SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997 COMMISSION FILE NO: 1-13477
HOMEUSA, INC.
DELAWARE 76-0546715
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
THREE RIVERWAY, SUITE 555
HOUSTON, TEXAS 77056
(713) 331-2200
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ ]
As of March 24, 1998, the aggregate market value of the 6,538,078 shares of
the registrant's common stock held by non-affiliates of the registrant was
$64,563,520, based on the $9.875 closing price per share of the registrant's
common stock reported on the New York Stock Exchange on that date. As of March
24, 1998, there were 15,441,887 shares of the registrant's common stock issued
and outstanding.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................. 1
Introduction......................... 1
Recent Developments.................. 1
Product Overview..................... 3
Industry Overview.................... 3
Seasonality and Cyclicality.......... 3
Retail Operations.................... 3
Value Added Services Provided........ 4
Products and Product Sourcing........ 5
Management Information Systems....... 5
Competition.......................... 5
Regulation........................... 6
Employees............................ 7
Item 2. Properties........................... 7
Item 3. Legal Proceedings.................... 7
Item 4. Submission of Matters to a Vote of
Security Holders..................... 7
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters...... 8
Item 6. Selected Financial Data.............. 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 11
Item 8. Financial Statements and
Supplementary Data................... 15
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial
Disclosure........................... 32
PART III
Item 10. Directors and Executive Officers of
the Registrant....................... 33
Item 11. Executive Compensation............... 36
Item 12. Security Ownership of Certain
Beneficial Owners and Management..... 41
Item Certain Relationships and Related
13....... Transactions......................... 42
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K... 46
( i )
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
HomeUSA, Inc., ("HomeUSA" or the "Company"), a Delaware corporation,
was founded in July 1996 with the objective of becoming the leading independent
national retailer of manufactured housing; however, it conducted no operations
prior to its initial public offering (the "IPO") in November 1997.
Simultaneously with the closing of the IPO, the Company acquired nine existing
independent retailers of manufactured homes (the "Founding Companies"). Since
the IPO, the nine Founding Companies have operated as wholly-owned subsidiaries
of the Company as a single national retailer of manufactured homes.
RECENT DEVELOPMENTS -- MERGER AGREEMENT WITH FLEETWOOD ENTERPRISES
On February 17, 1998 the Company entered into an Agreement and Plan of
Merger with Fleetwood Enterprises, Inc. ("Fleetwood") and HUSA Acquisition
Company (the "Fleetwood Merger Agreement"). Pursuant to the Fleetwood Merger
Agreement, subject to the conditions set forth therein, the Company will merge
with and into a wholly-owned subsidiary of Fleetwood (the "Fleetwood Merger")
and will become a wholly-owned subsidiary of Fleetwood. The Fleetwood Merger is
subject to approval by the holders of a majority of the outstanding shares of
common stock of the Company ("Company Common Stock"). The Company anticipates
that stockholders will receive proxy materials relating to the proposed
Fleetwood Merger in May 1998, and that a special meeting (the "Special
Meeting") to consider and vote upon the proposed Fleetwood Merger will be held
in June 1998.
The Fleetwood Merger Agreement provides that, following receipt of all
required approvals and subject to the satisfaction or waiver of the conditions
to closing set forth therein, holders of shares of Company Common Stock will be
entitled to receive in the Fleetwood Merger, at the election of the stockholder,
(i) shares of common stock of Fleetwood ("Fleetwood Common Stock") valued (as
described below) at $10.25 per share of Company Common Stock, (ii) subject to
the limitation described below, $10.25 in cash per share of Company Common
Stock, or (iii) a combination of Fleetwood Common Stock and cash equal to $10.25
per share of Company Common Stock. In order for the Fleetwood Merger to be
treated for federal income tax purposes as a "tax-free reorganization," the
Fleetwood Merger Agreement requires that at least 51% of the aggregate merger
consideration payable to the Company's stockholders consist of shares of
Fleetwood Common Stock. The value of Fleetwood Common Stock for purposes of the
Fleetwood Merger will be determined by reference to the closing prices of
Fleetwood Common Stock on the New York Stock Exchange during a ten-day trading
period ending on the tenth day prior to the anticipated closing date of the
Fleetwood Merger.
The Fleetwood Merger Agreement requires the Company and its subsidiaries to
operate its business in the usual, regular and ordinary course, and prohibits
the Company and its subsidiaries (without the prior express written consent of
Fleetwood) from engaging in certain actions, including the payment of dividends,
the issuance of shares of capital stock, the amendment of organizational
documents, the acquisition of other businesses and the sale or other disposition
of assets except in the ordinary course of business consistent with past
practice.
Pursuant to the Fleetwood Merger Agreement, the Company will not, nor will
it permit any of its subsidiaries to, nor will it authorize or permit any
officer, director or employee of or any investment banker, attorney or other
advisor or representative of, the Company or any of its subsidiaries to,
directly or indirectly, (i) solicit, initiate or knowingly encourage the
submission of any takeover proposal (as defined in the Fleetwood Merger
Agreement), (ii) enter into any agreement providing for any takeover proposal or
(iii) participate in any negotiations regarding, or furnish to any person any
non-public information with respect to, or take any other action knowingly to
facilitate the making of any takeover proposal. Notwithstanding the foregoing,
if, at any time prior to the receipt of the Company stockholder approval of the
Fleetwood Merger, the Board of Directors of the Company determines in good faith
that it is necessary to do so in order to comply with its fiduciary duties to
the Company's stockholders under applicable law, as
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advised by outside counsel, the Company may, with respect to an actual or
potential unsolicited takeover proposal and subject to compliance with the
provisions of the Fleetwood Merger Agreement, (iv) furnish non-public
information with respect to the Company to such person making such actual or
potential unsolicited takeover proposal and (v) participate in negotiations
regarding such proposal.
The Fleetwood Merger Agreement also provides that neither the Board of
Directors of the Company nor any of its committees will (i) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to Fleetwood, the approval
or recommendation by the Board of Directors or any of its committees of the
Fleetwood Merger Agreement or the Fleetwood Merger, (ii) approve or recommend or
propose to approve or recommend, any takeover proposal or (iii) enter into any
agreement with respect to any takeover proposal. Notwithstanding the foregoing,
the Board of Directors of the Company may approve or recommend (and, in
connection therewith, withdraw or modify its approval or recommendation of the
Fleetwood Merger Agreement or the Fleetwood Merger) a superior proposal (as
defined in the Fleetwood Merger Agreement) if (iv) the Board of Directors of the
Company determines in good faith that it is necessary, in order to comply with
its fiduciary duties to the Company's stockholders under applicable law, as
advised by outside counsel, to approve or recommend such superior proposal, (v)
gives notice to Fleetwood advising Fleetwood that the Company has received a
superior proposal from a third party, specifying the material terms and
conditions (including the identity of the third party), and specifically stating
that the Company intends to approve or recommend such superior proposal, and
(vi) if Fleetwood does not, within seven business days of Fleetwood's receipt of
such notice, make an offer which the Company's Board of Directors determines in
its good faith judgment (based on the written advice of a financial adviser of
nationally recognized reputation) to be as favorable to the Company's
stockholders as the superior proposal.
Furthermore, the Company will promptly advise Fleetwood orally and in
writing of any request for information or of any takeover proposal or any
inquiry with respect to or which could reasonably be expected to lead to any
takeover proposal which, in any such case, is either (i) in writing or (ii) made
to any executive officer or director of the Company (and brought to the
attention of the chief executive officer of the Company), the identity of the
person making any such request to (the extent practicable), takeover proposal or
inquiry and all the material terms and conditions thereof. The Company will keep
Fleetwood fully informed of the status and details (including amendments or
proposed amendments) of any such request, takeover proposal or inquiry.
Nothing contained in the Fleetwood Merger Agreement will prohibit the
Company or its Board of Directors from (i) taking and disclosing to its
stockholders a position contemplated by Rule 14c-2 of the Securities Exchange
Act of 1934 (the "Exchange Act") or (ii) making any disclosure to its
stockholders that in the judgment of its Board of Directors, as advised by its
outside legal counsel, is required under applicable law.
If the Board approves or recommends a superior proposal as described above,
the Fleetwood Merger Agreement provides that the Company may terminate the
Fleetwood Merger Agreement, but would be required to pay Fleetwood upon demand
$6 million (the "Termination Fee"). If the Board approves or recommends a
superior proposal, Fleetwood would also have the right to terminate the
Agreement, and the Company would be required to pay Fleetwood the Termination
Fee.
If a third party takeover proposal (involving consideration in excess of
the consideration payable under the Fleetwood Merger Agreement) is made public
prior to the Special Meeting and at the Special Meeting the Company's
stockholders do not approve the Merger, and within twelve months after Fleetwood
or the Company terminates the Fleetwood Merger Agreement, a majority of the
outstanding securities of the Company are acquired by a third party (or a
takeover or other business combination is otherwise effected), the Company would
be required to pay the Termination Fee to Fleetwood.
Promptly after the Company publicly announced the proposed Fleetwood
Merger, a complaint (the "Complaint") was filed against the Company, the
members of its Board of Directors, and Fleetwood in the Delaware Court of
Chancery in New Castle County. The Complaint was purportedly filed on behalf of
a stockholder of the Company, individually and as a representative of a class of
holders of the Company's
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Common Stock. The suit seeks certification as a class action. The Complaint
alleges, among other things, that by entering into the Fleetwood Merger
Agreement, the Company and the members of its Board of Directors did not act
reasonably and in compliance with their fiduciary duties to the Company's
stockholders. The Complaint seeks to enjoin the proposed Fleetwood Merger and
seeks rescissory and/or compensatory damages, attorneys' fees and other relief.
See "Item 3. Legal Proceedings".
PRODUCT OVERVIEW
A manufactured home is a single-family house constructed 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 at a lower cost per square foot than new
site-built homes.
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 amenities such
as walk-in closets, fireplaces, whirlpool baths and vaulted ceilings, as well as
retailer-installed options such as central air conditioning, furniture packages,
garages, carports, etc.
INDUSTRY OVERVIEW
Total retail sales of manufactured homes in 1996, the latest year for which
retail industry statistics are available, were approximately $14 billion. 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. The average sale price of a new manufactured home in 1996 was $38,400
(exclusive of land).
SEASONALITY AND CYCLICALITY
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
sales are historically seasonal in nature. Sales are higher in the second and
third quarters when the weather is more favorable for installing homes. 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.
THE COMPANY'S RETAIL OPERATIONS
OPERATING SUBSIDIARIES. The Company currently conducts its retail
operations through nine wholly-owned subsidiaries and related entities, which
are also referred to as the Founding Companies. These nine operating companies
are:
COMPANY HEADQUARTERS
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Universal Housing, Inc. Jackson, Tennessee
AAA Homes Hattiesburg, Mississippi
McDonald Mobile Homes, Inc. Tulsa, Oklahoma
Patrick Home Center, Inc. Corinth, Mississippi
Mobile World, Inc. San Antonio, Texas
First American Homes, Inc. Dothan, Alabama
Cooper's Mobile Homes, Inc. Wenatchee, Washington
Home Folks Housing Center, Inc. Owensboro, Kentucky
WillMax Homes of Colorado LLC Colorado Springs, Colorado
RETAIL SALES CENTERS. As of December 31, 1997, the Company had 65 sales
centers in 14 states, most of which were located in small to mid-sized markets
(communities having populations of 12,000 to 100,000) in the South, Southwest
and Far West. At December 31, 1997, all of the Company's sales centers
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were 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 to fifteen 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 Company has established
incentive-based compensation packages for sales center managers and salespeople,
based on total sales targets within gross margin limitations. The Company
emphasizes customer service throughout all levels of its organization. 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.
SALES PROCESS. When potential customers visit a sales center for the first
time, they generally have limited knowledge about the quality and affordability
of the homes and typically do not own a lot upon which to site a home.
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.
VALUE-ADDED SERVICES PROVIDED
FINANCE AND INSURANCE. The Company has established relationships with
national financing sources, including Green Tree Financial Corporation,
Associates First Capital Corporation and Bank of America. Most of the Founding
Companies currently serve as insurance agents for homeowner's insurance and
mortgage and credit-life insurance. The Company has hired a Vice President of
Financial Services to concentrate on finance and insurance.
