
AAA MOBILE FIRST HOME
UNIVERSAL HOMES MCDONALD PATRICK WORLD AMERICAN COOPER FOLKS
--------- ------- -------- ------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 3,388 $ 707 $ 648 $1,724 $ 273 $ 251 $ 477 $ 386
Accounts receivable, net.......... 1,553 1,902 1,252 715 352 418 938 429
Related party receivable.......... -- 25 -- -- 208 -- 679 --
Inventories....................... 7,547 9,599 5,826 4,162 3,849 3,197 4,644 1,159
Other current assets.............. 70 -- 340 10 46 4 15 --
Deferred tax asset................ -- -- -- 4 -- -- 83 --
--------- ------- -------- ------- ------ -------- ------ ------
Total current assets.......... 12,558 12,233 8,066 6,615 4,728 3,870 6,836 1,974
PROPERTY AND EQUIPMENT, net.......... 963 1,422 1,729 1,864 379 280 1,147 283
OTHER ASSETS, net.................... 9 421 -- 83 1 10 206 --
GOODWILL............................. 20 -- -- -- -- -- -- --
--------- ------- -------- ------- ------ -------- ------ ------
Total assets.................. $13,550 $14,076 $ 9,795 $8,562 $5,108 $4,160 $8,189 $2,257
========= ======= ======== ======= ====== ======== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 2,840 $ 1,673 $ 1,074 $1,245 $ 652 $ 635 $ 971 $ 352
Floor plan payable................ 7,343 8,859 5,234 3,817 3,890 2,544 5,416 899
Deferred tax liability............ 2 131 227 122 -- 89 -- --
Related-party payable............. -- -- -- -- 15 578 -- --
Current maturities of long-term
debt............................ -- 195 251 173 -- 210 365 --
Payable to Founding Company
Stockholders.................... -- -- -- -- -- -- -- --
--------- ------- -------- ------- ------ -------- ------ ------
Total current liabilities..... 10,185 10,858 6,786 5,357 4,557 4,056 6,752 1,251
LONG-TERM DEBT, net of current
maturities.......................... -- 252 551 254 -- 55 147 --
DEFERRED GAIN ON SALE................ -- -- -- 119 -- -- -- --
DEFERRED TAX LIABILITY............... 67 142 61 68 79 28 287 --
--------- ------- -------- ------- ------ -------- ------ ------
Total liabilities............. 10,252 11,252 7,398 5,798 4,636 4,139 7,186 1,251
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock...................... 3 68 37 20 2 30 218 32
Additional paid-in capital........ -- -- 164 -- -- 10 -- 3
Partners'
capital......................... -- 50 -- -- -- -- -- --
Retained earnings (deficit)....... 3,295 2,786 2,348 2,983 470 (19) 785 988
Treasury stock, at cost........... -- (80) (152) (239) -- -- -- (17)
--------- ------- -------- ------- ------ -------- ------ ------
Total stockholders' equity.... 3,298 2,824 2,397 2,764 472 21 1,003 1,006
--------- ------- -------- ------- ------ -------- ------ ------
Total liabilities and
stockholders' equity......... $13,550 $14,076 $ 9,795 $8,562 $5,108 $4,160 $8,189 $2,257
========= ======= ======== ======= ====== ======== ====== ======
HOME PRO FORMA POST MERGER
WILLMAX USA, INC. TOTAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------- --------- ------- ----------- --------- ------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 162 $ 14 $ 8,030 $-- $ 8,030 $ 9,505 $ 17,535
Accounts receivable, net.......... 297 -- 7,856 -- 7,856 -- 7,856
Related party receivable.......... -- -- 912 -- 912 -- 912
Inventories....................... 780 -- 40,763 (236) 40,527 -- 40,527
Other current assets.............. 16 -- 501 (76) 425 -- 425
Deferred tax asset................ -- -- 87 56 143 -- 143
------- --------- ------- ----------- --------- ------------ -----------
Total current assets.......... 1,255 14 58,149 (256) 57,893 9,505 67,398
PROPERTY AND EQUIPMENT, net.......... 54 -- 8,121 (1,624) 6,497 -- 6,497
OTHER ASSETS, net.................... 1 3,159 3,890 11 3,901 (3,141) 760
GOODWILL............................. -- -- 20 42,772 42,792 -- 42,792
------- --------- ------- ----------- --------- ------------ -----------
Total assets.................. $1,310 $ 3,173 $70,180 $40,903 $111,083 $ 6,364 $ 117,447
======= ========= ======= =========== ========= ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 326 $ 3,141 12,909 104 13,013 (3,142) 9,871
Floor plan payable................ 799 -- 38,801 (162) 38,639 -- 38,639
Deferred tax liability............ -- -- 571 (14) 557 -- 557
Related-party payable............. -- -- 593 (420) 173 -- 173
Current maturities of long-term
debt............................ 70 -- 1,264 (423) 841 (841) --
Payable to Founding Company
Stockholders.................... -- -- -- 20,885 20,885 (20,885) --
------- --------- ------- ----------- --------- ------------ -----------
Total current liabilities..... 1,195 3,141 54,138 19,970 74,108 (24,868) 49,240
LONG-TERM DEBT, net of current
maturities.......................... 37 -- 1,296 6,503 7,799 (7,799) --
DEFERRED GAIN ON SALE................ -- -- 119 -- 119 -- 119
DEFERRED TAX LIABILITY............... -- -- 732 232 964 -- 964
------- --------- ------- ----------- --------- ------------ -----------
Total liabilities............. 1,232 3,141 56,285 26,705 82,990 (32,667) 50,323
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock...................... -- 32 442 (338) 104 50 154
Additional paid-in capital........ -- 8,619 8,796 18,370 27,166 38,981 66,147
Partners'
capital......................... 78 -- 128 (128) -- -- --
Retained earnings (deficit)....... -- (8,619) 5,017 (4,194) 823 -- 823
Treasury stock, at cost........... -- -- (488) 488 -- -- --
------- --------- ------- ----------- --------- ------------ -----------
Total stockholders' equity.... 78 32 13,895 14,198 28,093 39,031 67,124
------- --------- ------- ----------- --------- ------------ -----------
Total liabilities and
stockholders' equity......... $1,310 $ 3,173 $70,180 $40,903 $111,083 $ 6,364 $ 117,447
======= ========= ======= =========== ========= ============ ===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AAA MOBILE FIRST HOME
UNIVERSAL HOMES MCDONALD PATRICK WORLD AMERICAN COOPER FOLKS
---------- ------- --------- -------- ------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL REVENUE........................ $ 51,683 $39,196 $29,847 $29,903 $15,948 $12,438 $9,701 $8,027
COST OF SALES........................ 39,820 30,543 24,329 23,858 12,360 9,994 6,829 6,121
---------- ------- --------- -------- ------- --------- ------- ------
Gross profit........................ 11,863 8,653 5,518 6,045 3,588 2,444 2,872 1,906
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 9,344 6,272 3,925 4,306 2,925 2,198 2,013 1,541
---------- ------- --------- -------- ------- --------- ------- ------
Income from operations.............. 2,519 2,381 1,593 1,739 663 246 859 365
OTHER INCOME (EXPENSE):
Interest expense, net............... (412) (994) (808) (622) (427) (374) (326) (126)
Other income, net................... 424 44 58 58 (8) 79 15 14
---------- ------- --------- -------- ------- --------- ------- ------
INCOME (LOSS) BEFORE INCOME TAXES.... 2,531 1,431 843 1,175 228 (49) 548 253
PROVISION FOR INCOME TAXES........... 131 559 314 2 88 2 277 --
---------- ------- --------- -------- ------- --------- ------- ------
NET INCOME (LOSS).................... $ 2,400 $ 872 $ 529 $ 1,173 $ 140 $ (51) $ 271 $ 253
========== ======= ========= ======== ======= ========= ======= ======
NET INCOME PER SHARE.................
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1).............
HOME PRO FORMA
WILLMAX USA, INC. TOTAL ADJUSTMENTS PRO FORMA
-------- ---------- --------- ------------ ----------
TOTAL REVENUE........................ $3,560 $ -- $ 200,303 $ 1,987 $ 202,290
COST OF SALES........................ 2,955 -- 156,809 1,830 158,639
-------- ---------- --------- ------------ ----------
Gross profit........................ 605 -- 43,494 157 43,651
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 511 33,035 (4,092) 28,943
-------- ---------- --------- ------------ ----------
Income from operations.............. 94 10,459 4,249 14,708
OTHER INCOME (EXPENSE):
Interest expense, net............... (94) -- (4,183) 813 (3,370)
Other income, net................... (6) -- 678 (133) 545
-------- ---------- --------- ------------ ----------
INCOME (LOSS) BEFORE INCOME TAXES.... (6) 6,954 4,929 11,883
PROVISION FOR INCOME TAXES........... -- -- 1,373 3,671 5,044
-------- ---------- --------- ------------ ----------
NET INCOME (LOSS).................... $ (6) $ -- $ 5,581 $ 1,258 $ 6,839
======== ========== ========= ============ ==========
NET INCOME PER SHARE................. $ 0.50
==========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1)............. 13,793,826
==========
</TABLE>
(1) Includes (i) 1,843,823 shares issued to Notre Capital Ventures II, (ii)
1,331,120 shares issued to management and consultants of HomeUSA, (iii)
7,266,944 shares issued to owners of the Founding Companies and (iv)
3,351,939 of the 5,000,000 shares sold in the Offering necessary to pay the
cash portion of the Merger consideration and expenses of this Offering. The
1,648,061 shares excluded reflect the net cash proceeds to HomeUSA.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AAA MOBILE FIRST HOME
UNIVERSAL HOMES MCDONALD PATRICK WORLD AMERICAN COOPER FOLKS
--------- ------- -------- ------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL REVENUE........................ $39,996 $29,646 $22,776 $24,040 $12,558 $10,106 $10,455 $ 7,284
COST OF SALES........................ 31,277 22,648 18,220 18,747 10,189 8,368 7,782 5,584
--------- ------- -------- ------- ------- -------- ------- ---------
Gross profit.................. 8,719 6,998 4,556 5,293 2,369 1,738 2,673 1,700
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 5,182 5,275 3,209 3,663 1,911 1,416 2,165 1,032
--------- ------- -------- ------- ------- -------- ------- ---------
Income (loss) from
operations................... 3,537 1,723 1,347 1,630 458 322 508 668
OTHER INCOME (EXPENSE):
Interest expense, net............. (494) (611) (577) (350) (362) (268) (494) (75)
Other income, net................. 201 54 49 52 86 85 33 23
--------- ------- -------- ------- ------- -------- ------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.... 3,244 1,166 819 1,332 182 139 47 616
PROVISION (BENEFIT) FOR INCOME
TAXES............................... 177 403 336 65 70 67 21 --
--------- ------- -------- ------- ------- -------- ------- ---------
NET INCOME (LOSS).................... $ 3,067 $ 763 $ 483 $ 1,267 $ 112 $ 72 $ 26 $ 616
========= ======= ======== ======= ======= ======== ======= =========
NET INCOME PER SHARE.................
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1).............
HOME PRO FORMA
WILLMAX USA, INC. TOTAL ADJUSTMENT PRO FORMA
-------- --------- --------- ---------- ----------
TOTAL REVENUE........................ $2,623 $ -- $ 159,484 $ (881) $ 158,603
COST OF SALES........................ 1,991 -- 124,806 (640) 124,166
-------- --------- --------- ---------- ----------
Gross profit.................. 632 -- 34,678 (241) 34,437
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 516 8,619 32,988 (8,587) 24,401
-------- --------- --------- ---------- ----------
Income (loss) from
operations................... 116 (8,619) 1,690 8,346 10,036
OTHER INCOME (EXPENSE):
Interest expense, net............. (65) -- (3,296) 735 (2,561)
Other income, net................. -- -- 583 (21) 562
-------- --------- --------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.... 51 (8,619) (1,023) 9,060 8,037
PROVISION (BENEFIT) FOR INCOME
TAXES............................... -- -- 1,139 2,260 3,399
-------- --------- --------- ---------- ----------
NET INCOME (LOSS).................... $ 51 $ (8,619) $ (2,162) $ 6,800 $ 4,638
======== ========= ========= ========== ==========
NET INCOME PER SHARE................. $ 0.34
==========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1)............. 13,793,826
==========
</TABLE>
(1) Includes (i) 1,843,823 shares issued to Notre Capital Ventures II, L.L.C.,
(ii) 1,331,120 shares issued to management and consultants of HomeUSA, (iii)
7,266,944 shares issued to owners of the Founding Companies and (iv)
3,351,939 of the 5,000,000 shares sold in the Offering necessary to pay the
cash portion of the Merger consideration and expenses of this Offering. The
1,648,061 shares excluded reflect the net cash proceeds to HomeUSA.
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
HomeUSA, Inc. was formed to become a leading independent national retailer
of manufactured homes. HomeUSA, Inc. has conducted no operations to date and
will acquire the Founding Companies simultaneously with the consummation of the
Offering.
The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective financial statements included elsewhere herein.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrently with and as a condition to the closing of the Offering,
HomeUSA will acquire all of the outstanding capital stock of the Founding
Companies. The Mergers will be accounted for using the purchase method of
accounting with Universal being treated as the accounting acquiror. The
following table sets forth the consideration to be paid (a) in cash and (b) in
shares of the Company's Common Stock to the stockholders of each of the Founding
Companies. For purposes of computing the estimated purchase price for accounting
purposes, the value of the shares has been determined using an estimated fair
value of $6.94 per share, which represents a discount of twenty-five percent
from the assumed initial public offering price due to restrictions on the sale
and transferability of the shares issued. The estimated purchase price for the
acquisitions is based upon preliminary estimates and is subject to certain
purchase price adjustments at and following closing. Adjustments to the purchase
price will be based upon the actual initial public offering price. The table
does not reflect distributions to the Founding Companies of Excess Operating
Capital greater or less than zero. Excess Operating Capital is defined as net
working capital minus long-term debt, as of the effective date of the Mergers.
These distributions are referred to herein as the Owners' Distributions. The
Owners' Distributions, had they occurred on September 30, 1997, would have been
approximately $6.9 million.
COMMON STOCK
----------------------
VALUE OF
CASH SHARES SHARES
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Universal............................ $ 7,090 2,299,311 $ 15,957
AAA Homes............................ 3,174 1,165,901 8,091
McDonald............................. 2,562 1,015,074 7,045
Patrick.............................. 2,886 936,058 6,496
Mobile World......................... 1,607 521,101 3,616
First American....................... 888 288,123 2,000
Cooper............................... 1,599 691,308 4,798
Home Folks........................... 767 248,620 1,725
WillMax.............................. 312 101,448 704
--------- --------- ---------
Total........................... $ 20,885 7,266,944 $ 50,432
========= ========= =========
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records the payable for the Founding Companies' Owners' Distribution.
(b) Records the distribution of certain real estate and nonoperating
assets and liabilities in connection with the Mergers. In addition, reflects the
reduction for certain operating assets and liabilities representing sales
centers which will not be acquired in the Mergers.
F-7
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Records the purchase of the Founding Companies for a total purchase
price of $71.3 million, including $23.0 million attributed to Universal as
accounting acquiror. The entry includes the liability of $20.9 million for the
cash portion of the consideration to be paid to the stockholders of the Founding
Companies in connection with the Mergers and the issuance of 7.3 million shares
of Common Stock to the Founding Companies resulting in the creation of $42.8
million of goodwill after allocating the purchase price to the aggregate assets
acquired and liabilities assumed, excluding Universal, as follows (dollars in
thousands):
ASSETS
Cash and cash equivalents............... $ 4,628
Accounts receivable..................... 6,303
Related party receivable................ 912
Inventories............................. 32,981
Deferred tax asset...................... 143
Other current assets.................... 356
---------
Total current assets............... 45,323
Property and equipment, net............. 5,534
Other assets............................ 732
---------
Total assets....................... $ 51,589
=========
LIABILITIES
Accounts payable and accrued
liabilities........................... $ 7,032
Floorplan payable....................... 31,296
Related party payable................... 173
Current maturities of long-term debt.... 841
Deferred income taxes................... 537
---------
Total current liabilities.......... 39,879
Long-term obligations, net of current
maturities............................ 5,484
Other long-term liabilities............. 119
Deferred income taxes................... 798
---------
Total liabilities.................. $ 46,280
=========
(d) Records the net deferred income tax liability attributable to the
temporary differences between the financial reporting and tax bases of assets
and liabilities held in S Corporations.
(e) Records the cash proceeds from the issuance of 5,000,000 shares of
Common Stock, net of estimated offering costs (based on an assumed initial
public offering price of $9.25 per share). Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and printing
expenses.
(f) Records the cash portion of the consideration to be paid to the
stockholders of the Founding Companies in connection with the Mergers, the
payment of the Owners' Distributions and the repayment of long-term debt.
F-8
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize the unaudited pro forma combined balance
sheet adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Inventories.......................... $ -- $ (236) $ -- $ -- $ (236)
Other current assets................. -- (76) -- -- (76)
Deferred tax assets.................. -- -- -- 56 56
--------- --------- --------- --------- ------------
Total current assets........ -- (312) -- 56 (256)
Property and equipment, net.......... -- (1,624) -- -- (1,624)
Other assets, net.................... -- -- -- 11 11
Goodwill............................. -- -- 42,772 -- 42,772
--------- --------- --------- --------- ------------
Total assets................ -- (1,936) 42,772 67 40,903
========= ========= ========= ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses........................... -- 104 -- -- 104
Floor plan payable................... -- (162) -- -- (162)
Deferred tax liability............... -- -- -- (14) (14)
Related party payable................ -- (420) -- -- (420)
Current maturities of long-term
debt............................... -- (423) -- -- (423)
Payable to Founding Company
stockholders....................... -- -- 20,885 -- 20,885
--------- --------- --------- --------- ------------
Total current liabilities... -- (901) 20,885 (14) 19,970
Long-term debt, net of current
maturities......................... 6,918 (415) -- -- 6,503
Deferred tax liability............... -- -- -- 232 232
--------- --------- --------- --------- ------------
Total liabilities........... 6,918 (1,316) 20,885 218 26,705
Stockholders' equity:
Common stock..................... -- -- (338) -- (338)
Additional paid-in capital....... (6,918) -- 25,288 -- 18,370
Partners' capital................ -- -- (164) 36 (128)
Retained earnings................ -- (620) (3,387) (187) (4,194)
Treasury stock, at cost.......... -- -- 488 -- 488
--------- --------- --------- --------- ------------
Total stockholders'
equity.................... (6,918) (620) 21,887 (151) 14,198
--------- --------- --------- --------- ------------
Total liabilities and
stockholders' equity...... $ -- $ (1,936) $ 42,772 $ 67 $ 40,903
========= ========= ========= ========= ============
</TABLE>
F-9
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
POST MERGER
(E) (F) ADJUSTMENTS
--------- --------- -------------
ASSETS
Cash and cash equivalents............ $ 39,030 $ (29,525) $ 9,505
--------- --------- -------------
Total current assets........ 39,030 (29,525) 9,505
Other assets......................... (3,141) -- (3,141)
--------- --------- -------------
Total assets................ 35,889 (29,525) 6,364
========= ========= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued......... (3,142) -- (3,142)
Current maturities of long-term
debt............................... -- (841) (841)
Payable to Founding Company
stockholders....................... -- (20,885) (20,885)
--------- --------- -------------
Total current liabilities... (3,142) (21,726) (24,868)
Long-term debt, net of current
maturities......................... -- (7,799) (7,799)
--------- --------- -------------
Total liabilities........... (3,142) (29,525) (32,667)
Stockholders' equity:
Common stock..................... 50 -- 50
Additional paid-in capital....... 38,981 -- 38,981
--------- --------- -------------
Total stockholders'
equity................... 39,031 -- 39,031
--------- --------- -------------
Total liabilities and
stockholders' equity..... $ 35,889 $ (29,525) $ 6,364
========= ========= =============
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
YEAR ENDED DECEMBER 31, 1996
(a) Reflects the sales centers of certain Founding Companies which will
not be acquired in the Mergers.
(b) Reflects the historical results of operations of a sales center
acquired by one of the Founding Companies in April 1997.
(c) Reflects the reduction in operations for the distribution of certain
non-operating assets and liabilities which will not be acquired in the Mergers.
(d) Reflects the $4.9 million reduction in salaries, bonuses and benefits
to the owners of the Founding Companies to which they have agreed prospectively.
(e) Reflects the amortization of goodwill to be recorded as a result of
the Mergers over a 40-year estimated life.
(f) Reflects the reduction in interest expense of $0.9 million due to
refinancing of the floor plan payable in connection with the Mergers.
(g) Reflects the incremental provision for federal and state income taxes
relating to the statements of operations adjustments and to reflect income taxes
on S corporation and LLC income as if these entities had been taxable as C
corporations during the periods presented.
F-10
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the unaudited pro forma combined statements
of operations adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........................ $ (7,702) $ 9,689 $ -- $ -- $ -- $ -- $ -- $ 1,987
Cost of sales........................ (5,846) 7,676 -- -- -- -- -- 1,830
--------- --------- --------- --------- --------- --------- --------- -----------
Gross profit......................... (1,856) 2,013 -- -- -- -- -- 157
Selling, general and
administrative..................... (1,499) 1,369 (164) (4,867) 1,069 -- -- (4,092)
--------- --------- --------- --------- --------- --------- --------- -----------
Income (loss) from operations........ (357) 644 164 4,867 (1,069) -- -- 4,249
Other income (expense)
Interest expense, net............ 205 (300) 38 -- -- 870 -- 813
Other income, net................ (31) (102) -- -- -- -- -- (133)
--------- --------- --------- --------- --------- --------- --------- -----------
Income (loss) before income taxes.... (183) 242 202 4,867 (1,069) 870 -- 4,929
Provision (benefit) for income
taxes.............................. (65) -- -- -- -- -- 3,736 3,671
--------- --------- --------- --------- --------- --------- --------- -----------
Net income (loss).................... $ (118) $ 242 $ 202 $ 4,867 $ (1,069) $ 870 $ (3,736) $ 1,258
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997
(a) Reflects the sales centers of certain Founding Companies' which will
not be acquired in the Mergers.
(b) Reflects the pre-acquisition historical results of operations from
sales centers acquired by one of the Founding Companies in April 1997.
(c) Reflects the reduction in operations for the distribution of certain
non-operating assets and liabilities which will not be acquired in the Mergers.
(d) Reflects the $0.7 million reduction in salaries, bonuses and benefits
to the owners of the Founding Companies to which they have agreed prospectively
and the reversal of the $8.6 million non-cash compensation charge related to the
issuance of 1,331,120 shares of Common Stock to management of and consultants to
the Company offset by a $0.3 million charge for the recurring portion of salary
expenses of management.
(e) Reflects the amortization of goodwill to be recorded as a result of
these Mergers over a 40-year estimated life.
(f) Reflects the reduction in interest expense of $0.6 million due to
refinancing of the floor plan payable in conjunction with the Mergers.
(g) Reflects the incremental provision for federal and state income taxes
relating to the statements of operations adjustments and to reflect income taxes
on S corporation and LLC income as if these entities had been taxable as C
corporations during the periods presented.
The following table summarizes unaudited pro forma combined statements of
operations adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........................ $ (3,039) $ 2,158 $ -- $ -- $ -- $ -- $ -- $ (881)
Cost of sales........................ (2,383) 1,743 -- -- -- -- -- (640)
--------- --------- --------- --------- --------- --------- --------- -----------
Gross profit......................... (656) 415 -- -- -- -- -- (241)
Selling, general and
administrative..................... (612) 303 (76) (9,004) 802 -- -- (8,587)
--------- --------- --------- --------- --------- --------- --------- -----------
Income (loss) from operations........ (44) 112 76 9,004 (802) -- -- 8,346
Other income (expense)
Interest expense, net............ 135 (57) 43 -- -- 614 -- 735
Other income, net................ (13) (8) -- -- -- -- -- (21)
--------- --------- --------- --------- --------- --------- --------- -----------
Income (loss) before income taxes.... 78 47 119 9,004 (802) 614 -- 9,060
Provision (benefit) for income
taxes.............................. (35) -- -- -- -- -- 2,295 2,260
--------- --------- --------- --------- --------- --------- --------- -----------
Net income (loss).................... $ 113 $ 47 $ 119 $ 9,004 $ (802) $ 614 $ (2,295) $ 6,800
</TABLE>
F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HomeUSA, Inc.:
We have audited the accompanying balance sheet of HomeUSA, Inc., as of
December 31, 1996, and the related statement of stockholders' equity for the
period from inception (July 3, 1996) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HomeUSA, Inc., as of
December 31, 1996, and for the period from inception (July 3, 1996) to December
31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
September 10, 1997
F-12
<PAGE>
HOMEUSA, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
ASSETS
CASH AND CASH EQUIVALENTS............ $ 1 $ 14
DEFERRED OFFERING COSTS.............. 26 3,159
------------ -------------
Total assets............... $ 27 $ 3,173
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE
TO STOCKHOLDERS.................... $ 8 $ 3,141
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued and outstanding.... -- --
Common stock, $.01 par value,
50,000,000 shares authorized,
1,843,823 and 3,174,943 shares
issued and outstanding......... 19 32
Additional paid-in capital...... -- 8,619
Retained deficit................ -- (8,619)
------------ -------------
Total stockholders'
equity....................... 19 32
------------ -------------
Total liabilities and
stockholders' equity......... $ 27 $ 3,173
============ =============
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
HOMEUSA, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
REVENUES............................. $ --
COMPENSATION EXPENSE RELATING TO
ISSUANCE OF COMMON STOCK TO
MANAGEMENT AND CONSULTANTS......... 8,619
-------------
LOSS BEFORE INCOME TAXES............. (8,619)
INCOME TAX BENEFIT................... --
-------------
NET LOSS............................. $ (8,619)
=============
The accompanying notes are an integral part of this financial statement.
F-14
<PAGE>
HOMEUSA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION (July 3,
1996).............................. 90,713 $ 1 $-- $ -- $ 1
Issuance of shares to Notre..... 1,753,110 18 -- -- 18
----------- ------ ---------- --------- -------------
BALANCE, December 31, 1996........... 1,843,823 19 -- -- 19
Issuance of management and
consultant shares
(unaudited)................... 1,331,120 13 8,619 -- 8,632
Net loss (unaudited)............ -- -- -- (8,619) (8,619)
----------- ------ ---------- --------- -------------
BALANCE, September 30, 1997
(unaudited)........................ 3,174,943 $ 32 $8,619 $ (8,619) $ 32
=========== ====== ========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
HOMEUSA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $(8,619)
Adjustments to reconcile net loss
to net cash provided by
operating activities --
Compensation expense related to
issuance of common stock to
management and consultants..... 8,619
Changes in assets and
liabilities --
Increase in deferred
offering costs............... (3,133)
Increase in accrued
liabilities and amounts due
to stockholders.............. 3,133
-------------
Net cash provided by
operating activities.... --
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock.................. 13
-------------
Net cash provided by
financing activities.... 13
-------------
NET INCREASE......................... 13
CASH, beginning of period............ 1
-------------
CASH, end of period.................. $ 14
=============
The accompanying notes are an integral part of this financial statement.
F-16
<PAGE>
HOMEUSA, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
HomeUSA, Inc., a Delaware corporation (HomeUSA or the Company), was founded
in July 1996 to become a leading national retailer of manufactured homes and
accessories. HomeUSA intends to acquire nine businesses (the Mergers), complete
an initial public offering (the Offering) of its common stock and, subsequent to
the Offering, continue to acquire through merger or purchase, similar companies
to expand its national operations.
HomeUSA has not conducted any operations, and all activities to date have
related to the Offering and the Mergers. All expenditures to date have been
funded by the majority stockholder, Notre Capital Ventures II, L.L.C. (Notre),
on behalf of the Company. Notre has committed to fund the organization expenses
and offering costs. As of December 31, 1996, and September 30, 1997, costs of
approximately $26,000 and $3.2 million (unaudited), respectively, have been
incurred by Notre in connection with the Offering. HomeUSA has treated these
costs as deferred offering costs. HomeUSA is dependent upon the Offering to
execute the pending Mergers. There is no assurance that the pending Mergers
discussed below will be completed or that HomeUSA will be able to generate
future operating revenues.
The Company has an absence of a combined operating history and HomeUSA's
future success is dependent upon a number of factors which include, among
others, the ability to integrate operations, reliance on the identification and
integration of satisfactory acquisition candidates, reliance on acquisition
financing, the ability to manage growth, and attract and retain qualified
management and sales personnel as well as the need for additional capital and
the availability and cost of floor plan financing. Other factors include the
availability of sites for manufactured homes, dependence on key manufacturers,
availability of product, the availability of customer financing, risks
associated with increased regulation and competition, and the cyclical nature of
the manufactured housing industry.
2. INTERIM FINANCIAL INFORMATION:
The interim financial statements as of September 30, 1997, and for the nine
months then ended are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim period are not necessarily indicative
of the results for the entire fiscal year.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. STOCKHOLDERS' EQUITY:
COMMON STOCK AND PREFERRED STOCK
HomeUSA effected a 90.7127-for-one stock dividend on August 1, 1997, for
each share of common stock of the Company (Common Stock) then outstanding. In
addition, the Company increased the number of authorized shares of Common Stock
to 50,000,000 and authorized 5,000,000 shares of $.01 par value preferred stock.
The effects of the Common Stock dividend have been retroactively reflected on
the balance sheet and in the accompanying notes.
F-17
<PAGE>
HOMEUSA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the organization and initial capitalization of HomeUSA,
the Company issued 90,713 shares of common stock at $.01 per share to Notre.
Notre incurred $18,000 of expenses on behalf of the Company for which the
Company issued 1,753,110 shares to Notre in October 1996.
In 1997, the Company issued a total of 1,331,120 shares of Common Stock to
management and consultants to the Company at a price of $.01 per share. As a
result, the Company recorded a nonrecurring, noncash compensation charge of $8.6
million (unaudited) in the first nine months of 1997 representing the difference
between the amount paid for the shares and an estimated fair value of the shares
on the date of sale as if the Founding Companies were combined.
RESTRICTED COMMON STOCK
In August 1997, the Company authorized 5,000,000 shares of $.01 par value
restricted common stock and the primary stockholder exchanged 1,718,823 of its
shares of Common Stock for an equal number of shares of restricted voting common
stock (Restricted Common Stock). The holder of Restricted Common Stock is
entitled to elect one member of the Company's board of directors and to .25 of
one vote for each share on all other matters on which they are entitled to vote.
Holders of Restricted Common Stock are not entitled to vote on the election of
any other directors.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holders (as defined in Sections 267, 707,
318 and/or 4946 of the Internal Revenue Code of 1986, as amended), (ii) in the
event any person acquires beneficial ownership of 15 percent or more of the
total number of outstanding shares of Common Stock of the Company or (iii) in
the event any person offers to acquire 15 percent or more of the total number of
outstanding shares of Common Stock of the Company. After October 1, 1998, the
board of directors may elect to convert any remaining shares of Restricted
Common Stock into shares of Common Stock in the event 80 percent or more of the
originally outstanding shares of Restricted Common Stock have been previously
converted into shares of Common Stock.
LONG-TERM INCENTIVE PLAN
In July 1997, the Company's stockholders approved the Company's 1997
Long-Term Incentive Plan (the Plan), which provides for the granting or awarding
of incentive or nonqualified stock options, stock appreciation rights,
restricted or deferred stock, dividend equivalents and other incentive awards to
directors, officers, key employees and consultants to the Company. The number of
shares authorized and reserved for issuance under the Plan is the greater of
2,000,000 shares or 15 percent of the aggregate number of shares of Common Stock
outstanding. The terms of the option awards will be established by the
compensation committee of the Company's board of directors. The Company intends
to file a registration statement registering the issuance of shares upon
exercise of options granted under this Plan. The Company expects to grant
nonqualified stock options to purchase a total of 650,000 shares of Common Stock
to key employees of the Company at the initial public offering price upon
consummation of the Offering. In addition, the Company expects to grant options
to purchase a total of 952,483 shares of Common Stock to certain employees of
the Founding Companies at the initial public offering price per share. These
options will vest at the rate of 20 percent per year, commencing on the first
anniversary of the Offering and will expire seven years from the date of grant
or three months following termination of employment.
NONEMPLOYEE DIRECTORS' STOCK PLAN
In July 1997, the Company's stockholders approved the 1997 Nonemployee
Directors' Stock Plan (the Directors' Plan), which provides for the granting or
awarding of stock options and stock appreciation rights to nonemployees. The
number of shares authorized and reserved for issuance under the Stock Plan is
F-18
<PAGE>
HOMEUSA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
275,000 shares. The Directors' Plan provides for the automatic grant of options
to purchase 10,000 shares to each nonemployee director serving at the
commencement of the Offering.
Each nonemployee director will be granted options to purchase an additional
10,000 shares at the time of the initial election. In addition, each director
will be automatically granted options to purchase 5,000 shares at each annual
meeting of the stockholders occurring more than two months after the date of the
director's initial election. All options will be exercised at the fair market
value at the date of grant and are immediately vested upon grant.
Options will be granted to each of three future and one current member of
the board of directors to purchase 10,000 shares of Common Stock at the initial
public offering price per share effective upon the consummation of this
Offering. These options will expire the earlier of 10 years from the date of
grant or one year after termination of service as a director.
The Directors' Plan allows nonemployee directors to receive shares
(deferred shares) at future settlement dates in lieu of cash. The number of
deferred shares will have an aggregate fair market value equal to the fees
payable to the directors.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," allows entities to choose between a new
fair-value based method of accounting for employee stock options or similar
equity instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25). Entities
electing to remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting had been applied. The Company will provide pro forma disclosure of
net income and earnings per share, as applicable, in the notes to future
consolidated financial statements.
4. EVENTS SUBSEQUENT TO THE DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
Wholly owned subsidiaries of HomeUSA have signed definitive agreements to
acquire by merger or share exchange nine companies (Founding Companies) to be
effective contemporaneously with the Offering. The companies to be acquired are
the Universal Housing Group, the AAA Homes Group, McDonald Mobile Homes, Inc.,
Patrick Home Center, Inc., the Mobile World Group, the First American Homes
Group, the Cooper's Mobile Homes Group, Home Folks Housing Center, Inc. and
WillMax Homes of Colorado, LLC. HomeUSA will acquire the Founding Companies for
cash and 7.3 million shares of Common Stock.
The Company has recently recieved commitment letters to provide credit
facilities which would be available upon the closing of the Offering. According
to the proposed terms, the Company would have revolving credit facilities of
$125 million for refinancing of floor plan debt. It is anticipated that such
facility will require the Company to comply with various affirmative and
negative covenants including, but not limited to (i) maintenance of certain
financial ratios, (ii) a restriction on additional indebtedness and (iii)
restrictions on liens, guarantees, advances, dividends and business activities
unrelated to its existing operations. Failure to comply with such covenants and
restrictions would constitute an event of default under the proposed facility.
The ability of the Company to secure the credit facility is subject to
completion of negotiations with the bank as well as the satisfaction of certain
conditions, including the execution of appropriate loan documentation.