SITING ASSISTANCE. Approximately 70% of manufactured housing is located on
purchaser-owned property, with the balance predominantly located in parks 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 sites. Four of the
Founding Company owners or their affiliates currently own and/or manage
manufactured housing communities and subdivisions.
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 from the
sales center to the customer's site. 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 Company either utilizes its 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 Company
purchases these items from local distributors as customer orders are received.
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WARRANTIES. Manufacturers of manufactured housing also provide a one-year
warranty on the home and the components they install. Fleetwood, Palm Harbor
Homes Inc. ("Palm Harbor") and Waverlee also provide limited five-year
warranties on the structural components of the homes they manufacture. The
Company arranges for the repair of items subject to manufacturer's warranties,
and seeks 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 14 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 71% of the Company's new
home sales in 1997.
The Company currently purchases manufactured homes primarily from
Fleetwood, Champion Enterprises, Inc. ("Champion"), Palm Harbor, Clayton
Homes, Inc. and Belmont Homes, Inc. ("Belmont"). In 1997, approximately 65% of
the Company's new home sales were homes manufactured by Fleetwood. The Company
limits the number of manufacturers from whom it purchases homes based on
geographical proximity to manufacturer plants, range of products and ability to
qualify for 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, and 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 to the retailer 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.
MANAGEMENT INFORMATION SYSTEMS
The Company has assessed the accounting and management information systems
used by the Founding Companies and believes that it needs to implement a
Company-wide voice and data communication system linking the sales centers to
regional offices and to the Company's headquarters. The Company anticipates that
the system it adopts on a Company-wide basis will be designed to address the
"Year 2000" issues associated with computer systems that use only two digits
to identify a year in the date field. These issues include not only the
possibility of computer system failure or erroneous results by or at the year
2000, but also the necessity of coordinating with the computer systems of the
Company's suppliers, customers, lenders and other parties with which the Company
does business. The Company has hired a Vice President and Chief Technology
Officer with significant experience in systems integration to develop these
systems.
COMPETITION
RETAIL SALES. 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 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, quality level and
price ranges 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
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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 may lead to greater
competition, reduced profit margins and possibly a decline in the Company's home
sales.
ACQUISITION MARKET. The Company faces competition in its efforts to
acquire additional retailers and consolidate the manufactured housing industry.
The Company was founded and conducted its November 1997 IPO with the objective
of becoming the leading independent national retailer of manufactured housing.
The Company's strategy for achieving that objective depended, in large part, on
the Company's ability to acquire existing manufactured housing retailers.
The market for premier existing manufactured housing retailers during late
1997 was competitive, but became intensely competitive during January and
February 1998. In late December 1997 and continuing through mid-February 1998,
the Company engaged in substantive acquisition negotiations with the owners of
approximately 36 retailers. In almost every case, the Company found itself
competing with one or more of Expression Homes Corporation (a venture formed by
Fleetwood and Pulte Homes in October 1997 to pursue the acquisition of retail
sales centers) ("Expression Homes"), Champion, Palm Harbor and Cavco
Industries, Inc., a subsidiary of Centex Corporation ("Cavco") (collectively,
the "Competing Bidders"). On January 16, 1998 Champion announced that it had
acquired two retailers and had entered into agreements to acquire two additional
retailers. On February 4, 1998 Cavco announced that it had reached an agreement
to acquire a retailer and intended to acquire additional retailers, and on
February 10, 1998, Palm Harbor announced that it had reached an agreement to
acquire The Cannon Group, a large high-quality retailer the Company had believed
it could acquire. In almost every potential acquisition, the Company was forced
to compete with bids from one or more of the Competing Bidders that were in
excess of amounts the Company considered reasonable. The Competing Bidders
generally have significantly greater access to capital than does the Company,
and many of the competing bids included a significantly greater cash component
than the Company was willing to offer or capable of offering. By mid February,
the Company had concluded that it was unable to compete with the extraordinarily
high cash bids some of the Competing Bidders, particularly Champion, were making
to owners of high-quality retailers. See "Recent Developments -- Merger
Agreement with Fleetwood Enterprises."
REGULATION
The construction of manufactured homes is governed by the National
Manufactured Home Construction and Safety Standards Act of 1974. In 1976, the U.
S. Department of Housing and Urban Development ("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 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 request has
been denied with a statement of reasons for the denial. The Federal Fair Credit
Reporting Act
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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 customers'
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.
EMPLOYEES
As of December 31, 1997, the Company employed 621 persons. Of these, 66
were sales center managers, 197 were sales persons, 192 were employed in service
and 166 were executive and administrative personnel. The Company does not have
any collective bargaining agreements.
ITEM 2. PROPERTIES
As of December 31, 1997, the company operated 65 sales centers located in
14 states. The sales centers consist of two-acre to ten-acre sites, on which
manufactured homes are displayed, each with a sales office of approximately
2,200 square feet. The leases of these sales centers provide for monthly rentals
ranging from $742 to $5,000 and initial terms of three to ten 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time, a party to litigation arising in the
normal course of business. In the opinion of the Company, the ultimate
liability, if any, with respect to any pending litigation will not have a
material adverse effect on the financial condition or the results of operations
of the Company.
Promptly after the Company publicly announced the proposed Fleetwood
Merger, a complaint (the "Complaint") was filed against the Company, the
members of its Board of Directors, and Fleetwood in a Delaware Court of Chancery
in New Castle County. The Complaint was purportedly filed on behalf of a
stockholder of the Company, individually and as a representative of a class of
holders of the Company's Common Stock. The suit seeks certification as a class
action. The Complaint alleges, among other things, that by entering into the
Fleetwood Merger Agreement, the Company and the members of its Board of
Directors did not act reasonably and in compliance with their fiduciary duties
to the Company's stockholders. The Complaint seeks to enjoin the proposed
Fleetwood Merger and seeks rescissory and/or compensatory damages, attorneys'
fees and other relief. The Company believes the Complaint is without merit and,
with Fleetwood, intends to actively oppose the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since November 21, 1997, the Common Stock of HomeUSA has been listed for
trading on the New York Stock Exchange (the "NYSE") under the symbol "HSH".
The Company's Restricted Common Stock is not listed or traded on any exchange
and there is no established trading market for such shares. As of March 24, 1998
there were 15,441,887 shares outstanding held by approximately 86 stockholders
of record.
The following table sets forth the range of high and low sale prices for
the Common Stock on the NYSE (as reported on the Composite Transactions
Reporting System) for the periods indicated:
HIGH LOW
--------- ---------
Year ended December 31, 1997:
4th quarter (November 21 to
December 31)................... $ 8.625 $ 7.125
The last reported sale of the Common Stock on the NYSE on March 24, 1998
was $9.875 per share.
DIVIDENDS
The Company does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Company's credit facilities
include restrictions on the ability of the Company to pay dividends without the
consent of the lender.
RECENT SALES OF UNREGISTERED SECURITIES
Effective August 1, 1997, the Company effected a 90.7127-to-one stock
dividend on shares of Common Stock issued on and as of August 1, 1997.
Between July 3, 1996 and August 1, 1997 shares of Common Stock issued to
the following parties were on a pre-dividend basis.
On July 3, 1996, the Company issued and sold 1,000 shares of Common Stock
to Notre Capital Ventures II, L.L.C. ("Notre") for a consideration of $1,000.
This sale was exempt from registration under Section 4(2) of the Securities Act
of 1933, (the "Securities Act"), no public offering being involved.
On October 8, 1996 the Company 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, the Company 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, the Company 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;
8
<PAGE>
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, the Company 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 E.
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.
The following issuances of Common Stock occured subsequent to the
90.7127-to-one dividend.
Effective August 1, 1997, the Company 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.
On November 21, 1997, the Company issued 7,266,944 shares of its Common
Stock to the Founding Companies in connection with the closing of the IPO. Each
of these transactions was completed without registration under the Securities
Act in reliance upon the exemption provided by Section 4(2) of the Securities
Act.
USE OF IPO PROCEEDS
The Company's Registration Statement on Form S-1 relating to the IPO
(Commission File No. 333-35649) was declared effective on November 20, 1997. The
offering commenced promptly after the Registration Statement was declared
effective. The lead managing underwriter was BT Alex. Brown Incorporated. The
class of securities offered was common stock, par value $.01 per share; all of
the securities offered were offered for the account of the Company; the amount
registered was 5,000,000 shares; the aggregate offering price was $40.0 million;
all of the shares offered were sold. From the effective date of the Registration
Statement to December 31, 1997, the amount of expenses incurred for the
Company's account in connection with the issuance and distribution of the
securities registered were as follows: (a) underwriting discounts and
commissions -- $2.8 million; (b) finders' fees -- $0.2 million; (c) expenses
paid to or for underwriters -- none; (d) other expenses -- $5.8 million. The
total of the foregoing amounts is $8.8 million. None of such payments were made
directly or indirectly to directors, officers or general partners of the Company
or their associates or to persons owning 10% or more of any class of equity
security of the Company or to affiliates of the Company. The net offering
proceeds to the Company after deducting the total expenses described above were
$31.2 million. From the effective date of the Registration Statement to December
31, 1997, the amount of the net offering proceeds to the Company used (a) to pay
the cash portion of the acquisition price for the Founding Companies as
described in the Registration Statement was $18.1 million; (b) to pay a portion
of the excess operating capital distribution as described in the Registration
Statement was $7.2 million. Of these amounts, all but $2.7 million of the amount
paid to acquire the Founding Companies was paid to persons who are directors of
the Company or associates of such persons, and all but $0.3 million of the
amount paid as a portion of the excess operating capital distribution was paid
to persons who are directors of the Company or associates of such persons. The
use of proceeds did not represent a material change in the use of proceeds as
described in the prospectus contained in the Registration Statement.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
For financial statement presentation purposes, Universal Housing Group
("Universal"), one of the Founding Companies, has been identified as the
accounting acquiror. The acquisition of the remaining Founding Companies and
HomeUSA were accounted for using the purchase method of accounting, with the
results of operations included from November 30, 1997, the effective date used
for accounting purposes. As used in this discussion, the "Company" means (i)
Universal prior to November 30, 1997, and (ii) HomeUSA and the Founding
Companies on that date and thereafter. The summary financial information below
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere herein. The following historical financial
information may not be indicative of the Company's future financial results of
operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................... $ 63,952 $ 51,217 $ 55,821 $ 48,458 $ 39,108
Cost of sales.................... 50,012 39,354 42,617 37,844 30,716
---------- --------- --------- --------- ---------
Gross profit..................... 13,940 11,863 13,204 10,614 8,392
Selling, general and
administrative expenses........ 9,565 9,344 10,131 7,789 6,350
---------- --------- --------- --------- ---------
Operating income................. 4,375 2,519 3,073 2,825 2,042
Other (income) expense, net...... 702 (12) (62) 170 (38)
---------- --------- --------- --------- ---------
Income before income taxes....... 3,673 2,531 3,135 2,655 2,080
Provision for income taxes....... 276 131 181 138 2
---------- --------- --------- --------- ---------
Net income....................... $ 3,397 $ 2,400 $ 2,954 $ 2,517 $ 2,078
========== ========= ========= ========= =========
Earnings per share -- basic and
diluted.......................... $ 0.91 $ 1.04 $ 1.28 $ 1.09 $ 0.90
========== ========= ========= ========= =========
Shares used in computing basic
and diluted earnings per
share.......................... 3,740 2,299 2,299 2,299 2,299
PRO FORMA STATEMENT OF OPERATIONS
DATA (1):
Total revenue.................... $ 205,113
Cost of sales.................... 158,646
----------
Gross profit..................... 46,467
Selling, general and
administrative expenses........ 32,689
Goodwill amortization............ 1,502
----------
Operating income................. 12,276
Interest and other (income)
expense, net................... 2,515
----------
Income before income taxes....... 9,761
Provision for income taxes....... 4,283
----------
Net income....................... $ 5,478
==========
Earnings per share -- basic and
diluted........................ $ 0.39
==========
Shares used in computing pro
forma basic and diluted
earnings per share............. 14,018
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital.................. $ 11,149 $ 9,339 $ 10,198 $ 8,216 $ 5,430
Total assets..................... 139,844 19,329 14,455 12,759 11,486
Long-term debt, less current
maturities....................... -- -- -- -- 30
Stockholders' equity............. 77,506 10,109 10,759 8,619 5,717
</TABLE>
- ------------
(1) The Pro Forma Statement of Operations Data assume that the acquisition of
the Founding Companies and the IPO were closed on January 1, 1997, and are
not necessarily indicative of the results the Company would have achieved
had these events actually then occurred or of the Company's future results.
See Note 3 in the Notes to Consolidated Financial Statements included
elsewhere herein.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto and "Item 6.
Selected Financial Data" appearing elsewhere in this Annual Report on Form
10-K. Statements contained in this Annual Report regarding future financial or
operational performance and results of the Company or similar matters that are
not historical facts constitute forward-looking statements. These
forward-looking statements are subject to numerous risks and uncertainties
including, but not limited to, the availability of attractive acquisition
opportunities, the successful integration and profitable management of
businesses acquired, the improvement of operating efficiencies, the availability
of working capital and funding for future acquisitions, the ability to grow
internally through expansion of services and customer bases, reduction of
overhead, the cyclical nature of the homebuilding industry, and the level and
nature of competition from other manufactured home retailers and other factors
discussed in this Annual Report.
RECENT DEVELOPMENTS -- MERGER AGREEMENT WITH FLEETWOOD ENTERPRISES
On February 17, 1998 the Company entered into an Agreement and Plan of
Merger with Fleetwood and HUSA Acquisition Company. Pursuant to the Fleetwood
Merger Agreement, subject to the conditions set forth therein, the Company will
merge with and into a wholly-owned subsidiary of Fleetwood and will become a
wholly-owned subsidiary of Fleetwood. The Fleetwood Merger is subject to
approval by the holders of a majority of the outstanding shares of Company
Common Stock. The Company anticipates that stockholders will receive proxy
materials relating to the proposed Fleetwood Merger in May 1998, and that a
special meeting to consider and vote upon the proposed Fleetwood Merger will be
held in June 1998.
The Fleetwood Merger Agreement provides that, following receipt of all
required approvals and subject to the satisfaction or waiver of the conditions
to closing set forth therein, holders of shares of Company Common Stock will be
entitled to receive in the Merger, at the election of the stockholder, (i)
shares of Fleetwood Common Stock valued (as described below) at $10.25 per share
of Company Common Stock, (ii) subject to the limitation described below, $10.25
in cash per share of Company Common Stock, or (iii) a combination of Fleetwood
Common Stock and cash equal to $10.25 per share of Company Common Stock. In
order for the Fleetwood Merger to be treated for federal income tax purposes as
a "tax-free reorganization," the Fleetwood Merger Agreement requires that at
least 51% of the aggregate merger consideration payable to the Company's
stockholders consist of shares of Fleetwood Common Stock. The value of Fleetwood
Common Stock for purposes of the Fleetwood Merger will be determined by
reference to the closing prices of Fleetwood Common Stock on the New York Stock
Exchange during a ten-day trading period ending on the tenth day prior to the
anticipated closing date of the Fleetwood Merger.
OVERVIEW
The Company was founded in 1996 to become the leading independent national
retailer of manufactured homes and in November 1997 completed its IPO. The
Company acquired simultaneously with the closing of the IPO, nine existing
independent retailers of manufactured homes. Since that date the nine Founding
Companies have operated as subsidiaries of the Company as a single national
retailer of manufactured homes (see Item 1. Business -- "The Company's Retail
Operations -- Operating Subsidiaries"). Prior to their acquisition by the
Company, the Founding Companies were operated and managed as independent private
entities, and their results of operations reflect different tax structures
(including S Corporations, C Corporations, or LLCs), which have influenced the
historical level of owner's compensation.
For financial statement presentation purposes, Universal Housing Group
("Universal"), one of the Founding Companies, has been identified as the
accounting acquiror. The acquisition of the remaining Founding Companies and
HomeUSA were accounted for using the purchase method of accounting, with the
results of operations included from November 30, 1997, the effective date used
for accounting purposes. As used in this discussion, the "Company" means (i)
Universal prior to November 30, 1997 and (ii) HomeUSA and the Founding Companies
on that date and thereafter.
The Company's revenues are 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
11
<PAGE>
maintenance revenue. Sales of pre-owned homes accounted for approximately 3% of
the Company's total revenues in 1997.
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated financial information represents the operations
of Universal for all periods presented and the Founding Companies and HomeUSA
since November 30, 1997. This financial information has been derived from the
consolidated Financial Statements of HomeUSA, Inc. and subsidiaries.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales.......................... $ 62,636 97.9% $ 50,864 99.3% $ 55,615 99.6%
Other revenue....................... 1,316 2.1 353 0.7 206 0.4
--------- --------- --------- --------- --------- ---------
Total revenue......................... 63,952 100.0 51,217 100.0 55,821 100.0
Cost of sales......................... 50,012 78.2 39,354 76.8 42,617 76.3
--------- --------- --------- --------- --------- ---------
Gross profit.......................... 13,940 21.8 11,863 23.2 13,204 23.7
Selling, general and administrative
expenses............................ 9,565 15.0 9,344 18.2 10,131 18.2
--------- --------- --------- --------- --------- ---------
Income from operations................ 4,375 6.8 2,519 5.0 3,073 5.5
Interest and other (income) expense,
net................................. 702 1.1 (12) 0.0 (62) (0.1)
--------- --------- --------- --------- --------- ---------
Income before income taxes............ 3,673 5.7 2,531 5.0 3,135 5.6
Provision for income taxes............ 276 0.4 131 0.3 181 0.3
--------- --------- --------- --------- --------- ---------
Net income............................ $ 3,397 5.3% $ 2,400 4.7% $ 2,954 5.3%
========= ========= ========= ========= ========= =========
</TABLE>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
OPERATING DATA (CONSOLIDATED):
Period end sales centers.............. 65 15 15
Homes sold............................ 2,168 1,807 2,060
Multi-section home sales.............. 71% 62% 56%
Average home sale price............... $ 28,891 $ 28,148 $ 26,998
HISTORICAL RESULTS FOR 1997 COMPARED TO 1996
HOME SALES. Home sales increased $11.7 million, or 23.1%, from $50.9
million in 1996 to $62.6 million in 1997. Approximately $10.8 million of the
increase was attributable to the acquisition of the Founding Companies effective
November 30, 1997. The remaining increase was attributable to a 4% increase in
the number of homes sold partially offset by a 2% reduction in Universal's
average sale price per home. The decline in average sale price per home resulted
from the sale of a type of lower end, multi-section home during 1997.
OTHER REVENUE. Other revenue increased $0.9 million, or 273%, from $0.4
million in 1996 to $1.3 million in 1997. Approximately $0.4 million of the
increase was attributable to the acquisition of the Founding Companies effective
November 30, 1997. The remaining increase was primarily attributable to higher
finance revenue.
GROSS PROFIT. Gross profit increased $2.0 million, or 17.5%, from $11.9
million in 1996 to $13.9 million in 1997. Approximately $2.4 million of the
increase was attributable to the acquisition of the Founding Companies effective
November 30, 1997. This was partially offset by a $0.4 million decline
attributable to increased sales of a type of lower end, multi-section home
during 1997. As a percentage of total revenue, gross profit declined from 23.2%
in 1996 to 21.8% in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.3 million, or 2.4%, from $9.3 million in
1996 to $9.6 million in 1997. An increase of approximately $2.5 million was
attributable to the acquisition of the Founding Companies effective November 30,
1997. This was partially offset by a reduction of an owner's compensation. As a
percentage of total revenue, selling, general and administrative expenses
decreased from 18.2% in 1996 to 15.0% in 1997.
12
<PAGE>
INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income)
expense, net increased $0.7 million, from less than $0.1 million of income in
1996 to $0.7 million of expense in 1997. Approximately $0.2 million of the
increase was attributable to the acquisition of the Founding Companies effective
November 30, 1997. The remaining increase was primarily a result of increased
interest expense associated with maintaining higher floor plan balances during
1997.
HISTORICAL RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales decreased $4.7 million, or 8.5%, from $55.6 million
in 1995 to $50.9 million in 1996, resulting primarily from a 14% decline in
homes sold at centers open for 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 23.7% in 1995 to 23.2% 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
remained constant at 18.2% in 1995 and 1996.
INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income)
expense, net remained constant at less than $0.1 million in both periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $7.2 million of net cash from operating activities
for 1997. Net cash used in investing activities was $9.9 million, principally
related to the acquisition of the Founding Companies and the purchase of
property and equipment. Net cash provided by financing activities was $11.4
million and consisted primarily of the sale of stock in the IPO, partially
offset by distributions to shareholders. At December 31, 1997, the Company had
working capital of $11.1 million and no long-term debt.
The Company 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, the Company had working capital of $9.3
million and no long-term debt.
In February 1998, the Company entered into a $25 million revolving credit
agreement (the "Credit Facility") with a bank to fund working capital
requirements and future acquisitions. The Credit Facility is secured by the
capital stock of the Company's subsidiaries, and matures in February 2001.
Interest is payable monthly and is based on either the bank's prime rate or a
Eurodollar rate. A commitment fee of .50% is payable on the unused portion of
the facility. The Credit Facility contains certain affirmative and negative
covenants including, but not limited to, maintenance of certain financial ratios
and minimum consolidated net worth. In addition, the Credit Facility requires
the Company to seek the lenders' approval regarding certain acquisitions. No
borrowings have been made under the Credit Facility.
The Company has two floor plan credit facility arrangements with two
commercial lenders to finance a major portion of its manufactured home inventory
until such inventory is sold. Commitments of $75 million and $50 million are
available to the Company. Interest on amounts borrowed is paid monthly at rates
varying from the prime rate to 1% percent below the prime rate. The floor plan
payables are secured by substantially all of the Company's manufactured home
inventory, the related furniture, fixtures, accessories and accounts receivable.
The Company began drawing on the two floor plan credit facilities in January
1998.
13
<PAGE>
Floor plan payables are due upon 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. Generally, in the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to the home will
become payable over a specified term. In addition, 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 amounts available under the two floor plan credit facilities are $75
million and $50 million, respectively.
Management anticipates that capital expenditures, exclusive of
acquisitions, will be approximately $9.0 million in 1998. Although Management
believes that the Company's liquidity and capital resources would be adequate to
enable the Company to execute the Company's internal growth plans during 1998,
Management does not believe that the Company's liquidity or capital resources
are sufficient, in light of the extraordinary competition in the acquisition
market during January and February 1998, to enable the Company to implement its
acquisition strategy on the timetable the Company had contemplated.
Consequently, on February 17, 1998 the Company entered into the Fleetwood Merger
Agreement. See "Recent Developments -- Merger Agreement with Fleetwood
Enterprises." In the event that the Fleetwood Merger Agreement is not
consummated for any reason, Management believes that the Company (i) would seek
an alternative business combination with another manufacturer, (ii) would seek
additional capital resources from another source, and/or (iii) would attempt to
implement its acquisition strategy by acquiring smaller retailers than the
retailers it had originally sought to acquire.
On February 5 and February 13, 1998, respectively, the Company entered into
non-binding letters of intent to acquire South Atlantic Manufactured Homes, Inc.
("South Atlantic") and Southern Lifestyle Manufactured Housing, Inc.
("Southern Lifestyle"). South Atlantic owns and operates 16 retail centers
located throughout Georgia, South Carolina and Florida. Southern Lifestyle owns
and operates seven retail centers located in Alabama.
The Company intends to work with Fleetwood and the owners of South Atlantic
and Southern Lifestyle to negotiate a transaction in which Fleetwood would
acquire South Atlantic and Southern Lifestyle concurrently with the consummation
of the Fleetwood Merger. Any such transaction would require the consent of
Fleetwood as well as that of the owners of South Atlantic and Southern
Lifestyle.
YEAR 2000 ISSUE
The Company recognizes the need to ensure its operations will not be
adversely impacted by "Year 2000" software failures. Specifically,
computational errors are a known risk with respect to dates after December 31,
1999. The Company has addressed the issue with respect to its existing
subsidiaries and potential acquisitions as part of its normal due diligence
procedures. The Company does not believe the cost of achieving Year 2000
compliance, in excess of the cost of normal software upgrades and replacements
incurred through calendar 1999, will be material to the Company's consolidated
results of operations, consolidated financial position or liquidity.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS (1)
PAGE
-----
Report of Independent Public
Accountants....................... 16
Consolidated Balance Sheets........ 17
Consolidated Statements of
Operations........................ 18
Consolidated Statements of
Stockholders' Equity.............. 19
Consolidated Statements of Cash
Flows............................. 20
Notes to Consolidated Financial
Statements........................ 21
- ------------
(1) See Exhibit 99.1 for the audited financial statements of the Founding
Companies.