In September, 1997, HomeUSA filed a registration statement on Form S-1 for
the sale of 5,000,000 shares of its common stock. An investment in shares of
Common Stock offered by this Prospectus involves a high degree of risk as
discussed in Note 1. For a more thorough discussion of risk factors, see "Risk
Factors" included elsewhere in this Prospectus.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Universal Housing Group:
We have audited the accompanying combined balance sheets of Universal
Housing Group (the Group), as defined in Note 1 to the financial statements as
of December 31, 1995 and 1996, and the related combined statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These combined financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of December 31, 1995 and 1996, and the results of their combined operations
and their combined cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-20
<PAGE>
UNIVERSAL HOUSING GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 2,108 $ 8,031 $ 3,388
Accounts receivable, net........... 2,351 1,772 1,553
Inventories........................ 9,334 8,655 7,547
Other current assets............... 38 36 70
--------- --------- -------------
Total current assets.......... 13,831 18,494 12,558
PROPERTY AND EQUIPMENT, net............. 584 801 963
OTHER ASSETS............................ 40 34 29
--------- --------- -------------
Total assets.................. $ 14,455 $ 19,329 $13,550
========= ========= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 2,920 $ 2,376 $ 2,841
Related-party payable.............. -- 50 --
Floor plan payable................. 713 6,729 7,344
--------- --------- -------------
Total current liabilities..... 3,633 9,155 10,185
DEFERRED TAX LIABILITY.................. 63 65 67
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $10 par value and no
par value, 2,000 shares
authorized at December 31, 1995
and 1996 and 3,000 shares
authorized at September 30, 1997,
200 shares issued and outstanding
at December 31, 1995 and 1996 and
300 shares issued and outstanding
at September 30, 1997............ 2 2 3
Retained earnings.................. 10,757 10,107 3,295
--------- --------- -------------
Total shareholders' equity.... 10,759 10,109 3,298
--------- --------- -------------
Total liabilities and
shareholders' equity....... $ 14,455 $ 19,329 $13,550
========= ========= =============
The accompanying notes are an integral part of these combined financial
statements.
F-21
<PAGE>
UNIVERSAL HOUSING GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Home sales......................... $ 48,232 $ 56,039 $ 51,330 $ 39,451 $ 39,488
Other revenue...................... 226 206 353 234 508
--------- --------- --------- --------- ---------
Total revenue................. 48,458 56,245 51,683 39,685 39,996
COST OF SALES........................... 37,844 43,041 39,820 31,075 31,277
--------- --------- --------- --------- ---------
Gross profit.................. 10,614 13,204 11,863 8,610 8,719
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 7,789 10,131 9,344 6,399 5,182
--------- --------- --------- --------- ---------
Income from operations........ 2,825 3,073 2,519 2,211 3,537
OTHER INCOME (EXPENSE):
Interest expense................... (362) (221) (412) (267) (494)
Other income, net.................. 192 283 424 167 201
--------- --------- --------- --------- ---------
Income before income taxes.... 2,655 3,135 2,531 2,111 3,244
PROVISION FOR INCOME TAXES.............. 138 181 131 100 177
--------- --------- --------- --------- ---------
NET INCOME.............................. $ 2,517 $ 2,954 $ 2,400 $ 2,011 $ 3,067
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-22
<PAGE>
UNIVERSAL HOUSING GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- ---------
BALANCE, December 31, 1993.............. $ 1 $ 6,351 $ 6,352
Distributions...................... -- (250) (250)
Net income......................... -- 2,517 2,517
------ -------- ---------
BALANCE, December 31, 1994.............. 1 8,618 8,619
Issuance of common stock (Universal
Housing of East Tenn., Inc.)..... 1 -- 1
Distributions (Universal Housing,
Inc.)............................ -- (815) (815)
Net income......................... -- 2,954 2,954
------ -------- ---------
BALANCE, December 31, 1995.............. 2 10,757 10,759
Distributions (Universal Housing,
Inc.)............................ -- (3,050) (3,050)
Net income......................... -- 2,400 2,400
------ -------- ---------
BALANCE, December 31, 1996.............. 2 10,107 10,109
Issuance of common stock (Shaffer &
Webb Insurance Agency, Inc.)..... 1 (1) --
Distributions (unaudited).......... -- (9,878) (9,878)
Net income (unaudited)............. -- 3,067 3,067
------ -------- ---------
BALANCE, September 30, 1997
(unaudited)........................... $ 3 $ 3,295 $ 3,298
====== ======== =========
The accompanying notes are an integral part of these combined financial
statements.
F-23
<PAGE>
UNIVERSAL HOUSING GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 2,517 $ 2,954 $ 2,400 $ 2,011 $ 3,067
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation and amortization.... 71 80 94 53 78
Gain on sale of assets........... (7) (9) (19) (14) (18)
Deferred state tax provision..... 2 3 (7) 1 1
Changes in assets and
liabilities --
Accounts receivable........... (211) (318) 579 615 219
Inventories................... 111 (1,782) 679 786 1,108
Other current assets.......... (9) (16) 11 37 (59)
Other noncurrent assets....... 27 37 6 23 (2)
Accounts payable and accrued
expenses................... 440 741 (544) 1,180 467
Floor plan payable............ (2,160) (1,157) 6,016 5,514 615
--------- --------- --------- --------- ---------
Net cash provided by
operating
activities............ 783 533 9,215 10,206 5,476
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (58) (256) (316) (249) (272)
Proceeds from sale of equipment....... 15 10 24 16 31
--------- --------- --------- --------- ---------
Net cash used in
investing activities.. (43) (246) (292) (233) (241)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock.................. -- 1 -- -- --
Proceeds from (payments on) short-term
debt............................... (30) (30) 50 -- --
Distribution to shareholders.......... (250) (815) (3,050) (3,050) (9,878)
--------- --------- --------- --------- ---------
Net cash used in
financing activities (280) (844) (3,000) (3,050) (9,878)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 460 (557) 5,923 6,923 (4,643)
CASH AND CASH EQUIVALENTS, beginning of
period................................ 2,205 2,665 2,108 2,108 8,031
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 2,665 $ 2,108 $ 8,031 $ 9,031 $ 3,388
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................... $ 362 $ 221 $ 412 $ 267 $ 579
Taxes.............................. 406 497 623 236 139
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-24
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Universal Housing Group (the Group) includes the accompanying combined
financial statements of the following companies under common control and
ownership:
Universal Housing, Inc. --
Universal Housing, Inc., a Tennessee S Corporation, operates 14 retail
manufactured home sales centers in Tennessee and Virginia.
Universal Housing of East Tn., Inc. --
Universal Housing of East Tn., Inc., a Tennessee S Corporation,
operates one retail manufactured home sales center in eastern
Tennessee.
Shaffer and Webb Insurance Agency, Inc. --
Shaffer and Webb Insurance Agency, a Tennessee S Corporation, sells
physical damage insurance to customers of Universal Housing, Inc.,
and Universal Housing of East Tn., Inc. Prior to September 1997,
Shaffer and Webb Insurance Agency, Inc. was a sole proprietorship.
The Group's owners intend to enter into a definitive agreement with HomeUSA
Inc. (HomeUSA), pursuant to which all of the ownership interests of the Group
will be exchanged for cash and shares of HomeUSA's common stock concurrently
with the consummation of an initial public offering (the Offering) of the common
stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group for all periods which the companies were under common
control. All significant intercompany transactions have been eliminated in
combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of September 30, 1997, and for
the nine months ended September 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the combined
interim financial statements have been included. The Group's operations are
subject to different seasonal variations in sales. Due to seasonality and other
factors, the results of operations for the interim periods are not necessarily
indicative of the results for the entire fiscal year.
CASH AND CASH EQUIVALENTS
The Group considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
F-25
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Group's retail sales), upon execution of the loan
agreement and other required documentation and receipt of a designated minimum
down payment. The Group also maintains pre-owned manufactured home inventory
owned by third parties for which the Group records a sales commission in other
revenues when sold to customers. Home sales exclude any sales and use taxes
collected.
The Group receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenue at the time the policies are written.
The Group arranges financing for customers through various institutions for
which the Group receives certain financing fees which are recognized in other
revenue along with the sale of the related home. Other revenue also includes
repair and maintenance services.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery.
INCOME TAXES
Universal Housing, Inc. and Universal Housing of East Tn., Inc. have
elected S Corporation status as defined by the Internal Revenue Code, whereby
they are not subject to taxation for federal purposes. Under S Corporation
status, the shareholders report their share of the Group's taxable earnings or
losses on their personal tax returns. Prior to September 1997, Shaffer and Webb
Insurance Agency, Inc. was a sole proprietorship. The Group will terminate their
S Corporation status concurrently with the effective date of the Offering. The
provision for income taxes is composed entirely of state income taxes.
SHAREHOLDERS' EQUITY
Shareholders' equity of the Group includes the following shares of common
stock which were issued and outstanding at December 31, 1996 and September 30,
1997 (unaudited): 100 shares of common stock at $10 par value for Universal
Housing, Inc. and 100 shares of Common Stock at $10 par value for Universal
Housing of East Tn. In addition, at September 30, 1997 (unaudited) 100 shares of
Common Stock at no par value (stated $10 par value) for Shaffer and Webb
Insurance Agency, Inc. were outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments consist primarily of accounts receivables
and floor plan payables. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or existence of
variable interest rates that approximate market rates.
F-26
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Group purchases all of its homes from two primary suppliers at the
prevailing prices charged by the manufacturers. The Group's sales volume could
be adversely affected by the manufacturers' inability to supply the sales center
with an adequate supply of homes.
The retail agreements between the sales center and the manufacturer contain
certain provisions, including the minimum amount of homes to be purchased and
displayed, guidelines for the display of model homes, installation and delivery
guidelines and terms of reimbursement for warranty work performed by the
retailer pursuant to the manufacturer's warranty. These agreements also provide
for volume rebate incentive programs based on inventory purchases. Accordingly,
inventory has been recorded net of volume rebates. Retail agreements may be
terminated by the sales center with notice and by the manufacturer for good
cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for the Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued in June 1996 and establishes, among other things, new
criteria related to accounting for transfers of financial assets in exchange for
cash or other consideration. SFAS No. 125 also establishes new accounting
requirements for pledged collateral. In addition, SFAS No. 125 is effective for
all transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The Group will adopt this
statement when required and has not determined the impact that the adoption of
SFAS No. 125 will have on its financial statements.
F-27
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31
LIVES IN -------------------- SEPTEMBER 30,
YEARS 1995 1996 1997
--------- --------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Buildings............................... 25 $ 354 $ 390 $ 417
Leasehold improvements.................. 10 199 283 413
Equipment............................... 7 307 438 431
Furniture and fixtures.................. 5 201 191 207
--------- --------- --------------
Total.............................. 1,061 1,302 1,468
Less -- Accumulated depreciation........ (477) (501) (505)
--------- --------- --------------
Property and equipment, net........ $ 584 $ 801 $ 963
========= ========= ==============
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
Due from manufacturers.................. $ 499 $ 325 $ 605
Due from finance companies.............. 1,650 954 864
Other................................... 202 493 84
--------- --------- -------------
$ 2,351 $ 1,772 $ 1,553
========= ========= =============
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
New homes, net of unearned volume
rebates............................... $ 8,787 $ 7,902 $ 6,755
Pre-owned homes......................... 213 333 383
Parts, accessories and other............ 334 420 409
--------- --------- -------------
$ 9,334 $ 8,655 $ 7,547
========= ========= =============
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
Accounts payable, trade................. $ 941 $ 983 $ 857
Accrued compensation.................... 1,303 1,019 1,071
Customer deposits....................... 269 250 478
Other accrued expenses.................. 407 124 435
--------- --------- -------------
$ 2,920 $ 2,376 $ 2,841
========= ========= =============
F-28
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. FLOOR PLAN PAYABLE:
The Group has a floor plan credit facility with lending institutions to
finance a major portion of its manufactured home inventory until such inventory
is sold. Interest on amounts borrowed is paid monthly at the lender's prime rate
(8.25 percent at December 31, 1996 and 8.5 percent at September 30, 1997
(unaudited)). The floor plan payable is secured by all of the Group's
manufactured home inventory, the related furniture, fixtures and accessories and
accounts receivable and is guaranteed by the majority shareholder of the Group.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Group must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Group's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Group experience a material adverse change in its
financial position as determined by the lender. The maximum amount that can be
borrowed under the floor plan lines of credit is $8.75 million, and the largest
balance outstanding during the year ended December 31, 1996, was approximately
$6.7 million. The average balance outstanding during 1996 was approximately $4.6
million with a weighted average interest rate paid of 8.27 percent.
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal --
Current............................ $ -- $ 14 $ --
Deferred........................... -- 1 (1)
--------- --------- ---------
-- 15 (1)
--------- --------- ---------
State --
Current............................ 136 164 124
Deferred........................... 2 2 8
--------- --------- ---------
138 166 132
--------- --------- ---------
Total provision............... $ 138 $ 181 $ 131
========= ========= =========
The provision for income taxes differs from an amount computed at the
statutory rates as follows
(in thousands):
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal income tax at statutory rates... $ 929 $ 1,097 $ 886
State income taxes...................... 138 166 132
Effect of S corporation income.......... (929) (1,082) (887)
--------- --------- ---------
$ 138 $ 181 $ 131
========= ========= =========
F-29
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995 and 1996, are as follows (in thousands):
1995 1996
--------- ---------
Deferred tax assets --
Accrued expenses................... $ -- $ 11
Other.............................. 6 7
--------- ---------
Total deferred tax assets..... 6 18
--------- ---------
Deferred tax liabilities --
Bases differences in property and
equipment......................... (11) (11)
Other.............................. (58) (72)
--------- ---------
Total deferred tax
liabilities................ (69) (83)
--------- ---------
Net deferred tax liability.... $ (63) $ (65)
========= =========
7. RELATED-PARTY TRANSACTIONS:
The Group leases facilities from certain shareholders of the Group under
operating leases. The rent paid under this related-party lease was approximately
$18,000, $77,000 and $113,000 for the years ended December 31, 1994, 1995 and
1996, respectively.
Certain shareholders of the Group own interest in a real estate investment
entity which, from time to time, sells land to customers of the Group.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2002. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................... $ 301
1998............................... 231
1999............................... 185
2000............................... 165
2001............................... 86
Thereafter......................... 11
---------
Total......................... $ 979
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $296,000, $353,000 and $381,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
LITIGATION
The Group is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Group's combined financial position or
combined results of operations.
F-30
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS (UNAUDITED):
In September 1997, the Group and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Group with the subsidiary of HomeUSA (the Merger). The cash portion of the
purchase price of the Merger will be adjusted to the extent the Excess Operating
Capital is greater or less than zero. Excess Operating Capital is defined as net
working capital minus long-term debt, as of the effective date of the Merger.
Had this distribution been made at September 30, 1997, the effect on the Group's
balance sheet would have been to decrease shareholders' equity by approximately
$2.4 million.
Concurrently with the Merger, the Group will enter into agreements with the
shareholders to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AAA Homes Group:
We have audited the accompanying combined balance sheets of AAA Homes
Group, (the Group) as defined in Note 1 to the financial statements, as of
December 31, 1995 and 1996, and the related combined statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These combined financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of December 31, 1995 and 1996, and the results of their combined operations
and their combined cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-32
<PAGE>
AAA HOMES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 889 $ 814 $ 707
Accounts receivable................ 867 1,398 1,902
Related-party receivable........... 48 80 25
Inventories........................ 6,880 9,248 9,599
--------- --------- --------------
Total current assets.......... 8,684 11,540 12,233
PROPERTY AND EQUIPMENT, net............. 859 1,106 1,422
OTHER ASSETS, net....................... 289 396 421
--------- --------- --------------
Total assets.................. $ 9,832 $ 13,042 $ 14,076
========= ========= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 1,439 $ 1,682 $ 1,673
Related-party payable.............. -- 49 --
Floor plan payable................. 6,995 9,002 8,859
Current maturities of long-term
debt............................. 58 108 195
Deferred tax liability............. 27 26 131
--------- --------- --------------
Total current liabilities..... 8,519 10,867 10,858
LONG-TERM DEBT, net of current
maturities............................ 113 32 252
DEFERRED TAX LIABILITY.................. 61 132 142
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 105,000
shares authorized,
68,000 issued and 36,500
outstanding...................... 68 68 68
Retained earnings.................. 1,151 2,023 2,786
Partners' capital.................. -- -- 50
Treasury stock, 31,500 shares, at
cost............................. (80) (80) (80)
--------- --------- --------------
Total shareholders' equity.... 1,139 2,011 2,824
--------- --------- --------------
Total liabilities and
shareholders' equity....... $ 9,832 $ 13,042 $ 14,076
========= ========= ==============
The accompanying notes are an integral part of these combined financial
statements.
F-33
<PAGE>
AAA HOMES GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Home sales......................... $ 20,159 $ 27,166 $ 38,584 $ 30,692 $ 28,562
Other revenue...................... 306 385 612 415 1,084
--------- --------- --------- --------- ---------
Total revenue................. 20,465 27,551 39,196 31,107 29,646
COST OF SALES........................... 16,113 21,604 30,543 24,484 22,648
--------- --------- --------- --------- ---------
Gross profit.................. 4,352 5,947 8,653 6,623 6,998
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 3,370 4,465 6,272 4,589 5,275
--------- --------- --------- --------- ---------
Income from operations........ 982 1,482 2,381 2,034 1,723
OTHER INCOME (EXPENSE):
Interest expense, net.............. (464) (679) (994) (788) (611)
Other income, net.................. 82 52 44 (7) 54
--------- --------- --------- --------- ---------
Income before income taxes.... 600 855 1,431 1,239 1,166
PROVISION FOR INCOME TAXES.............. 236 337 559 483 403
--------- --------- --------- --------- ---------
NET INCOME.............................. $ 364 $ 518 $ 872 $ 756 $ 763
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-34
<PAGE>
AAA HOMES GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TREASURY
COMMON RETAINED PARTNERS' STOCK,
STOCK EARNINGS CAPITAL AT COST TOTAL
------ --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. $ 68 $ 269 $ -- $ (80) $ 257
Net income......................... -- 364 -- -- 364
------ --------- --------- -------- ---------
BALANCE, December 31, 1994.............. 68 633 -- (80) 621
Net income......................... -- 518 -- -- 518
------ --------- --------- -------- ---------
BALANCE, December 31, 1995.............. 68 1,151 -- (80) 1,139
Net income......................... -- 872 -- -- 872
------ --------- --------- -------- ---------
BALANCE, December 31, 1996.............. 68 2,023 -- (80) 2,011
Net income (unaudited)............. -- 763 -- -- 763
Capital contributions
(unaudited)...................... -- -- 50 -- 50
------ --------- --------- -------- ---------
BALANCE, September 30, 1997
(unaudited)........................... $ 68 $ 2,786 $ 50 $ (80) $ 2,824
====== ========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-35
<PAGE>
AAA HOMES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income............................ $ 364 $ 518 $ 872 $ 756 $ 763
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation and amortization.... 25 60 151 113 111
Gain on sale of assets........... (29) -- -- -- --
Deferred income tax provision.... 6 36 70 52 115
Changes in assets and
liabilities --
Accounts receivable, net...... (25) (377) (531) (530) (504)
Related-party receivable...... (13) (34) (32) 48 55
Inventories................... (637) (2,459) (2,105) (2,279) 2,705
Other assets, net............. 41 (41) (22) 147 28
Accounts payable and accrued
expenses................... 234 400 243 429 (9)
Related-party payables........ -- -- 49 2 (49)
Floor plan payable............ 678 2,712 1,744 1,948 (3,147)
--------- --------- --------- --------- ---------
Net cash provided by
operating
activities............ 644 815 439 686 68
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (58) (616) (357) (230) (241)
Proceeds from sale of equipment....... 88 2 4 4 88
Purchases of manufactured home
operations......................... (40) -- (130) (130) (204)
--------- --------- --------- --------- ---------
Net cash used in
investing
activities............ (10) (614) (483) (356) (357)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments on) Proceeds from long-term
debt............................... (103) (45) (31) (63) 132
Capital contributions................. 5 -- -- -- 50
--------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............ (98) (45) (31) (63) 182
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 536 156 (75) 267 (107)
CASH AND CASH EQUIVALENTS, beginning
of period............................. 197 733 889 889 814
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 733 $ 889 $ 814 $ 1,156 $ 707
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest........................... $ 423 $ 684 $ 1,112 $ 788 $ 645
Taxes.............................. 246 196 337 272 318
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-36
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
AAA Homes Group (the Group) includes the financial statements of the
following companies under common control and ownership: CSF&T, Inc., d.b.a. AAA
Homes (a Mississippi corporation), Fordham Insurance Agency, Inc. (a Mississippi
corporation), and AAA Homes LLC (a Louisiana limited liability company). The
Group is primarily engaged in the retail sale of new and pre-owned manufactured
homes and the sale of the related finance, insurance and service contracts
thereon. The Group operates sales centers in Mississippi and Louisiana which
have retail agreements with a number of manufacturers.
In April 1996, the Group acquired the inventory, office building and
certain other assets and related rights of Wood Mobile Homes (Wood) located in
Mississippi. The aggregate consideration paid for Wood was $130,000 in cash. The
accompanying combined balance sheets include allocations of the respective
purchase price which resulted in goodwill of $120,000 which is being amortized
over 40 years.
AAA Homes, LLC was formed in November 1996 by the shareholders of CSF&T,
Inc., and commenced operations with the purchase of three Louisiana sales
centers acquired from Basset Homes, Inc. (Basset) in April 1997. The aggregate
consideration paid for Basset was $204,000 in cash and $175,000 in notes payable
to the seller. The accompanying combined balance sheets as of September 30,
1997, include allocations of the respective purchase price which resulted in
goodwill of $66,040 which is being amortized over 40 years.
The Group's owners intend to enter into a definitive agreement with
HomeUSA, Inc. (HomeUSA), pursuant to which all of the ownership interests of the
Group will be exchanged for cash and shares of HomeUSA's common stock
concurrently with the consummation of an initial public offering (the Offering)
of the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group for all periods which the companies were under common
control. All significant intercompany transactions have been eliminated in
combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of September 30, 1997, and for
the nine months ended September 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the combined
interim financial statements have been included. The Group's operations are
subject to different seasonal variations in sales. Due to seasonality and other
factors, the results of operations for the interim periods are not necessarily
indicative of the results for the entire fiscal year.
CASH AND CASH EQUIVALENTS
The Group considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
F-37
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and setup and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Group's retail sales), upon execution of the loan
agreement and other required documentation and receipt of a designated minimum
down payment. Home sales exclude any sales and use taxes collected.
The Group receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenue at the time the policies are written.
The Group arranges financing for customers through various institutions for
which the Group receives certain financing fees which are recognized in other
revenue along with the sale of the related home.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery.
GOODWILL
Goodwill represents the excess of the consideration paid over the fair
market value of assets acquired and is being amortized on the straight-line
method over 40 years. Accumulated amortization totaled approximately $10,000,
$19,000 and $34,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
INCOME TAXES
The Group accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
AAA Homes, LLC (AAA), as a limited liability company is taxed as a
partnership for federal and state income tax purposes, as such, in lieu of
corporate income taxes, the shareholders separately account for AAA's items of
income, deductions, losses and credits on their individual income tax returns
based on their respective ownership interests. The financial statements do not
include a provision for income taxes for AAA.
F-38
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SHAREHOLDERS' EQUITY
Shareholders' equity of the Group includes the following shares of common
stock which were issued and outstanding at December 31, 1996 and September 30,
1997 (unaudited): 63,000 shares of common stock issued and 31,500 shares
outstanding at $1 par value for CSF&T, Inc. and 5,000 shares of common stock
issued and outstanding at $1 par value for Fordham Insurance Agency, Inc.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments consist primarily of floor plan payables,
accounts receivable and long-term debt. The carrying amount of these financial
instruments approximates fair value due either to length of maturity or
existence of variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Group purchases 78 percent of its homes through a retail agreement with
a primary supplier at the prevailing prices charged by the manufacturers.
Pursuant to this agreement, the Group received volume rebates on inventory
purchases. The Group's sales volume could be adversely affected by the
manufacturers' inability to supply the sales centers with an adequate supply of
homes.
The retail agreements between the sales centers and the manufacturers
contain certain provisions, including the minimum amount of homes to be
purchased and displayed, guidelines for the display of model homes, installation
and delivery guidelines and terms of reimbursement for warranty work performed
by the retailer pursuant to the manufacturer's warranty. These agreements also
provide for volume rebate incentive programs based on inventory purchases.
Accordingly, inventory has been recorded net of volume rebates. Retail
agreements may be terminated by the sales center with notice and by the
manufacturer for good cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 125, "Accounting for the Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," was issued in June 1996 and
establishes, among other things, new criteria related to accounting for
transfers of financial assets in exchange for cash or other consideration. SFAS
No. 125 also establishes new accounting requirements for pledged collateral. In
addition, SFAS No. 125 is effective for all transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996. The
Group will adopt this statement when required and has not determined the impact
that the adoption of SFAS No. 125 will have on its financial statements.
F-39
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- SEPTEMBER 30,
(IN YEARS) 1995 1996 1997
------------ --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.................................... $ 110 $ 110 $ 110
Buildings............................... 25 375 386 550
Leasehold improvements.................. 10 293 497 498
Equipment............................... 5-7 118 184 291
Furniture and fixtures.................. 5 159 243 271
--------- --------- -------------
Total.............................. 1,055 1,420 1,720
Less -- Accumulated depreciation........ (196) (314) (298)
--------- --------- -------------
Property and equipment, net........ $ 859 $ 1,106 $ 1,422
========= ========= =============
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
Due from manufacturer................. $ 280 $ 452 $ 715
Due from finance companies............ 484 684 912
Other................................. 103 262 275
--------- --------- -------------
$ 867 $ 1,398 $ 1,902
========= ========= =============
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
New homes, net of unearned volume rebates.. $ 6,567 $ 8,545 $ 8,806
Pre-owned homes............................ 292 629 654
Parts, accessories and other............... 21 74 139
--------- --------- -------------
$ 6,880 $ 9,248 $ 9,599
========= ========= =============
Other assets consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
Note receivable...................... $ 133 $ 109 $ 76
Goodwill, net........................ 115 220 274
Other................................ 41 67 71
--------- --------- -------------
$ 289 $ 396 $ 421
========= ========= =============
F-40
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
Accounts payable, trade................. $ 601 $ 807 $ 950
Accrued compensation.................... 219 298 180
Other accrued expenses.................. 619 577 543
--------- --------- -------------
$ 1,439 $ 1,682 $ 1,673
========= ========= =============
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Group has three primary floor plan credit facilities with lending
institutions to finance a major portion of its manufactured home inventory until
such inventory is sold. Interest on amounts borrowed is paid monthly at rates
varying from 0.75 percent up to 1.75 percent (depending on the length of time
the note is outstanding) over the prime rate (9.0 percent to 10.0 percent at
December 31, 1996, and 9.25 percent to 10.25 percent at September 30, 1997
(unaudited)). The floor plan payable is secured by all of the Group's
manufactured home inventory, the related furniture, fixtures and accessories and
accounts receivable, and is guaranteed by the shareholders of the Group.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Group must make periodic loan payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Group's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Group experience a material adverse change in its
financial position as determined by the lender. The maximum aggregate amount
that can be borrowed under the lines of credit is $13.0 million, and the largest
balance outstanding during the year ended December 31, 1996, was approximately
$10.3 million. The average balance outstanding during 1996 was approximately
$8.0 million with a weighted average interest rate paid of 12.8 percent.
F-41
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
(IN THOUSANDS)
Note payable to a bank in monthly
installments of $908 including
interest at 8%, final payment of
$72,000 due October 9, 1997, secured
by shareholders....................... $ 89 $ 75 $ 72
Notes payable to individuals in total
monthly installments of approximately
$5,000 including interest ranging from
6% to 10% with annual payments of
approximately $25,000 including
interest, due April 10, 1997, secured
by shareholders....................... 82 30 --
Note payable to a bank accruing interest
at 8%, principal and accrued interest
due April 25, 1998, secured by
shareholders.......................... -- 35 30
Notes payable to an individual in total
monthly installments of $3,689
including interest at 8% beginning
July 14, 1997, with annual payments of
$10,000, $30,000 and final payment of
$35,000 plus accrued interest at 8%,
due March 14, 1999, secured by
shareholders.......................... -- -- 159
Note payable to a financial institution,
monthly payments of $3,605 including
interest at 9%, due April 2002,
secured by shareholders............... -- -- 186
--------- --------- -------------
171 140 447
Less -- Current portion................. (58) (108) (195)
--------- --------- -------------
$ 113 $ 32 $ 252
========= ========= =============
AAA Homes has a $50,000 line of credit with a financial institution that is
secured by a certificate of deposit. The line of credit expired on November 28,
1996, and there were no amounts outstanding on the line at December 31, 1995.
At December 31, 1996, future principal payments of long-term debt are
$108,272 for 1997 and $315,000 for 1998.
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal --
Current............................ $ 199 $ 260 $ 422
Deferred........................... 5 31 61
--------- --------- ---------
204 291 483
--------- --------- ---------
State --
Current............................ 31 41 67
Deferred........................... 1 5 9
--------- --------- ---------
32 46 76
--------- --------- ---------
Total provision............... $ 236 $ 337 $ 559
========= ========= =========
F-42
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from an amount computed at the
statutory rates as follows (in thousands):
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal income tax at statutory rates... $ 210 $ 300 $ 501
State income taxes...................... 21 30 50
Nondeductible expenses.................. 5 7 8
--------- --------- ---------
$ 236 $ 337 $ 559
========= ========= =========
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995 and 1996, are as follows (in thousands):
1995 1996
--------- ---------
Deferred tax assets --
Accrued expenses................... $ 20 $ 8
--------- ---------
Total deferred tax assets..... 20 8
--------- ---------
Deferred tax liabilities --
Bases differences in property and
equipment......................... (38) (56)
Other.............................. (70) (110)
--------- ---------
Total deferred tax
liabilities................ (108) (166)
--------- ---------
Net deferred tax liability.... $ (88) $ (158)
========= =========
7. RELATED-PARTY TRANSACTIONS:
The Group owns a 1 percent general partnership interest in a limited
partnership (the Partnership). The Partnership leases various facilities,
equipment and land under operating leases to the Group. Rental expense on these
leases totaled approximately $13,000, $137,000 and $153,000 for the years ended
December 31, 1994, 1995 and 1996, respectively. The investment balance in the
Partnership at December 31, 1995 and 1996, was de minimus.
Financing of pre-owned manufactured homes is provided through an affiliate
of the Group. The amount of sales that were financed by this affiliate during
the years ended December 31, 1994, 1995 and 1996, were approximately $29,000,
$26,000 and $30,000, respectively. Amounts due from this affiliate were
approximately $27,000 and $57,000 at December 31, 1995 and 1996, respectively.
The shareholders of the Group own a majority interest in a limited
liability company, which was established in 1996 to enable a retailer to
purchase manufactured homes through the Group's exclusive retailing agreement
with a manufacturer. Volume rebates received on behalf of this limited liability
company are recorded as related-party payables and were approximately $49,000 at
December 31, 1996.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Group leases various facilities, equipment and land under operating
lease agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2001. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
F-43
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................... $ 463
1998............................... 380
1999............................... 266
2000............................... 47
2001............................... 12
Thereafter......................... --
---------
Total......................... $ 1,168
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $214,000, $338,000 and $404,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
LITIGATION
The Group is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Group's combined financial position or
combined results of operations.
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
EMPLOYEE 401(k) RETIREMENT PLAN
The Group participates in a 401(k) profit-sharing plan (the Plan) with
related companies, which covers all employees at least 21 years of age who have
completed at least 1,000 hours of services in a 12-month period subsequent to
employment. The Plan allows for employee contributions through salary reductions
of up to 15 percent of total compensation, subject to the statutory limits.
Employer matching contributions were $7,000, $10,000 and $11,000 for 1994, 1995
and 1996, respectively. The discretionary profit-sharing contributions were
$75,000 and $100,000 for 1994 and 1995, respectively, with no contribution made
in 1996.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In September 1997, the Group and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Group with the subsidiary of HomeUSA (the Merger). Property and equipment of
approximately $170,000, which are included in the combined balance sheet at
September 30, 1997, will be distributed to the shareholders of the Group. The
cash portion of the purchase price of the Merger will be adjusted to the extent
the Excess Operating Capital is greater or less than zero. Excess Operating
Capital is defined as net working capital minus long-term debt, as of the
effective date of the Merger. Had these distributions been made at September 30,
1997, the effect on the Group's balance sheet would have been to decrease
shareholders' equity by approximately $1.1 million.
Concurrently with the Merger, the Group will enter into agreements with the
shareholders to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
McDonald Mobile Homes, Inc.:
We have audited the accompanying balance sheets of McDonald Mobile Homes,
Inc. as of December 31, 1996 and 1995, and the related statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1996, 1995
and 1994. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of McDonald Mobile Homes, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1996, 1995 and 1994, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
March 28, 1997, except as to the information
presented in the second paragraph of Note 7,
for which the date is May 1, 1997.