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HomeUSA, Inc.:
We have audited the accompanying consolidated balance sheets of HomeUSA,
Inc. (a Delaware corporation) and subsidiaries (the "Company"), as of December
31, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1997 and 1996, and the results of their
consolidated operations and their consolidated cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 27, 1998
16
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
DECEMBER 31,
---------------------
1997 1996
---------- ---------
ASSETS
Current Assets
Cash and cash equivalents....... $ 16,758 $ 8,031
Accounts receivable, net........ 7,421 1,772
Related party receivable........ 1,140 --
Inventories..................... 45,481 8,655
Other current assets............ 1,268 36
---------- ---------
Total current assets....... 72,068 18,494
---------- ---------
Property and Equipment, net.......... 6,624 801
Goodwill, net........................ 60,323 --
Other Assets......................... 829 34
---------- ---------
Total assets............... $ 139,844 $ 19,329
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
expenses....................... $ 9,116 $ 2,376
Related-party payable........... 4,601 50
Floor plan payable.............. 45,007 6,729
Current maturities of long-term
debt........................... 2,110 --
Deferred tax liability.......... 85 --
---------- ---------
Total current
liabilities............. 60,919 9,155
---------- ---------
Deferred Tax Liability............... 1,419 65
---------- ---------
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued.................... -- --
Common stock $.01 par value,
105,000,000 shares authorized,
15,441,887 and 2,299,311 shares
outstanding, respectively...... 154 22
Additional paid-in capital...... 73,900 (20)
Retained earnings............... 3,452 10,107
---------- ---------
Total stockholders'
equity.................. 77,506 10,109
---------- ---------
Total liabilities and
stockholders' equity.... $ 139,844 $ 19,329
========== =========
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Revenue:
Home sales......................... $ 62,636 $ 50,864 $ 55,615
Other revenue...................... 1,316 353 206
--------- --------- ---------
Total revenue................. 63,952 51,217 55,821
Cost of sales........................... 50,012 39,354 42,617
--------- --------- ---------
Gross profit............................ 13,940 11,863 13,204
Selling, general and administrative
expenses.............................. 9,565 9,344 10,131
--------- --------- ---------
Income from operations.................. 4,375 2,519 3,073
Other income (expense)
Interest expense................... (1,098) (412) (221)
Other income, net.................. 396 424 283
--------- --------- ---------
Income before income taxes.............. 3,673 2,531 3,135
Provision for income taxes.............. 276 131 181
--------- --------- ---------
Net income.............................. $ 3,397 $ 2,400 $ 2,954
========= ========= =========
Earnings per share -- basic and
diluted................................. $ 0.91 $ 1.04 $ 1.28
Shares used in computing basic and
diluted earnings per share............ 3,740 2,299 2,299
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1994............ $ 22 $ (20) $ 8,618 $ 8,620
S-Corporation distributions........ -- -- (815) (815)
Net income......................... -- -- 2,954 2,954
------ ---------- -------- --------
Balance at December 31, 1995............ 22 (20) 10,757 10,759
S-Corporation distributions........ -- -- (3,050) (3,050)
Net income......................... -- -- 2,400 2,400
------ ---------- -------- --------
Balance at December 31, 1996............ 22 (20) 10,107 10,109
Public offering, net of offering
costs............................ 50 31,132 -- 31,182
Purchase of Founding Companies..... 82 52,109 -- 52,191
S-Corporation distributions........ -- -- (10,052) (10,052)
Cash portion of merger
consideration -- Universal....... -- (9,321) -- (9,321)
Net income......................... -- -- 3,397 3,397
------ ---------- -------- --------
Balance at December 31, 1997............ $ 154 $ 73,900 $ 3,452 $ 77,506
====== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................... $ 3,397 $ 2,400 $ 2,954
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation and
amortization............ 190 94 80
Loss (gain) on sale of
assets.................. 18 (19) (9)
Deferred tax provision
(benefit)............... (29) (7) 3
Changes in assets and
liabilities --
Accounts receivable........ 1,590 579 (318)
Inventories................ (973) 679 (1,782)
Other current assets....... (610) 11 (16)
Other noncurrent assets.... (369) 6 37
Accounts payable and
accrued expenses........ 1,193 (544) 741
Floor plan payable......... 2,800 6,016 (1,157)
---------- --------- ---------
Net cash provided by
operating
activities......... 7,207 9,215 533
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisitions, net
of cash acquired.............. (9,811) -- --
Purchases of property and
equipment..................... (149) (316) (256)
Proceeds from sale of
equipment..................... 85 24 10
---------- --------- ---------
Net cash used in
investing
activities......... (9,875) (292) (246)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock............ 31,182 -- 1
Proceeds from (payments on)
debt, net..................... (414) 50 (30)
Distributions to stockholders... (19,373) (3,050) (815)
---------- --------- ---------
Net cash provided by
(used in) financing
activities......... 11,395 (3,000) (844)
---------- --------- ---------
Increase (Decrease) in Cash and Cash
Equivalents........................ 8,727 5,923 (557)
Cash and Cash Equivalents, Beginning
of Year............................ 8,031 2,108 2,665
---------- --------- ---------
Cash and Cash Equivalents, End of
Year............................... $ 16,758 $ 8,031 $ 2,108
========== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for --
Interest................... $ 303 $ 412 $ 221
Taxes...................... 164 623 497
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
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. In November 1997, HomeUSA acquired, simultaneous with the
closing of an initial public offering (the "IPO"), nine existing independent
retailers of manufactured homes. Consideration for these businesses consisted of
a combination of cash and common stock of HomeUSA, par value $.01 per share (the
"Common Stock").
For financial statement presentation purposes, Universal Housing Group
("Universal"), one of the Founding Companies, has been identified as the
accounting acquiror. The acquisition of the remaining Founding Companies and
HomeUSA were accounted for using the purchase method of accounting. The
consolidated statements of operations reflect Universal for all periods
presented and the Founding Companies and HomeUSA since November 30, 1997, the
effective date used for accounting purposes. The allocation of purchase price to
the assets acquired and liabilities assumed has been initially assigned and
recorded based on preliminary estimates of fair value and may be revised as
additional information concerning the valuation of such assets and liabilities
becomes available.
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.
On February 17, 1998, the Company announced it had entered into a
definitive agreement to be acquired by Fleetwood Enterprises, Inc. (See Note
15).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements reflect the Company on a historical basis with Universal as the
accounting acquiror. All significant intercompany accounts and transactions have
been eliminated in consolidation.
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
greater of the life of the lease or ten years.
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 Company's retail sales), upon the 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
21
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
which the Company records a sales commission in other revenues when sold to
customers. 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.
The Company arranges financing for customers through various lending
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 repair and maintenance services.
COST OF SALES. Cost of sales includes the cost of manufactured homes, less
any manufacturers rebates realized, as well as the cost of retailer-installed
options, set-up and delivery.
INCOME TAXES. The Company files a consolidated federal income tax return,
which includes the operations of all acquired businesses for periods subsequent
to the respective date of acquisition. The stockholders of Universal elected to
be taxed under the provisions of Subchapter S of the Internal Revenue Code.
Under these provisions, Universal did not pay federal and certain state income
taxes. Instead, Universal's stockholders paid income taxes on their
proportionate shares of the Company's net earnings. Effective with the IPO,
Universal's S Corporation status was terminated, and the Company is now subject
to federal income taxes. The provision for income taxes in 1997 includes a
charge of $40 representing the net deferred tax liability existing at the time
of the conversion to a C Corporation. Acquired companies each file a "short
period" federal income tax return through their respective acquisition date.
GOODWILL. Goodwill represents the excess of the aggregate purchase price
paid by the Company in the acquisition of the Founding Companies over the fair
market value of the net assets acquired. Goodwill is amortized on a
straight-line basis over 40 years. As of December 31, 1997, accumulated
amortization was approximately $166.
The Company periodically evaluates the recoverability of intangibles
resulting from business acquisitions and measures the amount of impairment, if
any, by assessing current and future levels of income and cash flows as well as
other factors, such as business trends and prospects and market and economic
conditions.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments
consist primarily 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.
CONCENTRATIONS 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 three 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 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, or by the manufacturer for good
cause, as defined in the agreement.
22
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
USE OF ESTIMATES AND ASSUMPTIONS. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect (i) the reported amounts of assets
and liabilities, (ii) the disclosure of contingent assets and liabilities known
to exist as of the date the financial statements are published and (iii) the
reported amounts of revenues and expenses recognized during the reporting
periods presented. The Company reviews all significant estimates affecting its
consolidated financial statements on a recurring basis and records the effect of
any necessary adjustments prior to their publication. Adjustments made with
respect to the use of estimates often relate to improved information not
previously available. Uncertainties with respect to such estimates and
assumptions are inherent in the preparation of financial statements.
STATEMENT 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. Effective January 1, 1998, the Company will
adopt Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income." This statement requires the presentation of
total non-owner changes in equity, including items not currently reflected in
net income. Also effective January 1, 1998, the Company will adopt SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement requires that segments of a business be disclosed in interim and
annual financial statements. The Company is currently evaluating the effect, if
any, these statements will have on the Company's financial presentation.
3. BUSINESS COMBINATION AND UNAUDITED PRO FORMA INFORMATION
The following unaudited pro forma information gives effect to the mergers
by HomeUSA, of substantially all of the outstanding capital stock of 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 "Initial Acquisitions")
occurred simultaneously with the closing of HomeUSA's IPO and were accounted for
using the purchase method of accounting with Universal, one of the Founding
Companies, as the accounting acquiror. The aggregate consideration paid by
HomeUSA in the Initial Acquisitions consisted of $18.1 million in cash at the
closing, $3.1 million paid subsequent to closing as a partial excess operating
capital distribution (as defined) and 7,266,944 shares of Common Stock,
including the 2,299,311 shares of Common Stock attributable to Universal. The
Company has recorded in the consolidated financial statements at December 31,
1997, an additional $4.1 million which it expects to pay during 1998 to the
stockholders of the Founding Companies representing excess operating capital (as
defined) as of the date of the Initial Acquisitions. The unaudited pro forma
information gives effect to the Initial Acquisitions and the IPO as if they had
occurred on January 1, 1996. The unaudited pro forma statement of operations
information also gives effect to the issuance of common stock in connection with
the IPO and as partial consideration for the acquisitions to the sellers of the
Founding Companies. The pro forma statement of operations information is based
on the historical financial statements of the Founding Companies and is also
based upon certain estimates and assumptions set forth below.
YEAR ENDED DECEMBER
31,
----------------------
1997 1996
---------- ----------
(UNAUDITED)
Revenues............................. $ 205,113 $ 202,693
Net income........................... 5,478 7,014
Earnings per share -- basic and
diluted.............................. 0.39 0.50
23
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Pro forma adjustments primarily relate to (i) contractual agreements
entered into with suppliers, financing sources and previous owners of the
Founding Companies as a result of the Initial Acquisitions with respect to
combined manufacturers' rebates, floor plan financing interest costs, finance
income and owners' compensation differential, (ii) amortization of goodwill
recorded as a result of the Initial Acquisitions over a 40-year estimated life
and (iii) adjustments to the federal and state income tax provisions based on
the combined operations.
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 information presented herein does not purport
to represent what the Company's 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 results of operations for any future period or the
future results of the Founding Companies. Previously reported pro forma amounts
for 1997 and 1996 have been revised based on additional information becoming
available subsequent to the IPO.
4. EARNINGS PER SHARE
EARNINGS PER SHARE -- In February 1997, the Financial Accounting Standards
Board issued SFAS No. 128, "Earnings Per Share." The Company adopted SFAS No.
128 for the year ended December 31, 1997. SFAS No. 128 simplifies the standards
required under current accounting rules for computing earnings per share and
replaces the presentation of primary earnings per share and fully diluted
earnings per share with a presentation of basic earnings per share ("Earnings
per share -- Basic") and diluted earnings per share ("Earnings per
share -- Diluted"). Earnings per share -- Basic excludes dilution and is
determined by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Earnings per
share -- Diluted is equal to Earnings per share -- Basic, since the issuance or
conversion of additional common stock would have an anti-dilutive effect.
The computation of earnings per share for the years ended December 31, 1996
and 1995 is based upon 2,299,311 shares issued to Universal in conjunction with
the IPO. The computation of earnings per share for the year ended December 31,
1997 is based upon 3,739,593 weighted average shares outstanding which includes
(i) 2,299,311 shares issued to Universal in conjunction with the IPO, and (ii)
the weighted average portion of the remaining shares from the effective date of
the Initial Acquisitions and the IPO.
The computation of unaudited pro forma earnings per share for the year
ended December 31, 1997 is based upon (i) 10,441,887 shares issued to the
Founding Companies, management and Notre Capital Ventures II, L.L.C., (ii)
2,591,129 of the 5,000,000 shares sold in the IPO necessary to pay the cash
portion of the purchase price of the Founding Companies, (iii) 810,783 shares of
the 5,000,000 sold in the IPO necessary to pay the expenses of the IPO and (iv)
the weighted average of 1,598,088 shares of the 5,000,000 shares sold in the IPO
outstanding from November 21, 1997.
24
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1997 1996
------------ --------- ---------
Buildings............................ 25 $ 2,682 $ 390
Leasehold improvements............... 10 2,415 283
Equipment............................ 7 2,047 438
Furniture and fixtures............... 5 2,073 191
--------- ---------
Total...................... 9,217 1,302
Less accumulated depreciation and
amortization......................... (2,593) (501)
--------- ---------
Property and equipment, net.......... $ 6,624 $ 801
========= =========
6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accounts receivable consist of the following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Accounts receivable, trade........... $ 1,092 $ --
Due from manufacturers............... 3,138 325
Due from finance companies........... 2,567 954
Other................................ 624 493
--------- ---------
$ 7,421 $ 1,772
========= =========
Inventories consist of the following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
New homes, net of volume rebates..... $ 41,217 $ 7,902
Pre-owned homes...................... 2,951 333
Parts, accessories and other......... 1,313 420
--------- ---------
$ 45,481 $ 8,655
========= =========
Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Accounts payable, trade.............. $ 3,512 $ 983
Accrued compensation................. 1,492 1,019
Customer deposits.................... 851 250
Other accrued expenses............... 3,261 124
--------- ---------
$ 9,116 $ 2,376
========= =========
7. FLOOR PLAN FINANCING AND CREDIT FACILITIES
The Company has 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 varying rates from
prime to 7.5% over prime (8.5 to 16.0 percent at December 31, 1997). The floor
plan
25
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
payable is secured by substantially all of the Company's manufactured home
inventory, the related furniture, fixtures and accessories and accounts
receivable.
Floor plan payables are due upon 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. Generally, in the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to the home will
become payable over a specified term. In addition, 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 available under the various floor plan credit facilities at
December 31, 1997 was approximately $73.5 million. The largest floor plan
balance outstanding during the twelve months ended December 31, 1997, was
approximately $45 million. The average balance outstanding during the twelve
months ended December 31, 1997 was approximately $10 million, with a weighted
average interest rate of 10.6%.
In January 1998, the Company began using two credit facilities (the
"Facility") which provide up to $125 million of revolving credit facilities
for floor plan financing at rates which vary from the prime rate to 1% below the
prime rate. The 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
Facility.
In February 1998, the Company entered into a $25 million revolving credit
agreement (the "Credit Facility") with a bank to fund working capital
requirements and future acquisitions. The Credit Facility is secured by the
capital stock of the Company's subsidiaries, and matures in February 2001.
Interest is payable monthly on any outstanding balance and is based on either
the bank's prime rate or a Eurodollar rate. A commitment fee of .50% is payable
on the unused portion of the facility. The Credit Facility contains certain
affirmative and negative covenants including, but not limited to, maintenance of
certain financial ratios and minimum consolidated net worth. In addition, the
Credit Facility requires the Company to seek the lenders approval regarding
certain acquisitions. No borrowings have been made under the Credit Facility.
26
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
8. LONG-TERM DEBT
At December 31, 1997, consolidated long-term debt has been classified as
"Current maturities of long-term debt" on the Consolidated Balance Sheet as
the Company intends to repay the entire balance during 1998 in advance of the
scheduled repayment terms.
9. INCOME TAXES
The components of the provision for income taxes are as follows:
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Federal --
Current............................ $ 112 $ 0 $ 14
Deferred........................... (45) (1) 1
--------- --------- ---------
67 (1) 15
--------- --------- ---------
State --
Current............................ 193 124 164
Deferred........................... 16 8 2
--------- --------- ---------
209 132 166
--------- --------- ---------
Total provision............ $ 276 $ 131 $ 181
========= ========= =========
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
Federal income tax at statutory
rates................................ $ 1,286 $ 886 $ 1,097
State income taxes, net of federal
benefit.............................. 208 132 166
Non-deductible expenses.............. 59 -- --
Effect of S Corporation income....... (1,317) (887) (1,082)
Conversion of S Corporation to C
Corporation.......................... 40 -- --
--------- --------- ---------
$ 276 $ 131 $ 181
========= ========= =========
27
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1997 and 1996 are as follows:
DECEMBER 31,
--------------------
1997 1996
--------- ---------
Deferred tax assets --
Accrued expenses................... $ 27 $ 11
Allowance for doubtful accounts.... 26 --
State taxes........................ 35 --
--------- ---------
Total deferred tax
assets..................... 88 11
--------- ---------
Deferred tax liabilities --
Bases differences in property and
equipment....................... (598) (11)
Other.............................. (922) (65)
--------- ---------
Total deferred tax
liabilities................ (1,520) (76)
Valuation allowance.................. (72) --
--------- ---------
Net deferred tax liability........... $ (1,504) $ (65)
========= =========
10. STOCKHOLDERS' EQUITY
GENERAL
The authorized capital stock of the Company consists of 110,000,000 shares
of capital stock, consisting of 100,000,000 shares of Common Stock, 5,000,000
shares of restricted common stock (the "Restricted Common Stock") and
5,000,000 shares of Preferred Stock (the "Preferred Stock"). At December 31,
1997, the Company has outstanding 15,441,887 shares of Common Stock, including
1,718,823 shares of Restricted Common Stock and no shares of Preferred Stock.
RESTRICTED COMMON STOCK
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), (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. The 1,718,823 shares of
Restricted Common Stock have been converted to Common Stock as a result of the
Fleetwood Merger Agreement.
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.
28
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
11. STOCK OPTIONS
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 HomeUSA Board of Directors and stockholders
approved the 1997 Long-Term Incentive Plan (the "LTIP"). The purpose of the
LTIP 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 LTIP 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 LTIP 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.
At the closing of the IPO, NQSOs to purchase a total of 650,000 shares of
Common Stock were granted to members of management and 956,563 shares were
granted to certain employees of the Founding Companies. In addition, options to
purchase 80,000 shares were subsequently granted to employees of HomeUSA. Each
of the foregoing options have an exercise price of $8.00 per share. These
options will vest at the rate of 20% per year, commencing on the first
anniversary of the date of grant, and will expire at the earlier of ten years
from the date of grant or three months following termination of employment.
The Company's LTIP provides for the granting or awarding of stock options
and stock appreciation rights to non-employee directors, officers and other key
employees. The Company accounts for this LTIP under APB Opinion No. 25, and no
compensation expense has been recognized. The number of shares authorized and
reserved for issuance under the LTIP is limited to the greater of 2,000,000
shares or 15 percent of the number of shares of Common Stock outstanding on the
last day of the preceding calendar quarter (2,000,000 shares at December 31,
1997). As of December 31, 1997, the Company has granted 10 year options covering
an aggregate of 1,606,563 shares of Common Stock.
The following table summarizes activity under the LTIP for the year ended
December 31, 1997:
WEIGHTED
AVERAGE
EXERCISE EXERCISE
SHARES PRICE PRICE
---------- -------- ---------
Outstanding at December 31, 1996........ -- -- --
Granted............................ 1,606,563 $ 8.00 $8.00
Exercised.......................... -- -- --
Forfeited and canceled............. -- -- --
Outstanding at December 31, 1997........ 1,606,563 $8.00
Weighted average fair value of options
granted during 1997................... $5.36
Weighted average remaining contractual
life.................................. 9.92 years
At December 31, 1997, no options were exercisable. Unexercised options
expire on November 19, 2007.
29
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
If the Company had recorded compensation cost for the LTIP consistent with
SFAS No. 123, net income and earnings per share would have been decreased by the
following pro forma amounts (in thousands, except per share data):
YEAR ENDED
DECEMBER 31, 1997
-----------------
Net Income:
As Reported........................ $ 3,397
Pro Forma.......................... $ 3,342
Earnings Per Share -- basic and diluted:
As Reported........................ $ 0.91
Pro Forma.......................... $ 0.89
The pro forma compensation cost may not be representative of that to be
expected in future years because options vest over several years and addditional
awards may be made each year.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model, with the following average assumptions
used for grants in 1997: dividend yield of 0%; expected volatility of 48.03%;
risk-free interest rate of 5.87%; and expected lives of 10 years.
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
stockholders in July 1997, provides for (i) the automatic grant to each of the
four non-employee directors serving at the consummation of the IPO 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 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.
12. RELATED PARTY TRANSACTIONS
The company leases facilities from certain of its stockholders under
operating leases. The rent paid under these related-party leases was
approximately $207, $113, and $77 for the years ended December 31, 1997, 1996,
and 1995, respectively.
The Company conducts business with companies owned or controlled by
directors of the Company or parties related to the directors. The companies
provide delivery and installation services, construction services, and office
supplies. For these services, the Company paid $56 for the year ended December
31, 1997, and none for the years ended December 31, 1996 and 1995.
Related party receivables primarily represent amounts owed to the Company
by directors, founders, or parties related to them, relating to amounts
previously loaned by the Company to those parties.
30
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Related party payables at December 31, 1997 include $4,136 owed to founders
relating to additional consideration for the purchase of the Founding Companies.
The remainder represents amounts owed to founders or parties related to them for
amounts previously loaned to the Company by those parties.
Certain stockholders of HomeUSA, Inc. own interests in real estate
operations which, from time to time, sell land to customers of the Company.
13. EMPLOYEE BENEFIT PLANS
Certain of the Founding Companies have 401(k) retirement and profit sharing
plans which cover employees meeting certain service requirements. The Company
contributed $10 for the year ended December 31, 1997, and none for the years
ended December 31, 1996 and 1995, respectively.
14. 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 2007. 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 as of December 31, 1997
are as follows:
Year ending December 31 --
1998............................... $ 1,689
1999............................... 1,355
2000............................... 882
2001............................... 707
2002............................... 585
Thereafter......................... 1,510
---------
Total......................... $ 6,728
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $529, $381, and $353 for the years ended
December 31, 1997, 1996, and 1995, respectively.
RECOURSE FINANCING
In connection with home sales, the Company may guarantee certain amounts
due to lending institutions from the Company's 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, 1997 and 1996, amounts guaranteed were $445 and none,
respectively. A reserve of $34 has been included in the Consolidated Balance
Sheet at December 31, 1997.
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.
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 consolidated financial position
or results of operations.
31
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
15. SUBSEQUENT EVENTS
On February 17, 1998 the Company announced that it had entered into a
definitive agreement to be acquired by Fleetwood Enterprises, Inc., (the
"Fleetwood Merger") a leading manufacturer of manufactured homes. Under the
agreement, each share of HomeUSA common stock will be converted into the right
to receive $10.25 per share, payable at the election of the holder in cash or
Fleetwood common stock, for an aggregate purchase price of approximately $162
million. The Fleetwood stock will be valued at an average price prior to the
closing and the aggregate cash payment by Fleetwood will not exceed 49% of the
total purchase price. The acquisition is expected to close in June 1998, subject
to certain conditions including approval by the holders of a majority of the
outstanding shares of common stock of HomeUSA. Fleetwood and HomeUSA have agreed
in principle that HomeUSA will develop and construct, on a fee basis, new retail
outlets for Fleetwood in the period preceding the closing.