F-45
<PAGE>
MCDONALD MOBILE HOMES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 645 $ 477 $ 648
Accounts receivable............. 924 769 1,252
Inventories..................... 8,776 8,168 5,826
Assets held for sale............ -- -- 76
Other current assets............ 257 128 264
--------- --------- -------------
Total current assets....... 10,602 9,542 8,066
NOTES RECEIVABLE FROM SHAREHOLDERS... -- 155 --
PROPERTY AND EQUIPMENT, net.......... 908 933 1,729
--------- --------- -------------
Total assets............... $ 11,510 $ 10,630 $ 9,795
========= ========= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses...................... $ 1,211 $ 892 $ 1,074
Floor plan payable.............. 8,094 6,995 5,234
Current maturities of long-term
debt.......................... 165 198 251
Deferred tax liability.......... 388 268 227
--------- --------- -------------
Total current
liabilities............. 9,858 8,353 6,786
LONG-TERM DEBT, net of current
maturities......................... 241 199 551
DEFERRED TAX LIABILITY............... 50 22 61
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.50 par value,
100,000 shares authorized and
74,773 shares issued and
outstanding in 1996 and
September 30, 1997 and $1 par
value 50,000 shares
authorized, and 25,000 shares
issued and outstanding in
1995.......................... 25 37 37
Less -- Treasury stock, at
cost.......................... -- -- (152)
Additional paid-in capital...... -- 154 164
Retained earnings............... 1,336 1,865 2,348
--------- --------- -------------
Total shareholders'
equity.................. 1,361 2,056 2,397
--------- --------- -------------
Total liabilities and
shareholders' equity.... $ 11,510 $ 10,630 $ 9,795
========= ========= =============
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
MCDONALD MOBILE HOMES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Home sales...................... $ 20,480 $ 30,626 $ 29,451 $ 22,731 $ 22,217
Other revenue................... 193 236 396 284 559
--------- --------- --------- --------- ---------
Total revenue.............. 20,673 30,862 29,847 23,015 22,776
COST OF SALES........................ 16,819 25,214 24,329 18,483 18,220
--------- --------- --------- --------- ---------
Gross profit............... 3,854 5,648 5,518 4,532 4,556
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................ 2,724 4,206 3,925 2,835 3,209
--------- --------- --------- --------- ---------
Income from operations..... 1,130 1,442 1,593 1,697 1,347
OTHER INCOME (EXPENSE):
Interest expense, net........... (422) (824) (808) (585) (577)
Other income, net............... 101 59 58 17 49
--------- --------- --------- --------- ---------
Income before income
taxes................... 809 677 843 1,129 819
PROVISION FOR INCOME TAXES........... 302 253 314 418 336
--------- --------- --------- --------- ---------
NET INCOME........................... $ 507 $ 424 $ 529 $ 711 $ 483
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
MCDONALD MOBILE HOMES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TREASURY
COMMON PAID-IN STOCK, RETAINED
STOCK CAPITAL AT COST EARNINGS TOTAL
------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993......... $ 25 $-- $-- $ 405 $ 430
Net income...................... -- -- -- 507 507
------ ---------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1994......... 25 -- -- 912 937
Net income...................... -- -- -- 424 424
------ ---------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1995......... 25 -- -- 1,336 1,361
Net income...................... -- -- -- 529 529
Exercise of stock options....... 35 (10) -- -- 25
Adjustment of par value......... (30) 30 -- -- --
Issuance of common stock........ 7 134 -- -- 141
------ ---------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1996......... 37 154 -- 1,865 2,056
Net income (unaudited).......... -- -- -- 483 483
Repurchase of common stock
(unaudited)................... -- 10 (152) -- (142)
------ ---------- -------- -------- ---------
BALANCE AT SEPTEMBER 30, 1997
(unaudited)........................ $ 37 $ 164 $ (152) $2,348 $ 2,397
====== ========== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
MCDONALD MOBILE HOMES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 507 $ 424 $ 529 $ 711 $ 483
Adjustments to reconcile net income
to cash provided by (used in)
operating activities --
Depreciation.................... 40 65 77 58 73
Deferred income tax provision... 199 149 (148) (111) (2)
Noncash compensation on stock
issuance...................... -- -- 11 11 --
Changes in operating assets and
liabilities --
Accounts receivable............. (257) (189) 155 55 (483)
Inventories..................... (1,858) (3,649) 608 1,038 1,380
Other assets, net............... (4) (183) 183 132 (186)
Accounts payable and accrued
expenses...................... 147 243 (319) (108) 236
Floor plan payable.............. 2,150 3,257 (1,099) (793) (899)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities.......... 924 117 (3) 993 602
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemptions of (investments in)
certificates of deposit....... (20) (1) (54) -- 50
Purchases of property and
equipment..................... (169) (552) (133) (175) (1,014)
Proceeds from sale of assets.... 31 47 31 32 92
--------- --------- --------- --------- ---------
Net cash used in investing
activities.................... (158) (506) (156) (143) (872)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.... -- 195 54 43 511
Repayments of long-term debt.... (51) (52) (63) (173) (83)
Proceeds from issuance of
stock......................... -- -- -- -- 165
Repurchase of common stock...... -- -- -- -- (152)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities.......... (51) 143 (9) (130) 441
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 715 (246) (168) 720 171
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 176 891 645 645 477
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 891 $ 645 $ 477 $ 1,365 $ 648
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period
for --
Interest........................ $ 399 $ 807 $ 806 $ 594 $ 573
Income taxes.................... 75 135 118 113 369
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The principal operations of McDonald Mobile Homes (the Company) consist of
the sale and installation of manufactured homes in the states of Arkansas,
Kansas, Missouri and Oklahoma. The Company began operations in January 1987. The
Company has operated under the names of Affordable Mobile Homes, All American
Home Center, Budget Mobile Homes, Coffeyville Mobile Homes, Granny's Mobile
Homes, Granny's II, Harrison Home Center and Mobile Home Supercenter.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 1997, and for the nine
months ended September 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The Company's operations are subject to seasonal variations in
sales. Due to seasonality and other factors, the results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
At December 31, 1996 and 1995, the Company had cash balances in excess of
FDIC insured limits of $896,065 and $622,976, respectively.
INVENTORIES
Inventories are valued at the lower of cost or market using the
specific-identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Company's retail sales), upon execution of the
loan agreement and other required documentation and receipt of a designated
minimum down payment. Home sales also includes revenue from the construction of
site amenities. Home sales exclude any sales and use taxes collected.
The Company receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenue at the time the policies are written.
F-50
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also maintains used manufactured home inventory owned by third
parties for which the Company records a sales commission in other revenue when
sold to customers.
Also included in other revenue is the revenue from warranty, repair and
maintenance services.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
MAJOR SUPPLIERS
During 1996, the Company purchased 59 percent of its homes through retail
agreements with three primary manufacturers at the prevailing prices charged by
the manufacturers. Pursuant to these agreements, the Company received volume
rebates on inventory purchases. The Company's sales volume could be adversely
affected by the manufacturers' inability to supply the sales centers with an
adequate supply of homes.
USE OF ESTIMATES
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period amounts to
conform to current period presentations.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -------------------- SEPTEMBER 30,
(IN YEARS) 1995 1996 1997
------------ --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Buildings............................ 20-30 $ 241 $ 231 $ 209
Land and leasehold improvements...... 20-30 439 463 1,291
Equipment............................ 5-7 344 414 417
--------- --------- -------------
1,024 1,108 1,917
Less-Accumulated depreciation........ (116) (175) (187)
--------- --------- -------------
$ 908 $ 933 $ 1,730
========= ========= =============
</TABLE>
F-51
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
Amounts due from manufacturers....... $ 725 $ 608 $ 397
Due from finance companies........... 160 109 663
Other................................ 39 52 192
--------- --------- -------------
$ 924 $ 769 $ 1,252
========= ========= =============
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
New homes............................ $ 8,111 $ 6,997 $ 5,053
Pre-owned homes...................... 602 1,011 771
Parts, accessories and other......... 63 160 2
--------- --------- -------------
$ 8,776 $ 8,168 $ 5,826
========= ========= =============
At December 31, 1996 and 1995, substantially all new manufactured homes
were pledged as collateral against floor plan notes payable. Additionally, at
December 31, 1996, pre-owned manufactured homes with costs of $301,653 were
pledged as collateral against floor plan notes payable (see Note 5).
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
Accounts payable, trade.............. 665 $ 309 $ 471
Customer deposits.................... 92 114 51
Other accrued expenses............... 454 469 552
--------- --------- -------------
$ 1,211 $ 892 $ 1,074
========= ========= =============
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Company has floor plan credit facilities with several lending
institutions to finance a major portion of its manufactured home inventory until
such inventory is sold. Interest on amounts borrowed is paid monthly at rates
varying from 0.5 percent up to 7.5 percent (depending upon the length of time
the note is outstanding) over the lenders' prime rate (8.75 percent to 15.75
percent at December 31, 1996 and 9.0 percent to 16.0 percent at September 30,
1997 (unaudited)). The floor plan payable is collateralized by a portion of the
Company's manufactured home inventory and contract proceeds receivable and are
guaranteed by the majority shareholder.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Company must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In addition, certain of the Company's floor plan
agreements included subjective acceleration clauses which could result in the
notes being due on demand should the Company experience a material adverse
change in their financial position as determined by the lender. The
F-52
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
average balance outstanding during 1996 was $7.2 million with a weighted average
interest rate paid during 1996 and 1995 of 11.0 percent and 11.9 percent,
respectively.
LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
Installment notes collateralized by
land and equipment with principal
and interest due monthly at rates
ranging from 8.5% to 10.25% as of
December 31, 1996, maturing at
various dates from October 1997
through September 2003............. $ 297 $ 288 $ 693
Note to majority shareholder with
interest at 11% due monthly, due
upon 30 days written notice by the
shareholder........................ 109 109 109
--------- --------- -------------
406 397 802
Less -- Current portion.............. (165) (198) (251)
--------- --------- -------------
Long-term debt....................... $ 241 $ 199 $ 551
========= ========= =============
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1996, are: 1997, $197,644; 1998, $73,908; 1999,
$54,388; 2000, $21,279; 2001, $16,715; and thereafter, $33,114.
The Company's installment notes include a construction loan commitment with
available capacity of $86,074 as of December 31, 1996.
6. INCOME TAXES:
The provision (benefit) for income taxes related to the statements of
operations for the years ended December 31, 1994, 1995 and 1996, are summarized
below (in thousands):
1994 1995 1996
--------- --------- -------------
Current.............................. $ 103 $ 104 $ 462
Deferred............................. 199 149 (148)
--------- --------- -------------
$ 302 $ 253 $ 314
========= ========= =============
The provision for income taxes on pretax income varied from the amount
computed by applying the U.S. federal statutory rate as a result of the
following (in thousands):
1994 1995 1996
--------- --------- -------------
Federal income tax at statutory
rates.............................. $ 275 $ 230 $ 287
State income tax..................... 32 27 27
Other................................ (5) (4) --
--------- --------- -------------
$ 302 $ 253 $ 314
========= ========= =============
F-53
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax liabilities at December 31, 1995 and 1996 are comprised of the
following (in thousands):
1995 1996
--------- ---------
Deferred tax liabilities --
Accrued income.................. $ 270 $ 226
Inventories..................... 126 --
Depreciation of property and
equipment..................... 42 64
--------- ---------
Total deferred tax
liability............... $ 438 $ 290
========= =========
7. SHAREHOLDERS' EQUITY:
In December 1992, the Company's sole shareholder, under an informal plan,
granted options to executive officers to acquire up to 35,000 shares of common
stock for $1 per share which were exercisable for a period of up to five years.
In March 1996, the options were exercised in exchange for notes bearing interest
at 6.5 percent with a term not exceeding two years. In May 1997, $25,000 of the
related notes were paid and the remaining $10,000 was recorded as a reduction of
additional paid-in capital at December 31, 1996.
In April 1997, the Company entered into an agreement to repurchase 10,000
shares from a former executive officer of the Company for total consideration of
$152,000. As part of this agreement, the Company sold certain inventory and
equipment to the former executive officer at a price that equals the Company's
current carrying value for the related inventory and equipment. Total revenues
would have been reduced by approximately $3,695,000 and $2,802,000 and net
income would have been reduced by $97,000 and $1,000 for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively, assuming
the transaction had occurred January 1, 1996.
In March 1996, the Company entered into stock purchase agreements with a
group of investors who acquired 14,773 shares of common stock for $130,000 by
issuing notes, bearing interest at 6.5 percent, to the Company. These notes were
fully paid in April 1997. Compensation expense and a contribution of capital of
$11,371 has been recognized in 1996 based on the fair value of the Company's
stock at the date of the agreement related to the acquisition of common stock by
an investor who is also a member of Company management.
8. RELATED-PARTY TRANSACTION:
At December 31, 1996, the Company had a certificate of deposit totaling
$50,000 which is pledged as collateral for indebtedness incurred by an employee
of the company. Subsequent to December 31, 1996, the debt was satisfied and the
collateral was released.
At December 31, 1996 and 1995, an officer of the Company provided a
personal certificate of deposit of $25,000 as collateral for the Company's floor
plan with a bank.
The Company incurred rent expense of $15,000 during 1996, 1995 and 1994
related to land which is owned by the majority shareholder. The land is utilized
by the Company for one of its retail centers.
9. PROFIT-SHARING PLAN:
Effective January 1, 1993, the Company adopted a profit-sharing plan,
qualified under Section 415 of the Internal Revenue Code. Contributions to the
plan are at management's discretion. Contributions are made to a "qualified"
employee's account and vest evenly over a five-year period. During the years
ended December 31, 1995 and 1994, the Company contributed $200,000 and $175,000,
respectively. The Company did not make a contribution for the year ended
December 31, 1996, or the nine months ended September 30, 1997 (unaudited).
F-54
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES:
INSURANCE
The Company carries a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Company has not incurred significant claims
or losses on any of its insurance policies.
ASSETS HELD FOR SALE
As discussed in Note 7, the Company entered into an agreement in April 1997
to sell certain inventory and equipment to a former executive officer of the
Company. Effective September 30, 1997, the former executive has contractually
committed to assume ownership of those assets and their related debt
obligations. The net amount of $76,000 is included in other current assets and
consists of the following:
(IN THOUSANDS)
Inventories............................. $ 962
Property and equipment, net............. 51
Floor plan payable...................... (862)
Accounts payable and accrued expenses... (53)
Current and non current long term
debt.................................. (22)
--------------
$ 76
==============
11. SUBSEQUENT EVENTS:
PROPOSED ACQUISITION BY HOMEUSA (UNAUDITED)
In September 1997, the Company and its shareholders entered into a
definitive agreement with a wholly-owned subsidiary of HomeUSA providing for the
merger of the Company with the subsidiary of HomeUSA (the Merger). The cash
portion of the purchase price of the Merger will be adjusted to the extent the
Excess Operating Capital is greater or less than zero. Excess Operating Capital
is defined as net working capital minus long-term debt, as of the effective date
of the Merger. Had these distributions been made at September 30, 1997, the
effect on the Company's balance sheet would have been to decrease shareholders'
equity by approximately $1,265,000.
Concurrently with the Merger, the Company will enter into agreements with
the shareholders to lease land and buildings used in the Company's operations
for negotiated amounts and terms.
F-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Patrick Home Center, Inc.:
We have audited the accompanying balance sheets of Patrick Home Center,
Inc., as of December 31, 1995 and 1996, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-56
<PAGE>
PATRICK HOME CENTER, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 386 $ 47 $ 1,724
Accounts receivable, net........... 1,054 1,116 715
Inventories........................ 5,431 6,976 4,162
Deferred tax asset................. 34 1 4
Other current assets............... 216 122 10
--------- --------- -------------
Total current assets.......... 7,121 8,262 6,615
PROPERTY AND EQUIPMENT, net............. 1,874 2,484 1,864
OTHER ASSETS............................ -- -- 83
--------- --------- -------------
Total assets.................. $ 8,995 $ 10,746 $ 8,562
========= ========= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 906 $ 877 $ 1,367
Floor plan payable................. 5,686 6,914 3,817
Current maturities of long-term
debt............................. 785 410 173
--------- --------- -------------
Total current liabilities..... 7,377 8,201 5,357
LONG-TERM DEBT, net of current
maturities............................ 175 354 254
DEFERRED TAX LIABILITY.................. 150 65 68
DEFERRED GAIN ON SALE................... -- -- 119
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 20,000
shares authorized, 20,000 issued
and 20,000 shares outstanding in
1995 and 1996 and 19,000 shares
outstanding at September 30,
1997............................. 20 20 20
Retained earnings.................. 1,273 2,106 2,983
Treasury stock, 1,000 shares, at
cost............................. -- -- (239)
--------- --------- -------------
Total shareholders' equity.... 1,293 2,126 2,764
--------- --------- -------------
Total liabilities and
shareholders' equity....... $ 8,995 $ 10,746 $ 8,562
========= ========= =============
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
PATRICK HOME CENTER, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Home sales......................... $ 20,707 $ 28,184 $ 28,946 $ 24,015 $ 23,406
Other revenue...................... 724 749 957 580 634
--------- --------- --------- --------- ---------
Total revenue................. 21,431 28,933 29,903 24,595 24,040
COST OF SALES........................... 17,554 23,664 23,858 19,704 18,747
--------- --------- --------- --------- ---------
Gross profit.................. 3,877 5,269 6,045 4,891 5,293
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 3,347 4,530 4,306 3,342 3,663
--------- --------- --------- --------- ---------
Income from operations........ 530 739 1,739 1,549 1,630
OTHER INCOME (EXPENSE):
Interest expense, net.............. (336) (518) (622) (555) (350)
Other income, net.................. 40 54 58 31 52
--------- --------- --------- --------- ---------
Income before income taxes.... 234 275 1,175 1,025 1,332
PROVISION FOR INCOME TAXES.............. 90 106 2 5 65
--------- --------- --------- --------- ---------
NET INCOME.............................. $ 144 $ 169 $ 1,173 $ 1,020 $ 1,267
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
PATRICK HOME CENTER, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
TREASURY
COMMON RETAINED STOCK
STOCK EARNINGS AT COST TOTAL
------ --------- --------- ---------
BALANCE, December 31, 1993...... $ 20 $ 960 $ -- $ 980
Dividends.................. -- -- -- --
Net income................. -- 144 144
------ --------- --------- ---------
BALANCE, December 31, 1994...... 20 1,104 -- 1,124
Dividends.................. -- -- -- --
Net income................. -- 169 -- 169
------ --------- --------- ---------
BALANCE, December 31, 1995...... 20 1,273 -- 1,293
Distributions.............. -- (340) -- (340)
Net income................. -- 1,173 -- 1,173
------ --------- --------- ---------
BALANCE, December 31, 1996...... 20 2,106 -- 2,126
Distributions (unaudited).. -- (390) -- (390)
Repurchase of common stock
(unaudited) -- -- (239) (239)
Net income (unaudited)..... -- 1,267 -- 1,267
------ --------- --------- ---------
BALANCE, September 30, 1997
(unaudited)................... $ 20 $ 2,983 $ (239) $ 2,764
====== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
PATRICK HOME CENTER, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 144 $ 169 $ 1,173 $ 1,020 $ 1,267
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation and amortization.... 140 134 134 61 117
Deferred income tax provision
(benefit)..................... 41 11 (52) (39) 2
Loss (gain) on sale of assets.... 7 16 (1) 10 (16)
Changes in assets and
liabilities --
Accounts receivable, net...... 960 (407) (62) (457) 401
Prepayments................... -- -- -- -- 91
Inventories................... (784) (1,882) (1,545) (381) 2,813
Deferred gain................. -- -- -- -- 119
Other current assets.......... (129) 5 108 (130) (59)
Accounts payable and accrued
expenses................... (46) 293 (29) 343 485
Floor plan payable............ 83 2,155 1,228 589 (3,096)
--------- --------- --------- --------- ---------
Net cash provided by
operating
activities............ 416 494 954 1,016 2,124
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (472) (544) (767) (416) (163)
Proceeds from sale of property and
equipment.......................... 111 80 10 10 681
--------- --------- --------- --------- ---------
Net cash provided by
(used in) investing
activities............ (361) (464) (757) (406) 518
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments on) proceeds from long-term
debt............................... (101) 105 (196) (332) (336)
Distribution to shareholders.......... -- -- (340) 140 (629)
--------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............ (101) 105 (536) (192) (965)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (46) 135 (339) 418 1,677
CASH AND CASH EQUIVALENTS, beginning of
period................................ 297 251 386 386 47
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 251 $ 386 $ 47 $ 804 $ 1,724
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest......................... $ 344 $ 501 $ 619 $ 447 $ 371
Taxes............................ 30 21 -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Patrick Home Center, Inc. (the Company), a Mississippi corporation, is
primarily engaged in the retail sale of new and pre-owned manufactured homes.
The Company operates sales centers in Mississippi and Alabama which have retail
agreements with a number of home manufacturers.
In July 1997, the Company purchased an existing sales lot located in
Millington, Tennessee, for $85,000.
The Company and its shareholders intend to enter into a definitive
agreement with HomeUSA, Inc. (HomeUSA), pursuant to which all ownership
interests of the Company will be exchanged for cash and shares of HomeUSA's
common stock concurrently with the consummation of an initial public offering
(the Offering) of the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 1997, and for the nine
months ended September 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. Due to seasonality and other factors, the results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Company's retail sales), upon execution of the
loan agreement and other required documentation and receipt of a designated
minimum down payment.
The Company also maintains pre-owned manufactured home inventory owned by
third parties for which the Company records a sales commission in other revenue
when sold to customers. Home sales also includes revenue from the construction
of site amenities. Home sales exclude any sales and use taxes collected.
F-61
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenue at the time the policies are written.
The Company arranges financing for customers through various institutions
for which the Company receives certain financing fees which are recognized in
other revenue along with the sale of the related home.
Other revenue also includes the revenue from repair and maintenance
service.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery and site amenities.
INCOME TAXES
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the shareholders report their share of the
Company's taxable earnings or losses in their personal tax returns. The Company
will terminate its S Corporation status concurrently with the effective date of
this offering. The provision for income taxes in 1996 is composed entirely of
state income taxes.
Prior to 1996, the Company was a corporation subject to federal income
taxes; accordingly, prior to 1996, the Company followed the liability method of
accounting for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes". Under SFAS No. 109
deferred income taxes were recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences were
expected to affect taxable income. Valuation allowances were established when
necessary to reduce deferred tax assets to the amount to be realized. The
provision for income taxes was the tax payable for the year and the change
during the year in deferred tax assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of short-term
certificates of deposit, floor plan payables, notes receivable and long-term
debt. The carrying amount of these financial instruments approximates fair value
due either to length of maturity or existence of variable interest rates that
approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash, deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Company has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Company purchases substantially all of its homes from two primary
suppliers at the prevailing prices charged by the manufacturers. The Company's
sales volume could be adversely affected by the manufacturers' inability to
supply the sales centers with homes.
The retail agreements between the sales center and the manufacturer contain
certain provisions, including the minimum amount of homes to be purchased and
displayed, guidelines for the display of model homes, installation and delivery
guidelines and terms of reimbursement for warranty work performed by the
retailer pursuant to the manufacturer's warranty. These agreements also provide
for volume rebate incentive programs based on purchases. Accordingly, inventory
has been recorded net of volume rebates. Retail
F-62
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
agreements may be terminated by the sales center with notice and by the
manufacturer for good cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity. At December 31,
1996, cash includes $28,000 in amounts restricted that is held with a financing
institution in relation to recourse financing provided to the Company's
customers.
SPIN-OFF OF SALES CENTER
The Company received 1,000 shares of its common stock in exchange for net
assets of the Company valued at $239,000 in connection with a spin-off of a
sales center in January 1997. For purposes of cash flows, this transaction is a
noncash event. In conjunction with the exchange, assets and liabilities were
disposed of as follows (in thousands):
Fair value of assets.................... $ 859
Liabilities............................. (620)
---------
Value of treasury stock................. $ 239
=========
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in June 1996 and establishes,
among other things, new criteria related to accounting for transfers of
financial assets in exchange for cash or other consideration. SFAS No. 125 also
establishes new accounting requirements for pledged collateral. In addition,
SFAS No. 125 is effective for all transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The
Company will adopt this statement when required and has not determined the
impact that the adoption of SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- SEPTEMBER 30,
IN YEARS 1995 1996 1997
------------ --------- --------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.................................... $ 337 $ 482 $ 16
Buildings............................... 25 464 511 516
Leasehold improvements.................. 10 512 799 758
Equipment............................... 5-7 586 623 500
Furniture and fixtures.................. 5 373 485 488
--------- --------- ---------------
Total.............................. 2,272 2,900 2,278
Less -- Accumulated depreciation........ (398) (416) (414)
--------- --------- ---------------
Property and equipment, net........ $ 1,874 $ 2,484 $ 1,864
========= ========= ===============
</TABLE>
F-63
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
(UNAUDITED)
Due from manufacturers.................. $ 508 $ 471 $ 429
Due from finance companies.............. 455 546 170
Other................................... 91 99 116
--------- --------- ---------------
$ 1,054 $ 1,116 $ 715
========= ========= ===============
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
(UNAUDITED)
New homes, net of unearned volume
rebates............................... $ 4,959 $ 6,402 $ 3,571
Pre-owned homes......................... 372 426 485
Parts, accessories and other............ 100 148 106
--------- --------- ---------------
$ 5,431 $ 6,976 $ 4,162
========= ========= ===============
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
(UNAUDITED)
Accounts payable, trade................. $ 274 $ 196 $ 234
Accrued compensation.................... 95 237 358
Customer deposits....................... 107 98 150
Other accrued expenses.................. 430 346 625
--------- --------- ---------------
$ 906 $ 877 $ 1,367
========= ========= ===============
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Company has two floor plan credit facilities with lending institutions
to finance a major portion of its manufactured home inventory until such
inventory is sold. Interest on amounts borrowed is paid monthly at rates varying
up to 0.75 percent (depending on the time the note is outstanding) over the
lender's prime rate (8.25 percent to 9.0 percent at December 31, 1996 and 8.5
percent to 9.25 percent at September 30, 1997 (unaudited)). The floor plan
payable is secured by all of the Company's manufactured home inventory, the
related furniture, fixtures and accessories and accounts receivables, and is
guaranteed by a shareholder of the Company.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Company must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreements. In the event the home remains in inventory 12 months
after the date of purchase, the balance of the obligation related to that home
will become due. In addition, certain of the Company's floor plan agreements
include subjective acceleration clauses which could result in the lines of
credit being due on demand should the Company experience a material adverse
change in its financial position as determined by the lender. The largest
balance outstanding during the year ended December 31,
F-64
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996 was approximately $7.6 million. The average balance outstanding during 1996
was approximately $7 million with a weighted average interest rate paid of 7.80
percent.
LONG-TERM DEBT
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
(IN THOUSANDS)
Letters of credit to Deposit Guaranty
National Bank, face amount $500,000
at prime plus 0.5% to 0.75% (8.75%
to 9% at December 31, 1996)........ $ 200 $ 164 $ 1
Long-term debt, maturing in varying
amounts through 2001, with interest
ranging from 5.5% to 9.6% at
December 31, 1996.................. 760 600 426
--------- --------- -------------
960 764 427
Less -- Current portion.............. (785) (410) (173)
--------- --------- -------------
$ 175 $ 354 $ 254
========= ========= =============
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):
Year ending December 31 --
1997............................... $ 410
1998............................... 135
1999............................... 72
2000............................... 76
2001............................... 71
---------
$ 764
=========
6. INCOME TAXES:
The components of the provision for income taxes are as follows: (in
thousands)
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal --
Current............................ $ 43 $ 84 $ --
Deferred........................... 36 9 (57)
State --
Current............................ 6 12 54
Deferred........................... 5 1 5
--------- --------- ---------
Total provision............... $ 90 $ 106 $ 2
========= ========= =========
F-65
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from an amount computed at the
statutory rates as follows: (in thousands)
DECEMBER 31
-------------------------
1994 1995 1996
---- ---- -----
Federal income tax at statutory rates .......... $ 82 $ 97 $ 411
State income tax ............................... 8 9 59
Effect of S corporation income ................. -- -- (411)
Other .......................................... -- -- (57)
---- ---- -----
$ 90 $106 $ 2
==== ==== =====
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995 and 1996, are as follows (in thousands):
1995 1996
--------- ---------
Deferred tax assets --
Accrued expenses................... $ 37 $ 5
Other.............................. 15 2
--------- ---------
Total......................... 52 7
Deferred tax liabilities --
Bases difference in property and
equipment........................ (105) (15)
Other.............................. (63) (56)
--------- ---------
Total......................... (168) (71)
--------- ---------
Net deferred income tax
assets..................... $ (116) $ (64)
========= =========
7. RELATED-PARTY TRANSACTIONS:
The Company purchases office supplies from a related party. Total
expenditures for the year ended December 31, 1996, were approximately $78,000.
The Company leases three sales centers from a related party. Total lease
payments for the nine months ended September 30, 1997, were approximately
$13,000.
A related party note receivable was established during 1997. As of
September 30, 1997, the note receivable balance was approximately $31,000.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2006. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................... $ 129
1998............................... 111
1999............................... 56
2000............................... 18
---------
Total......................... $ 314
=========
F-66
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $102,000, $132,000 and $159,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
RECOURSE FINANCING
In connection with home sales, the Company guaranteed certain amounts due
to lending institutions from its customers. In the event of default by the
customer, the outstanding balance would be owed by the Company to the lending
institution. These amounts are collateralized by the related homes. As of
December 31, 1996 and September 30, 1997, amounts guaranteed by the Company were
$401,000 and $218,000 (unaudited), respectively. A reserve of $44,000 has been
included in the accompanying balance sheets as of December 31, 1996 and
September 30, 1997.
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company's financial position or results of
operations.
INSURANCE
The Company carries a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Company has not incurred significant claims
or losses on any of its insurance policies.
EMPLOYEE 401(k) RETIREMENT PLAN
The Company has implemented a 401(k) retirement plan with an effective date
of July 1, 1996, which covers all employees meeting certain service
requirements. The Company matches employee contributions not to exceed 25
percent of the employee's contribution up to 6 percent of the employee's base
salary. The Company recorded contribution expense of $18,239 as of December 31,
1996.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its shareholder entered into a
definitive agreement with a wholly-owned subsidiary of HomeUSA providing for the
merger of the Company with the subsidiary of HomeUSA (the Merger). Property and
equipment of approximately $43,243, which are included in the balance sheet at
September 30, 1997, will be distributed to the shareholder. The cash portion of
the purchase price of the Merger will be adjusted to the extent the Excess
Operating Capital is greater or less than zero. Excess Operating Capital is
defined as net working capital minus long-term debt as of the effective date of
the Merger. Had these distributions been made at September 30, 1997, the effect
on the Company's balance sheet would have been to decrease shareholder's equity
by approximately $1.2 million.
Concurrently with the Merger, the Company will enter into an agreement with
the shareholder to lease land, equipment and buildings used in the Company's
operations for negotiated amounts and terms.
F-67
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mobile World Group:
We have audited the accompanying combined balance sheets of Mobile World
Group (the Group), as defined in Note 1 to the financial statements, as of
December 31, 1995 and 1996 and September 30, 1997, and the related combined
statements of operations, shareholder's equity and cash flows for the years
ended December 31, 1995 and 1996 and for the nine month period ended September
30, 1997. These combined financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of December 31, 1995 and 1996 and September 30, 1997 and the results of their
combined operations and their combined cash flows for the years ended December
31, 1995 and 1996 and for the nine month period ended September 30, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 19, 1997
F-68
<PAGE>
MOBILE WORLD GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
ASSETS
CURRENT ASSETS:
Cash............................... $ 562 $ 750 $ 273
Accounts receivable, net........... 322 428 352
Related-party receivable........... 5 32 208
Inventories........................ 2,122 3,934 3,849
Other current assets............... 146 212 46
--------- --------- -------------
Total current assets.......... 3,157 5,356 4,728
PROPERTY AND EQUIPMENT, net............. 503 663 379
OTHER ASSETS............................ 4 4 1
--------- --------- -------------
Total assets.................. $ 3,664 $ 6,023 $ 5,108
========= ========= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 991 $ 1,200 $ 652
Related-party payable.............. -- 50 15
Floor plan payable................. 2,257 4,238 3,890
Current maturities of long-term
debt............................. 38 42 --
--------- --------- -------------
Total current liabilities..... 3,286 5,530 4,557
LONG-TERM DEBT, net of current
maturities............................ 94 61 --
DEFERRED TAX LIABILITY.................. 65 72 79
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, no par value, 1,000,
2,000 and 2,000 shares
authorized, issued and
outstanding...................... 1 2 2
Retained earnings.................. 218 358 470
--------- --------- -------------
Total shareholder's equity.... 219 360 472
--------- --------- -------------
Total liabilities and
shareholder's equity....... $ 3,664 $ 6,023 $ 5,108
========= ========= =============
The accompanying notes are an integral part of these combined financial
statements.
F-69
<PAGE>
MOBILE WORLD GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
-------------------- -----------------------
1995 1996 1996 1997
--------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Home sales............................ $ 11,838 $ 15,836 $12,315 $ 12,438
Other revenue......................... 5 112 57 120
--------- --------- ----------- ---------
Total revenue...................... 11,843 15,948 12,372 12,558
COST OF SALES........................... 9,349 12,360 9,660 10,189
--------- --------- ----------- ---------
Gross profit....................... 2,494 3,588 2,712 2,369
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,917 2,925 2,103 1,911
--------- --------- ----------- ---------
Income from operations............. 577 663 609 458
OTHER INCOME (EXPENSE):
Interest expense, net................. (318) (427) (313) (362)
Other income (expense), net........... 18 (8) 2 86
--------- --------- ----------- ---------
Income before income taxes......... 277 228 298 182
PROVISION FOR INCOME TAXES.............. 107 88 115 70
--------- --------- ----------- ---------
NET INCOME.............................. $ 170 $ 140 $ 183 $ 112
========= ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-70
<PAGE>
MOBILE WORLD GROUP
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- -----
BALANCE, December 31, 1994.............. $ 1 $ 48 $ 49
Net income......................... -- 170 170
------ -------- -----
BALANCE, December 31, 1995.............. 1 218 219
Net income......................... 1 140 141
------ -------- -----
BALANCE, December 31, 1996.............. 2 358 360
Net income......................... -- 112 112
------ -------- -----
BALANCE, September 30, 1997............. $ 2 $ 470 $ 472
====== ======== =====
The accompanying notes are an integral part of these combined financial
statements.
F-71
<PAGE>
MOBILE WORLD GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
-------------------- -----------------------
1995 1996 1996 1997
--------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 170 $ 140 $ 183 $ 112
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation and amortization.... 45 82 60 59
Deferred income tax provision
(benefit)..................... (106) (56) (42) 166
(Gain) loss on sale of assets.... (21) -- -- 1
Changes in assets and
liabilities --
Accounts receivable, net...... (172) (106) (164) 76
Related-party receivable...... (5) (27) (33) (176)
Inventories................... (796) (1,812) (1,207) 85
Other current assets.......... (8) (3) (34) 6
Other noncurrent assets....... (2) -- -- 2
Accounts payable and accrued
expenses................... 529 209 60 (548)
Related-party payable......... -- 50 50 (35)
Floor plan payable............ 839 1,981 1,369 (348)
--------- --------- ----------- ---------
Net cash provided by
(used in) operating
activities............ 473 458 242 (600)
--------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (296) (242) (238) (23)
Proceeds from sale of equipment....... 40 -- -- 249
--------- --------- ----------- ---------
Net cash provided by
(used in) investing
activities............ (256) (242) (238) 226
--------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of) long-term
debt............................... 37 (29) (19) (103)
Issuance of stock..................... -- 1 1 --
--------- --------- ----------- ---------
Net cash provided by
(used in) financing
activities............ 37 (28) (18) (103)
--------- --------- ----------- ---------
NET INCREASE (DECREASE) IN CASH......... 254 188 (14) (477)
CASH, beginning of period............... 308 562 562 750
--------- --------- ----------- ---------
CASH, end of period..................... $ 562 $ 750 $ 548 $ 273
========= ========= =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest......................... $ 311 $ 419 $ 97 $ 112
Taxes............................ 27 100 60 49
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-72
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Mobile World Group (the Group) includes the financial statements of Mobile
World, Inc. and Showcase of Homes, Inc. (both Texas corporations) under common
management and ownership. The Group is primarily engaged in the retail sale of
new and pre-owned manufactured homes. The Group operated sales centers in Texas
which have retail agreements with a number of home manufacturers.