Promptly after the Company publicly announced its proposed merger with
Fleetwood a complaint (the "Complaint") was filed against the Company, the
members of its Board of Directors, and Fleetwood in a Delaware Court of Chancery
in New Castle County. The Complaint was purportedly filed on behalf of a
stockholder of the Company, individually and as a representative of a class of
holders of the Company's Common Stock. The suit seeks certification as a class
action. The Complaint alleges, among other things, that by entering into the
Fleetwood Merger Agreement, the Company and the members of its Board of
Directors did not act reasonably and in compliance with their fiduciary duties
to the Company's stockholders. The Complaint seeks to enjoin the proposed
Fleetwood Merger and seeks rescissory and/or compensatory damages, attorneys'
fees and other relief.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
32
<PAGE>
PART III
ITEM 10. 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............. 48 Senior Vice President of Market Development
Philip deMena................. 58 Senior Vice President of Real Estate and
Construction
Don A. Palmour................ 43 Vice President and Chief Technology Officer
Philip E. Campbell............ 36 Vice President and Controller
Donald D. Moseley............. 53 Vice President of Financial Services
Larry T. Shaffer.............. 57 President of Universal, Director
Gary W. Fordham............... 43 President of AAA Homes, Director
David E. Thompson............. 45 Chief Operating Officer of AAA Homes,
Director
Frank C. McDonald............. 47 President of McDonald, Director
Harold K. Patrick............. 59 President of Patrick, Director
Stanley Poisso................ 68 President of Mobile World, Director
Randle C. Cooper.............. 38 President of Cooper, Director
Steven S. Harter.............. 35 Director
Thomas N. Amonett............. 54 Director
James J. Blosser.............. 60 Director
Stephen F. Smith.............. 56 Director
Richard Berry................. 56 President of Home Folks
Joseph R. Copeland............ 47 President of First American
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 the IPO. 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.
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
33
<PAGE>
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 E. 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 has been a director of the Company since November 1997. He
has been President of Universal since 1977 and will continue in that capacity.
Gary W. Fordham has been a director of the Company since November 1997. He
has been President of AAA Homes since 1988 and will continue in that capacity.
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 has been a director of the Company since November 1997.
He has been Chief Operating Officer of AAA Homes since January 1988 and will
continue in that capacity. 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 has been a director of the Company since November 1997.
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. 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 has been a director of the Company since November 1997.
He founded Patrick in 1966. He has served as President of Patrick since that
time and will continue in that capacity. 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.
Stanley Poisso has been a director of the Company since November 1997. 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. 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.
34
<PAGE>
Randle C. Cooper has been a director of the Company since November 1997. He
has been President of Cooper since 1981, and will continue in that capacity. 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 has been a director of the Company since November 1997.
In November 1997, Mr. Amonett became the President and Chief Executive Officer
of American Residential Services, Inc., a publicly-traded provider of
residential heating, air conditioning, plumbing and similar services. Prior to
that, Mr. Amonett served as interim 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,
previously known as Buttes Gas and Oil Company and now is known as Reunion
Industries, Inc., 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 has been a director of the Company since November 1997.
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 has been a director of the Company since November 1997. 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 LLP.
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.
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. Mr. Copeland is currently Chairman of the Alabama Manufactured
Housing Commission and is a member and past director of the Alabama Manufactured
Housing Institute.
Each of Messrs. Vollintine, Loy, Montfort, deMena, Palmour, Campbell, and
Moseley has executed a three-year employment agreement with HomeUSA. All
officers serve at the discretion of the Board of Directors.
The Board of Directors is 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
35
<PAGE>
Certificate of Incorporation permits the holders of the Restricted Common Stock
to elect one director. Mr. Harter is the director elected by the holders of the
Restricted Common Stock.
The directors serving in Class I are Messrs. Blosser, Loy, McDonald,
Poisso, and Thompson. The directors serving in Class II are Messrs. Amonett,
Fordham, Harter, and Smith. The directors serving in Class III are Messrs.
Cooper, Patrick, Shaffer, and Vollintine.
The Board of Directors has established an Audit Committee, a Compensation
Committee, an Executive Committee, and a Nominating Committee. The members of
the Audit and Compensation Committees are Messrs. Amonett, Blosser, and Smith.
The members of the Executive Committee are Messrs. Harter, Shaffer, and
Vollintine. The members of the Nominating Committee are Messrs. Blosser, Harter,
and Shaffer.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, officers and persons holding more than ten percent of a registered
class of the Company's equity securities to file with the Securities and
Exchange Commission ("SEC") and any stock exchange or automated quotation
system on which the Common Stock may then be listed or quoted (i) initial
reports of ownership, (ii) reports of changes in ownership and (iii) annual
reports of ownership of Common Stock and other equity securities of the Company.
Such directors, officers and ten-percent stockholders are also required to
furnish the Company with copies of all such filed reports.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
1997, the Company believes that all Section 16(a) reporting requirements related
to the Company's directors and executive officers were timely fulfilled during
1997, with the exception of Messrs. Blosser and Smith, who each, on one
occasion, failed to file a Form 4 on a timely basis for two transactions
involving a total of 10,000 shares.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes certain information regarding compensation
paid or accrued by the Company since the IPO to the Chief Executive Officer and
each of the Company's four other most highly compensated executive officers (the
"Named Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- --------------------------
OTHER ANNUAL RESTRICTED NUMBER OF ALL OTHER
SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($)(2) ($) GRANTED ($)
- ------------------------------------- --------- ------- ------ ------------- ------------- ---------- --------------
<S> <C> <C> <C>
Cary N. Vollintine................... 1997 16,667 -- -- -- 200,000 --
President, Chairman and
Chief Executive Officer
Michael F. Loy....................... 1997 16,667 -- -- -- 100,000 --
Senior Vice President and
Chief Financial Officer
Frank W. Montfort.................... 1997 16,667 -- -- -- 100,000 --
Senior Vice President
of Market Development
Philip deMena........................ 1997 16,667 -- -- -- 100,000 --
Senior Vice President of
Real Estate and Construction
Don A. Palmour....................... 1997 13,889 -- -- -- 50,000 --
Vice President and
Chief Technology Officer
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
36
<PAGE>
- ------------
(1) Represents less than one full year's compensation; pursuant to agreement
between the officer and the Company, no compensation was paid to such
officer until November 21, 1997, the date on which the registration
statement with respect to the Company's initial public offering became
effective.
(2) No Named Officer had "Perquisites and Other Benefits" with a value greater
than the lesser of $50,000 or 10% of reported salary and bonus.
OPTION GRANTS DURING 1997
The following table sets forth certain information concerning options to
purchase Common Stock granted in 1997 to the five individuals named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------
% OF TOTAL
OPTIONS
NUMBER OF GRANTED TO PER SHARE GRANT DATE
OPTIONS EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME GRANTED(1) IN 1997 PRICE(2) DATE(3) VALUE(4)
- ------------------------------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
C. Vollintine........................ 200,000 12.4% $8.00 11/19/07 $ 5.36
M. Loy............................... 100,000 6.2% $8.00 11/19/07 $ 5.36
F. Montfort.......................... 100,000 6.2% $8.00 11/19/07 $ 5.36
P. deMena............................ 100,000 6.2% $8.00 11/19/07 $ 5.36
D. Palmour........................... 50,000 3.1% $8.00 11/19/07 $ 5.36
</TABLE>
- ------------
(1) All options granted and reported in this table vest at the rate of 20% per
year, commencing on the first anniversary of the IPO and are accelerated
upon death, retirement, disability or a change of control as defined in the
Company's 1997 Long-Term Incentive Plan.
(2) Exercise price is equal to the IPO price per share.
(3) Each option will expire at the earlier of ten years from the date of grant
or three months following termination of employment.
(4) Black-Scholes option pricing method has been used to calculate present value
as of date of grant, November 21, 1997. The present value as of the date of
grant, calculated using Black-Scholes method, is based on assumptions about
future interest rates, stock volatility and dividend yield. There is no
assurance that these assumptions will prove to be true in the future. The
actual value, if any, that may be realized by each individual will depend on
the market price of Common Stock on the date of exercise.
AGGREGATED OPTION/SAR EXERCISES DURING 1997 AND OPTION/SAR
VALUES AT DECEMBER 31, 1997
The following table sets forth information with respect to the Named
Officers concerning the exercise of options under the Company's plan during the
last fiscal year and unexercised options and SARs held as of the end of the
fiscal year:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED VALUE DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ON REALIZED ---------------------------- -----------------------------
NAME EXERCISE $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- -------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
C. Vollintine........................... -- $-- -- 200,000 $-- $68,800
M. Loy.................................. -- $-- -- 100,000 $-- $34,400
F. Montfort............................. -- $-- -- 100,000 $-- $34,400
P. deMena............................... -- $-- -- 100,000 $-- $34,400
D. Palmour.............................. -- $-- -- 50,000 $-- $17,200
</TABLE>
- ------------
(1) The value is calculated based on the aggregate amount of the excess of
$8.344 (the average of the high and low prices of Common Stock as reported
in the New York Stock Exchange Composite Transactions report for December
31, 1997) over the relevant exercise price.
37
<PAGE>
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
"LTIP"). The purpose of the LTIP 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
LTIP 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 LTIP 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 LTIP will remain in effect until terminated by the Board of Directors.
The LTIP 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 the IPO, NQSOs to purchase a total of 650,000 shares of
Common Stock were granted to members of management. In addition, at the
consummation of the IPO, options to purchase 956,563 shares were granted to
certain employees of the Founding Companies and 80,000 shares were subsequently
granted to employees of HomeUSA. Each of the foregoing options have an exercise
price of $8.00 per share. These options will vest at the rate of 20% per year,
commencing on the first anniversary of the date of grant, 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 the IPO 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 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.
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
38
<PAGE>
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.
EMPLOYMENT CONTRACTS
Each of Messrs. Vollintine, Loy, Montfort and deMena has entered into an
employment agreement with the Company providing for an annual base salary of
$150,000. Each of Messrs. Palmour, Campbell, and Moseley has entered into an
employment agreement with the Company providing for an annual base salary of
$125,000, $75,000, and $100,000, respectively. Each employment agreement is for
a term of three years, and unless terminated or not renewed by the Company or
not renewed by the emloyee, 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 Messrs. McDonald, Patrick, Shaffer, Fordham, Thompson, Cooper,
Poisso, Berry and Copeland has entered into an employment agreement with his
Founding Company providing for an annual base salary of $150,000. Each
employment agreement is 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company effected the IPO on November 21, 1997. Although the Board of
Directors has formed a Compensation Committee consisting of Messrs. Amonett,
Blosser and Smith, the Compensation Committee did not meet during 1997. The
amount and form of compensation payable to the Chief Executive Officer and the
other Named Officers of the Company during 1997 were established by precedents
set in prior transactions sponsored by Notre. Mr. Harter is the President of
Notre.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
As discussed above, the Compensation Committee did not meet during 1997. In
connection with the IPO, the Company entered into employment agreements with all
of the seven senior members of the management team. Each of Messrs. Vollintine,
Loy, Montfort and deMena has entered into an employment agreement with the
Company providing for an annual base salary of $150,000. Each of Messrs.
Palmour, Campbell, and Moseley has entered into an employment agreement with the
Company providing for an annual base salary of $125,000, $75,000, and $100,000,
respectively. The employment agreements also provide for the payment of
performance bonuses as from time to time determined by the Board. In 1997 there
were no bonuses paid to the executive officers of the Company.
In July 1997, the Board of Directors and the Company's stockholders
approved the Company's 1997 Long-Term Incentive Plan (the "LTIP"). The purpose
of the LTIP is to provide senior management as well as other executive officers,
key employees, consultants and other service providers with additional
incentives by increasing their ownership interests in the Company. Individual
awards under the LTIP may take the form of one or more of: (i) either incentive
stock options ("ISOs") or non-qualified stock options ("NQSOs"); (ii) stock
appreciation rights ("SARs"); (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.
Pursuant to the LTIP, the Company issued options covering an aggregate of
200,000 shares to Mr. Vollintine, 100,000 shares to Mr. Loy, 100,000 shares to
Mr. Monfort, 100,000 shares to Mr. deMena, 50,000 shares to Mr. Palmour, 50,000
shares to Mr. Campbell and 50,000 shares to Mr. Moseley.
39
<PAGE>
This report is furnished by the Compensation Committee of the Board of
Directors.
James J. Blosser: Chairman
Thomas N. Amonett
Stephen F. Smith
SHARE INVESTMENT PERFORMANCE
The following graph reflects a comparison of the cumulative total return
(change in stock price plus reinvested dividends) of the Company's Common Stock
from November 24, 1997, through February 28, 1998, with a peer group of
companies in the manufactured housing industry and the S&P 500 for the same
period. The companies in the peer group include: Cavalier Homes, Inc., Champion
Enterprises, Inc., Clayton Homes, Inc., Fleetwood Enterprises, Inc., Liberty
Homes, Inc., Oakwood Homes Corp., Palm Harbor Homes, Inc., and Skyline Corp. The
data presented assumes a hypothetical investment of $100 in the Company's stock
and in the underlying stocks of the peer group and the index as of November 24,
1997, and that all dividends were reinvested.
COMPARISON OF 3 MONTH CUMULATIVE TOTAL RETURN
AMONG HOMEUSA, INC., THE S & P 500 INDEX AND A PEER GROUP
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
11/24/97 11/97 12/97 1/98 2/98
HomeUSA, Inc. 100 102 103 102 123
Peer Group 100 104 114 114 131
S & P 500 100 99 101 101 109
ASSUMES $100 INVESTED ON NOVEMBER 24, 1997, DIVIDENDS REINVESTED
PERIOD ENDING FEBRUARY 28, 1998
There can be no assurance that the Company's share performance will
continue into the future with the same or similar trends depicted in the graph
above. The Company will not make or endorse any predictions as to future share
performance.
40
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock, as of March 20, 1998 by (i) each person known to
own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each Company 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. See Item 1. Business -- "Recent Developments -- Merger
Agreement with Fleetwood Enterprises" since this arrangement may at a
subsequent date result in a change of control of the Company.
SHARES BENEFICIALLY
OWNED
---------------------
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)............... 430,226 2.8
Michael F. Loy (3)................... 116,250 *
Frank W. Montfort.................... 121,000 *
Philip deMena........................ 110,000 *
Philip E. Campbell................... 55,000 *
Don A. Palmour....................... 50,000 *
Donald D. Moseley.................... 50,000 *
Larry T. Shaffer (4)................. 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 (5)................ 936,058 6.1
Stanley Poisso(6).................... 521,101 3.4
Randle C. Cooper..................... 691,308 4.5
Thomas N. Amonett (7)................ 21,000 *
James J. Blosser (7)................. 30,000 *
Stephen F. Smith (7)................. 30,000 *
All executive officers and directors
as a group (18 persons)............ 8,448,610 54.7
- ------------
* 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 50,000 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 6,250 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 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.
(5) Includes 187,212 shares of Common Stock issued to Kenneth H. Patrick and
Ronald E. Sleeper as Trustees of the Harold K. Patrick Irrevocable Stock
Trust.
(6) Includes 104,220 shares of Common Stock owned equally by three of Mr.
Poisso's adult children. These shares may be deemed to be beneficially owned
by Mr. Poisso.
(7) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan.
41
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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. Notre advanced the funds necessary to effect the Initial
Acquisitions and the IPO. All of Notre's advances were repaid from the net
proceeds of the IPO.
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
became directors of the Company upon consummation of the IPO. The Company also
granted options to purchase 10,000 shares of Common Stock under the Directors'
Plan, effective upon the consummation of the IPO, to Messrs. Amonett, Blosser,
Harter and Smith, who became directors of the Company upon the consummation of
the IPO.
In connection with the IPO, HomeUSA acquired by merger all of the issued
and outstanding stock of the Founding Companies, each of which is now a
wholly-owned subsidiary of the Company. The aggregate consideration paid by
HomeUSA in the Initial Acquisitions consisted of $25.3 million in cash and
7,266,944 shares of Common Stock.
The following table sets forth the consideration paid by HomeUSA for each
of the Founding Companies. These amounts do not include excess operating capital
distributions of $7.2 million or distributions of certain real estate and
non-operating assets and liabilities (dollars in thousands).
SHARES OF
COMPANY CASH COMMON STOCK
- ---------------------------------------- --------- ------------
Universal............................... $ 6,131 2,299,311
AAA Homes............................... 2,745 1,165,901
McDonald................................ 2,216 1,015,074
Patrick................................. 2,496 936,058
Mobile World............................ 1,390 521,101
First American.......................... 768 288,123
Cooper.................................. 1,383 691,308
Home Folks.............................. 663 248,620
Willmax................................. 271 101,448
42
<PAGE>
In connection with the Initial Acquisitions, 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, received 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)..................... $ 6,100 2,271,915
Gary W. Fordham......................... 1,036 600,000
David E. Thompson....................... 1,358 565,901
Frank C. McDonald....................... 1,600 610,416
Harold K. Patrick (2)................... 2,496 936,058
Stanley Poisso (3)...................... 1,390 521,101
Randle C. Cooper........................ 1,383 691,308
- ------------
(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.
(2) Includes 187,212 shares of Common Stock issued to Kenneth H. Patrick
and Ronald E. Sleeper as Trustees of the Harold K. Patrick Irrevocable
Stock Trust.
(3) Includes 104,220 shares of Common Stock owned equally by three of Mr.
Poisso's adult children. These shares may be deemed to be beneficially
owned by Mr. Poisso.
Pursuant to the agreements entered into in connection with the Initial
Acquisitions, the stockholders of the Founding Companies have agreed not to
compete with the Company for five years, commencing on the date of consummation
of the IPO.
LEASES OF REAL PROPERTY BY FOUNDING COMPANIES
The Company leases 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. Shaffer remained President of Universal following the consummation of
the IPO and is a director of the Company. Each of the leases is for an initial
term of five years, expiring in October 2002 and contains one (1) 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 in accordance with the CPI, not to exceed 5% of the rental for the
immediately preceding lease year. The Company pays 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 leases AAA Homes' facilities located in Gulfport, and Pearl
West, Mississippi from A-1 Realty, L.P., a Mississippi limited partnership
controlled by Gary Fordham and David Thompson, who is President and Chief
Operating Officer, respectively, of AAA Homes and who each is a director of the
Company. Each of the leases is for an initial term of ten years, expiring in
October 2007 and contains two (2) 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 5% 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 currently leases McDonald's facilities located in Tulsa and
Muskogee, Oklahoma and Cape Girardeau, Poplar Bluff and Springfield, Missouri
from Frank C. McDonald or an entity controlled by Frank McDonald. Mr. McDonald
remains as President of McDonald and is also a director of the Company. Each of
the leases is for an initial term of ten years, expiring in October 2007, and
contains one (1) five-year
43
<PAGE>
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 the CPI, not to exceed 5% 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 leases Patrick's facilities located in Millington, Tennessee;
Corinth and Como, Mississippi from H&P Development, Inc., a corporation of which
Harold Patrick, who is President of Patrick and who is 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 three (3) three-year renewal
options. Each of the Corinth and Como leases is for an initial term of three
years, expiring in October 2000, and contains four (4) three-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 10% in the case of the
Millington lease, and in the cases of Corinth and Como leases, the rental for
the immediately preceding lease term or renewal period shall be 12% of the fair
market value, as applicable. The Company pays 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 currently leases Mobile World's facilities located in Converse,
Texas and San Antonio, Texas from Stan Poisso, who remains as President of
Mobile World and is also a director of the Company. Each of the leases is for an
initial term of ten years, expiring in October 2007, and contains two (2) five-
year renewal options. The annual rental for each of the initial lease terms
ranges from $48,000 to $60,000, respectively. 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 currently pays 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 currently leases First American's facilities in Dothan, Alabama
from an entity controlled by Joseph R. Copeland. Mr. Copeland remains as
President of First American and is also a director of the Company. The lease is
for a term of ten years, expiring in November 2007, and contains no renewal
options. The annual rent for the lease term is $22,800 with no adjustments. The
Company believes that the economic terms of the lease do not exceed fair market
value.
The Company leases 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. Mr.
Cooper is President of Cooper and is 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 $20,400 to $48,000, respectively. The
location in Moses Lake and one of the Wenatchee locations' rental adjustments
will be made every two years using CPI, not exceeding 5%. The location in Yakima
monthly rent shall increase $100 per year. The location in Okanogan and one of
the Wenatchee locations shall be adjusted to fair market rental values
determined by an independent appraiser at the time of renewal. Rent for one of
the locations in Wenatchee shall increase $500 per month per year for years two
and three; for years four through ten, rent shall be adjusted by the CPI, not to
exceed 5%. The Company pays 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.
The Company currently leases HomeFolks' facilities located in Owensboro,
Kentucky from Dick Berry and one of his immediate family members. Mr. Berry
remains as President of HomeFolks and is also a director of the Company. Each of
the leases is for an initial term of ten years, expiring in October 2007, and
contains two (2) five-year renewal options. The rental for each of the initial
lease terms ranges from $30,000 to $48,000. The rental of the sixth year and for
each renewal period of the leases will be adjusted in accordance with CPI, not
to exceed 5% of the rental for the immediately preceding lease term or renewal
period. The Company believes that the economic terms of the lease do not exceed
fair market value.
44
<PAGE>
The above-described leases of real property are with owners of certain of
the Founding Companies who are officers and/or directors of the Company or their
respective affiliates. Consequently, these transactions have not been negotiated
at arm's length.
OTHER TRANSACTIONS
Mr. McDonald and Mr. Cooper, who are directors of the Company, own
interests in manufactured housing developments in Missouri and Washington,
respectively. The Company has entered 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.
These arrangements between the Company and Mr. McDonald and Mr. Cooper have not
been negotiated at arm's length.
Cooper hires delivery and installation services from Ryan's Trucking, Inc.
("Ryan's"), a company that is solely owned by Eric and Mary Cooper, Randle
Cooper's brother and sister-in-law. For these services, Cooper paid a total of
$27,945 for the year ended December 31, 1997.
First Home United Contractors, Inc., is also owned by Eric and Mary Cooper.
Cooper contracts for various construction services with First Home United
Contractors, Inc. For those services, Cooper paid $32,372 for the year ended
December 31, 1997.
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 1997, Patrick purchased $65,970 of
office supplies from Office Pro.
Bargain Homes, Inc. ("Bargain Homes"), a corporation wholly-owned by Mr.
Poisso, provides trucking services to Mobile World.. In addition, used homes
traded in to Mobile World have been purchased on a wholesale basis by Bargain
Homes, to facilitate the sale, collection and removal of used homes. Total
charges by Bargain Homes for trucking services during 1997 (beginning with the
inception of the arrangement, September 11, 1997) have been $117,160. Bargain
Homes has purchased five (5) used homes from Mobile World for a total purchase
price of $18,000 during 1997.
Bargain Homes purchased tools, equipment, trucks and vehicles from Mobile
World on September 11, 1997 for a total purchase price of approximately
$239,000, and assumed certain liabilities for which the purchased assets were
collateral. The purchase price was determined by reference to net book value at
the purchase date. The net balance due Mobile World at December 31, 1997 was
approximately $73,000.
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 IPO.
INDEBTEDNESS OF MANAGEMENT
In April 1997, Mr. Poisso, who is the President of Mobile World and who is
a director of the Company, borrowed $72,491 from Mobile World on a non-interest
bearing basis. As of December 31, 1997, the entire balance had been repaid to
the Company.
At various times during 1997, Mr. Cooper, or entities of which he is a
controlling person, borrowed amounts from Cooper on an unsecured basis, bearing
interest at the rate of 7% per annum, with no stated maturity date. During 1997,
the largest aggregate outstanding balance was $792,861. As of March 24, 1998,
Mr. Cooper or such entities owed the Company an aggregate of $720,999.
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates
of the Company must be approved in advance by a majority of disinterested
members of the Board of Directors.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
For the financial statements filed as part of this Annual Report
on Form 10-K, refer to "Index to Financial Statements" on page
15.
(2) Financial Statement Schedules
All financial statement schedules are omitted because they are not
required or the required information is shown in the Company's
consolidated financial statements or the notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger with Fleetwood Enterprises, Inc.
*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.
*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
46
<PAGE>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
10.12 -- Form of Employment Agreement between HomeUSA, Inc. and certain executive officers
(Incorporated by reference to Exhibits 10.12 through 10.18, inclusive, to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-35649) (Commission File No.