The Group's owners intend to enter into a definitive agreement with
HomeUSA, Inc. (HomeUSA), pursuant to which all of the ownership interests of the
Group will be exchanged for cash and shares of HomeUSA's common stock
concurrently with the consummation of an initial public offering (the Offering)
of the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and results of
operations of the Group for all periods which the companies were under common
control. All significant intercompany transactions and balances have been
eliminated in combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements for the nine months ended
September 30, 1996 are unaudited, and certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim combined financial statements have been
included. The Group's operations are subject to different seasonal variations in
sales. Due to seasonality and other factors, the results of operations for the
interim periods are not necessarily indicative of the results for the entire
year.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Group's retail sales), upon execution of the loan
agreement and other required documentation and receipt of a designated minimum
down payment. Home sales exclude any sales and use taxes collected.
The Group receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenues at the time the policies are written.
F-73
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Group arranges financing for customers through various institutions for
which the Group receives certain financing fees which are recognized in other
revenues along with the sale of the related home.
Other revenues also includes repair and maintenance services.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery.
INCOME TAXES
The Group accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
SHAREHOLDER'S EQUITY
Shareholder's equity of the group includes the following shares of common
stock which were authorized, issued and outstanding at December 31, 1996 and
September 30, 1997: 1,000 shares of common stock at no par value for Mobile
World, Inc., and 1,000 shares of Common Stock at no par value for Showcase of
Homes, Inc.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments consist primarily of floor plan payables
and accounts receivables. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or existence of
variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Group purchases substantially all of its homes from two primary
suppliers at the prevailing prices charged by the manufacturers. The Group's
sales volume could be adversely affected by the manufacturers' inability to
supply the sales center with an adequate supply of homes.
The retail agreements between the sales center and the manufacturer contain
certain provisions, including the minimum amount of homes to be purchased and
displayed, guidelines for the display of model homes, installation and delivery
guidelines and terms of reimbursement for warranty work performed by the
retailer pursuant to the manufacturer's warranty. These agreements also provide
for volume rebate incentive programs based on inventory purchases. Accordingly,
inventory has been recorded net of volume rebates. Retail agreements may be
terminated by the sales center with notice and by the manufacturer for good
cause, as defined in the agreement.
F-74
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity in the statements
of cash flows.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in June 1996 and establishes,
among other things, new criteria related to accounting for transfers of
financial assets in exchange for cash or other consideration. SFAS No. 125 also
establishes new accounting requirements for pledged collateral. In addition,
SFAS No. 125 is effective for all transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The Group
will adopt this statement when required and has not determined the impact that
the adoption of SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- SEPTEMBER 30,
IN YEARS 1995 1996 1997
------------ --------- --------- -------------
<S> <C> <C> <C> <C>
Buildings............................... 25 $ 90 $ 131 $ 136
Leasehold improvements.................. 10 96 164 164
Equipment............................... 5-7 329 402 19
Furniture and fixtures.................. 5 68 128 144
--------- --------- -------------
Total.............................. 583 825 463
Less -- Accumulated depreciation........ (80) (162) (84)
--------- --------- -------------
Property and equipment, net........ $ 503 $ 663 $ 379
========= ========= =============
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
Due from manufacturers.................. $ 106 $ 188 $ 118
Due from finance companies.............. 205 191 148
Other................................... 11 49 86
--------- --------- -------------
$ 322 $ 428 $ 352
========= ========= =============
F-75
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
New homes, net of unearned volume
rebates............................... $ 2,089 $ 3,880 $ 3,638
Pre-owned homes......................... 31 48 201
Parts, accessories and other............ 2 6 9
--------- --------- -------------
$ 2,122 $ 3,934 $ 3,848
========= ========= =============
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
Accounts payable, trade................. $ 107 $ 114 $ 382
Other accrued expenses.................. 671 729 96
Income tax payable...................... 213 357 173
--------- --------- -------------
$ 991 $ 1,200 $ 651
========= ========= =============
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Group has six floor plan credit facilities with lending institutions to
finance a major portion of its manufactured home inventory until such inventory
is sold. Interest on amounts borrowed is paid monthly at rates varying up to 4.0
percent (depending on the time the note is outstanding) over the lender's prime
rate (8.25 percent to 12.25 percent at December 31, 1996, and 8.5 percent to
12.5 percent at September 30, 1997). The floor plan payable is secured by all of
the Group's manufactured home inventory, the related furniture, fixtures and
accessories and accounts receivable, and is guaranteed by the shareholder of the
Group.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Group must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Group's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Group experience a material adverse change in its
financial position as determined by the lender. The maximum aggregate amount
that can be borrowed under the floor plan lines of credit is approximately $6.7
million, and the largest balance during the year ended December 31, 1996 was
approximately $4.3 million. The average balance outstanding during 1996 was
approximately $3.6 million with a weighted average interest rate paid of 9.8
percent.
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
Notes payable, maturing in varying
amounts through December 2000, with
interest ranging from 5.5% to 10.25%
at December 31, 1996.................. $ 132 $ 103 $ --
Less -- Current portion............ (38) (42) --
--------- --------- -------------
$ 94 $ 61 $ --
========= ========= =============
F-76
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
Federal:
Current............................ $ 188 $ 127 $ (84)
Deferred........................... (93) (49) 146
--------- --------- -------------
95 78 62
--------- --------- -------------
State:
Current............................ 25 17 (12)
Deferred........................... (13) (7) 20
--------- --------- -------------
12 10 8
--------- --------- -------------
Total provision............... $ 107 $ 88 $ 70
========= ========= =============
The provision for income taxes differs from an amount computed at the
statutory rates as follows (in thousands):
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
Federal income tax at statutory rates... $ 97 $ 80 $ 64
State income taxes...................... 8 7 5
Nondeductible expenses.................. 2 1 1
--------- --------- -------------
$ 107 $ 88 $ 70
========= ========= =============
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995 and 1996 and September 30, 1997 are as
follows:
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
Deferred tax assets --
Accrued expenses................... $ 144 $ 344 $ 386
Accrued income..................... 79 159 235
--------- --------- -------------
Total deferred tax assets..... 223 503 621
--------- --------- -------------
Deferred tax liabilities --
Bases difference in property and
equipment........................ (17) (36) (44)
Accrued expenses................... (58) (261) (544)
Other.............................. (76) (78) (71)
--------- --------- -------------
Total deferred tax
liabilities................ (151) (375) (659)
--------- --------- -------------
Net deferred tax assets....... $ 72 $ 128 $ (38)
========= ========= =============
F-77
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED-PARTY TRANSACTIONS:
The Group leases facilities from related parties of the Group under
operating leases. Rental expense on related-party leases totaled approximately
$24,000, $96,000 and $86,000 for the years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1997, respectively.
The Group has a note payable to the shareholder. The note is due on demand
and bears interest at 7.0 percent. The balance at December 31, 1996, was
$50,000. The balance was paid in full during 1997.
The Group leases certain office space from an employee. The note balance
related to the office space is included in the floor plan payable balance of the
Group at December 31, 1996. The employee repays the Group for the monthly
interest and principal payments on the office space. At September 30, 1997, the
related note receivable balance is approximately $20,000 and is included in
accounts receivable.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2006. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................... $ 7
1998............................... 6
1999............................... 1
---
Total......................... $ 14
===
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $81,000, $154,000 and $122,000 for the
years ended December 31, 1995 and 1996 and the nine months ended September 30,
1997, respectively.
LITIGATION
The Group is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Group's financial position or results of
operations.
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
PROPOSED MERGER
In September 1997, the Group and its shareholder entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Group with the subsidiary of HomeUSA (the Merger). The cash portion of the
purchase price of the Merger will be adjusted to the extent the Excess Operating
Capital is greater or less than zero. Excess Operating Capital is defined as net
working capital minus long-term debt, as of the effective date of the Merger.
Had this distribution been made at September 30, 1997, the effect in the Group's
balance sheet would have been to decrease shareholder's equity by approximately
$200,000.
Concurrently with the Merger, the Group will enter into agreements with the
shareholder to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-78
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To First American Homes Group:
We have audited the accompanying combined balance sheet of First American
Homes Group (collectively, the Group), as defined in Note 1 to the financial
statements, as of December 31, 1996, and the related statements of operations,
shareholders' deficit and cash flows for the year then ended. These combined
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Group as of
December 31, 1996, and the results of their combined operations and their
combined cash flows for the year then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-79
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................... $ 30 $ 251
Accounts receivable, net........... 402 418
Inventories........................ 3,910 3,197
Other current assets............... 1 4
------------- --------------
Total current assets....... 4,343 3,870
PROPERTY AND EQUIPMENT, net.......... 302 280
OTHER ASSETS......................... 32 10
------------- --------------
Total assets............... $ 4,677 $4,160
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................... $ 585 $ 635
Related-party payable.............. 538 578
Floor plan payable................. 3,153 2,544
Current maturities of long-term
debt............................... 75 210
Deferred tax liability............. 62 89
------------- --------------
Total current
liabilities............. 4,413 4,056
LONG-TERM DEBT, net of current
maturities........................... 297 55
DEFERRED TAX LIABILITY............... 18 28
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $20, $1 and no par
value; 1,000, 2,400 and 100
shares authorized, issued and
outstanding..................... 30 30
Additional paid-in capital......... 10 10
Retained deficit................... (91) (19)
------------- --------------
Total shareholders' equity
(deficit)............... (51) 21
------------- --------------
Total liabilities and
shareholders' equity
(deficit).............. $ 4,677 $4,160
============= ==============
The accompanying notes are an integral part of these combined financial
statements.
F-80
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
REVENUE:
Home sales...................... $ 12,419 $ 9,969 $ 10,061
Other revenue................... 19 15 45
------------ --------- ---------
Total revenue.............. 12,438 9,984 10,106
COST OF SALES........................ 9,994 8,139 8,368
------------ --------- ---------
Gross profit............... 2,444 1,845 1,738
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,198 1,629 1,416
------------ --------- ---------
Income from operations..... 246 216 322
OTHER INCOME (EXPENSE):
Interest expense................ (374) (276) (268)
Other income, net............... 79 67 85
------------ --------- ---------
Income (loss) before income
taxes................... (49) 7 139
INCOME TAX PROVISION (BENEFIT)....... 2 (3) 67
------------ --------- ---------
NET INCOME (LOSS).................... $ (51) $ 10 $ 72
============ ========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-81
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- -------- -----
BALANCE, December 31, 1995......... $ 30 $ 10 $ (40) $ --
Net loss...................... -- -- (51) (51)
------ --- -------- -----
BALANCE, December 31, 1996......... 30 10 (91) (51)
Net income (unaudited)........ -- -- 72 72
------ --- -------- -----
BALANCE, September 30, 1997
(unaudited)...................... $ 30 $ 10 $ (19) $ 21
====== === ======== =====
The accompanying notes are an integral part of these combined financial
statements.
F-82
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ (51) $ 10 $ 72
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities --
Depreciation and
amortization............... 31 24 27
Loss on sale of assets..... 15 -- 4
Deferred income tax
provision.................. 33 (2) 38
Changes in assets and
liabilities --
Accounts receivable... (152) (168) (15)
Inventories........... (1,174) (1,594) 712
Other assets.......... 31 17 19
Accounts payable and
accrued expenses... (55) (39) 50
Related-party
payable............... 86 209 40
Floor plan payable.... 1,158 1,678 (610)
------------ --------- ---------
Net cash
provided by
(used in)
operating
activities.... (78) 135 337
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment.......... (136) (141) (29)
Sales of equipment.............. 59 9 20
------------ --------- ---------
Net cash used in
investing
activities.... (77) (132) (9)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.... -- 40 --
Payments on long-term debt...... (13) (53) (107)
------------ --------- ---------
Net cash used in
financing
activities.... (13) (13) (107)
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH...... (168) (10) 221
CASH, beginning of period............ 198 198 30
------------ --------- ---------
CASH, end of period.................. $ 30 $ 188 $ 251
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period
for --
Interest................... $ 374 $ 276 $ 268
The accompanying notes are an integral part of these combined financial
statements.
F-83
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
First American Homes Group includes the financial statements of the
following group of companies under common control and ownership (collectively,
the Group): First American Homes, Inc. (an Alabama corporation), and its wholly
owned subsidiary, Hall's Mobile Homes, Inc. (a Florida corporation); D&S, Inc.
(an Alabama corporation) and Son Development Corporation (an Alabama
corporation). The Group is primarily engaged in the retail sale of new and
pre-owned manufactured homes. The Group operates sales centers in Alabama and
Florida which have retail agreements with a number of manufacturers.
The Group's owners intend to enter into a definitive agreement with
HomeUSA, Inc. (HomeUSA), pursuant to which all outstanding shares of the Group's
common stock will be exchanged for cash and shares of HomeUSA's common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group for all periods which the companies were under common
control. All significant intercompany transactions have been eliminated in
combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of September 30, 1997, and for
the nine months ended September 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
combined financial statements have been included. The Group's operations are
subject to different seasonal valuations in sales. Due to seasonality and other
factors, the results of operations for the interim periods are not necessarily
indicative of the results for the entire fiscal year.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Group's retail sales), upon execution of the loan
agreement and other required documentation and receipt of a designated minimum
down payment. Home sales also includes revenue from the construction of site
amenities. Home sales exclude any sales and use taxes collected.
F-84
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Group arranges financing for customers through various institutions for
which the Group receives certain financing fees which are recognized in other
revenues along with the sale of the related home.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery and site amenities.
INCOME TAXES
First American Homes, Inc., and its wholly owned subsidiary, Hall's Mobile
Homes, Inc., account for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount to be realized. The
provision (benefit) for income taxes is the tax payable (receivable) for the
year and the change during the year in deferred tax assets and liabilities.
D&S, Inc. and Son Development Corporation have elected S Corporation status
as defined by the Internal Revenue Code, whereby D&S, Inc. and Son Development
Corporation are not subject to taxation for federal purposes. Under S
Corporation status, the shareholders report their share of the companies'
taxable earnings or losses in their personal tax returns. D&S, Inc. and Son
Development Corporation will terminate their S Corporation status concurrently
with the effective date of this offering.
SHAREHOLDERS' EQUITY
Shareholders' equity of the Group includes the following shares of common
stock which were authorized, issued and outstanding at December 31, 1996 and
September 30, 1997 (unaudited): 1,000 shares of common stock at $20 par value
for First American Homes, Inc., 2,400 shares of common stock at $1 par value for
D&S, Inc., and 100 shares of common stock at no par value for Son Development
Corporation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments consist primarily of accounts receivable,
floor plan payables and long-term debt. The carrying amount of these financial
instruments approximates fair value due either to length of maturity or
existence of variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Group purchases substantially all of its homes from three primary
suppliers at the prevailing prices charged by the manufacturers. The Group's
sales volume could be adversely affected by these manufacturers' inability to
supply the sales centers with an adequate supply of homes.
The Group has retail agreements with manufacturers which contain certain
provisions, including the minimum amount of homes to be purchased and displayed,
guidelines for the display of model homes, installation and delivery guidelines,
and terms of reimbursement for warranty work performed by the retailer pursuant
to the manufacturer's warranty. These agreements also provide for volume rebate
incentive programs based on inventory purchases. Accordingly, inventory has been
recorded net of volume rebates.
F-85
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Retail agreements may be terminated by the sales center with notice and by the
manufacturer for good cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity in the statements
of cash flows.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in June 1996 and establishes,
among other things, new criteria related to accounting for transfers of
financial assets in exchange for cash or other consideration. SFAS No. 125 also
establishes new accounting requirements for pledged collateral. In addition,
SFAS No. 125 is effective for all transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The Group
will adopt this statement when required and has not determined the impact that
the adoption of SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED
USEFUL LIVES DECEMBER 31, SEPTEMBER 30,
IN YEARS 1996 1997
------------ ------------ -------------
(UNAUDITED)
Buildings......................... 25 $ 111 $ 105
Leasehold improvements............ 10 145 166
Equipment......................... 5-7 100 71
Furniture and fixtures............ 5 46 45
------------ -------------
Total....................... 402 387
Less -- Accumulated depreciation.. (100) (107)
------------ -------------
Property and equipment,
net....................... $ 302 $ 280
============ =============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
Accounts receivable, trade........... $ 201 $ 147
Due from manufacturers............... 113 189
Due from finance companies........... 32 38
Other................................ 56 44
------------ -------------
$ 402 $ 418
============ =============
F-86
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventories consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
New homes, net of unearned volume
rebates............................ $3,003 $ 2,303
Pre-owned homes...................... 383 398
Parts, accessories and other......... 524 496
------------ -------------
$3,910 $ 3,197
============ =============
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
Accounts payable, trade.............. $ 319 $ 359
Customer deposits.................... 28 41
Other accrued expenses............... 238 135
Contingent liability................. -- 100
------------ -------------
$ 585 $ 635
============ =============
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Group has five primary floor plan credit facilities with lending
institutions to finance a major portion of its manufactured home inventory until
such inventory is sold. Interest on amounts borrowed is paid monthly at rates
varying from 0.50 percent up to 4.45 percent (depending on the time the note is
outstanding) over the lender's prime rate (8.75 percent to 12.75 percent at
December 31, 1996, and 9.0 percent to 12.95 percent at September 30, 1997
(unaudited)). The floor plan payable is secured by all of the Group's
manufactured home inventory and the related furniture, fixtures and accessories,
and is guaranteed by the majority shareholder of the Group.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Group must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Group's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Group experience a material adverse change in its
financial position as determined by the lender. The maximum aggregate amount
that can be borrowed under the floor plan lines of credit is approximately $4.3
million, and the largest balance during the year ended December 31, 1996, was
$3.9 million. The average balance outstanding during 1996 was approximately $3.0
million with a weighted average interest rate paid of 12.02 percent.
F-87
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
(IN THOUSANDS)
Note payable to Bank of the South in
monthly installments of $661
including interest at 8.0%, final
payment of $661 due March 1999,
secured............................ $ 16 $ 11
Note payable to Peoples Community
Bank in monthly installments of
$557 including interest at 10.0%,
final payment of $557 due April
1998, secured...................... 8 4
Note payable to Peoples Community
Bank in monthly installments of
$1,463 including interest at 9.25%,
final payment of $1,463 due March
2001, secured...................... 62 52
Note payable to Southland Bank in
monthly installments of $985
including interest at 8.25, final
payment of $985 due August 2000,
unsecured.......................... 37 31
Note payable to Southland Bank
accruing interest at prime plus
0.50%, principal and accrued
interest due March 1997, secured... 30 --
Note payable to Southland Bank in
monthly installments of $979
including interest at prime plus
2.0%, final payment of $979 due May
1998, secured 15 --
Note payable to Southland Bank in
quarterly interest installments at
prime plus 1.0%, final payment of
$204,000 due January 1998,
secured............................ 204 167
------------ -------------
372 265
Less -- Current maturities........... (75) (210)
------------ -------------
$ 297 $ 55
============ =============
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):
Year ending December 31 --
1997............................... $ 75
1998............................... 242
1999............................... 27
2000............................... 24
2001............................... 4
---------
$ 372
=========
F-88
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision for income taxes are as follows at December
31, 1996 (in thousands):
Federal --
Current.................... $ (27)
Deferred 29
---------
2
---------
State --
Current.................... (4)
Deferred................... 4
---------
--
---------
Total provision....... $ 2
=========
The provision for income taxes at December 31, 1996, differs from an amount
computed at the statutory rates as follows (in thousands):
Federal income tax at statutory
rates................................ $ (17)
State income taxes................... --
Effect of S corporation losses....... 19
---------
$ 2
=========
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1996, are as follows (in thousands):
Deferred tax assets --
Accrued expenses................ $ 64
---------
Total deferred tax
assets.................. 64
---------
Deferred tax liabilities --
Bases difference in property and
equipment...................... (34)
Other........................... (110)
---------
Total deferred tax
liabilities............. (144)
---------
Net deferred tax
liabilities............. $ (80)
=========
7. RELATED-PARTY TRANSACTIONS:
The Group leases various facilities, equipment and land under operating
leases from a company owned by a majority shareholder. Rental expense on these
leases totaled approximately $91,000 for the year ended December 31, 1996. The
Group also pays a management fee to this related party which totaled
approximately $260,000 for the year ended December 31, 1996.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2000. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
F-89
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................ $ 173
1998............................ 169
1999............................ 117
2000............................ 38
---------
Total...................... $ 497
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $156,000 for the year ended December 31,
1996.
LITIGATION
The Group is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Group's financial position or results
of operations.
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In September 1997, the Group and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Group with the subsidiary of HomeUSA (the Merger). A portion of Son
Development Corporation (Son), representing a manufactured housing development
and the related operating assets and liabilities, will not be acquired in the
Merger. Approximately $237,000 of inventory and $435,000 of property and
equipment, which are included in the combined balance sheet at September 30,
1997, will be distributed to the shareholders of the Group. In addition,
shareholders of the Group will assume liabilities of approximately $757,000,
which are included in the combined balance sheet at September 30, 1997. Revenue
would have been reduced by approximately $673,000 and $238,000 and income from
operations increased by approximately $28,000 and $87,000 for the year ended
December 31, 1996 and the nine months ended September 30, 1997, respectively,
assuming the transaction had occurred January 1, 1996. The cash portion of the
purchase price of the Merger will be adjusted to the extent the excess operating
capital is greater or less than zero. Excess operating capital is defined as net
working capital minus long-term debt, as of the effective date of the Merger.
Had these distributions been made at September 30, 1997, the effect on the
Group's balance sheet would have been to decrease shareholders' equity by
approximately $183,000.
Concurrently with the Merger, the Group will enter into agreements with the
shareholders to lease land and buildings used in the Group's operations for
negotiated amounts and terms.
F-90
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cooper's Mobile Homes Group:
We have audited the accompanying combined balance sheets of Cooper's Mobile
Homes Group, (the Group) as defined in Note 1 to the financial statements, as of
December 31, 1995 and 1996, and the related combined statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These combined financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of December 31, 1995 and 1996, and the results of their combined operations
and their combined cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
September 5, 1997
F-91
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................... $ 478 $ 425 $ 477
Accounts receivable, net........... 342 375 938
Related-party receivable........... 409 665 679
Inventories........................ 3,097 3,782 4,644
Deferred tax asset................. 78 -- 83
Other current assets............... -- 26 15
--------- --------- -------------
Total current assets.......... 4,404 5,273 6,836
PROPERTY AND EQUIPMENT, net............. 315 756 1,147
RELATED-PARTY RECEIVABLE, noncurrent.... 95 65 --
OTHER ASSETS, net....................... 36 135 206
--------- --------- -------------
Total assets.................. $ 4,850 $ 6,229 $ 8,189
========= ========= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 444 $ 633 $ 971
Floor plan payable................. 3,506 4,024 5,416
Current maturities of long-term
debt............................. 64 224 365
Deferred tax liability............. -- 43 --
--------- --------- -------------
Total current liabilities..... 4,014 4,924 6,752
LONG-TERM DEBT, net of current
maturities............................ 19 220 147
DEFERRED TAX LIABILITY.................. 317 308 287
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 12,500,
17,500 and 217,500 shares
authorized, issued and
outstanding at December 31, 1995
and 1996 and September 30, 1997,
respectively..................... 12 18 218
Retained earnings.................. 488 759 785
--------- --------- -------------
Total shareholders' equity.... 500 777 1,003
--------- --------- -------------
Total liabilities and
shareholders' equity....... $ 4,850 $ 6,229 $ 8,189
========= ========= =============
The accompanying notes are an integral part of these combined financial
statements.
F-92
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Home sales............................ $ 8,435 $ 8,123 $ 8,823 $ 6,101 $ 9,964
Other revenue......................... 635 903 878 592 491
--------- --------- --------- --------- ---------
Total revenue...................... 9,070 9,026 9,701 6,693 10,455
COST OF SALES........................... 6,651 6,824 6,829 4,505 7,782
--------- --------- --------- --------- ---------
Gross profit....................... 2,419 2,202 2,872 2,188 2,673
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,874 1,728 2,013 1,598 2,165
--------- --------- --------- --------- ---------
Income from operations............. 545 474 859 590 508
OTHER INCOME (EXPENSE):
Interest expense, net................. (275) (436) (326) (243) (494)
Other income (loss), net.............. 8 (63) 15 (11) 33
--------- --------- --------- --------- ---------
Income (loss) before income
taxes............................ 278 (25) 548 336 47
INCOME TAX PROVISION (BENEFIT).......... 97 (8) 277 170 21
--------- --------- --------- --------- ---------
NET INCOME (LOSS)....................... $ 181 $ (17) $ 271 $ 166 $ 26
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-93
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- ---------
BALANCE, December 31, 1993.............. $ 12 $ 324 $ 336
Net income......................... -- 181 181
------ -------- ---------
BALANCE, December 31, 1994.............. 12 505 517
Net loss........................... -- (17) (17)
------ -------- ---------
BALANCE, December 31, 1995.............. 12 488 500
Issuance of common stock........... 6 -- 6
Net income......................... -- 271 271
------ -------- ---------
BALANCE, December 31, 1996.............. 18 759 777
Issuance of common stock
(unaudited)...................... 200 -- 200
Net income (unaudited)............. -- 26 26
------ -------- ---------
BALANCE, September 30, 1997
(unaudited)........................... $ 218 $ 785 $ 1,003
====== ======== =========
The accompanying notes are an integral part of these combined financial
statements.
F-94
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30
DECEMBER 31
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 181 $ (17) $ 271 $ 166 $ 26
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities --
Depreciation and amortization.... 139 73 106 85 86
Deferred income tax provision
(benefit)..................... -- 238 112 169 (147)
Changes in assets and
liabilities --
Accounts receivable........... 248 (86) (33) (450) (563)
Related-party receivable...... 7 (382) (256) 19 (14)
Inventories................... (533) (458) (685) 39 (862)
Other current assets.......... (20) 5 (26) -- 11
Related-party receivable,
noncurrent................. 1 24 30 (136) 9
Other noncurrent assets,
net........................ -- -- (99) (10) 85
Accounts payable and accrued
expenses................... (281) (100) 189 195 338
Floor plan payable............ 435 1,005 518 (12) 1,392
--------- --------- --------- --------- ---------
Net cash provided by
operating
activities............ 177 302 127 65 361
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (79) (154) (547) (413) (377)
--------- --------- --------- --------- ---------
Net cash used in
investing
activities............ (79) (154) (547) (413) (377)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) short-term
debt............................... 17 (16) 160 180 141
Proceeds from issuance of common
stock.............................. -- -- 6 -- --
Proceeds from (payments on) long-term
debt............................... (11) (64) 201 181 (73)
--------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities 6 (80) 367 361 68
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH......... 104 68 (53) 13 52
CASH, beginning of period............... 306 410 478 478 425
--------- --------- --------- --------- ---------
CASH, end of period..................... $ 410 $ 478 $ 425 $ 491 $ 477
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest........................... $ 275 $ 395 $ 365 $ 284 $ 485
Taxes.............................. 182 -- 69 -- 126
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-95
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Cooper's Mobile Homes Group (the Group) includes the financial statements
of the following companies under common control and ownership: PacWest MGMT.,
Inc., Home USA, Inc. dba Contemporary Family Homes Center, and Cooper Mobile
Homes, Inc., and its subsidiaries: Cooper Homes, Inc., Concept Home, Inc., and
Contemporary Home Center, Inc., (all Washington corporations). The Group is
primarily engaged in the retail sale of new and pre-owned manufactured homes as
well as a provider of construction services for site amenities and capital
improvements. The Group operates sales centers in Washington which have an
exclusive retail agreement with a single home manufacturer.
Home USA, Inc., dba Contemporary Family Homes Center (Contemporary), was
formed in June 1997 by the shareholders of the Group. On June 30, 1997, the
shareholders of the Group acquired the inventory, buildings and certain other
assets and assumed liabilities and related rights of Contemporary Family Homes,
Inc., located in Washington, which they contributed to the Group in exchange for
200,000 shares of $1 par value common stock of Contemporary. The accompanying
combined balance sheets include allocations of the purchase price which resulted
in goodwill of $102,000 which is being amortized over 40 years.
The Group's owners intend to enter into a definitive agreement with
HomeUSA, Inc. (a Delaware Corporation) (HomeUSA), pursuant to which all of the
ownership interests of the group will be exchanged for cash and shares of
HomeUSA's common stock concurrently with the consummation of an initial public
offering (the Offering) of the common stock of HomeUSA. HomeUSA is unrelated to
Contemporary.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group for all periods which the companies were under common
control. All significant intercompany transactions have been eliminated in
combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of September 30, 1997, and for
the nine months ended September 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the combined
interim financial statements have been included. The Group's operations are
subject to different seasonal variations in sales. Due to seasonality and other
factors, the results of operations for the interim periods are not necessarily
indicative of the results for the entire fiscal year.
CASH
Included in the cash balance at December 31, 1995 and 1996, is $301,588 and
$200,000, respectively, in cash held as collateral against the Group's floor
plan payable.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
F-96
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Group's retail sales), upon execution of the loan
agreement and other required documentation and receipt of a designated minimum
down payment. Home sales also includes revenue from the construction of site
amenities. Home sales exclude any sales and use taxes collected.
The Group recognizes construction revenue based on project completion as
all projects are completed within 90 days.
The Group arranges financing for customers through various institutions for
which the Group receives certain financing fees which are recognized in other
revenues along with the sale of the related home.
Also included in other revenue is the revenue from repair and maintenance
services and construction services provided to related parties.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery, site amenities and other construction services.
INCOME TAXES
The Group accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision (benefit) for income taxes is the tax payable
(receivable) for the year and the change during the year in deferred tax assets
and liabilities.
SHAREHOLDERS' EQUITY
Shareholders' equity of the Group includes the following shares of common
stock which were issued and outstanding at December 31, 1996 and September 30,
1997 (unaudited): 5,000 shares of common stock at $1 par value for PacWest
MGMT., Inc., no shares and 200,000 shares, respectively of common stock at $1
par value for Contemporary and 12,500 shares of common stock at $1 par value of
Cooper Mobile Homes, Inc.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments consist primarily of accounts receivable,
floor plan payable and short-term and long-term debt. The carrying amount of
these financial instruments approximates fair value due either to length of
maturity or existence of variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial
F-97
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
institutions which may at times be in excess of federally insured levels. The
Group has not incurred significant losses related to these balances to date.
MAJOR SUPPLIER
The Group purchases all of its homes through a retailing agreement with a
primary supplier, at the prevailing prices charged by the manufacturer. Pursuant
to the agreement, the Group received volume rebates on inventory purchases. The
Group's sales volume could be adversely affected by the manufacturer's inability
to supply the sales centers with an adequate supply of homes.
The retail agreement between the sales centers and the manufacturer contain
certain provisions, including the minimum amount of homes to be purchased and
displayed, guidelines for the display of model homes, installation and delivery
guidelines and terms of reimbursement for warranty work performed by the
retailer pursuant to the manufacturer's warranty. The agreement also provides
for volume rebate incentive programs based on inventory purchases. Accordingly,
inventory has been recorded net of volume rebates. The retail agreement may be
terminated by the sales centers with notice and by the manufacturer for good
cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in June 1996 and establishes,
among other things, new criteria related to accounting for transfers of
financial assets in exchange for cash or other consideration. SFAS No. 125 also
establishes new accounting requirements for pledged collateral. In addition,
SFAS No. 125 is effective for all transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The Group
will adopt this statement when required and has not determined the impact that
the adoption of SFAS No. 125 will have on its financial statements.
F-98
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED DECEMBER 31
USEFUL LIVES ------------------- SEPTEMBER 30,
IN YEARS 1995 1996 1997
------------ --------- --------- -------------
(UNAUDITED)
Buildings......................... 25 $ 101 $ 101 $ 305
Leasehold improvements............ 10 1 426 499
Equipment......................... 5-7 466 509 517
Furniture and fixtures............ 5 58 137 317
--------- --------- -------------
Total........................ 626 1,173 1,638
Less -- Accumulated depreciation.. (311) (417) (491)
--------- --------- -------------
Property and equipment, net.. $ 315 $ 756 $ 1,147
========= ========= =============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
Due from manufacturers.................. $ 217 $ 303 $ 232
Due from finance companies.............. 114 12 347
Other................................... 21 70 369
Less -- Allowance for doubtful
accounts.............................. (10) (10) (10)
--------- --------- -------------
$ 342 $ 375 $ 938
========= ========= =============
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
New homes, net of unearned volume
rebates............................... $ 3,027 $ 3,611 $ 4,373
Pre-owned homes......................... 14 14 93
Parts, accessories and other............ 56 157 178
--------- --------- -------------
$ 3,097 $ 3,782 $ 4,644
========= ========= =============
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
Accounts payable, trade................. $ 251 $ 165 $ 163
Customer deposits....................... 20 140 224
Other accrued expenses.................. 173 328 584
--------- --------- -------------
$ 444 $ 633 $ 971
========= ========= =============
F-99
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Group has two floor plan credit facilities with lending institutions to
finance a major portion of its manufactured home inventory until such inventory
is sold. Interest on amounts borrowed is paid monthly at annual rates of 9.0
percent to 10.25 percent or rates varying from 1.0 percent up to 3.0 percent
(depending on the length of time the note is outstanding) over the lender's
prime rate (9.25 percent to 11.25 percent at December 31, 1996, and 9.5 percent
to 11.5 percent at September 30, 1997 (unaudited)). The floor plan payable is
secured by all of the Group's manufactured home inventory, related furniture,
fixtures and accessories and accounts receivable, and is guaranteed by the
shareholders of the Group.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Group must make periodic loan payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Group's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Group experience a material adverse change in its
financial position as determined by the lender. The maximum aggregate amount
that can be borrowed under the lines of credit is $7.5 million, and the largest
balance outstanding during the year ended December 31, 1996 was approximately
$5.0 million. The average balance outstanding during 1996 was approximately $4.6
million with a weighted average interest rate paid of 9.60 percent.
LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
(IN THOUSANDS)
Note payable to shareholders, quarterly
payments of $25,000, due October 1999,
interest to be paid by the Group's
primary home supplier................. $ -- $ 300 $ 250
Notes payable, maturing in varying
amounts through November 2001, with
interest ranging from 8.50% to 8.90%,
guaranteed by shareholders............ 83 144 172
Other borrowings maturing in April 1999,
bearing interior at 7.60%............. -- -- 90
--------- --------- -------------
83 444 512
Less -- Current portion................. (64) (224) (365)
--------- --------- -------------
$ 19 $ 220 $ 147
========= ========= =============
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):
Year ending December 31 --
1997..................... $ 224
1998..................... 105
1999..................... 105
2000..................... 5
2001..................... 5
---------
$ 444
=========
F-100
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows
(in thousands):
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal --
Current............................ $ 101 $ 61 $ 165
Deferred........................... (4) (69) 112
--------- --------- ---------
$ 97 $ (8) $ 277
========= ========= =========
The provision (benefit) for income taxes differs from an amount computed at
the statutory rates as follows (in thousands):
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal income tax at statutory rates... $ 97 $ (9) $ 192
Nondeductible expenses.................. -- 1 13
Valuation allowance..................... -- -- 72
--------- --------- ---------
$ 97 $ (8) $ 277
========= ========= =========
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995 and 1996, are as follows (in thousands):
1995 1996
--------- ---------
Deferred tax assets --
Accrued expenses................... $ 94 $ 95
NOL carryforward................... -- 72
--------- ---------
Total......................... 94 167
--------- ---------
Deferred tax liabilities --
Other.............................. (333) (446)
--------- ---------
Total......................... (333) (446)
--------- ---------
Less -- Valuation allowance on NOL
carryforward.......................... -- (72)
--------- ---------
Net deferred income tax
liability................. $ (239) $ (351)
========= =========
7. RELATED-PARTY TRANSACTIONS:
The Group provides administrative, managerial and construction services to
companies which are under common control and ownership of the Group. The Group
provided approximately $186,000, $631,000 and $452,000 of such services during
the years ended December 31, 1994, 1995 and 1996, respectively, and the services
are included in other revenues. At December 31, 1995 and 1996, the Group had
approximately $106,000 and $263,000, respectively, in related-party receivables
for such services. Additionally, included in inventory at December 31, 1996, are
investments of $367,483 in manufactured homes and capital improvements on
several housing developments owned by the shareholders of the Company.
The Group leases facilities from an entity which is owned by the
shareholders of the Group under operating leases. The rent paid under these
leases was approximately $17,000, $52,000 and $128,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
A related party is the Group's designated shipper of inventory purchased
from its manufacturer. This related party also acts as an agent of the Group and
performs delivery and set-up on behalf of the Group. Expenses incurred by the
Group for such delivery and set-up services were approximately $19,000 and
F-101
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$5,000 for the years ended December 31, 1994 and 1995, respectively. There were
no such expenses in 1996.
During 1994 through 1997, the majority shareholder, or related entities,
borrowed a total of $465,000 from the Group. The aggregate outstanding balance
of these loans held by the Group was $280,000, $445,000 and $380,000 (unaudited)
at December 31, 1995 and 1996 and September 30, 1997, respectively. The loans
earn interest at the rate of 7% per annum, and interest income was approximately
none, $10,000 and $23,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. All of the loans are unsecured and are expected to be repaid upon
the closing of the Offering.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2005. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................... $ 207
1998............................... 201
1999............................... 189
2000............................... 149
2001............................... 140
Thereafter......................... 482
---------
Total......................... $ 1,368
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $79,000, $102,000, and $193,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
RECOURSE FINANCING
In connection with home sales, the Company guaranteed certain amounts due
to lending institutions from its customers. In the event of default by the
customer, the outstanding balance would be owed by the Company to the lending
institution. These amounts are collateralized by the related homes. As of
December 31, 1996 and September 30, 1997, amounts guaranteed by the Company were
$268,000 and $358,000 (unaudited), respectively.
LITIGATION
The Group is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Group's financial position or results of
operations.
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
F-102
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS (UNAUDITED):
PROPOSED ACQUISITIONS BY HOMEUSA (UNAUDITED)
In September 1997, the Group and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Group with the subsidiary of HomeUSA (the Merger). Property and equipment of
approximately $26,000 which are included in the combined balance sheet at
September 30, 1997, will be distributed to the shareholders of the Group. In
addition, the shareholders of the Group will assume liabilities of approximately
$22,000 which are included in the combined balance sheet as of September 30,
1997. The cash portion of the purchase price of the Merger will be adjusted to
the extent the Excess Operating Capital is greater or less than zero. Excess
Operating Capital is defined as net working capital minus long-term debt, as of
the effective date of the Merger. Had these distributions been made at September
30, 1997, the Group would have had a reduction in purchase price of
approximately $34,000.
Concurrently with the Merger, the Group will enter into agreements with the
shareholders to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-103
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Home Folks Housing Center, Inc.:
We have audited the accompanying balance sheet of Home Folks Housing
Center, Inc., as of December 31, 1996, and the related statements of operations,
shareholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-104
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................... $ 149 $ 386
Accounts receivable, net........... 133 429
Inventories........................ 1,304 1,159
Other current assets............... 18 --
------------ --------------
Total current assets.......... 1,604 1,974
PROPERTY AND EQUIPMENT, net............. 299 283
------------ --------------
Total assets.................. $1,903 $2,257
============ ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses.......................... $ 359 $ 352
Floor plan payable................. 954 899
------------ --------------
Total current liabilities..... 1,313 1,251
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, no par value, 1,000
shares authorized, 1,000 shares
issued and 500 shares
outstanding....................... 32 32
Additional paid-in capital......... 3 3
Retained earnings.................. 572 988
Treasury stock, 500 shares, at
cost.............................. (17) (17)
------------ --------------
Total shareholder's equity.... 590 1,006
------------ --------------
Total liabilities and
shareholder's equity...... $1,903 $2,257
============ ==============
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
NINE MONTHS
ENDED SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
REVENUES:
Home sales......................... $7,985 $ 5,862 $ 7,205
Other revenue...................... 42 13 79
------------ --------- ---------
Total revenue................... 8,027 5,875 7,284
COST OF SALES........................ 6,121 4,507 5,584
------------ --------- ---------
Gross profit.................... 1,906 1,368 1,700
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,541 934 1,032
------------ --------- ---------
Income from operations.......... 365 434 668
OTHER INCOME (EXPENSE):
Interest expense, net........... (126) (104) (75)
Other income, net............... 14 5 23
------------ --------- ---------
NET INCOME........................... $ 253 $ 335 $ 616
============ ========= =========
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TREASURY
COMMON PAID-IN RETAINED STOCK
STOCK CAPITAL EARNINGS AT COST TOTAL
------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... $ 32 $ 3 $ 319 $ (17) $ 337
Net income...................... -- -- 253 -- 253
------ --- -------- -------- ---------
BALANCE, December 31, 1996........... 32 3 572 (17) 590
Dividend paid................... -- -- (200) -- (200)
Net income (unaudited).......... -- -- 616 -- 616
------ --- -------- -------- ---------
BALANCE, September 30, 1997
(unaudited).......................... $ 32 $ 3 $ 988 $ (17) $ 1,006
====== === ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 253 $ 335 $ 616
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation and
amortization............ 67 27 40
Changes in assets and
liabilities --
Accounts receivable... 25 5 (296)
Inventories........... (254) (221) 145
Other current
assets............. 8 (1) 18
Accounts payable and
accrued expenses... (114) (178) (7)
Floor plan payable.... 637 716 (55)
------------ --------- ---------
Net cash provided
by operating
activities...... 622 683 461
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment..................... (109) (81) (24)
------------ --------- ---------
Net cash used in
investing
activities...... (109) (81) (24)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt................ (640) (640) --
Dividend paid................... -- -- (200)
------------ --------- ---------
Net cash used in
financing
activities...... (640) (640) (200)
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH...... (127) (38) 237
CASH, beginning of period............ 276 276 149
------------ --------- ---------
CASH, end of period.................. $ 149 $ 238 $ 386
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest..... $ 131 $ 113 $ 82
The accompanying notes are an integral part of these financial statements.
F-108
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Home Folks Housing Center, Inc. (the Company) and its sole shareholder
intend to enter into a definitive agreement with HomeUSA, Inc. (HomeUSA),
pursuant to which all outstanding shares of the Company's common stock will be
exchanged for cash and shares of HomeUSA's common stock concurrently with the
consummation of an initial public offering (the Offering) of the common stock of
HomeUSA.
The Company is a Kentucky corporation that is primarily engaged in the
retail sale of new and pre-owned manufactured homes. The Company operates a
sales center in Kentucky which has an exclusive retail agreement with a home
manufacturer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 1997, and for the nine
months ended September 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The Company's operations are subject to seasonal variations in
sales. Due to seasonality and other factors, the results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Company's retail sales), upon execution of the
loan agreement and other required documentation and receipt of a designated
minimum down payment. Home sales exclude any sales and use taxes collected.
The Company arranges financing for customers through various institutions
for which the Company receives certain financing fees which are recognized in
other revenues along with the sale of the related home.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery.
F-109
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the shareholder reports his share of the
Company's taxable earnings or losses in his personal tax return. The Company
will terminate its S Corporation status concurrently with the effective date of
this offering.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of accounts receivable and
floor plan payables. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or existence of
variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Company has not
incurred losses related to these balances to date.
MAJOR SUPPLIER
The Company purchases all of its homes through an exclusive retail
agreement with a primary supplier, at the prevailing prices charged by the
manufacturer. The Company's sales volume could be adversely affected by the
manufacturer's inability to supply the sales center with an adequate supply of
homes.
The retail agreement between the sales centers and the manufacturer
contains certain provisions, including the minimum amount of homes to be
purchased and displayed, guidelines for the display of model homes, installation
and delivery guidelines and terms of reimbursement for warranty work performed
by the retailer pursuant to the manufacturer's warranty. These agreements also
provide for volume rebate incentive programs based on inventory purchases.
Accordingly, inventory has been recorded net of volume rebates. Retail
agreements may be terminated by the sales center with notice and by the
manufacturer for good cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued in June 1996 and establishes, among other things, new
criteria related to accounting for transfers of financial assets in exchange for
cash or other consideration. SFAS No. 125 also establishes new accounting
requirements for pledged collateral. In addition, SFAS No. 125 is effective for
all transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The Company will adopt this
statement when required and has not determined the impact that the adoption of
SFAS No. 125 will have on its financial statements.
F-110
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED
USEFUL LIVES DECEMBER 31, SEPTEMBER 30,
IN YEARS 1996 1997
------------ ------------ -------------
(UNAUDITED)
Buildings......................... 25 $ 111 $ 111
Leasehold improvements............ 10 25 31
Equipment......................... 5-7 421 444
Furniture and fixtures............ 5 40 40
------------ -------------
Total......................... 597 626
Less -- Accumulated depreciation.. (298) (343)
------------ -------------
Property and equipment, net... $ 299 $ 283
============ =============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
Due from manufacturers............... $ 54 $ 139
Due from finance companies........... 79 290
------------ -------------
$ 133 $ 429
============ =============
Inventories consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
New homes, net of unearned volume
rebates............................ $1,030 $ 873
Pre-owned homes...................... 202 224
Parts, accessories and other......... 72 62
------------ -------------
$1,304 $ 1,159
============ =============
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
Accounts payable, trade.............. $ 241 $ 125
Customer deposits.................... 26 60
Other accrued expenses............... 92 167
------------ -------------
$ 359 $ 352
============ =============
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Company has a floor plan credit facility with a lending institution to
finance a major portion of its manufactured home inventory until such inventory
is sold. Interest on amounts borrowed is paid monthly at rates varying from 1.25
percent up to 3.0 percent (depending on the time the note is outstanding) over
the
F-111
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
lender's prime rate (9.5 percent to 11.25 percent at December 31, 1996, and 9.75
percent to 11.5 percent at September 30, 1997 (unaudited)). The floor plan
payable is secured by all of the Company's manufactured home inventory, the
related furniture, fixtures and accessories and accounts receivable, and is
guaranteed by the shareholder of the Company.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Company must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Company's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Company experience a material adverse change in its
financial position as determined by the lender. The maximum amount that can be
borrowed under the floor plan line of credit is $1.5 million, and the largest
balance outstanding during the year ended December 31, 1996 was approximately
$1.4 million. The average balance outstanding during 1996 was $1.2 million with
a weighted average interest rate paid of 11.24 percent.
The Company has an agreement with the sole shareholder whereby the sole
shareholder has financed a portion of its manufactured home inventory until such
inventory is sold and contract proceeds are received. Interest on amounts
borrowed is paid monthly at rates varying from 12 percent to 12.5 percent. As of
December 31, 1996, there were no balances due to the shareholder.
LONG-TERM DEBT
Beginning January 7, 1997, the Company entered into a revolving line of
credit agreement with a financial institution. The Company may borrow up to
$100,000 under this facility, with the outstanding principal amount due on
January 7, 1998. Interest is payable quarterly at the prime rate. At September
30, 1997, the Company had available borrowing capacity of $100,000 under the
line of credit.
6. RELATED-PARTY TRANSACTIONS:
The Company leased land from related parties of the Company under operating
leases. Rental expense on related-party leases totaled $55,000 for the year
ended December 31, 1996.
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2006. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................ $ 80
1998............................ 80
1999............................ 80
2000............................ 78
2001............................ 78
Thereafter...................... 377
---------
Total...................... $ 773
=========
F-112
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $70,000 for the year ended December 31,
1996.
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Company has not incurred significant claims
or losses on any of its insurance policies.
EMPLOYEE 401(K) RETIREMENT PLAN
The Company has implemented a 401(k) retirement plan with an effective date
of January 1, 1995, which covers all employees meeting certain service
requirements. The Company matches employee contributions up to 4 percent of the
employee's base salary. The Company recorded contribution expense of $27,167 as
of December 31, 1996.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In September 1997, the Company and its shareholder entered into a
definitive agreement with a wholly-owned subsidiary of HomeUSA providing for the
merger of the Company with the subsidiary of HomeUSA (the Merger). The cash
portion of the purchase price of the Merger will be adjusted to the extent the
Excess Operating Capital is greater or less than zero. Excess Operating Capital
is defined as net working capital minus long-term debt as of the effective date
of the Merger. Had this distribution been made at September 30, 1997, the effect
on the Company's balance sheet would have been to decrease shareholder's equity
by approximately $706,000.
Concurrently with the Merger, the Company will enter into agreements with
the shareholder to lease land, equipment and buildings used in the Company's
operations for negotiated amounts and terms.
F-113
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To WillMax Homes of Colorado LLC:
We have audited the accompanying balance sheet of WillMax Homes of Colorado
LLC (the Company) as of December 31, 1996, and the related statements of
operations, members' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996, and the results of its operations and its cash flows for the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-114
<PAGE>
WILLMAX HOMES OF COLORADO LLC
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 70 $ 162
Accounts receivable, net........ 153 297
Inventories..................... 1,057 780
Other current assets............ 13 16
------------- --------------
Total current assets....... 1,293 1,255
PROPERTY AND EQUIPMENT, net.......... 57 54
OTHER ASSETS......................... 20 1
------------- --------------
Total assets............... $ 1,370 $1,310
============= ==============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 178 $ 326
Floor plan payable.............. 1,111 799
Short-term debt................. 19 70
------------- --------------
Total current
liabilities................ 1,308 1,195
LONG-TERM RELATED PARTY PAYABLE...... 35 37
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY...................... 27 78
------------- --------------
Total liabilities and
members' equity............ $ 1,370 $1,310
============= ==============
The accompanying notes are an integral part of these financial statements.
F-115
<PAGE>
WILLMAX HOMES OF COLORADO LLC
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
REVENUE:
Home sales...................... $3,512 $ 2,495 $ 2,484
Other revenue................... 48 48 139
------------ --------- ---------
Total revenue.............. 3,560 2,543 2,623
COST OF SALES........................ 2,955 2,063 1,991
------------ --------- ---------
Gross profit............... 605 480 632
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 511 365 516
------------ --------- ---------
Income from operations..... 94 115 116
OTHER INCOME (EXPENSE):
Interest expense, net........... (94) (77) (65)
Other income (expense), net..... (6) 2 --
------------ --------- ---------
NET INCOME (LOSS).................... $ (6) $ 40 $ 51
============ ========= =========
The accompanying notes are an integral part of these financial statements.
F-116
<PAGE>
WILLMAX HOMES OF COLORADO LLC
STATEMENTS OF MEMBERS' EQUITY
(IN THOUSANDS)
BALANCE, December 31, 1995........... $ (7)
Distributions................... (10)
Net loss........................ (6)
Contribution.................... 50
---------
BALANCE, December 31, 1996........... 27
Net income (unaudited).......... 51
---------
BALANCE, September 30, 1997
(unaudited)........................ $ 78
=========
The accompanying notes are an integral part of these financial statements.
F-117
<PAGE>
WILLMAX HOMES OF COLORADO LLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ (6) $ 40 $ 51
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation and
amortization............ 12 8 9
Issuance of capital as
compensation............ 50 -- --
Changes in assets and
liabilities --
Accounts receivable,
net................ (5) (62) (144)
Inventories........... (45) 84 277
Other assets.......... (28) (44) 16
Accounts payable and
accrued expenses... 61 149 148
Floor plan payable.... 3 (136) (312)
------------ --------- ---------
Net cash
provided by
operating
activities.... 42 39 45
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment..................... (11) (9) (5)
------------ --------- ---------
Net cash used in
investing
activities.... (11) (9) (5)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term debt..... (22) (17) 52
Distribution to members......... (10) -- --
------------ --------- ---------
Net cash used in
financing
activities.... (32) (17) 52
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH...... (1) 13 92
CASH, beginning of period............ 71 71 70
------------ --------- ---------
CASH, end of period.................. $ 70 $ 84 $ 162
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 94 $ 100 $ 79
The accompanying notes are an integral part of these financial statements.
F-118
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
WillMax Homes of Colorado LLC (the Company) is a Colorado limited liability
corporation, and is primarily engaged in the retail sale of new and pre-owned
manufactured homes. The Company operates a sales center in Colorado which has a
retail agreement with a home manufacturer.
The Company and its members intend to enter into a definitive agreement
with HomeUSA, Inc. (HomeUSA), pursuant to which all member interests in the
Company will be exchanged for cash and shares of HomeUSA's common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 1997, and for the nine
months ended September 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The Company's operations are subject to different seasonal
variations in sales. Due to seasonality and other factors, the results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Company's retail sales), upon execution of the
loan agreement and other required documentation and receipt of a designated
minimum down payment. Home sales also includes revenue from the construction of
site amenities. Home sales exclude any sales and use taxes collected.
The Company also maintains pre-owned manufactured home inventory owned by
third parties for which the Company receives a sales commission when sold to
customers. Consignment sales commissions are recognized in other revenue when
the related home is sold.
The Company receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenue at the time the policies are written.
F-119
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company arranges financing for customers through various institutions
for which the Company receives certain financing fees which are recognized in
other revenue along with the sale of the related home.
Also included in other revenues is the revenue from repair and maintenance
services.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery and site amenities.
INCOME TAXES
The Company, as a limited liability company, is taxed under sections of the
federal and state income tax laws which provide that, in lieu of corporate
income taxes, the members separately account for the Company's items of income,
deductions, losses and credits on their individual income tax returns based on
their respective ownership interests. As such, the financial statements do not
include a provision for income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of accounts
receivable, floor plan payables and debt. The carrying amount of these financial
instruments approximates fair value due either to length of maturity or
existence of variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Company has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Company purchases all of its homes from a primary supplier at the
prevailing prices charged by the manufacturer. The Company's sales volume could
be adversely affected by the manufacturer's inability to supply the sales center
with an adequate supply of homes.
The retail agreement between the sales center and the manufacturer contain
certain provisions, including the minimum amount of homes to be purchased and
displayed, guidelines for the display of model homes, installation and delivery
guidelines and terms of reimbursement for warranty work performed by the
retailer pursuant to the manufacturer's warranty. These agreements also provide
for volume rebate incentive programs based on inventory purchases. Accordingly,
inventory has been recorded net of volume rebates. Retail agreements may be
terminated by the sales center with notice and by the manufacturer for good
cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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.
F-120
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity. At December 31,
1996, cash includes $38,000 in amounts restricted that is held with a financing
institution in relation to customer deposits.
NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued in June 1996 and establishes, among other things, new
criteria related to accounting for transfers of financial assets in exchange for
cash or other consideration. SFAS No. 125 also establishes new accounting
requirements for pledged collateral. In addition, SFAS No. 125 is effective for
all transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The Company will adopt this
statement when required and has not determined the impact that the adoption of
SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
ESTIMATED
USEFUL LIVES DECEMBER 31, SEPTEMBER 30,
IN YEARS 1996 1997
------------ ------------ -------------
(UNAUDITED)
Furniture and fixtures............ 5 $ 46 $ 47
Leasehold improvements............ 10 30 34
------------ -------------
Total....................... 76 81
Less -- Accumulated depreciation.. (19) (27)
------------ -------------
Property and equipment,
net....................... $ 57 $ 54
============ =============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
Due from manufacturers............... $ 47 $ 58
Due from finance companies........... 55 101
Other................................ 51 138
------------ -------------
$ 153 $ 297
============ =============
Inventories consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
New homes, net of unearned volume
rebates.............................. $1,043 $ 764
Pre-owned homes...................... 14 16
------------ -------------
$1,057 $ 780
============ =============
F-121
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
Accounts payable, trade.............. $ 46 $ 44
Accrued compensation................. 24 --
Customer deposits.................... 55 120
Other accrued expenses............... 53 162
------------ -------------
$ 178 $ 326
============ =============
5. FLOOR PLAN PAYABLE AND DEBT:
FLOOR PLAN PAYABLE
The Company has three floor plan credit facilities with lending
institutions to finance a major portion of its manufactured home inventory until
such inventory is sold. Interest on amounts borrowed is paid monthly at rates
varying up to 2.0 percent (depending on the time the note is outstanding) over
the lender's prime rate (8.25 percent to 10.25 percent at December 31, 1996 and
8.5 percent to 10.5 percent at September 30, 1997 (unaudited)). The floor plan
payable is secured by all of the Company's manufactured home inventory, the
related furniture, fixtures and accessories and accounts receivable, and is
guaranteed by a stockholder.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Company must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreements. In the event the home remains in inventory 12 months
after the date of purchase, the balance of the obligation related to that home
will become due. In addition, certain of the Company's floor plan agreements
include subjective acceleration clauses which could result in the lines of
credit being due on demand should the Company experience a material adverse
change in its financial position as determined by the lender. The maximum amount
that can be borrowed under the floor plan lines of credit is $2.4 million and
the largest balance outstanding during the year ended December 31, 1996, was
approximately $1.3 million. The average balance outstanding during 1996 was
approximately $1.1 million with a weighted average interest rate paid of 8.4
percent.
SHORT-TERM DEBT
The Company has short-term debt of $75,000 due to members which matures
December 1997 through February 1998. These notes bear interest at 8 percent.
LONG-TERM DEBT
The Company has long-term debt of $25,000 which is due to a related party
in November 1998. This note bears interest of 12 percent per year and interest
only payments are due monthly until maturity.
The Company also has a $10,000 note due to the general manager upon
termination of his employment which bears interest at 12 percent per year.
6. RELATED-PARTY TRANSACTIONS:
The members of the corporation are partners in two land lease communities
in which the Company sells homes.
F-122
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases its facilities under an operating lease agreement. The
lease agreement is noncancelable and expires in October 1998. The lease
agreements are subject to renewal under essentially the same terms and
conditions as the original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................ $ 32
1998............................ 26
---
Total...................... $ 58
===
Total rent expense under all operating leases was approximately $30,000 for
the year ended December 31, 1996.
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company's financial position or results of
operations.
INSURANCE
The Company carries a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Company has not incurred significant claims
or losses on any of its insurance policies.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its members entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Company with the subsidiary of HomeUSA (the Merger). The cash portion of the
purchase price of the Merger will be adjusted to the extent the Excess Operating
Capital is greater or less than zero. Excess Operating Capital is defined as net
working capital minus long-term debt, as of the effective date of the Merger.
Had this distribution been made at September 30, 1997, the effect on the
Company's balance sheet would have been to decrease members' equity by
approximately $48,000.
F-123
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANY ONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 4
The Company............................. 10
Risk Factors............................ 12
Use of Proceeds......................... 18
Dividend Policy......................... 18
Capitalization.......................... 19
Dilution................................ 20
Selected Financial Data................. 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 23
Business................................ 45
Management.............................. 55
Certain Transactions.................... 61
Principal Stockholders.................. 65
Description of Capital Stock............ 66
Shares Eligible for Future Sale......... 68
Underwriting............................ 70
Legal Matters........................... 71
Experts................................. 71
Additional Information.................. 71
Index to Financial Statements........... F-1
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
5,000,000 SHARES
[LOGO]
HOMEUSA, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BT Alex. Brown
Bear, Stearns & Co. Inc.
NationsBanc Montgomery Securities, Inc.
Sanders Morris Mundy
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the SEC.
AMOUNT TO
BE PAID
------------
SEC registration fee.................... $ 22,652
Printing expenses....................... $ 280,000
Legal fees and expenses................. $ 875,000
Accounting fees and expenses............ $ 2,500,000
Blue sky fees and expenses.............. $ 10,000
Transfer Agent's and Registrar's fees... $ 10,000
Miscellaneous........................... $ 302,348
------------
TOTAL.............................. $ 4,000,000
============
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the
Company against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an officer or director of the
Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director or officer who is successful on the merits in defense of a suit against
such person.
The Company intends to enter into Indemnity Agreements with its directors
and certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
II-1
<PAGE>
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 3, 1996, HomeUSA issued and sold 1,000 shares of Common Stock to
Notre for a consideration of $1,000. This sale was exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved.
On October 8, 1996 HomeUSA issued and sold 19,325.96 shares of Common Stock
to Notre for a consideration of $17,439. This sale was exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved.
On January 15, 1997, HomeUSA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act no
public offering being involved: Cary N. Vollintine -- 1,766.3 shares for a
consideration of $1,602.26; Willie Thurman Langston II -- 126.16 shares for a
consideration of $114.45; Kevin J. Lilly -- 63.07 shares for a consideration of
$57.22; Robert P. Gauntt -- 63.07 shares for a consideration of $57.22; and
WillMax Capital Inc. -- 2,270.96 shares for a consideration of $2,060.05.
On May 10, 1997, HomeUSA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act, no
public offering being involved: Cary N. Vollintine -- 2,204.76 shares for a
consideration of $2,000.00; Frank W. Montfort -- 1,212.62 shares for a
consideration of $1,100.00; Philip Campbell -- 551.19 shares for a consideration
of $500.00; Michael F. Loy -- 1,102.38 shares for a consideration of $1,000;
Philip C. deMena -- 1,102.38 shares for a consideration of $1,000.00; Richard T.
Howell -- 110.23 shares for a consideration of $100.00; Jennifer
Jackson -- 110.23 shares for a consideration of $100.00; Melinda A.
Malek -- 11.02 shares for a consideration of $10.00; Stephen Baur -- 440.95
shares for a consideration of $400.00; Shellie Gray LePori -- 275.59 shares for
a consideration of $250.00; Infoscope, Inc. -- 44.09 shares for a consideration
of $40.00; Susan Yancey -- 5.51 shares for a consideration of $5.00; Jennifer G.
Davidson -- 5.51 shares for a consideration of $5.00; John R. Oren -- 551.19
shares for a consideration of $500.00; Steven J. Blum -- 110.23 shares for a
consideration of $100.00; Willie Thurman Langston II -- 165.35 shares for a
consideration of $150.00; Kevin J. Lilly -- 82.67 shares for a consideration of
$75.00; Robert P. Gauntt -- 82.67 shares for a consideration of $75.00; Kenneth
V. Garcia -- 110.23 shares for a consideration of $100.00 and Karl V.
Baumgartner -- 55.11 shares for a consideration of $50.00.
On August 1, 1997, HomeUSA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act, no
public offering being involved: Donald D. Moseley -- 551.19 shares for a
consideration of $500.00; Don A. Palmour -- 551.19 shares for a consideration of
$500.00; Cary N. Vollintine -- 220.47 shares for a consideration of $200.00;
Frank W. Montfort -- 121.26 shares for a consideration of $110.00; Philip
Campbell -- 55.11 shares for a consideration of $50.00; Michael F. Loy -- 110.23
shares for a consideration of $100; Philip C. deMena -- 110.23 shares for a
consideration of $100.00; Stephen F. Smith -- 110.23 shares for a consideration
of $100.00; Thomas N. Amonett -- 110.23 shares for a consideration of $100.00
and James J. Blosser -- 110.23 shares for a consideration of $100.00.
Effective August 1, 1997, HomeUSA effected a 90.7127-to-one stock dividend
on shares of Common Stock issued on and as of August 1, 1997.
Effective August 1, 1997, HomeUSA issued 1,718,823 shares of Restricted
Common Stock to Notre in exchange for 1,718,823 shares of Common Stock. This
issuance was exempt from registration under Section 4(2) of the Securities Act,
no public offering being involved.
Simultaneously with the consummation of this Offering, the Company will
issue 7,266,944 shares of its Common Stock in connection with the Mergers of the
Founding Companies. Each of these transactions
II-2
<PAGE>
was completed without registration under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
+1.1 -- Form of Underwriting Agreement
*3.1 -- Amended and Restated Certificate of Incorporation of HomeUSA,
Inc., as amended
*3.2 -- Bylaws of HomeUSA, Inc., as amended
+4.1 -- Form of certificate evidencing ownership of Common Stock of
HomeUSA, Inc.
5.1 -- Opinion of Bracewell & Patterson, L.L.P.
*10.1 -- HomeUSA, Inc. 1997 Long-Term Incentive Plan
*10.2 -- HomeUSA, Inc. 1997 Non-Employee Directors' Stock Plan
*10.3 -- Agreement and Plan of Organization dated as of September 10,
1997, by and among HomeUSA, Inc., McDonald Homes Acquisition
Corp., McDonald Homes, Inc. and the Stockholders named therein
*10.4 -- Agreement and Plan of Organization dated as of September 10,
1997, by and among HomeUSA, Inc., Universal Housing Acquisition
Corp., Universal Housing of East Tennessee Acquisition Corp.,
Shaffer & Webb Insurance Agency Acquisition Corp., Universal
Housing, Inc., Universal Housing of East TN, Inc., Shaffer &
Webb Insurance Agency, Inc. and the Stockholders named therein
*10.5 -- Agreement and Plan of Organization dated as of September 10,
1997, by and among HomeUSA, Inc., First American Homes
Acquisition Corp., D & S Acquisition Corp., Son Development
Acquisition Corp., First American Homes, Inc., D&S, Inc., Son
Development Corporation and the Stockholders named therein
*10.6 -- Agreement and Plan of Organization dated as of September 10,
1997, by and among HomeUSA, Inc., Mobile World Acquisition
Corp., Showcase of Homes Acquisition Corp., Mobile World, Inc.,
Showcase of Homes, Inc. and the Stockholders named therein
*10.7 -- Agreement and Plan of Organization dated as of September 10,
1997, by and among HomeUSA, Inc., Patrick Home Center
Acquisition Corp., Patrick Home Center, Inc. and the Stockholder
named therein
*10.8 -- Agreement and Plan of Organization dated as of September 10,
1997, by and among HomeUSA, Inc., Home Folks Housing Center
Acquisition Corp., Home Folks Housing Center, Inc. and the
Stockholder named therein
*10.9 -- Agreement and Plan of Organization dated as of September 10,
1997, by and among HomeUSA, Inc., Cooper's Mobile Homes
Acquisition Corp., Pac West Management Acquisition Corp., HUSAI
Acquisition Corp., Cooper's Mobile Homes, Inc., Pac West Mgmt.,
Inc., HomeUSA, Inc., and the Stockholders named therein
*10.10 -- Agreement and Plan of Organization dated as of September 10,
1997, by and among HomeUSA, Inc., CSF&T Acquisition Corp., AAA
Homes Acquisition Corp., Fordham Insurance Agency Acquisition
Corp., CSF&T, Inc., AAA Homes, L.L.C., Fordham Insurance Agency,
Inc. and the Stockholders named therein
*10.11 -- Agreement and Plan of Organization dated as of September 10,
1997, by and among HomeUSA, Inc., WillMax Homes of Colorado
L.L.C. and the Owners named therein
+10.12 -- Form of Employment Agreement between HomeUSA, Inc. and Cary
N. Vollintine
+10.13 -- Form of Employment Agreement between HomeUSA, Inc. and
Michael F. Loy
+10.14 -- Form of Employment Agreement between HomeUSA, Inc. and Frank
W. Montfort
+10.15 -- Form of Employment Agreement between HomeUSA, Inc. and Philip
deMena
+10.16 -- Form of Employment Agreement between HomeUSA, Inc. and Philip
Campbell
10.17 -- Form of Employment Agreement between HomeUSA, Inc. and Don A.
Palmour
10.18 -- Form of Employment Agreement between HomeUSA and Donald D.
Moseley
*10.19 -- Form of Founders' Employment Agreement
II-3
<PAGE>
+10.20 -- Form of Agreement Among Certain Stockholders
*10.21 -- Form of Indemnity Agreement with Notre Capital Ventures II,
L.L.C.
*21.1 -- List of subsidiaries of HomeUSA, Inc.
+23.1 -- Consent of Arthur Andersen LLP
+23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Bracewell & Patterson, L.L.P. (included in
Exhibit 5.1)
*23.4 -- Consent of Frank C. McDonald to be named as a director
*23.5 -- Consent of Harold K. Patrick to be named as a director
*23.6 -- Consent of Larry T. Shaffer to be named as a director
*23.7 -- Consent of Gary W. Fordham to be named as a director
*23.8 -- Consent of David E. Thompson to be named as a director
*23.9 -- Consent of Randle C. Cooper to be named as a director
*23.10 -- Consent of Stanley Poisso be named as a director
*23.11 -- Consent of Stephen F. Smith to be named as a director
*23.12 -- Consent of Thomas N. Amonett to be named as a director
*23.13 -- Consent of James J. Blosser to be named as a director
*24.1 -- Power of Attorney
*27 -- Financial Data Schedule
- ------------
* Filed previously on September 15, 1997 and incorporated herein by reference.
+ Filed herewith.
(b) Financial Statement Schedules
The following financial statement schedules are included herein.
Schedule I
All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions, are inapplicable, or the information is included in the
consolidated financial statements, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14, or otherwise,
the Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; (ii) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, HOMEUSA, INC.
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON, STATE OF TEXAS, ON OCTOBER 29, 1997.
HOMEUSA, INC.
By: /s/ CARY N. VOLLINTINE
CARY N. VOLLINTINE
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON OCTOBER 29, 1997.
SIGNATURE TITLE
--------- -----
/s/CARY N. VOLLINTINE Chairman of the Board; Chief Executive
CARY N. VOLLINTINE Officer and President
/s/MICHAEL F. LOY* Senior Vice President; Chief Financial
MICHAEL F. LOY Officer and Director (Chief Accounting Officer)
/s/STEVEN S. HARTER* Director
STEVEN S. HARTER
*By: /s/CARY N. VOLLINTINE
CARY N. VOLLINTINE
ATTORNEY-IN-FACT
II-5
EXHIBIT 1.1
_________ SHARES
HOMEUSA, INC.
Common Stock
UNDERWRITING AGREEMENT
__________, 1997
ALEX. BROWN & SONS INCORPORATED
BEAR, STEARNS & CO. INC.
MONTGOMERY SECURITIES
SANDERS MORRIS MUNDY INC.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
One South Street
Baltimore, Maryland 21202
Gentlemen:
HomeUSA, Inc., a Delaware corporation (the "Company"), proposes to sell to
the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
_________ shares of the Company's Common Stock, par value $.01 per share (the
"Firm Shares"). The respective amounts of the Firm Shares to be so purchased by
each of the Underwriters are set forth opposite their names in Schedule I
hereto. The Company also proposes to sell at the Underwriters' option an
aggregate of up to _______ additional shares of the Company's Common Stock (the
"Option Shares") as set forth below.
As the Representatives, you have advised the Company that you are
authorized to enter into this Agreement, and that you are willing, acting
severally and not jointly, to purchase the numbers of Firm Shares set forth
opposite your respective names in Schedule I, plus your pro rata portion of the
Option Shares if you elect to exercise the over-allotment option in whole or in
part for the accounts of the Underwriters. The Firm Shares and the Option Shares
(to the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
- 1 -
<PAGE>
Simultaneously with closing on the Firm Shares by the Underwriters, the
Company will cause each of the Founding Companies (as hereinafter defined) to be
merged with a subsidiary of the Company (collectively, the "Founding Company
Mergers"), the consideration for which will be a combination of cash and shares
of the Company's Common Stock as described in the Registration Statement (as
hereinafter defined).
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as
follows:
(a) A registration statement on Form S-1 (Reg. No. 333-_____) with
respect to the Shares has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder
and has been filed with the Commission. Copies of such registration
statement, including any amendments thereto, the preliminary prospectuses
(meeting the requirements of the Rules and Regulations) contained therein
and the exhibits, financial statements and schedules, as finally amended
and revised, have heretofore been delivered by the Company to you. Such
registration statement, together with any registration statement filed by
the Company pursuant to Rule 462(b) under the Act, herein referred to as
the "Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and
no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "Prospectus" means (a) the form of
prospectus first filed with the Commission pursuant to Rule 424(b), or (b)
the last preliminary prospectus included in the Registration Statement
filed prior to the time it becomes effective or filed pursuant to Rule
424(a) under the Act that is delivered by the Company to the Underwriters
for delivery to purchasers of the Shares, together with the term sheet or
abbreviated term sheet filed with the Commission pursuant to Rule
424(b)(7) under the Act. Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement. Each of McDonald
Homes, Inc., Patrick Home Center, Universal Housing, Inc., First American
Homes, AAA Homes, Cooper Homes, Home Folks Housing Center, Mobile World,
Inc. and Wilmax Capital (collectively the
- 2 -
<PAGE>
"Founding Companies") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. As of the date hereof, the Company has no subsidiaries except
those listed in Item 16 to the Registration Statement. The Company and
each of the Founding Companies are duly qualified to transact business in
all jurisdictions in which the conduct of their respective businesses
requires such qualification, except where the failure to so qualify would
not have a materially adverse effect on the business and operations of the
Company and the Founding Companies taken as a whole. The outstanding
shares of capital stock of each of the Founding Companies have been duly
authorized and validly issued, are fully paid and non-assessable. As of
the Closing Date (as hereinafter defined), after giving effect to the
Founding Company Mergers, all of the outstanding shares of capital stock
of each of the Founding Companies will be owned by the Company free and
clear of all liens, encumbrances and equities and claims; and no options,
warrants or other rights to purchase, agreements or other obligations to
issue or other rights to convert any obligations into shares of capital
stock or ownership interests in any of the Founding Companies will be
outstanding.
(c) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable;
the Shares to be issued and sold by the Company have been duly authorized
and when issued and paid for as contemplated herein will be validly
issued, fully paid and non-assessable; and no preemptive rights of
stockholders exist with respect to any of the Shares or the issue and sale
thereof. Neither the filing of the Registration Statement nor the offering
or sale of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock. Upon
completion of the Founding Company Mergers in the manner described in the
Registration Statement, the shares of Common Stock of the Company to be
issued in such mergers will be duly authorized, validly issued and fully
paid and non-assessable.
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares
nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto
will contain, all statements which are required to be stated therein by,
and will conform to the requirements of the Act and the Rules and
Regulations. The Registration Statement and any amendment thereto do not
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contain, and will not contain, any untrue statement of a material fact and
do not omit, and will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
The Prospectus and any supplements thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will
not omit, to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment
or supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter
through the Representatives, specifically for use in the preparation
thereof.
(f) All of the financial statements of the Company and the separate
financial statements of the Founding Companies, in each case together with
related notes and schedules, as set forth in the Registration Statement,
present fairly in all material respects the financial position and the
results of operations and cash flows of the Company and of each of the
Founding Companies, respectively, at the indicated dates and for the
indicated periods. Such financial statements and related schedules have
been prepared in accordance with generally accepted principles of
accounting, consistently applied throughout the periods involved, except
as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary
historical and pro forma financial and statistical data included in the
Registration Statement present fairly the information shown therein and
such data have been compiled on a basis consistent with the financial
statements presented therein and the books and records of the Company and
the Founding Companies, as applicable. The pro forma combined financial
statements of the Company and the Founding Companies (including the
supplemental pro forma information shown therein), together with the
related notes, as set forth in the Registration Statement, present fairly
the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the pro forma bases
described therein, and in the opinon of the Company, the assumptions used
in the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions or circumstances
referred to therein.
(g) Arthur Andersen LLP and Coopers & Lybrand L.L.P., who have
certified certain of the financial statements filed with the Commission as
part of the Registration Statement, are independent public accountants as
required by the Act and the Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Founding Companies
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before any court or administrative agency or otherwise, which if
determined adversely to the Company or such Founding Company is reasonably
likely to result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial
or otherwise) or prospects of the Company and the Founding Companies,
taken as a whole, or to prevent the consummation of the transactions
contemplated hereby except as set forth in the Registration Statement.
(i) Each of the Company and the Founding Companies has good and
marketable title to all of its properties and assets reflected in its
financial statements (or as described in the Registration Statement)
hereinabove described, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial
statements (or as described in the Registration Statement) or which are
not material in amount. Each of the Company and the Founding Companies
occupies its leased properties under valid and binding leases conforming
in all material respects to the description thereof set forth in the
Registration Statement.
(j) Each of the Company and the Founding Companies has filed all
Federal, state, local and foreign income tax returns which have been
required to be filed and have paid all taxes indicated by said returns and
all assessments received by it or any of them to the extent that such
taxes have become due and are not being contested in good faith. All tax
liabilities have been adequately provided for in the financial statements
of the Company and the Founding Companies, as applicable.
(k) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise), or prospects of the Company and the Founding
Companies, taken as a whole, whether or not occurring in the ordinary
course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered
into by the Company or the Founding Companies, other than transactions in
the ordinary course of business and changes and transactions described in
the Registration Statement, as it may be amended or supplemented. Neither
the Company nor any of the Founding Companies has any material contingent
obligations which are not disclosed in the Company's or such Founding
Company's financial statements, as applicable, included in the
Registration Statement.
(l) Neither the Company nor any of the Founding Companies is, or
with the giving of notice or lapse of time or both, will be, in violation
of or in default under its Charter or By-Laws or under any agreement,
lease, contract, indenture or other instrument or obligation to which it
is a party or by which it, or any of its properties, is
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bound and which default is of material significance in respect of the
condition (financial or otherwise) of the Company and the Founding
Companies, taken as a whole, or the business, management, properties,
assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Founding Companies, taken as a whole. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof
will not conflict with or result in a material breach of any of the terms
or provisions of, or constitute a material default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any of the Founding Companies is a party, or of the Charter or
By-Laws of the Company or any of the Founding Companies or any order, rule
or regulation applicable to the Company or any of the Founding Companies
of any court or, assuming compliance with all applicable state securities
or blue sky laws, of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(m) Each material approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with the
execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or such additional
steps as may be necessary to qualify the Shares for public offering by the
Underwriters under state securities or Blue Sky laws) has been obtained or
made and is in full force and effect.
(n) The Company and each of the Founding Companies hold all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their businesses; and neither the Company nor
any of the Founding Companies has infringed any patents, patent rights,
trade names, trademarks or copyrights, which infringement is material to
the business of the Company or such Founding Company. The Company knows of
no material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company or any of the
Founding Companies.
(o) Neither the Company, nor to the Company's best knowledge, any of
its affiliates or any of the Founding Companies or any of their
affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale
of the Shares.
(p) Neither the Company nor any of the Founding Companies is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the Commission
thereunder.
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(q) The Company and each of the Founding Companies maintain a system
of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) The Company and each of the Founding Companies carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value of
their respective properties and as is customary for companies engaged in
similar industries.
(s) The Company and each of the Founding Companies are in compliance
in all material respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company or any of the
Founding Companies would have any liability; neither the Company nor any
of the Founding Companies has incurred nor expects to incur liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal
from, any "pension plan," or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which
the Company or any of the Founding Companies would have any liability that
is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the
Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $____ per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9
hereof.
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(b) Payment for the Firm Shares to be sold hereunder is to be made
in New York Clearing House funds via wire transfer to the designated
account of the Company against delivery of certificates therefor to the
Representatives for the several accounts of the Underwriters. Such payment
and delivery are to be made at the offices of Alex. Brown & Sons
Incorporated, One South Street, Baltimore, Maryland, at 10:00 A.M.,
Baltimore time, on the third business day after the date of this Agreement
or at such other time and date not later than third business days
thereafter as you and the Company shall agree upon, such time and date
being herein referred to as the "Closing Date." (As used herein, "business
day" means a day on which the New York Stock Exchange is open for trading
and on which banks in New York are open for business and are not permitted
by law or executive order to be closed.) The certificates for the Firm
Shares will be delivered in such denominations and in such registrations
as the Underwriters request in writing not later than the third full
business day prior to the Closing Date, and will be made available for
inspection by the Underwriters at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the
first paragraph of this Section 2. The option granted hereby may be
exercised in whole or in part but only once and at any time upon written
notice given within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth
the number of Option Shares as to which the several Underwriters are
exercising the option, the names and denominations in which the Option
Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which certificates
for Option Shares are to be delivered shall be determined by the
Underwriters but shall not be earlier than three nor later than ten full
business days after the exercise of such option, nor in any event prior to
the Closing Date (such time and date being herein referred to as the
"Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of Option Shares being purchased as the number of Firm Shares being
purchased by such Underwriter bears to _________, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the
Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You,
as Representatives of the several Underwriters, may cancel such option at
any time prior to its expiration by giving written notice of such
cancellation to the Company. To the extent, if any, that the option is
exercised, payment for the Option Shares shall be made on the Option
Closing Date in New York Clearing House funds via wire transfer to the
designated account of the Company against delivery of certificates
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<PAGE>
therefor at the offices of Alex. Brown & Sons Incorporated, One South
Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the Underwriters are to make a public offering of
the Firm Shares as soon as the Representatives deem it advisable to do so
following execution of this Agreement. The Firm Shares are to be initially
offered to the public at the public offering price set forth on the cover of the
Prospectus. The Representatives may from time to time thereafter change the
public offering price and other selling terms. It is further understood that you
will act in accordance with a Master Agreement Among Underwriters. To the
extent, if at all, that any Option Shares are purchased pursuant to Section 2
hereof, the Underwriters will offer them to the public on the foregoing terms.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives containing
information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and
Regulations, and (B) not file any amendment to the Registration Statement
or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not
in compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (A) when
the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission,
(C) of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to
obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the
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Representatives may reasonably have designated in writing and will make
such applications, file such documents, and furnish such information as
may be reasonably required for that purpose, provided the Company shall
not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time
to time, prepare and file such statements, reports, and other documents,
as are or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for
distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period
when delivery of a Prospectus is required under the Act, as many copies of
the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to
the Representatives at or before the Closing Date, three signed, xeroxed
copies of the Registration Statement and all amendments thereto including
all exhibits filed therewith, and will deliver to the Representatives such
number of copies of the Registration Statement (including such number of
copies of the exhibits filed therewith that may reasonably be requested),
including any documents incorporated by reference therein, and of all
amendments thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission
thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters,
it becomes necessary to amend or supplement the Prospectus in order to
make the statements therein, in the light of the circumstances existing at
the time the Prospectus is delivered to a purchaser, not misleading, or,
if it is necessary at any time to amend or supplement the Prospectus to
comply with any law, the Company promptly will prepare and file with the
Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the
law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement, an
earnings statement (which need not be audited) in reasonable detail,
covering a period of at least 12 consecutive months
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beginning after the effective date of the Registration Statement, which
earnings statement shall satisfy the requirements of Section 11(a) of the
Act and Rule 158 of the Rules and Regulations and will advise you in
writing when such statement has been so made available.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Underwriters copies of annual reports and copies of
all other documents, reports and information furnished by the Company to
its stockholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act
or the Exchange Act. The Company will deliver to the Representatives
similar reports with respect to significant subsidiaries, as that term is
defined in the Rules and Regulations, which are not consolidated in the
Company's financial statements.
(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreement for such) will be made for a period of 180 days
after the date of the Prospectus, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of Alex. Brown
& Sons Incorporated, except that the Company may, without such consent,
issue shares (i) upon exercise of options granted under its stock option
plans, (ii) upon exercise of warrants outstanding on the date of this
Agreement, (iii) in connection with acquisitions of businesses, (iv) in
connection with conversion of shares of Restricted Common Stock to Common
Stock or (v) pursuant to employee benefit or compensation plans existing
on the date hereof.
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the New York Stock Exchange.
(j) The Company has caused each executive officer and director of
the Company to furnish to you, on or prior to the date of this Agreement,
a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person has agreed not to offer,
sell, sell short or otherwise dispose of any shares of Common Stock of the
Company owned by such person (or as to which such person has the right to
direct the disposition of) or request the registration for the offer or
sale of any of the foregoing for a period of 180 days after the date of
the Prospectus, directly or indirectly, except with the prior written
consent of Alex. Brown & Sons Incorporated ("Lockup Agreements").
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(k) The Company will: (i) use its best efforts to satisfy all
conditions to the consummation of the Founding Company Mergers as set
forth in the agreements with respect thereto, (ii) use its best efforts to
cause each other party to such agreements to satisfy all conditions to the
consummation of the Founding Company Mergers, and (iii) promptly notify
the Underwriters of the occurence of any event which may result in the
non-consummation of any of the Founding Company Mergers on the Closing
Date.
(l) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of
the proceeds therefrom as may be required in accordance with Rule 463
under the Act.
(m) The Company shall not invest, or otherwise use, the proceeds
received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Founding Companies to register as
an investment company under the Investment Company Act of 1940, as amended
(the "1940 Act").
(n) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for
the Common Stock.
(o) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement and in
connection with the Founding Company Mergers, including, without limiting the
generality of the foregoing, the following: accounting fees of the Company; the
fees and disbursements of counsel for the Company; the cost of printing and
delivering to, or as requested by, the Underwriters copies of the Registration
Statement, Preliminary Prospectuses, the Prospectus, this Agreement; the filing
fees of the Commission; the filing fees and expenses (including disbursements
but excluding legal fees of counsel to the Underwriters) incident to securing
any required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; and the Listing Fee of The New
York Stock Exchange. The Company shall not, however, be required to pay for any
of the Underwriters' expenses (other than those related to qualification under
NASD regulations) except that, if this Agreement shall not be consummated
because the conditions in Section 6 hereof are not satisfied, or because this
Agreement is terminated by the Underwriters pursuant to Section 11 hereof, or by
reason of any failure, refusal or inability on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on its part to be performed, unless such failure to
satisfy
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said condition or to comply with said terms be due to the default or omission of
any Underwriter, then the Company shall reimburse the Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the Underwriters for
damages on account of loss of anticipated profits from the sale by them of the
Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Underwriters and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date or
the Option Closing Date, as the case may be, which would prevent the issuance of
the Shares.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Bracewell &
Patterson L.L.P., counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own or
lease its properties and conduct its business as described in the
Registration Statement; each of the Founding Companies has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with
corporate power and authority to own or lease its properties and
conduct its business; the Company and each of the Founding Companies
are duly qualified to transact
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business in each of the jurisdictions set forth on a schedule to
such opinion; and, upon consummation of the Founding Company
Mergers, the outstanding shares of capital stock of each of the
Founding Companies will have been duly authorized and validly issued
and will be fully paid and non-assessable and will be owned by the
Company; and, to the best of such counsel's knowledge, the
outstanding shares of capital stock of each of the Founding
Companies will be owned by the Company, free and clear of all liens,
encumbrances and equities and claims, and no options, warrants or
other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into any shares of
capital stock of or other ownership interests in any of the Founding
Companies will be outstanding.
(ii) The Company has authorized capital stock as set forth
under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Preferred Stock and Common Stock have been
duly authorized; the outstanding shares of the Company's Common
Stock have been duly authorized and validly issued and are fully
paid and non-assessable; all of the Shares conform to the
description thereof contained in the Prospectus; the certificates
for the Shares, assuming they are in the form filed with the
Commission, are in due and proper form; the Firm Shares and Option
Shares, if any, to be sold by the Company pursuant to this Agreement
and the shares of Common Stock of the Company to be issued in
connection with the Founding Company Mergers have been duly
authorized and will be validly issued, fully paid and non-assessable
when issued and paid for as contemplated by this Agreement; and no
preemptive rights of stockholders exist under statute or under
agreements known to such counsel with respect to any of the Shares
or the shares to be issued in the Founding Company Mergers or the
issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or exchangeable
into or evidencing the right to purchase or subscribe for any shares
of capital stock of the Company and there are no outstanding or
authorized options, warrants or rights of any character obligating
the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right
to purchase or subscribe for any shares of such stock; and except as
described in the Prospectus, to the knowledge of such counsel, no
holder of any securities of the Company or any other person has the
right, contractual or otherwise, which has not been satisfied or
effectively waived, to cause the Company to sell or otherwise issue
to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any shares of Common Stock or other
securities of the Company included in the Registration Statement or
the right, as a result of the filing of the Registration Statement,
to
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require registration under the Act of any shares of Common Stock or
other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending
or threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable rules
and regulations thereunder (except that such counsel need express no
opinion as to the financial statements, notes thereto and related
schedules and other financial and statistical information included
therein or any information furnished by the Underwriters for use
therein).
(vi) The statements under the captions "Business Regulation,"
"Business Legal Proceedings," "Management Executive Compensation;
Employment Agreements; Covenants-not-to-Compete," "Management
Long-Term Incentive Compensation Plan," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future Sale"
in the Prospectus, insofar as such statements constitute a summary
of documents referred to therein or matters of law, are accurate
summaries and fairly present in all material respects the
information called for with respect to such documents and matters.
(vii) Each of the Agreements and Plan or Reorganization with
respect to the Founding Company Mergers (which have been filed with
the Commission as exhibits to the Registration Statement) have been
duly authorized, executed and delivered by the Company and
constitutes the valid binding obligation of the Company; the
Certificates or Articles of Merger referred to in such Agreements
and Plans of Reorganization, assuming the due filing thereof with
the appropriate regulatory authorities, will cause the statutory
merger of each of the Founding Companies with the respective
subsidiaries of the Company that are parties thereto.
(viii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration
Statement or described in the Registration Statement or the
Prospectus which are not so filed or described as required, and the
descriptions of such contracts and documents required to be
described in the Registration Statement or the Prospectus are
correct in all material respects.
- 15 -
<PAGE>
(ix) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the
Founding Companies except as set forth in the Prospectus.
(x) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Charter or By-Laws
of the Company, or, in any respect material to the Company and the
Founding Companies, taken as a whole, any agreement or instrument
known to such counsel to which the Company or any of the Founding
Companies is a party or by which the Company or any of the Founding
Companies may be bound.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company.
(xii) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by
the NASD or as required by State securities and Blue Sky laws as to
which such counsel need express no opinion), except such as have
been obtained or made, specifying the same.
(xiii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
In rendering such opinion, Bracewell & Patterson L.L.P. may provide
that its opinion is limited to matters governed by the laws of Texas and
the General Corporation law of the State of Delaware, and the Federal
securities laws of the United States and may rely on counsel to one or
more of the Founding Companies with respect to matters related to the
Founding Companies, provided that, in lieu of such reliance, Bracewell &
Patterson L.L.P. may provide separate opinions of such counsel so long as
such opinions are addressed to the Underwriters, and further provided
that, in each case, Bracewell & Patterson L.L.P. shall state that they
believe that they and the Underwriters are justified in relying on such
other counsel. In addition to the matters set forth above, the opinion of
Bracewell & Patterson L.L.P. shall also include a statement of belief to
the effect that nothing has come to the attention of such counsel which
leads them to believe that (i) the Registration Statement, at the time it
became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act)
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<PAGE>
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements, in the
light of the circumstances under which they are made, not misleading
(except that such counsel need express no view as to financial statements,
schedules or other financial and statistical information therein). With
respect to such statement of belief, Bracewell & Patterson L.L.P. may
state that their belief is based upon the procedures set forth therein,
but is without independent check and verification.
(c) The Representatives shall have received from Piper & Marbury
L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (ii), (iii), (iv), and (xi) of Paragraph (b) of
this Section 6, and that the Company is a duly organized and validly
existing corporation under the laws of the State of Delaware. In rendering
such opinion, Piper & Marbury L.L.P. may rely as to the matters relating
to the laws of the States other than Maryland and Delaware on the opinions
of counsel referred to in Paragraph (b) of this Section 6. In addition to
the matters set forth above, such opinion shall also include a statement
to the effect that nothing has come to the attention of such counsel which
leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but
after giving effect to any modifications incorporated therein pursuant to
Rule 430A under the Act) contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant
to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact, necessary in order to
make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as
to financial statements, schedules and statistical information therein).
With respect to such statement, Piper & Marbury L.L.P. may state that
their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Piper & Marbury L.L.P. a memorandum or summary, in form
and substance satisfactory to the Underwriters, with respect to the
qualification for offering and sale by the Underwriters of the Shares
under the State securities or Blue Sky laws of such jurisdictions as the
Underwriters may reasonably have designated to the Company.
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<PAGE>
(e) The Underwriters shall have received, on the date hereof, the
Closing Date and the Option Closing Date, as the case may be, letters
dated the date hereof, the Closing Date or the Option Closing Date, as the
case may be, in form and substance satisfactory to the Underwriters, of
Arthur Andersen LLP and Coopers & Lybrand L.L.P. confirming that they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that, in
their opinion, the financial statements and schedules of the Company and
the Founding Companies examined by them and included in the Registration
Statement comply in form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to such financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates
of the Company and signed by the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that, as of the Closing
Date or the Option Closing Date, as the case may be:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been taken or are, to his knowledge, contemplated by
the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct in all material
respects as of the Closing Date or the Option Closing Date, as the
case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) As of the effective date of the Registration Statement,
the statements contained in the Registration Statement were true and
correct in all material respects, and such Registration Statement
and Prospectus did not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein
not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in
a supplement to or an amendment of the Prospectus which has not been
so set forth in such supplement or amendment; and
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<PAGE>
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not
been any material adverse change or any development involving a
prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company or any of the Founding
Companies or the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects
of the Company or any of the Founding Companies, whether or not
arising in the ordinary course of business, except as set forth in,
or contemplated by, the Prospectus or as described in such
certificate.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters
as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, shall have been
approved for designation upon notice of issuance on the New York Stock
Exchange.
(i) The Lockup Agreements described in Section 4(j) shall be in full
force and effect.
(j) Each of the Founding Company Mergers shall have been completed
upon the terms set forth in the Prospectus simultaneously with the closing
of the purchase of the Firm Shares by the Underwriters.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Piper & Marbury L.L.P.,
counsel for the Underwriters, in their reasonable judgment.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Underwriters by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
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<PAGE>
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that: (a) at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened, and (b) each of the Founding Company Mergers
shall have been completed upon the terms set forth in the Prospectus
simultaneously with the closing of the purchase of the Firm Shares by the
Underwriters.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act, against any losses, claims, damages or liabilities
to which such Underwriter or any such controlling person may become
subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage or
liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any action or
proceeding; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment
or supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically
for use in the preparation thereof. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who
has signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or
- 20 -
<PAGE>
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made; and will
reimburse any legal or other expenses reasonably incurred by the Company
or any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in
each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has
been made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to
any party who shall fail to give notice as provided in this Section 8(c)
if the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was materially prejudiced by the
failure to give such notice, but the failure to give such notice shall not
relieve the indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than
on account of the provisions of Section 8(a) or (b). In case any such
proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party and shall pay as incurred the fees
and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them
or (iii) the indemnifying party shall have failed to assume the defense
and employ
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<PAGE>
counsel acceptable to the indemnified party within a reasonable period of
time after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm for all such indemnified
parties. Such firm shall be designated in writing by you in the case of
parties indemnified pursuant to Section 8(a) and by the Company in the
case of parties indemnified pursuant to Section 8(b). The indemnifying
party shall not be liable for any settlement of any proceeding effected
without its written consent but if settled with such consent or if there
be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. In addition, the indemnifying party
will not, without the prior written consent of the indemnified party,
settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding of which indemnification
may be sought hereunder (whether or not any indemnified party is an actual
or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim,
action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above (other than by reason of the exceptions provided
in such paragraphs) in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other
from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law then
each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on
the one hand and the Underwriters on the other in connection with the
statements, omissions or breaches of representations and warranties which
resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting
discounts and commissions received by the Underwriters, in each case as
set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied
by the Company on the one hand or the Underwriters on the other
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<PAGE>
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 8(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d)
shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any
amount in excess of the underwriting discounts and commissions applicable
to the Shares purchased by such Underwriter and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon him or it by any other
contributing party and consents to the service of such process and agrees
that any other contributing party may join him or it as an additional
defendant in any such proceeding in which such other contributing party is
a party.
(f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are
incurred. The indemnity and contribution agreements contained in this
Section 8 and the representations and warranties of the Company set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Company, its
directors or officers or any persons controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter, or to the
Company, its directors or officers, or any person controlling the Company,
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 8.
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<PAGE>
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for any portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company), the non-defaulting
Underwriters, shall use their reasonable efforts to procure within 36 hours
thereafter one or more other underwriters to purchase from the Company such
amounts as may be agreed upon and upon the terms set forth herein, the Firm
Shares or Option Shares, as the case may be, which the defaulting Underwriter
failed to purchase. If during such 36 hours the non-defaulting Underwriters
shall not have procured such other underwriters, or any others, to purchase the
Firm Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter, then (a) if the aggregate number of shares with respect
to which such default shall occur does not exceed 10% of the Firm Shares or
Option Shares, as the case may be, covered hereby, the non-defaulting
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter failed to purchase, or (b)
if the aggregate number of shares of Firm Shares or Option Shares, as the case
may be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or the
non-defaulting Underwriters will have the right, by written notice given within
the next 36-hour period to the parties to this Agreement, to terminate this
Agreement without liability on the part of the non-defaulting Underwriters or of
the Company except to the extent provided in Section 8 hereof. In the event of a
default by any Underwriter, as set forth in this Section 9, the Closing Date or
Option Closing Date, as the case may be, may be postponed for such period, not
exceeding seven days, as the non-defaulting Underwriters may determine in order
that the required changes in the Registration Statement or in the Prospectus or
in any other documents or arrangements may be effected. The term "Underwriter"
includes any person substituted for a defaulting Underwriter. Any action taken
under this Section 9 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, One Street, Baltimore, Maryland 21202, Attention: Jay S. Eastman,
Managing Director, with a copy to Alex. Brown & Sons Incorporated, One South
Street, Baltimore, Maryland 21202 Attention: General Counsel; and if to the
Company; to HomeUSA, Inc., 4801 Woodway Drive, Suite 300E, Houston, Texas 77056,
Attention: Cary Vollintine, Chief Executive Officer, with copies to Bracewell &
Patterson
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<PAGE>
L.L.P., South Tower Pennzoil Place, 711 Louisiana Street, Suite 2900, Houston,
Texas 77002-2718, Attention: William D. Gutermuth, Esq.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30
a.m. on the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change
in or affecting the condition, financial or otherwise, of the Company and
the Founding Companies taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial
or otherwise) or prospects of the Company and the Founding Companies taken
as a whole, whether or not arising in the ordinary course of business,
(ii) any outbreak or escalation of hostilities or declaration of war or
national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such
outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares or to enforce
contracts for the sale of the Shares, (iii) suspension of trading in
securities generally on the New York Stock Exchange, American Stock
Exchange or the Nasdaq Stock Market or limitation on prices (other than
limitations on hours or numbers of days of trading) for securities
thereon, (iv) the enactment, publication, decree or other promulgation of
any statute, regulation, rule or order of any court or other governmental
authority which in your opinion materially and adversely affects or may
materially and adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by United States or New York State
authorities, (vi) the suspension of trading of the Company's Common Stock
by the Commission on the New York Stock Exchange, or (vii) the taking of
any action by any governmental body or agency in respect of its monetary
or fiscal affairs which in your reasonable opinion has a material adverse
effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
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<PAGE>
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnity and contribution agreements contained in this
Agreement and the representations and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware.
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<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
Underwriters in accordance with its terms.
Very truly yours,
HOMEUSA, INC.
By: __________________________________
Cary Vollintine,
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
ALEX. BROWN & SONS INCORPORATED
BEAR, STEARNS & CO. INC.
MONTGOMERY SECURITIES
SANDERS MORRIS MUNDY INC.
By: Alex. Brown & Sons Incorporated
By _____________________________
Authorized Officer
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<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------
Alex. Brown & Sons Incorporated
Bear, Stearns & Co. Inc.
Montgomery Securities
Sanders Morris Mundy Inc.
Total...........................................
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TEMPORARY CERTIFICATE EXCHANGEABLE FOR DEFINITIVE
ENGRAVED CERTIFICATE WHEN READY FOR DELIVERY
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE PAR VALUE $0.01
NUMBER HomeUSA SHARES
______ ______
CUSIP __________
SEE REVERSE SIDE
FOR CERTAIN
DEFINITIONS
HomeUSA, Inc.
THIS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
HomeUSA, Inc. transferable on the books of the corporation by the holder hereof,
in person or by attorney, upon surrender of this certificate properly endorsed.
This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
C E R T I F I C A T E O F S T O C K
Dated _________________________ COUNTERSIGNED AND REGISTERED
CHASEMELLON SHAREHOLDER
_______________________________ [S E A L] SERVICES, L.L.C.
CHAIRMAN OF THE BOARD, CHIEF TRANSFER AGENT AND
EXECUTIVE OFFICER AND PRESIDENT REGISTRANT
BY
_______________________________
SENIOR VICE PRESIDENT AND
CORPORATE SECRETARY AUTHORIZED SIGNATURE
<PAGE>
[HomeUSA LOGO]
HomeUSA, Inc.
The Corporation will furnish upon request and without charge to each
stockholder the powers, designations, preferences and relative, participating,
optional and other special rights of each class of stock and series within a
class of stock of the Corporation, as well as the qualifications, limitations
and restrictions relating to those preferences and/or rights. A stockholder may
make the request to the Corporation or to its Transfer Agent and Registrar.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
UNIF GIFT MIN ACT--
TEN COM -- as tenants in common ________Custodian_________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as tenants Act ______________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _______________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
------------------------------------
| |
|____________________________________|__________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE, OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated _______________________________
NOTICE: X_____________________________________________
THE SIGNATURE(S) TO (SIGNATURE)
THIS ASSIGNMENT MUST
CORRESPOND WITH THE
NAME(S) AS WRITTEN
UPON THE FACE OF THE -->
CERTIFICATE IN EVERY
PARTICULAR WITHOUT
ALTERATION OR EN- X_____________________________________________
LARGEMENT OR ANY (SIGNATURE)
CHANGE WHATEVER
---------------------------------------------------
| THE SIGNATURE(S) SHOULD BE GUARANGEED BY AN |
| ELIGIBLE GUARANTOR INSTITUTION [BANKS, |
| STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND |
| CREDIT UNIONS WITH MEMBERSHIP IN ANY APPROVED |
| SIGNATURE GUARANTEE MEDALLION PROGRAM], PURSUANT |
| TO S.E.C. RULE 17Ad 15 |
|---------------------------------------------------|
| SIGNATURE(S) GUARANTEED BY: |
| |
| |
| |
| |
| |
| |
---------------------------------------------------
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR-BELINDA BECK - 21b830 2198
PROOF OF OCTOBER 29, 1997
HOME
EXHIBIT 10.12
MANAGEMENT
EMPLOYMENT AGREEMENT
This Management Employment Agreement (this "Agreement") by and among
HomeUSA Management Co., L.P., a Delaware limited partnership ("Employer"), and
Cary N. Vollintine ("Employee") is hereby entered into and effective as of the
__ day of November 1997 (the "Effective Date"), which date is the date of the
consummation of the initial public offering of the common stock of HomeUSA,
Inc., a Delaware corporation (the "Company").
R E C I T A L S
A. The Company is engaged primarily in the retail manufactured housing
business;
B. Employer is engaged primarily in the business of providing management
services to the Company;
C. Employer desires to employ Employee hereunder in a confidential
relationship wherein Employee, in the course of his employment, will become
familiar with and aware of information as to the Company's customers, specific
manner of doing business, processes, techniques and trade secrets and future
plans with respect thereto, all of which have been and will be established and
maintained at great expense to the Company, which information is a trade secret
and constitutes the valuable good will of the Company; and
D. The Company is intended to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) Employer hereby employs Employee to serve as Chairman and Chief
Executive Officer of the Company. As such, Employee shall have responsibilities,
duties and authority customarily accorded to and expected of an officer holding
such position directly with the Company. Employee hereby accepts this employment
upon the terms and conditions herein contained and agrees to devote his full
time, attention and efforts to promote and further the business of Employer.
(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by Employer from time to time.
2. COMPENSATION. For all services rendered by Employee, Employer shall
compensate Employee as follows:
<PAGE>
(a) BASE SALARY; PERFORMANCE BONUS; COMPANY STOCK OPTIONS. Effective as of
the Effective Date, the base salary payable to Employee shall be $ 150,000 per
year, payable on a regular basis in accordance with Employer's standard payroll
procedures but not less than monthly. On at least an annual basis, Employer will
review Employee's performance and may, in its sole discretion, (i) make
increases to such base salary; (ii) pay a performance bonus; or (iii) recommend
Employee for the grant of Company stock options.
(b) EMPLOYEE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from Employer in
such form and to such extent as specified below:
(i) Coverage for Employee and his dependent family members under
health, hospitalization, disability, dental, life and other insurance
plans that Employer may have in effect from time to time. Benefits
provided to Employee under this clause (i) shall be equal to such benefits
provided to other Employer employees of the same level.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of services
pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with Employer's expense reporting policy.
(iii) Employer shall provide Employee with other employee
perquisites as may be available to or deemed appropriate for Employee by
Employer and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of this
paragraph 3. Employee will not, during the period of his employment by or with
Employer, and for a period of two (2) years immediately following the
termination of his employment under this Agreement, except as provided below,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
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<PAGE>
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail manufactured housing business in direct
competition with Employer or the Company within 100 miles of where the
Company or any of its subsidiaries conduct business, including any
territory serviced by the Company or any of such subsidiaries (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Employer or the Company (including the
respective subsidiaries thereof) in a managerial capacity for the purpose
or with the intent of enticing such employee away from or out of the
employ of Employer or the Company (including the respective subsidiaries
thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by
Employer or the Company (including the respective subsidiaries thereof) or
for which Employer or the Company made an acquisition analysis for the
purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as a passive investment not more than one
percent (1%) of the capital stock of a publicly traded corporation or other
entity, even if such corporation or other entity competes with the Company.
(b) Because of the difficulty of measuring economic losses to Employer or
the Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to Employer or the
Company for which they would have no other adequate remedy, Employee agrees that
the foregoing covenant may be enforced by Employer or the Company in the event
of breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities,
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<PAGE>
business and locations of the Company (including the Company's subsidiaries)
throughout the term of this covenant, whether before or after the date of
termination of the employment of Employee. For example, if, during the term of
this Agreement, the Company (including the Company's subsidiaries) engages in
new and different activities, enters a new business or establishes new locations
for its current activities or business in addition to or other than the
activities or business enumerated under the Recitals above or the locations
currently established therefor, then Employee will be precluded from soliciting
the customers or Employees of such new activities or business or from such new
location and from directly competing with such new business within 100 miles of
its then-established operating location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth herein are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and this
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against Employer or the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Employer or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE; RELOCATION RIGHTS.
(a) Employee understands that he may be requested by Employer or the
Company to
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<PAGE>
relocate from his present residence to another geographic location in order to
more efficiently carry out his duties and responsibilities under this Agreement
or as part of a promotion or other increase in duties and responsibilities. In
such event, if Employee agrees to relocate, Employer or the Company will pay all
relocation costs to move Employee, his immediate family and their personal
property and effects. Such costs may include, by way of example, but are not
limited to, pre-move visits to search for a new residence, investigate schools
or for other purposes; temporary lodging and living costs prior to moving into a
new permanent residence; duplicate home carrying costs; all closing costs on the
sale of Employee's present residence and on the purchase of a comparable
residence in the new location; and added income taxes that Employee may incur if
any relocation costs are not deductible for tax purposes. The general intent of
the foregoing is that Employee shall not personally bear any out-of-pocket cost
as a result of the relocation, with an understanding that Employee will use his
best efforts to incur only those costs which are reasonable and necessary to
effect a smooth, efficient and orderly relocation with minimal disruption to the
business affairs of Employer or the Company and the personal life of Employee
and his family.
(b) Notwithstanding the above, if Employee is requested by Employer to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(a)(iii).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
(a) TERM. The term of this Agreement shall begin on the date hereof and
continue for three (3) years (the "Initial Term") unless terminated sooner as
herein provided, and shall continue thereafter on a year-to-year basis on the
same terms and conditions contained herein in effect as of the time of renewal
(the "Term"). This Agreement and Employee's employment may be terminated in any
one of the followings ways:
(i) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may
occur before or after the end of such four (4) month period, but which
shall not be effective earlier than the last day of such four (4) month
period), Employer may terminate Employee's employment hereunder provided
Employee is unable to resume his full-time duties with or without
reasonable accommodation at the conclusion of such notice period. Also,
Employee may terminate his employment hereunder if his health should
become impaired to an extent that makes the continued performance of his
duties hereunder hazardous to his physical or
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<PAGE>
mental health or his life, provided that Employee shall have furnished
Employer with a written statement from a qualified doctor to such effect
and provided, further, that, at Employer's request made within thirty (30)
days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by Employer who is reasonably acceptable
to Employee or Employee's doctor and such doctor shall have concurred in
the conclusion of Employee's doctor. In the event this Agreement is
terminated as a result of Employee's disability, Employee shall receive
from Employer, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater; provided,
however, that any such payments shall be reduced by the amount of any
disability insurance payments payable to the Employee as a result of such
disability.
(iii) GOOD CAUSE. Employer may terminate this Agreement immediately
for good cause, which shall be: (1) Employee's willful, material and
irreparable breach of this Agreement; (2) Employee's gross negligence in
the performance or intentional nonperformance of any of Employee's
material duties and responsibilities hereunder; (3) Employee's willful
dishonesty, fraud or misconduct with respect to the business or affairs of
Employer or the Company which materially and adversely affects the
operations or reputation of Employer or the Company; (4) Employee's
conviction of a felony crime; or (5) Employee's confirmed positive illegal
drug test result. In the event of a termination for good cause, as
enumerated above, Employee shall have no right to any severance
compensation.
(iv) WITHOUT CAUSE. At any time after the commencement of
employment, either Employee or Employer may, without cause, terminate this
Agreement and Employee's employment, effective thirty (30) days after
written notice is provided to the other. Should Employee be terminated by
Employer without cause during the Initial Term, Employee shall receive
from Employer, in a lump-sum payment due on the effective date of
termination, the base salary at the rate then in effect for whatever time
period is remaining under the Initial Term of this Agreement or for one
(1) year, whichever amount is greater. Should Employee be terminated by
Employer without cause after the Initial Term, Employee shall receive from
Employer, in a lump-sum payment due on the effective date of termination,
the base salary rate then in effect equivalent to one (1) year of salary.
Further, any termination without cause by Employer shall operate to
shorten the period set forth in paragraph 3(a) and during which the terms
of paragraph 3 apply to one (1) year from the date of termination of
employment. If Employee resigns or otherwise terminates this Agreement,
the provisions of paragraph 3 hereof shall apply, except that Employee
shall receive no severance compensation.
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<PAGE>
(b) CHANGE IN CONTROL OF THE COMPANY. In the event of a "Change in Control
of the Company" (as defined below) during the Term, paragraph 12 below shall
apply.
(c) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Employee shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in the manner expressly
provided herein. All other rights and obligations of Employer and Employee under
this Agreement shall cease as of the effective date of termination, except that
Employer's obligations under paragraph 9 herein and Employee's obligations under
paragraphs 3, 6, 7, 8 and 10 herein shall survive such termination in accordance
with their terms.
(d) BREACH BY COMPANY. If termination of Employee's employment arises out
of Employer's failure to pay Employee on a timely basis the amounts to which he
is entitled under this Agreement or as a result of any other breach of this
Agreement by Employer, as determined by a court of competent jurisdiction or
pursuant to the provisions of paragraph 16 below, Employer shall pay all amounts
and damages to which Employee may be entitled as a result of such breach,
including interest thereon and all reasonable legal fees and expenses and other
costs incurred by Employee to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by Employer.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment hereunder. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for
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<PAGE>
and obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by Employer
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then Employer shall indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith, to the maximum extent permitted by applicable law. The advancement of
expenses shall be mandatory to the extent permitted by applicable law. In the
event that both Employee and Employer are made a party to the same third-party
action, complaint, suit or proceeding, Employer agrees to engage counsel, and
Employee agrees to use the same counsel, provided that if counsel selected by
Employer shall have a conflict of interest that prevents such counsel from
representing Employee, Employee may engage separate counsel and Employer shall
pay all reasonable attorneys' fees of such separate counsel. Employer shall not
be required to pay the fees of more than one law firm except as described in the
preceding sentence, and shall not be required to pay the fees of more than two
law firms under any circumstances. Further, while Employee is expected at all
times to use his best efforts to faithfully discharge his duties under this
Agreement, Employee cannot be held liable to Employer for errors or omissions
made in good faith where Employee has not exhibited gross, willful and wanton
negligence or misconduct or performed criminal or fraudulent acts.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to
Employer and the Company that the execution of this Agreement by Employee and
his employment by Employer and the performance of his duties hereunder will not
violate or be a breach of any agreement with a former employer, client or any
other person or entity. Further, Employee agrees to indemnify Employer and the
Company for any claim, including, but not limited to, attorneys' fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against Employer or the Company based upon or
arising out of any non-competition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
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<PAGE>
11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by Employer and/or the Company on the basis of his
personal qualifications, experience and skills. Employee agrees, therefore, he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two (2) sentences and the express provisions of
paragraph 12 below, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that Employer and/or the Company
may be merged or consolidated with or into another entity and that such entity
shall automatically succeed to the rights and obligations of Employer and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated during the Initial Term of this Agreement, then the provisions of
this paragraph 12 shall be applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform Employer's obligations under this Agreement in the
same manner and to the same extent that Employer is hereby required to perform,
then such Change in Control shall be deemed to be a termination of this
Agreement by Employer without cause during the Initial Term and the applicable
portions of paragraph 5(a)(iv) will apply; however, under such circumstances,
the amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(a)(iv) and the non-competition
provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to
Employer at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(a)(iv) will apply as though Employer had terminated
the Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be double the amount calculated under the terms of paragraph 5(a)(iv) and
the non-competition provisions of paragraph 3 shall apply for a period of two
(2) years from the effective date of termination.
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<PAGE>
(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Employee must be paid in full by
Employer at or prior to such closing. Further, Employer shall ensure that
Employee will be given sufficient time and opportunity to elect whether to
exercise all or any of his vested options to purchase the Company's Common
Stock, including any options with accelerated vesting under the provisions of
the Company's 1997 Long-Term Incentive Plan, such that he may convert the
options to shares of the Company's Common Stock at or prior to the closing of
the transaction giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, and other than Notre Capital Ventures II, L.L.C. or any
entity controlled by it, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended) of any voting security of the Company and immediately
after such acquisition such Person is, directly or indirectly, the
Beneficial Owner of voting securities representing 50% or more of the
total voting power of all of the then-outstanding voting securities of the
Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of the Company: (A) the individuals
who, as of the closing date of the Company's initial public offering,
constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of the Company and whose election, or
nomination for election, to the Board of Directors of the Company was
approved by a vote of at least two-thirds (2/3) of the Original Directors
and Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following their
election);
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned by
at least 75% of the holders of outstanding
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<PAGE>
voting securities of the Company immediately prior to the transaction,
with the voting power of each such continuing holder relative to other
such continuing holders not substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by Employer or the Company at any
time that either Employer or the Company anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by Employer or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by Employer or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between or among
Employer, the Company and Employee. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with Employer or the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
Agreement is the final, complete and exclusive statement and expression of the
agreement between Employer and Employee and of all the terms of this Agreement,
and it cannot be varied, contradicted or supplemented by evidence of any prior
or contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of Employer and Employee, and no term of this Agreement may be waived except in
writing signed by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To Employer: HomeUSA Management Co., L.P.
Three Riverway, Suite 630
Houston, Texas 77056
Attention: President
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To Employee: Cary N. Vollintine
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Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect, provided that Employee shall comply with Employer's
grievance procedures in an effort to resolve such dispute or controversy before
resorting to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(a)(ii) and 5(a)(iii), respectively, or that
Employer has breached this Agreement in any material respect. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by Employer.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
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18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
19. THIRD-PARTY BENEFICIARY. The Company is intended to be a third-party
beneficiary under this Agreement, and shall be entitled to enforce the
provisions hereof benefitting the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA MANAGEMENT CO., L.P.
By: HUSA GP, INC.
By: __________________________
Michael F. Loy
Vice-President
EMPLOYEE
______________________________
Cary N. Vollintine
EXHIBIT 10.13
MANAGEMENT
EMPLOYMENT AGREEMENT
This Management Employment Agreement (this "Agreement") by and among
HomeUSA Management Co., L.P., a Delaware limited partnership ("Employer"), and
Michael F. Loy ("Employee") is hereby entered into and effective as of the __
day of November 1997 (the "Effective Date"), which date is the date of the
consummation of the initial public offering of the common stock of HomeUSA,
Inc., a Delaware corporation (the "Company").
R E C I T A L S
A. The Company is engaged primarily in the retail manufactured housing
business;
B. Employer is engaged primarily in the business of providing management
services to the Company;
C. Employer desires to employ Employee hereunder in a confidential
relationship wherein Employee, in the course of his employment, will become
familiar with and aware of information as to the Company's customers, specific
manner of doing business, processes, techniques and trade secrets and future
plans with respect thereto, all of which have been and will be established and
maintained at great expense to the Company, which information is a trade secret
and constitutes the valuable good will of the Company; and
D. The Company is intended to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) Employer hereby employs Employee to serve as Chief Financial Officer
of the Company. As such, Employee shall have responsibilities, duties and
authority customarily accorded to and expected of an officer holding such
position directly with the Company. Employee hereby accepts this employment upon
the terms and conditions herein contained and agrees to devote his full time,
attention and efforts to promote and further the business of Employer.
(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by Employer from time to time.
2. COMPENSATION. For all services rendered by Employee, Employer shall
compensate Employee as follows:
<PAGE>
(a) BASE SALARY; PERFORMANCE BONUS; COMPANY STOCK OPTIONS. Effective as of
the Effective Date, the base salary payable to Employee shall be $ 150,000 per
year, payable on a regular basis in accordance with Employer's standard payroll
procedures but not less than monthly. On at least an annual basis, Employer will
review Employee's performance and may, in its sole discretion, (i) make
increases to such base salary; (ii) pay a performance bonus; or (iii) recommend
Employee for the grant of Company stock options.
(b) EMPLOYEE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from Employer in
such form and to such extent as specified below:
(i) Coverage for Employee and his dependent family members under
health, hospitalization, disability, dental, life and other insurance
plans that Employer may have in effect from time to time. Benefits
provided to Employee under this clause (i) shall be equal to such benefits
provided to other Employer employees of the same level.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of services
pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with Employer's expense reporting policy.
(iii) Employer shall provide Employee with other employee
perquisites as may be available to or deemed appropriate for Employee by
Employer and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of this
paragraph 3. Employee will not, during the period of his employment by or with
Employer, and for a period of two (2) years immediately following the
termination of his employment under this Agreement, except as provided below,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
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(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail manufactured housing business in direct
competition with Employer or the Company within 100 miles of where the
Company or any of its subsidiaries conduct business, including any
territory serviced by the Company or any of such subsidiaries (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Employer or the Company (including the
respective subsidiaries thereof) in a managerial capacity for the purpose
or with the intent of enticing such employee away from or out of the
employ of Employer or the Company (including the respective subsidiaries
thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by
Employer or the Company (including the respective subsidiaries thereof) or
for which Employer or the Company made an acquisition analysis for the
purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as a passive investment not more than one
percent (1%) of the capital stock of a publicly traded corporation or other
entity, even if such corporation or other entity competes with the Company.
(b) Because of the difficulty of measuring economic losses to Employer or
the Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to Employer or the
Company for which they would have no other adequate remedy, Employee agrees that
the foregoing covenant may be enforced by Employer or the Company in the event
of breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities,
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business and locations of the Company (including the Company's subsidiaries)
throughout the term of this covenant, whether before or after the date of
termination of the employment of Employee. For example, if, during the term of
this Agreement, the Company (including the Company's subsidiaries) engages in
new and different activities, enters a new business or establishes new locations
for its current activities or business in addition to or other than the
activities or business enumerated under the Recitals above or the locations
currently established therefor, then Employee will be precluded from soliciting
the customers or Employees of such new activities or business or from such new
location and from directly competing with such new business within 100 miles of
its then-established operating location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth herein are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and this
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against Employer or the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Employer or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE; RELOCATION RIGHTS.
(a) Employee understands that he may be requested by Employer or the
Company to
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relocate from his present residence to another geographic location in order to
more efficiently carry out his duties and responsibilities under this Agreement
or as part of a promotion or other increase in duties and responsibilities. In
such event, if Employee agrees to relocate, Employer or the Company will pay all
relocation costs to move Employee, his immediate family and their personal
property and effects. Such costs may include, by way of example, but are not
limited to, pre-move visits to search for a new residence, investigate schools
or for other purposes; temporary lodging and living costs prior to moving into a
new permanent residence; duplicate home carrying costs; all closing costs on the
sale of Employee's present residence and on the purchase of a comparable
residence in the new location; and added income taxes that Employee may incur if
any relocation costs are not deductible for tax purposes. The general intent of
the foregoing is that Employee shall not personally bear any out-of-pocket cost
as a result of the relocation, with an understanding that Employee will use his
best efforts to incur only those costs which are reasonable and necessary to
effect a smooth, efficient and orderly relocation with minimal disruption to the
business affairs of Employer or the Company and the personal life of Employee
and his family.
(b) Notwithstanding the above, if Employee is requested by Employer to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(a)(iii).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
(a) TERM. The term of this Agreement shall begin on the date hereof and
continue for three (3) years (the "Initial Term") unless terminated sooner as
herein provided, and shall continue thereafter on a year-to-year basis on the
same terms and conditions contained herein in effect as of the time of renewal
(the "Term"). This Agreement and Employee's employment may be terminated in any
one of the followings ways:
(i) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before or
after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period),
Employer may terminate Employee's employment hereunder provided Employee
is unable to resume his full-time duties with or without reasonable
accommodation at the conclusion of such notice period. Also, Employee may
terminate his employment hereunder if his health should become impaired to
an extent that makes the continued performance of his duties hereunder
hazardous to his physical or
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mental health or his life, provided that Employee shall have furnished
Employer with a written statement from a qualified doctor to such effect
and provided, further, that, at Employer's request made within thirty (30)
days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by Employer who is reasonably acceptable
to Employee or Employee's doctor and such doctor shall have concurred in
the conclusion of Employee's doctor. In the event this Agreement is
terminated as a result of Employee's disability, Employee shall receive
from Employer, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater; provided,
however, that any such payments shall be reduced by the amount of any
disability insurance payments payable to the Employee as a result of such
disability.
(iii) GOOD CAUSE. Employer may terminate this Agreement immediately
for good cause, which shall be: (1) Employee's willful, material and
irreparable breach of this Agreement; (2) Employee's gross negligence in
the performance or intentional nonperformance of any of Employee's
material duties and responsibilities hereunder; (3) Employee's willful
dishonesty, fraud or misconduct with respect to the business or affairs of
Employer or the Company which materially and adversely affects the
operations or reputation of Employer or the Company; (4) Employee's
conviction of a felony crime; or (5) Employee's confirmed positive illegal
drug test result. In the event of a termination for good cause, as
enumerated above, Employee shall have no right to any severance
compensation.
(iv) WITHOUT CAUSE. At any time after the commencement of
employment, either Employee or Employer may, without cause, terminate this
Agreement and Employee's employment, effective thirty (30) days after
written notice is provided to the other. Should Employee be terminated by
Employer without cause during the Initial Term, Employee shall receive
from Employer, in a lump-sum payment due on the effective date of
termination, the base salary at the rate then in effect for whatever time
period is remaining under the Initial Term of this Agreement or for one
(1) year, whichever amount is greater. Should Employee be terminated by
Employer without cause after the Initial Term, Employee shall receive from
Employer, in a lump-sum payment due on the effective date of termination,
the base salary rate then in effect equivalent to one (1) year of salary.
Further, any termination without cause by Employer shall operate to
shorten the period set forth in paragraph 3(a) and during which the terms
of paragraph 3 apply to one (1) year from the date of termination of
employment. If Employee resigns or otherwise terminates this Agreement,
the provisions of paragraph 3 hereof shall apply, except that Employee
shall receive no severance compensation.
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(b) CHANGE IN CONTROL OF THE COMPANY. In the event of a "Change in Control
of the Company" (as defined below) during the Term, paragraph 12 below shall
apply.
(c) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Employee shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in the manner expressly
provided herein. All other rights and obligations of Employer and Employee under
this Agreement shall cease as of the effective date of termination, except that
Employer's obligations under paragraph 9 herein and Employee's obligations under
paragraphs 3, 6, 7, 8 and 10 herein shall survive such termination in accordance
with their terms.
(d) BREACH BY COMPANY. If termination of Employee's employment arises out
of Employer's failure to pay Employee on a timely basis the amounts to which he
is entitled under this Agreement or as a result of any other breach of this
Agreement by Employer, as determined by a court of competent jurisdiction or
pursuant to the provisions of paragraph 16 below, Employer shall pay all amounts
and damages to which Employee may be entitled as a result of such breach,
including interest thereon and all reasonable legal fees and expenses and other
costs incurred by Employee to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by Employer.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment hereunder. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for
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and obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by Employer
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then Employer shall indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith, to the maximum extent permitted by applicable law. The advancement of
expenses shall be mandatory to the extent permitted by applicable law. In the
event that both Employee and Employer are made a party to the same third-party
action, complaint, suit or proceeding, Employer agrees to engage counsel, and
Employee agrees to use the same counsel, provided that if counsel selected by
Employer shall have a conflict of interest that prevents such counsel from
representing Employee, Employee may engage separate counsel and Employer shall
pay all reasonable attorneys' fees of such separate counsel. Employer shall not
be required to pay the fees of more than one law firm except as described in the
preceding sentence, and shall not be required to pay the fees of more than two
law firms under any circumstances. Further, while Employee is expected at all
times to use his best efforts to faithfully discharge his duties under this
Agreement, Employee cannot be held liable to Employer for errors or omissions
made in good faith where Employee has not exhibited gross, willful and wanton
negligence or misconduct or performed criminal or fraudulent acts.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to
Employer and the Company that the execution of this Agreement by Employee and
his employment by Employer and the performance of his duties hereunder will not
violate or be a breach of any agreement with a former employer, client or any
other person or entity. Further, Employee agrees to indemnify Employer and the
Company for any claim, including, but not limited to, attorneys' fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against Employer or the Company based upon or
arising out of any non-competition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
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11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by Employer and/or the Company on the basis of his
personal qualifications, experience and skills. Employee agrees, therefore, he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two (2) sentences and the express provisions of
paragraph 12 below, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that Employer and/or the Company
may be merged or consolidated with or into another entity and that such entity
shall automatically succeed to the rights and obligations of Employer and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated during the Initial Term of this Agreement, then the provisions of
this paragraph 12 shall be applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform Employer's obligations under this Agreement in the
same manner and to the same extent that Employer is hereby required to perform,
then such Change in Control shall be deemed to be a termination of this
Agreement by Employer without cause during the Initial Term and the applicable
portions of paragraph 5(a)(iv) will apply; however, under such circumstances,
the amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(a)(iv) and the non-competition
provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to
Employer at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(a)(iv) will apply as though Employer had terminated
the Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be double the amount calculated under the terms of paragraph 5(a)(iv) and
the non-competition provisions of paragraph 3 shall apply for a period of two
(2) years from the effective date of termination.
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(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Employee must be paid in full by
Employer at or prior to such closing. Further, Employer shall ensure that
Employee will be given sufficient time and opportunity to elect whether to
exercise all or any of his vested options to purchase the Company's Common
Stock, including any options with accelerated vesting under the provisions of
the Company's 1997 Long-Term Incentive Plan, such that he may convert the
options to shares of the Company's Common Stock at or prior to the closing of
the transaction giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, and other than Notre Capital Ventures II, L.L.C. or any
entity controlled by it, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended) of any voting security of the Company and immediately
after such acquisition such Person is, directly or indirectly, the
Beneficial Owner of voting securities representing 50% or more of the
total voting power of all of the then-outstanding voting securities of the
Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of the Company: (A) the individuals
who, as of the closing date of the Company's initial public offering,
constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of the Company and whose election, or
nomination for election, to the Board of Directors of the Company was
approved by a vote of at least two-thirds (2/3) of the Original Directors
and Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following their
election);
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned by
at least 75% of the holders of outstanding
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voting securities of the Company immediately prior to the transaction,
with the voting power of each such continuing holder relative to other
such continuing holders not substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by Employer or the Company at any
time that either Employer or the Company anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by Employer or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by Employer or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between or among
Employer, the Company and Employee. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with Employer or the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
Agreement is the final, complete and exclusive statement and expression of the
agreement between Employer and Employee and of all the terms of this Agreement,
and it cannot be varied, contradicted or supplemented by evidence of any prior
or contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of Employer and Employee, and no term of this Agreement may be waived except in
writing signed by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To Employer: HomeUSA Management Co., L.P.
Three Riverway, Suite 630
Houston, Texas 77056
Attention: President
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To Employee: Michael F. Loy
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Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect, provided that Employee shall comply with Employer's
grievance procedures in an effort to resolve such dispute or controversy before
resorting to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(a)(ii) and 5(a)(iii), respectively, or that
Employer has breached this Agreement in any material respect. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by Employer.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
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18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
19. THIRD-PARTY BENEFICIARY. The Company is intended to be a third-party
beneficiary under this Agreement, and shall be entitled to enforce the
provisions hereof benefitting the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA MANAGEMENT CO., L.P.
By: HUSA GP, INC.
By: _________________________
Cary Vollintine
President
EMPLOYEE
_____________________________
Michael F. Loy
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EXHIBIT 10.14
MANAGEMENT
EMPLOYMENT AGREEMENT
This Management Employment Agreement (this "Agreement") by and among
HomeUSA Management Co., L.P., a Delaware limited partnership ("Employer"), and
Frank W. Montfort ("Employee") is hereby entered into and effective as of the __
day of November 1997 (the "Effective Date"), which date is the date of the
consummation of the initial public offering of the common stock of HomeUSA,
Inc., a Delaware corporation (the "Company").
R E C I T A L S
A. The Company is engaged primarily in the retail manufactured housing
business;
B. Employer is engaged primarily in the business of providing management
services to the Company;
C. Employer desires to employ Employee hereunder in a confidential
relationship wherein Employee, in the course of his employment, will become
familiar with and aware of information as to the Company's customers, specific
manner of doing business, processes, techniques and trade secrets and future
plans with respect thereto, all of which have been and will be established and
maintained at great expense to the Company, which information is a trade secret
and constitutes the valuable good will of the Company; and
D. The Company is intended to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) Employer hereby employs Employee to serve as of the Company. As such,
Employee shall have responsibilities, duties and authority customarily accorded
to and expected of an officer holding such position directly with the Company.
Employee hereby accepts this employment upon the terms and conditions herein
contained and agrees to devote his full time, attention and efforts to promote
and further the business of Employer.
(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by Employer from time to time.
2. COMPENSATION. For all services rendered by Employee, Employer shall
compensate Employee as follows:
<PAGE>
(a) BASE SALARY; PERFORMANCE BONUS; COMPANY STOCK OPTIONS. Effective as of
the Effective Date, the base salary payable to Employee shall be $ per year,
payable on a regular basis in accordance with Employer's standard payroll
procedures but not less than monthly. On at least an annual basis, Employer will
review Employee's performance and may, in its sole discretion, (i) make
increases to such base salary; (ii) pay a performance bonus; or (iii) recommend
Employee for the grant of Company stock options.
(b) EMPLOYEE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from Employer in
such form and to such extent as specified below:
(i) Coverage for Employee and his dependent family members under
health, hospitalization, disability, dental, life and other insurance
plans that Employer may have in effect from time to time. Benefits
provided to Employee under this clause (i) shall be equal to such benefits
provided to other Employer employees of the same level.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of services
pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with Employer's expense reporting policy.
(iii) Employer shall provide Employee with other employee
perquisites as may be available to or deemed appropriate for Employee by
Employer and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of this
paragraph 3. Employee will not, during the period of his employment by or with
Employer, and for a period of two (2) years immediately following the
termination of his employment under this Agreement, except as provided below,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
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<PAGE>
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail manufactured housing business in direct
competition with Employer or the Company within 100 miles of where the
Company or any of its subsidiaries conduct business, including any
territory serviced by the Company or any of such subsidiaries (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Employer or the Company (including the
respective subsidiaries thereof) in a managerial capacity for the purpose
or with the intent of enticing such employee away from or out of the
employ of Employer or the Company (including the respective subsidiaries
thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by
Employer or the Company (including the respective subsidiaries thereof) or
for which Employer or the Company made an acquisition analysis for the
purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as a passive investment not more than one
percent (1%) of the capital stock of a publicly traded corporation or other
entity, even if such corporation or other entity competes with the Company.
(b) Because of the difficulty of measuring economic losses to Employer or
the Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to Employer or the
Company for which they would have no other adequate remedy, Employee agrees that
the foregoing covenant may be enforced by Employer or the Company in the event
of breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities,
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<PAGE>
business and locations of the Company (including the Company's subsidiaries)
throughout the term of this covenant, whether before or after the date of
termination of the employment of Employee. For example, if, during the term of
this Agreement, the Company (including the Company's subsidiaries) engages in
new and different activities, enters a new business or establishes new locations
for its current activities or business in addition to or other than the
activities or business enumerated under the Recitals above or the locations
currently established therefor, then Employee will be precluded from soliciting
the customers or Employees of such new activities or business or from such new
location and from directly competing with such new business within 100 miles of
its then-established operating location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth herein are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and this
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against Employer or the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Employer or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE; RELOCATION RIGHTS.
(a) Employee understands that he may be requested by Employer or the
Company to
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<PAGE>
relocate from his present residence to another geographic location in order to
more efficiently carry out his duties and responsibilities under this Agreement
or as part of a promotion or other increase in duties and responsibilities. In
such event, if Employee agrees to relocate, Employer or the Company will pay all
relocation costs to move Employee, his immediate family and their personal
property and effects. Such costs may include, by way of example, but are not
limited to, pre-move visits to search for a new residence, investigate schools
or for other purposes; temporary lodging and living costs prior to moving into a
new permanent residence; duplicate home carrying costs; all closing costs on the
sale of Employee's present residence and on the purchase of a comparable
residence in the new location; and added income taxes that Employee may incur if
any relocation costs are not deductible for tax purposes. The general intent of
the foregoing is that Employee shall not personally bear any out-of-pocket cost
as a result of the relocation, with an understanding that Employee will use his
best efforts to incur only those costs which are reasonable and necessary to
effect a smooth, efficient and orderly relocation with minimal disruption to the
business affairs of Employer or the Company and the personal life of Employee
and his family.
(b) Notwithstanding the above, if Employee is requested by Employer to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(a)(iii).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
(a) TERM. The term of this Agreement shall begin on the date hereof and
continue for three (3) years (the "Initial Term") unless terminated sooner as
herein provided, and shall continue thereafter on a year-to-year basis on the
same terms and conditions contained herein in effect as of the time of renewal
(the "Term"). This Agreement and Employee's employment may be terminated in any
one of the followings ways:
(i) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before or
after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period),
Employer may terminate Employee's employment hereunder provided Employee
is unable to resume his full-time duties with or without reasonable
accommodation at the conclusion of such notice period. Also, Employee may
terminate his employment hereunder if his health should become impaired to
an extent that makes the continued performance of his duties hereunder
hazardous to his physical or
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<PAGE>
mental health or his life, provided that Employee shall have furnished
Employer with a written statement from a qualified doctor to such effect
and provided, further, that, at Employer's request made within thirty (30)
days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by Employer who is reasonably acceptable
to Employee or Employee's doctor and such doctor shall have concurred in
the conclusion of Employee's doctor. In the event this Agreement is
terminated as a result of Employee's disability, Employee shall receive
from Employer, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater; provided,
however, that any such payments shall be reduced by the amount of any
disability insurance payments payable to the Employee as a result of such
disability.
(iii) GOOD CAUSE. Employer may terminate this Agreement immediately
for good cause, which shall be: (1) Employee's willful, material and
irreparable breach of this Agreement; (2) Employee's gross negligence in
the performance or intentional nonperformance of any of Employee's
material duties and responsibilities hereunder; (3) Employee's willful
dishonesty, fraud or misconduct with respect to the business or affairs of
Employer or the Company which materially and adversely affects the
operations or reputation of Employer or the Company; (4) Employee's
conviction of a felony crime; or (5) Employee's confirmed positive illegal
drug test result. In the event of a termination for good cause, as
enumerated above, Employee shall have no right to any severance
compensation.
(iv) WITHOUT CAUSE. At any time after the commencement of
employment, either Employee or Employer may, without cause, terminate this
Agreement and Employee's employment, effective thirty (30) days after
written notice is provided to the other. Should Employee be terminated by
Employer without cause during the Initial Term, Employee shall receive
from Employer, in a lump-sum payment due on the effective date of
termination, the base salary at the rate then in effect for whatever time
period is remaining under the Initial Term of this Agreement or for one
(1) year, whichever amount is greater. Should Employee be terminated by
Employer without cause after the Initial Term, Employee shall receive from
Employer, in a lump-sum payment due on the effective date of termination,
the base salary rate then in effect equivalent to one (1) year of salary.
Further, any termination without cause by Employer shall operate to
shorten the period set forth in paragraph 3(a) and during which the terms
of paragraph 3 apply to one (1) year from the date of termination of
employment. If Employee resigns or otherwise terminates this Agreement,
the provisions of paragraph 3 hereof shall apply, except that Employee
shall receive no severance compensation.
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(b) CHANGE IN CONTROL OF THE COMPANY. In the event of a "Change in Control
of the Company" (as defined below) during the Term, paragraph 12 below shall
apply.
(c) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Employee shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in the manner expressly
provided herein. All other rights and obligations of Employer and Employee under
this Agreement shall cease as of the effective date of termination, except that
Employer's obligations under paragraph 9 herein and Employee's obligations under
paragraphs 3, 6, 7, 8 and 10 herein shall survive such termination in accordance
with their terms.
(d) BREACH BY COMPANY. If termination of Employee's employment arises out
of Employer's failure to pay Employee on a timely basis the amounts to which he
is entitled under this Agreement or as a result of any other breach of this
Agreement by Employer, as determined by a court of competent jurisdiction or
pursuant to the provisions of paragraph 16 below, Employer shall pay all amounts
and damages to which Employee may be entitled as a result of such breach,
including interest thereon and all reasonable legal fees and expenses and other
costs incurred by Employee to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by Employer.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment hereunder. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for
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<PAGE>
and obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by Employer
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then Employer shall indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith, to the maximum extent permitted by applicable law. The advancement of
expenses shall be mandatory to the extent permitted by applicable law. In the
event that both Employee and Employer are made a party to the same third-party
action, complaint, suit or proceeding, Employer agrees to engage counsel, and
Employee agrees to use the same counsel, provided that if counsel selected by
Employer shall have a conflict of interest that prevents such counsel from
representing Employee, Employee may engage separate counsel and Employer shall
pay all reasonable attorneys' fees of such separate counsel. Employer shall not
be required to pay the fees of more than one law firm except as described in the
preceding sentence, and shall not be required to pay the fees of more than two
law firms under any circumstances. Further, while Employee is expected at all
times to use his best efforts to faithfully discharge his duties under this
Agreement, Employee cannot be held liable to Employer for errors or omissions
made in good faith where Employee has not exhibited gross, willful and wanton
negligence or misconduct or performed criminal or fraudulent acts.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to
Employer and the Company that the execution of this Agreement by Employee and
his employment by Employer and the performance of his duties hereunder will not
violate or be a breach of any agreement with a former employer, client or any
other person or entity. Further, Employee agrees to indemnify Employer and the
Company for any claim, including, but not limited to, attorneys' fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against Employer or the Company based upon or
arising out of any non-competition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
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11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by Employer and/or the Company on the basis of his
personal qualifications, experience and skills. Employee agrees, therefore, he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two (2) sentences and the express provisions of
paragraph 12 below, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that Employer and/or the Company
may be merged or consolidated with or into another entity and that such entity
shall automatically succeed to the rights and obligations of Employer and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated during the Initial Term of this Agreement, then the provisions of
this paragraph 12 shall be applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform Employer's obligations under this Agreement in the
same manner and to the same extent that Employer is hereby required to perform,
then such Change in Control shall be deemed to be a termination of this
Agreement by Employer without cause during the Initial Term and the applicable
portions of paragraph 5(a)(iv) will apply; however, under such circumstances,
the amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(a)(iv) and the non-competition
provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to
Employer at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(a)(iv) will apply as though Employer had terminated
the Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be double the amount calculated under the terms of paragraph 5(a)(iv) and
the non-competition provisions of paragraph 3 shall apply for a period of two
(2) years from the effective date of termination.
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(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Employee must be paid in full by
Employer at or prior to such closing. Further, Employer shall ensure that
Employee will be given sufficient time and opportunity to elect whether to
exercise all or any of his vested options to purchase the Company's Common
Stock, including any options with accelerated vesting under the provisions of
the Company's 1997 Long-Term Incentive Plan, such that he may convert the
options to shares of the Company's Common Stock at or prior to the closing of
the transaction giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, and other than Notre Capital Ventures II, L.L.C. or any
entity controlled by it, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended) of any voting security of the Company and immediately
after such acquisition such Person is, directly or indirectly, the
Beneficial Owner of voting securities representing 50% or more of the
total voting power of all of the then-outstanding voting securities of the
Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of the Company: (A) the individuals
who, as of the closing date of the Company's initial public offering,
constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of the Company and whose election, or
nomination for election, to the Board of Directors of the Company was
approved by a vote of at least two-thirds (2/3) of the Original Directors
and Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following their
election);
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned by
at least 75% of the holders of outstanding
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voting securities of the Company immediately prior to the transaction,
with the voting power of each such continuing holder relative to other
such continuing holders not substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by Employer or the Company at any
time that either Employer or the Company anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by Employer or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by Employer or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between or among
Employer, the Company and Employee. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with Employer or the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
Agreement is the final, complete and exclusive statement and expression of the
agreement between Employer and Employee and of all the terms of this Agreement,
and it cannot be varied, contradicted or supplemented by evidence of any prior
or contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of Employer and Employee, and no term of this Agreement may be waived except in
writing signed by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To Employer: HomeUSA Management Co., L.P.
Three Riverway, Suite 630
Houston, Texas 77056
Attention: President
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To Employee: Frank W. Montfort
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Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect, provided that Employee shall comply with Employer's
grievance procedures in an effort to resolve such dispute or controversy before
resorting to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(a)(ii) and 5(a)(iii), respectively, or that
Employer has breached this Agreement in any material respect. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by Employer.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
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18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
19. THIRD-PARTY BENEFICIARY. The Company is intended to be a third-party
beneficiary under this Agreement, and shall be entitled to enforce the
provisions hereof benefitting the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA MANAGEMENT CO., L.P.
By: HUSA GP, INC.
By: ___________________________
Cary Vollintine
President
EMPLOYEE
_______________________________
Frank W. Montfort
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EXHIBIT 10.15
MANAGEMENT
EMPLOYMENT AGREEMENT
This Management Employment Agreement (this "Agreement") by and among
HomeUSA Management Co., L.P., a Delaware limited partnership ("Employer"), and
Philip deMena ("Employee") is hereby entered into and effective as of the __ day
of November 1997 (the "Effective Date"), which date is the date of the
consummation of the initial public offering of the common stock of HomeUSA,
Inc., a Delaware corporation (the "Company").
R E C I T A L S
A. The Company is engaged primarily in the retail manufactured housing
business;
B. Employer is engaged primarily in the business of providing management
services to the Company;
C. Employer desires to employ Employee hereunder in a confidential
relationship wherein Employee, in the course of his employment, will become
familiar with and aware of information as to the Company's customers, specific
manner of doing business, processes, techniques and trade secrets and future
plans with respect thereto, all of which have been and will be established and
maintained at great expense to the Company, which information is a trade secret
and constitutes the valuable good will of the Company; and
D. The Company is intended to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) Employer hereby employs Employee to serve as Senior Vice-President -
Real Estate & Construction of the Company. As such, Employee shall have
responsibilities, duties and authority customarily accorded to and expected of
an officer holding such position directly with the Company. Employee hereby
accepts this employment upon the terms and conditions herein contained and
agrees to devote his full time, attention and efforts to promote and further the
business of Employer.
(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by Employer from time to time.
2. COMPENSATION. For all services rendered by Employee, Employer shall
compensate Employee as follows:
<PAGE>
(a) BASE SALARY; PERFORMANCE BONUS; COMPANY STOCK OPTIONS. Effective as of
the Effective Date, the base salary payable to Employee shall be $150,000 per
year, payable on a regular basis in accordance with Employer's standard payroll
procedures but not less than monthly. On at least an annual basis, Employer will
review Employee's performance and may, in its sole discretion, (i) make
increases to such base salary; (ii) pay a performance bonus; or (iii) recommend
Employee for the grant of Company stock options.
(b) EMPLOYEE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from Employer in
such form and to such extent as specified below:
(i) Coverage for Employee and his dependent family members under
health, hospitalization, disability, dental, life and other insurance
plans that Employer may have in effect from time to time. Benefits
provided to Employee under this clause (i) shall be equal to such benefits
provided to other Employer employees of the same level.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of services
pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with Employer's expense reporting policy.
(iii) Employer shall provide Employee with other employee
perquisites as may be available to or deemed appropriate for Employee by
Employer and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of this
paragraph 3. Employee will not, during the period of his employment by or with
Employer, and for a period of two (2) years immediately following the
termination of his employment under this Agreement, except as provided below,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
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<PAGE>
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail manufactured housing business in direct
competition with Employer or the Company within 100 miles of where the
Company or any of its subsidiaries conduct business, including any
territory serviced by the Company or any of such subsidiaries (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Employer or the Company (including the
respective subsidiaries thereof) in a managerial capacity for the purpose
or with the intent of enticing such employee away from or out of the
employ of Employer or the Company (including the respective subsidiaries
thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by
Employer or the Company (including the respective subsidiaries thereof) or
for which Employer or the Company made an acquisition analysis for the
purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as a passive investment not more than one
percent (1%) of the capital stock of a publicly traded corporation or other
entity, even if such corporation or other entity competes with the Company.
(b) Because of the difficulty of measuring economic losses to Employer or
the Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to Employer or the
Company for which they would have no other adequate remedy, Employee agrees that
the foregoing covenant may be enforced by Employer or the Company in the event
of breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities,
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<PAGE>
business and locations of the Company (including the Company's subsidiaries)
throughout the term of this covenant, whether before or after the date of
termination of the employment of Employee. For example, if, during the term of
this Agreement, the Company (including the Company's subsidiaries) engages in
new and different activities, enters a new business or establishes new locations
for its current activities or business in addition to or other than the
activities or business enumerated under the Recitals above or the locations
currently established therefor, then Employee will be precluded from soliciting
the customers or Employees of such new activities or business or from such new
location and from directly competing with such new business within 100 miles of
its then-established operating location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth herein are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and this
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against Employer or the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Employer or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE; RELOCATION RIGHTS.
(a) Employee understands that he may be requested by Employer or the
Company to
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<PAGE>
relocate from his present residence to another geographic location in order to
more efficiently carry out his duties and responsibilities under this Agreement
or as part of a promotion or other increase in duties and responsibilities. In
such event, if Employee agrees to relocate, Employer or the Company will pay all
relocation costs to move Employee, his immediate family and their personal
property and effects. Such costs may include, by way of example, but are not
limited to, pre-move visits to search for a new residence, investigate schools
or for other purposes; temporary lodging and living costs prior to moving into a
new permanent residence; duplicate home carrying costs; all closing costs on the
sale of Employee's present residence and on the purchase of a comparable
residence in the new location; and added income taxes that Employee may incur if
any relocation costs are not deductible for tax purposes. The general intent of
the foregoing is that Employee shall not personally bear any out-of-pocket cost
as a result of the relocation, with an understanding that Employee will use his
best efforts to incur only those costs which are reasonable and necessary to
effect a smooth, efficient and orderly relocation with minimal disruption to the
business affairs of Employer or the Company and the personal life of Employee
and his family.
(b) Notwithstanding the above, if Employee is requested by Employer to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(a)(iii).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
(a) TERM. The term of this Agreement shall begin on the date hereof and
continue for three (3) years (the "Initial Term") unless terminated sooner as
herein provided, and shall continue thereafter on a year-to-year basis on the
same terms and conditions contained herein in effect as of the time of renewal
(the "Term"). This Agreement and Employee's employment may be terminated in any
one of the followings ways:
(i) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before or
after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period),
Employer may terminate Employee's employment hereunder provided Employee
is unable to resume his full-time duties with or without reasonable
accommodation at the conclusion of such notice period. Also, Employee may
terminate his employment hereunder if his health should become impaired to
an extent that makes the continued performance of his duties hereunder
hazardous to his physical or
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<PAGE>
mental health or his life, provided that Employee shall have furnished
Employer with a written statement from a qualified doctor to such effect
and provided, further, that, at Employer's request made within thirty (30)
days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by Employer who is reasonably acceptable
to Employee or Employee's doctor and such doctor shall have concurred in
the conclusion of Employee's doctor. In the event this Agreement is
terminated as a result of Employee's disability, Employee shall receive
from Employer, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater; provided,
however, that any such payments shall be reduced by the amount of any
disability insurance payments payable to the Employee as a result of such
disability.
(iii) GOOD CAUSE. Employer may terminate this Agreement immediately
for good cause, which shall be: (1) Employee's willful, material and
irreparable breach of this Agreement; (2) Employee's gross negligence in
the performance or intentional nonperformance of any of Employee's
material duties and responsibilities hereunder; (3) Employee's willful
dishonesty, fraud or misconduct with respect to the business or affairs of
Employer or the Company which materially and adversely affects the
operations or reputation of Employer or the Company; (4) Employee's
conviction of a felony crime; or (5) Employee's confirmed positive illegal
drug test result. In the event of a termination for good cause, as
enumerated above, Employee shall have no right to any severance
compensation.
(iv) WITHOUT CAUSE. At any time after the commencement of
employment, either Employee or Employer may, without cause, terminate this
Agreement and Employee's employment, effective thirty (30) days after
written notice is provided to the other. Should Employee be terminated by
Employer without cause during the Initial Term, Employee shall receive
from Employer, in a lump-sum payment due on the effective date of
termination, the base salary at the rate then in effect for whatever time
period is remaining under the Initial Term of this Agreement or for one
(1) year, whichever amount is greater. Should Employee be terminated by
Employer without cause after the Initial Term, Employee shall receive from
Employer, in a lump-sum payment due on the effective date of termination,
the base salary rate then in effect equivalent to one (1) year of salary.
Further, any termination without cause by Employer shall operate to
shorten the period set forth in paragraph 3(a) and during which the terms
of paragraph 3 apply to one (1) year from the date of termination of
employment. If Employee resigns or otherwise terminates this Agreement,
the provisions of paragraph 3 hereof shall apply, except that Employee
shall receive no severance compensation.
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(b) CHANGE IN CONTROL OF THE COMPANY. In the event of a "Change in Control
of the Company" (as defined below) during the Term, paragraph 12 below shall
apply.
(c) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Employee shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in the manner expressly
provided herein. All other rights and obligations of Employer and Employee under
this Agreement shall cease as of the effective date of termination, except that
Employer's obligations under paragraph 9 herein and Employee's obligations under
paragraphs 3, 6, 7, 8 and 10 herein shall survive such termination in accordance
with their terms.
(d) BREACH BY COMPANY. If termination of Employee's employment arises out
of Employer's failure to pay Employee on a timely basis the amounts to which he
is entitled under this Agreement or as a result of any other breach of this
Agreement by Employer, as determined by a court of competent jurisdiction or
pursuant to the provisions of paragraph 16 below, Employer shall pay all amounts
and damages to which Employee may be entitled as a result of such breach,
including interest thereon and all reasonable legal fees and expenses and other
costs incurred by Employee to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by Employer.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment hereunder. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for
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<PAGE>
and obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by Employer
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then Employer shall indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith, to the maximum extent permitted by applicable law. The advancement of
expenses shall be mandatory to the extent permitted by applicable law. In the
event that both Employee and Employer are made a party to the same third-party
action, complaint, suit or proceeding, Employer agrees to engage counsel, and
Employee agrees to use the same counsel, provided that if counsel selected by
Employer shall have a conflict of interest that prevents such counsel from
representing Employee, Employee may engage separate counsel and Employer shall
pay all reasonable attorneys' fees of such separate counsel. Employer shall not
be required to pay the fees of more than one law firm except as described in the
preceding sentence, and shall not be required to pay the fees of more than two
law firms under any circumstances. Further, while Employee is expected at all
times to use his best efforts to faithfully discharge his duties under this
Agreement, Employee cannot be held liable to Employer for errors or omissions
made in good faith where Employee has not exhibited gross, willful and wanton
negligence or misconduct or performed criminal or fraudulent acts.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to
Employer and the Company that the execution of this Agreement by Employee and
his employment by Employer and the performance of his duties hereunder will not
violate or be a breach of any agreement with a former employer, client or any
other person or entity. Further, Employee agrees to indemnify Employer and the
Company for any claim, including, but not limited to, attorneys' fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against Employer or the Company based upon or
arising out of any non-competition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
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11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by Employer and/or the Company on the basis of his
personal qualifications, experience and skills. Employee agrees, therefore, he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two (2) sentences and the express provisions of
paragraph 12 below, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that Employer and/or the Company
may be merged or consolidated with or into another entity and that such entity
shall automatically succeed to the rights and obligations of Employer and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated during the Initial Term of this Agreement, then the provisions of
this paragraph 12 shall be applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform Employer's obligations under this Agreement in the
same manner and to the same extent that Employer is hereby required to perform,
then such Change in Control shall be deemed to be a termination of this
Agreement by Employer without cause during the Initial Term and the applicable
portions of paragraph 5(a)(iv) will apply; however, under such circumstances,
the amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(a)(iv) and the non-competition
provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to
Employer at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(a)(iv) will apply as though Employer had terminated
the Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be double the amount calculated under the terms of paragraph 5(a)(iv) and
the non-competition provisions of paragraph 3 shall apply for a period of two
(2) years from the effective date of termination.
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(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Employee must be paid in full by
Employer at or prior to such closing. Further, Employer shall ensure that
Employee will be given sufficient time and opportunity to elect whether to
exercise all or any of his vested options to purchase the Company's Common
Stock, including any options with accelerated vesting under the provisions of
the Company's 1997 Long-Term Incentive Plan, such that he may convert the
options to shares of the Company's Common Stock at or prior to the closing of
the transaction giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, and other than Notre Capital Ventures II, L.L.C. or any
entity controlled by it, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended) of any voting security of the Company and immediately
after such acquisition such Person is, directly or indirectly, the
Beneficial Owner of voting securities representing 50% or more of the
total voting power of all of the then-outstanding voting securities of the
Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of the Company: (A) the individuals
who, as of the closing date of the Company's initial public offering,
constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of the Company and whose election, or
nomination for election, to the Board of Directors of the Company was
approved by a vote of at least two-thirds (2/3) of the Original Directors
and Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following their
election);
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned by
at least 75% of the holders of outstanding
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voting securities of the Company immediately prior to the transaction,
with the voting power of each such continuing holder relative to other
such continuing holders not substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by Employer or the Company at any
time that either Employer or the Company anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by Employer or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by Employer or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between or among
Employer, the Company and Employee. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with Employer or the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
Agreement is the final, complete and exclusive statement and expression of the
agreement between Employer and Employee and of all the terms of this Agreement,
and it cannot be varied, contradicted or supplemented by evidence of any prior
or contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of Employer and Employee, and no term of this Agreement may be waived except in
writing signed by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To Employer: HomeUSA Management Co., L.P.
Three Riverway, Suite 630
Houston, Texas 77056
Attention: President
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To Employee: Philip deMena
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Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect, provided that Employee shall comply with Employer's
grievance procedures in an effort to resolve such dispute or controversy before
resorting to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(a)(ii) and 5(a)(iii), respectively, or that
Employer has breached this Agreement in any material respect. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by Employer.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
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18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
19. THIRD-PARTY BENEFICIARY. The Company is intended to be a third-party
beneficiary under this Agreement, and shall be entitled to enforce the
provisions hereof benefitting the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA MANAGEMENT CO., L.P.
By: HUSA GP, INC.
By: ___________________________
Cary Vollintine
President
EMPLOYEE
_______________________________
Phillip deMena
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EXHIBIT 10.16
MANAGEMENT
EMPLOYMENT AGREEMENT
This Management Employment Agreement (this "Agreement") by and among
HomeUSA Management Co., L.P., a Delaware limited partnership ("Employer"), and
Philip Campbell ("Employee") is hereby entered into and effective as of the __
day of November 1997 (the "Effective Date"), which date is the date of the
consummation of the initial public offering of the common stock of HomeUSA,
Inc., a Delaware corporation (the "Company").
R E C I T A L S
A. The Company is engaged primarily in the retail manufactured housing
business;
B. Employer is engaged primarily in the business of providing management
services to the Company;
C. Employer desires to employ Employee hereunder in a confidential
relationship wherein Employee, in the course of his employment, will become
familiar with and aware of information as to the Company's customers, specific
manner of doing business, processes, techniques and trade secrets and future
plans with respect thereto, all of which have been and will be established and
maintained at great expense to the Company, which information is a trade secret
and constitutes the valuable good will of the Company; and
D. The Company is intended to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) Employer hereby employs Employee to serve as Controller of the
Company. As such, Employee shall have responsibilities, duties and authority
customarily accorded to and expected of an officer holding such position
directly with the Company. Employee hereby accepts this employment upon the
terms and conditions herein contained and agrees to devote his full time,
attention and efforts to promote and further the business of Employer.
(b) Employee shall faithfully adhere to, execute and fulfill all policies
established by Employer from time to time.
2. COMPENSATION. For all services rendered by Employee, Employer shall
compensate Employee as follows:
<PAGE>
(a) BASE SALARY; PERFORMANCE BONUS; COMPANY STOCK OPTIONS. Effective as of
the Effective Date, the base salary payable to Employee shall be $75,000 per
year, payable on a regular basis in accordance with Employer's standard payroll
procedures but not less than monthly. On at least an annual basis, Employer will
review Employee's performance and may, in its sole discretion, (i) make
increases to such base salary; (ii) pay a performance bonus; or (iii) recommend
Employee for the grant of Company stock options.
(b) EMPLOYEE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall
be entitled to receive additional benefits and compensation from Employer in
such form and to such extent as specified below:
(i) Coverage for Employee and his dependent family members under
health, hospitalization, disability, dental, life and other insurance
plans that Employer may have in effect from time to time. Benefits
provided to Employee under this clause (i) shall be equal to such benefits
provided to other Employer employees of the same level.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of services
pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with Employer's expense reporting policy.
(iii) Employer shall provide Employee with other employee
perquisites as may be available to or deemed appropriate for Employee by
Employer and participation in all other Company-wide employee benefits as
are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of this
paragraph 3. Employee will not, during the period of his employment by or with
Employer, and for a period of two (2) years immediately following the
termination of his employment under this Agreement, except as provided below,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
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(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail manufactured housing business in direct
competition with Employer or the Company within 100 miles of where the
Company or any of its subsidiaries conduct business, including any
territory serviced by the Company or any of such subsidiaries (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Employer or the Company (including the
respective subsidiaries thereof) in a managerial capacity for the purpose
or with the intent of enticing such employee away from or out of the
employ of Employer or the Company (including the respective subsidiaries
thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory;
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to
Employee's actual knowledge after due inquiry, either called upon by
Employer or the Company (including the respective subsidiaries thereof) or
for which Employer or the Company made an acquisition analysis for the
purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as a passive investment not more than one
percent (1%) of the capital stock of a publicly traded corporation or other
entity, even if such corporation or other entity competes with the Company.
(b) Because of the difficulty of measuring economic losses to Employer or
the Company as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to Employer or the
Company for which they would have no other adequate remedy, Employee agrees that
the foregoing covenant may be enforced by Employer or the Company in the event
of breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities,
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business and locations of the Company (including the Company's subsidiaries)
throughout the term of this covenant, whether before or after the date of
termination of the employment of Employee. For example, if, during the term of
this Agreement, the Company (including the Company's subsidiaries) engages in
new and different activities, enters a new business or establishes new locations
for its current activities or business in addition to or other than the
activities or business enumerated under the Recitals above or the locations
currently established therefor, then Employee will be precluded from soliciting
the customers or Employees of such new activities or business or from such new
location and from directly competing with such new business within 100 miles of
its then-established operating location(s) through the term of this covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of Employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth herein are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and this
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against Employer or the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Employer or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE; RELOCATION RIGHTS.
(a) Employee understands that he may be requested by Employer or the
Company to
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relocate from his present residence to another geographic location in order to
more efficiently carry out his duties and responsibilities under this Agreement
or as part of a promotion or other increase in duties and responsibilities. In
such event, if Employee agrees to relocate, Employer or the Company will pay all
relocation costs to move Employee, his immediate family and their personal
property and effects. Such costs may include, by way of example, but are not
limited to, pre-move visits to search for a new residence, investigate schools
or for other purposes; temporary lodging and living costs prior to moving into a
new permanent residence; duplicate home carrying costs; all closing costs on the
sale of Employee's present residence and on the purchase of a comparable
residence in the new location; and added income taxes that Employee may incur if
any relocation costs are not deductible for tax purposes. The general intent of
the foregoing is that Employee shall not personally bear any out-of-pocket cost
as a result of the relocation, with an understanding that Employee will use his
best efforts to incur only those costs which are reasonable and necessary to
effect a smooth, efficient and orderly relocation with minimal disruption to the
business affairs of Employer or the Company and the personal life of Employee
and his family.
(b) Notwithstanding the above, if Employee is requested by Employer to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(a)(iii).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
(a) TERM. The term of this Agreement shall begin on the date hereof and
continue for three (3) years (the "Initial Term") unless terminated sooner as
herein provided, and shall continue thereafter on a year-to-year basis on the
same terms and conditions contained herein in effect as of the time of renewal
(the "Term"). This Agreement and Employee's employment may be terminated in any
one of the followings ways:
(i) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before or
after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period),
Employer may terminate Employee's employment hereunder provided Employee
is unable to resume his full-time duties with or without reasonable
accommodation at the conclusion of such notice period. Also, Employee may
terminate his employment hereunder if his health should become impaired to
an extent that makes the continued performance of his duties hereunder
hazardous to his physical or
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<PAGE>
mental health or his life, provided that Employee shall have furnished
Employer with a written statement from a qualified doctor to such effect
and provided, further, that, at Employer's request made within thirty (30)
days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by Employer who is reasonably acceptable
to Employee or Employee's doctor and such doctor shall have concurred in
the conclusion of Employee's doctor. In the event this Agreement is
terminated as a result of Employee's disability, Employee shall receive
from Employer, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater; provided,
however, that any such payments shall be reduced by the amount of any
disability insurance payments payable to the Employee as a result of such
disability.
(iii) GOOD CAUSE. Employer may terminate this Agreement immediately
for good cause, which shall be: (1) Employee's willful, material and
irreparable breach of this Agreement; (2) Employee's gross negligence in
the performance or intentional nonperformance of any of Employee's
material duties and responsibilities hereunder; (3) Employee's willful
dishonesty, fraud or misconduct with respect to the business or affairs of
Employer or the Company which materially and adversely affects the
operations or reputation of Employer or the Company; (4) Employee's
conviction of a felony crime; or (5) Employee's confirmed positive illegal
drug test result. In the event of a termination for good cause, as
enumerated above, Employee shall have no right to any severance
compensation.
(iv) WITHOUT CAUSE. At any time after the commencement of
employment, either Employee or Employer may, without cause, terminate this
Agreement and Employee's employment, effective thirty (30) days after
written notice is provided to the other. Should Employee be terminated by
Employer without cause during the Initial Term, Employee shall receive
from Employer, in a lump-sum payment due on the effective date of
termination, the base salary at the rate then in effect for whatever time
period is remaining under the Initial Term of this Agreement or for one
(1) year, whichever amount is greater. Should Employee be terminated by
Employer without cause after the Initial Term, Employee shall receive from
Employer, in a lump-sum payment due on the effective date of termination,
the base salary rate then in effect equivalent to one (1) year of salary.
Further, any termination without cause by Employer shall operate to
shorten the period set forth in paragraph 3(a) and during which the terms
of paragraph 3 apply to one (1) year from the date of termination of
employment. If Employee resigns or otherwise terminates this Agreement,
the provisions of paragraph 3 hereof shall apply, except that Employee
shall receive no severance compensation.
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(b) CHANGE IN CONTROL OF THE COMPANY. In the event of a "Change in Control
of the Company" (as defined below) during the Term, paragraph 12 below shall
apply.
(c) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Employee shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in the manner expressly
provided herein. All other rights and obligations of Employer and Employee under
this Agreement shall cease as of the effective date of termination, except that
Employer's obligations under paragraph 9 herein and Employee's obligations under
paragraphs 3, 6, 7, 8 and 10 herein shall survive such termination in accordance
with their terms.
(d) BREACH BY COMPANY. If termination of Employee's employment arises out
of Employer's failure to pay Employee on a timely basis the amounts to which he
is entitled under this Agreement or as a result of any other breach of this
Agreement by Employer, as determined by a court of competent jurisdiction or
pursuant to the provisions of paragraph 16 below, Employer shall pay all amounts
and damages to which Employee may be entitled as a result of such breach,
including interest thereon and all reasonable legal fees and expenses and other
costs incurred by Employee to enforce his rights hereunder. Further, none of the
provisions of paragraph 3 shall apply in the event this Agreement is terminated
as a result of a breach by Employer.
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment hereunder. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for
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<PAGE>
and obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever.
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by Employer
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then Employer shall indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith, to the maximum extent permitted by applicable law. The advancement of
expenses shall be mandatory to the extent permitted by applicable law. In the
event that both Employee and Employer are made a party to the same third-party
action, complaint, suit or proceeding, Employer agrees to engage counsel, and
Employee agrees to use the same counsel, provided that if counsel selected by
Employer shall have a conflict of interest that prevents such counsel from
representing Employee, Employee may engage separate counsel and Employer shall
pay all reasonable attorneys' fees of such separate counsel. Employer shall not
be required to pay the fees of more than one law firm except as described in the
preceding sentence, and shall not be required to pay the fees of more than two
law firms under any circumstances. Further, while Employee is expected at all
times to use his best efforts to faithfully discharge his duties under this
Agreement, Employee cannot be held liable to Employer for errors or omissions
made in good faith where Employee has not exhibited gross, willful and wanton
negligence or misconduct or performed criminal or fraudulent acts.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to
Employer and the Company that the execution of this Agreement by Employee and
his employment by Employer and the performance of his duties hereunder will not
violate or be a breach of any agreement with a former employer, client or any
other person or entity. Further, Employee agrees to indemnify Employer and the
Company for any claim, including, but not limited to, attorneys' fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against Employer or the Company based upon or
arising out of any non-competition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
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11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by Employer and/or the Company on the basis of his
personal qualifications, experience and skills. Employee agrees, therefore, he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two (2) sentences and the express provisions of
paragraph 12 below, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that Employer and/or the Company
may be merged or consolidated with or into another entity and that such entity
shall automatically succeed to the rights and obligations of Employer and/or the
Company hereunder or that the Company may undergo another type of Change in
Control. In the event such a merger or consolidation or other Change in Control
is initiated during the Initial Term of this Agreement, then the provisions of
this paragraph 12 shall be applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform Employer's obligations under this Agreement in the
same manner and to the same extent that Employer is hereby required to perform,
then such Change in Control shall be deemed to be a termination of this
Agreement by Employer without cause during the Initial Term and the applicable
portions of paragraph 5(a)(iv) will apply; however, under such circumstances,
the amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(a)(iv) and the non-competition
provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to
Employer at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(a)(iv) will apply as though Employer had terminated
the Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Employee
shall be double the amount calculated under the terms of paragraph 5(a)(iv) and
the non-competition provisions of paragraph 3 shall apply for a period of two
(2) years from the effective date of termination.
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(d) For purposes of applying paragraph 5 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Employee must be paid in full by
Employer at or prior to such closing. Further, Employer shall ensure that
Employee will be given sufficient time and opportunity to elect whether to
exercise all or any of his vested options to purchase the Company's Common
Stock, including any options with accelerated vesting under the provisions of
the Company's 1997 Long-Term Incentive Plan, such that he may convert the
options to shares of the Company's Common Stock at or prior to the closing of
the transaction giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, and other than Notre Capital Ventures II, L.L.C. or any
entity controlled by it, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended) of any voting security of the Company and immediately
after such acquisition such Person is, directly or indirectly, the
Beneficial Owner of voting securities representing 50% or more of the
total voting power of all of the then-outstanding voting securities of the
Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of the Company: (A) the individuals
who, as of the closing date of the Company's initial public offering,
constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of the Company and whose election, or
nomination for election, to the Board of Directors of the Company was
approved by a vote of at least two-thirds (2/3) of the Original Directors
and Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following their
election);
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned by
at least 75% of the holders of outstanding
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voting securities of the Company immediately prior to the transaction,
with the voting power of each such continuing holder relative to other
such continuing holders not substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by Employer or the Company at any
time that either Employer or the Company anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by Employer or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by Employer or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between or among
Employer, the Company and Employee. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with Employer or the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
Agreement is the final, complete and exclusive statement and expression of the
agreement between Employer and Employee and of all the terms of this Agreement,
and it cannot be varied, contradicted or supplemented by evidence of any prior
or contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of Employer and Employee, and no term of this Agreement may be waived except in
writing signed by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To Employer: HomeUSA Management Co., L.P.
Three Riverway, Suite 630
Houston, Texas 77056
Attention: President
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To Employee: Philip Campbell
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Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect, provided that Employee shall comply with Employer's
grievance procedures in an effort to resolve such dispute or controversy before
resorting to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(a)(ii) and 5(a)(iii), respectively, or that
Employer has breached this Agreement in any material respect. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by Employer.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
-12-
<PAGE>
18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
19. THIRD-PARTY BENEFICIARY. The Company is intended to be a third-party
beneficiary under this Agreement, and shall be entitled to enforce the
provisions hereof benefitting the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA MANAGEMENT CO., L.P.
By: HUSA GP, INC.
By: __________________________
Cary Vollintine
President
EMPLOYEE
______________________________
Philip Campbell
-13-
EXHIBIT 10.20
HomeUSA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
November __, 1997
To the Stockholders of the Companies
Reference is made to those certain Agreements and Plans of Organization (the
"Agreements"), each dated as of September 10, 1997, by and among the parties as
reflected on Exhibit A attached hereto. Each of the undersigned hereby agrees,
and HomeUSA, Inc., a Delaware corporation ("Home"), hereby agrees with respect
to Section 5, as follows:
1. NONCOMPETITION. Each of the undersigned hereby agrees to adhere to and
be bound by the terms, covenants, restrictions, prohibitions and limitations of
Section 13 of the Agreements as if each of the undersigned was a STOCKHOLDER as
defined therein.
2. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Each of the undersigned
hereby agrees to adhere to and be bound by the terms, covenants, restrictions,
prohibitions and limitations of Section 14.1, 14.3 and 14.4 of the Agreements as
if each of the undersigned was a STOCKHOLDER as defined therein, and agrees to
adhere to and be bound by the terms, covenants, restrictions, prohibitions and
limitations of Sections 14.2, 14.3 and 14.4 of the Agreements as if each was
HOME and NEWCO as defined therein.
3. TRANSFER RESTRICTIONS. Each of the undersigned hereby agrees to adhere
to and be bound by the terms, covenants, restrictions, prohibitions and
limitations of Section 15 of the Agreements with respect to all of the shares of
Home Common Stock owned of record by each of the undersigned as of the Funding
and Consummation Date (as defined in the Agreements) as if each of the
undesigned was a STOCKHOLDER as defined therein. Each of the undersigned
expressly acknowledges and agrees that the stock certificates evidencing all of
such shares shall bear the restrictive legend contained in Section 15.1 of the
Agreements.
<PAGE>
Stockholders of the Companies
November __, 1997
Page 2
4. FEDERAL SECURITIES ACT REPRESENTATIONS. Each of the undersigned hereby
agrees to adhere to and be bound by the terms, covenants, restrictions,
prohibitions and limitations of Section 16 of the Agreements with respect to all
of the shares of Home Common Stock owned of record by the undersigned as of the
Funding and Consummation Date as if each of the undesigned was a STOCKHOLDER as
defined therein. Further, each of the undersigned expressly acknowledges and
agrees that the stock certificates evidencing all of such shares shall bear the
restrictive legend contained in Section 16.1 of the Agreements.
5. REGISTRATION RIGHTS. Home hereby grants each of the undersigned the
same piggyback registration rights set forth in Section 17.1 of the agreements
granted to the STOCKHOLDERS (as defined in the Agreements), subject to the
terms, covenants, restrictions, prohibitions and limitations of Sections 17.3,
17.4 and 17.5 of the Agreements, which the undersigned agree to adhere to and to
be bound by.
6. COUNTERPARTS. This letter may be executed simultaneously in two (2) or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the day
and year first above written.
______________________________________
Jeanette Vollintine
______________________________________
Cary N. Vollintine
______________________________________
Willie Thurman Langston II
<PAGE>
Stockholders of the Companies
November __, 1997
Page 3
Notre Capital Ventures II, L.L.C.
By:__________________________________
Name: Steven S. Harter
Title: President
______________________________________
Kevin J. Lilly
______________________________________
Robert P. Gauntt
______________________________________
Frank W. Montfort
______________________________________
Philip Campbell
______________________________________
Michael F. Loy
______________________________________
Philip deMena
<PAGE>
Stockholders of the Companies
November __, 1997
Page 4
______________________________________
Stephen R. Baur
______________________________________
Shellie LePori
______________________________________
Richard T. Howell
______________________________________
Jennifer Jackson
______________________________________
Melinda Malek
______________________________________
Susan M. Yancey
______________________________________
Jennifer G. Davidson
<PAGE>
Stockholders of the Companies
November __, 1997
Page 5
______________________________________
John R. Oren
______________________________________
Steven J. Blum
______________________________________
Kenneth V. Garcia
______________________________________
Infoscope Partners, Inc.
______________________________________
Karl H. Baumgartner
______________________________________
Donald A. Palmour
______________________________________
Donald D. Moseley
______________________________________
Stephen F. Smith
<PAGE>
Stockholders of the Companies
November __, 1997
Page 6
______________________________________
Thomas N. Amonett
______________________________________
James J. Blosser
______________________________________
T.J. Hyman
______________________________________
Jack Wensinger
<PAGE>
Stockholders of the Companies
November __, 1997
Page 7
ACCEPTED AND AGREED, as of the day and year first above written as to Section 5.
HOMEUSA, INC.
By:___________________________________
/smf
<PAGE>
Stockholders of the Companies
November __, 1997
Page 8
EXHIBIT A
Universal Housing, Inc.
Patrick Home Center, Inc.
McDonald Mobile Homes, Inc.
AAA Homes, L.L.C.
Mobile World, Inc.
First Americna Homes, Inc.
Cooper's Mobile Homes, Inc.
Homes Folks Housing Center, Inc.
WillMax Homes of Colorado, L.L.C.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and all references to our Firm included in this registration statement
on Form S-1 filed by HomeUSA, Inc.
ARTHUR ANDERSEN LLP
Houston, Texas
October 28, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-35649) of our report dated March 28, 1997 (except as to the
information presented in the second paragraph of Note 7, for which the date is
May 1, 1997) on our audits of the financial statements of McDonald Mobile Homes,
Inc. We also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND, L.L.P.
Tulsa, Oklahoma
October 28, 1997