1-13477))
10.13 -- Form of Founders' Employment Agreement (Incorporated by reference to Exhibit 10.19 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-35649) (Commission
File No. 1-13477))
10.14 -- Form of Agreement among Certain Stockholders (Incorporated by reference to Exhibit 10.20
to the Registrant's Registration Statement on Form S-1 (Registration No. 333-35649)
(Commission File No. 1-13477))
10.15 -- Form of Indemnity Agreement with Notre Capital Ventures II, L.L.C. (Incorporated by
reference to Exhibit 10.21 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-35649) (Commission File No. 1-13477))
10.16 -- Form of Indemnity Agreement with directors and officers
10.17 -- Credit Agreement dated as of February 16, 1998 between HomeUSA, Inc., as borrower and
First Chicago Capital Markets, Inc., as Lender
21.1 -- List of subsidiaries of HomeUSA, Inc.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Coopers & Lybrand L.L.P.
27 -- Financial Data Schedule
99.1 -- Audited financial statements of the Founding Companies.
- ------------
</TABLE>
* Incorporated by reference to exhibits of like designation to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-35649) (Commission
File No. 1-13477)
Filed herewith.
(b) Reports filed on Form 8-K
None
47
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED ON THE 30TH DAY OF
MARCH, 1998.
HOMEUSA, INC.
By: /s/ CARY N. VOLLINTINE
CARY N. VOLLINTINE
PRESIDENT, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------------------------------ ------------------------------------- ---------------
<S> <C> <S> <C>
/s/CARY N. VOLLINTINE President, Chairman and Chief March 24, 1998
CARY N. VOLLINTINE Executive Officer
/s/MICHAEL F. LOY Senior Vice President, Chief March 24, 1998
MICHAEL F. LOY Financial Officer and Director
(Principal Financial Officer)
/s/LARRY T. SHAFFER Director March 27, 1998
LARRY T. SHAFFER
/s/GARY W. FORDHAM Director March 30, 1998
GARY W. FORDHAM
/s/DAVID E. THOMPSON Director March 24, 1998
DAVID E. THOMPSON
/s/FRANK C. McDONALD Director March 26, 1998
FRANK C. MCDONALD
/s/HAROLD K. PATRICK Director March 27, 1998
HAROLD K. PATRICK
Director
STANLEY POISSO
/s/STEVEN S. HARTER Director March 24, 1998
STEVEN S. HARTER
/s/THOMAS N. AMONETT Director March 30, 1998
THOMAS N. AMONETT
/s/JAMES J. BLOSSER Director March 24, 1998
JAMES J. BLOSSER
/s/STEPHEN F. SMITH Director March 24, 1998
STEPHEN F. SMITH
/s/RANDLE C. COOPER Director March 24, 1998
RANDLE C. COOPER
</TABLE>
48
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<S> <S>
2.1 -- Agreement and Plan of Merger with Fleetwood Enterprises, Inc.
*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.
*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 certain executive officers
(Incorporated by reference to Exhibits 10.12 through 10.18, inclusive, to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-35649) (Commission File No.
1-13477))
10.13 -- Form of Founders' Employment Agreement (Incorporated by reference to Exhibit 10.19 to the
Registrant's Registration Statement on Form S-1 (Registration No. 333-35649) (Commission
File No. 1-13477))
10.14 -- Form of Agreement among Certain Stockholders (Incorporated by reference to Exhibit 10.20
to the Registrant's Registration Statement on Form S-1 (Registration No. 333-35649)
(Commission File No. 1-13477))
10.15 -- Form of Indemnity Agreement with Notre Capital Ventures II, L.L.C. (Incorporated by
reference to Exhibit 10.21 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-35649) (Commission File No. 1-13477))
10.16 -- Form of Indemnity Agreement with directors and officers
<PAGE>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
10.17 -- Credit Agreement dated as of February 16, 1998 between HomeUSA, Inc., as borrower and
First Chicago Capital Markets, Inc., as Lender
21.1 -- List of subsidiaries of HomeUSA, Inc.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Coopers & Lybrand L.L.P.
27 -- Financial Data Schedule
99.1 -- Audited financial statements of the Founding Companies.
</TABLE>
- ------------
* Incorporated by reference to exhibits of like designation to the Registrant's
Registration Statement on Form S-1 (Registration No. 333-35649) (Commission
File No. 1-13477)
Filed herewith.
(b) Reports filed on Form 8-K
None
EXHIBIT 2.1
[CONFORMED COPY]
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 17, 1998
AMONG
FLEETWOOD ENTERPRISES, INC.,
HUSA ACQUISITION COMPANY,
AND
HOMEUSA, INC.
================================================================================
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of February 17,
1998, among Fleetwood Enterprises, Inc., a Delaware corporation ("Parent"), HUSA
Acquisition Company, a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and HomeUSA, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company, and Parent acting as the sole stockholder of Sub, have approved the
merger of the Company with and into Sub (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement, pursuant to which each
issued and outstanding share of the Company's Stock, par value $.0 I per share
and each issued and outstanding share of the Company's Restricted Voting Common
Stock, par value $.01 per share (collectively, the "Company Common Stock"),
other than shares owned directly or indirectly by Parent or the Company, will be
converted into the right to receive the Merger Consideration (as defined in
Section 2.01(a)); and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code");
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"), the Company shall be merged with and into Sub at the Effective Time (as
defined in Section .03). Following the Effective Time, the separate corporate
existence of the Company shall cease and Sub shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of the Company in accordance with the DGCL.
(b) At the election of Parent, any direct wholly owned subsidiary
of Parent may be substituted for Sub as a constituent corporation in the Merger.
In such event, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such substitution.
<PAGE>
SECTION 1.02. CLOSING. The closing of the Merger (the "Closing") will
take place at 10:00 a.m. on Friday May 29, 1998 or (subject to the prior
satisfaction or waiver of the conditions set forth in Sections 6.01, 6.02 and
6.03) thereafter no later than the second business day after the day on which
the conditions set forth in Section 6.01 have been satisfied or waived, at the
offices of Gibson, Dunn & Crutcher LLP, 4 Park Plaza, ,Irvine, California 92614,
unless another time, date or place is agreed to in writing by the parties
hereto. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
SECTION 1.03. EFFECTIVE TIME. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL and shall make all other filings or recordings required
under the DGCL to effectuate fully the Merger. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Delaware
Secretary of State, or at such other time as Sub and the Company shall agree
should be specified in the Certificate of Merger (the time the Merger becomes
effective being hereinafter referred to as the "Effective Time").
SECTION 1.04. EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in Section 259 of the DGCL.
SECTION 1.05. CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The certificate of incorporation of Sub as in effect at the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law; PROVIDED that Article One of the certificate of incorporation of
the Surviving Corporation shall be amended in its entirety to read as follows:
"The name of the corporation is HomeUSA, Inc."
(b) The by-laws of Sub as in effect at the Effective Time shall
be the by-laws of the Surviving Corporation, until thereafter changed or amended
as provided therein or by applicable law.
SECTION 1.06. DIRECTORS. The directors of Sub, immediately prior to the
Effective Time shall become the directors of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly appointed or elected, as the case may be, in accordance with the
certificate of incorporation of the Surviving Corporation and applicable law.
SECTION 1.07. OFFICERS. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly appointed or elected and qualified, as the case may be, in accordance with
the certificate of incorporation of the Surviving Corporation and applicable
law.
3
<PAGE>
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS EXCHANGE OF CERTIFICATES
SECTION 2.01. CONVERSION OF STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Sub, the Company or the
holders of any of the following securities:
(a) Subject to the election and allocation provisions set forth
below, each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (excluding any treasury shares and shares held
directly or indirectly by Parent) shall be converted into:
(i) the right to receive a number of shares of Parent's
Common Stock, $1.00 par value, including associated Parent Rights (as defined in
Section 3.02(c)) ("Parent Common Stock"), equal to the quotient (calculated to
the nearest 0.0001) of $10.25 (the "Per Share Cash Amount") divided by the
Valuation Period Stock Price (the "Exchange Ratio"); or
(ii) the right to receive in cash, without interest, the Per
Share Cash Amount;
PROVIDED, HOWEVER, that, in any event, if between the date of this
Agreement and the Effective Time the outstanding shares of Parent Common Stock
or Company Common Stock shall have been changed into a different number of
shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
the Exchange Ratio and the Per Share Cash Amount shall be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares. The "Valuation
Period Stock Price" means the average of the NYSE (as defined in Section 6.0l)
closing sale prices for the Parent Common Stock (as reported in THE WALL STREET
JOURNAL or, in the absence thereof, by another authoritative source) for the ten
consecutive trading-day period ending on the tenth day immediately prior to the
anticipated Closing Date.
Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (excluding any treasury shares and shares held
directly or indirectly by Parent) shall at the Effective Time no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each certificate previously evidencing any such shares
("Certificates") shall thereafter represent the right to receive only the Merger
Consideration. The holders of Certificates shall cease to have any rights with
respect to the shares of Company Common Stock previously represented thereby,
except as otherwise provided herein or by law. Such certificates previously
evidencing such shares of Company Common Stock shall be exchanged for (A)
certificates evidencing whole shares of Parent Common Stock issued in
consideration therefor or (B) the Per Share Cash Amount multiplied by the number
of shares previously evidenced by the canceled Certificate or (C) a combination
of such certificates and cash, in each case in accordance with the allocation
procedures of this Section 2.01 and upon the surrender of such Certificates in
accordance with the provisions of Section 2.02, without interest.
4
<PAGE>
No fractional shares of Parent Common Stock shall be issued and, in lieu
thereof, a cash payment shall be made pursuant to Section 2.02(e).
The consideration provided for in this Section 2.01(a) in exchange for
each share of Company Common Stock is referred to herein as the "Merger
Consideration" and the aggregate of such consideration provided in exchange for
all shares of Company Common Stock is referred to herein as the "Aggregate
Merger Consideration."
(b) Election forms in such form as Parent and the Company shall
mutually agree (each a "Form of Election") and a Letter of Transmittal (as
defined in Section 2.02(b)) shall be mailed 30 days prior to the anticipated
Effective Time, or such other date as Parent and the Company shall agree (the
"Mailing Date"), to each holder of record of Company Common Stock as of five
business days prior to the Mailing Date (the "Election Form Record Date"). Each
Election Form shall permit the holder (or the beneficial owner through
appropriate and customary documentation and instructions) to choose to receive
(subject to the allocation and proration procedures set forth below) one of the
following in exchange for such holder's shares of Company Common Stock: (i) only
cash (a "Cash Election"), (ii) only Parent Common Stock (a "Stock Election") or
(iii) the Mixed Consideration (a "Mixed Election"). Alternatively, each Election
Form will permit the holder to indicate that such holder has no preference as to
the receipt of cash or Parent Common Stock for such holder's shares of Company
Common Stock (a "Non-Election"). No Company director or former principal
stockholder of the Founding Companies (as defined in the Company S-1) shall be
entitled to elect to receive more than 25% of his Merger Consideration in cash.
Holders of record of shares of Company Common Stock who hold such shares as
nominees, trustees or in other representative capacities (a "Representative")
may submit multiple Forms of Election, provided that such Representative
certifies that each such Form of Election covers all the shares of Company
Common Stock held by each Representative for a particular beneficial owner.
Any Company Common Stock (excluding any treasury shares and
shares held directly or indirectly by Parent) with respect to which the holder
(or the beneficial owner, as the case may be) shall not have submitted to the
Exchange Agent an effective, properly completed Election Form on or before 5:00
p.m. (New York City time) on the 25th day following the Mailing Date (or such
other time and date as Parent and the Company may mutually agree) (the "Election
Deadline") shall be deemed to be shares of Company Common Stock with respect to
which a Non-Election has been made.
Parent shall make available (or shall cause the Exchange Agent to
make available) one or more separate Election Forms to all persons who become
holders (or beneficial owners) of Company Common Stock between the Election Form
Record Date and the close of business on the business day prior to the Election
Deadline upon such holder's request to the Exchange Agent, and the Company shall
provide to the Exchange Agent all information reasonably necessary for it to
perform as specified herein.
Any such election shall have been properly made only if the
Exchange Agent shall have actually received a properly completed Election Form
by the Election Deadline. An Election Form shall be deemed properly completed
only if accompanied by one or more Certificates (or
5
<PAGE>
affidavits and indemnification regarding the loss or destruction of such
Certificates reasonably acceptable to Parent or the guaranteed delivery of such
Certificates) representing all shares of Company Common Stock covered by such
Election Form, together with a duly executed Letter of Transmittal. Any Election
Form may be revoked or changed by the person submitting such Election Form at or
prior to the Election Deadline. In the event an Election Form is revoked prior
to the Election Deadline, the shares of Company Common Stock represented by such
Election Form shall be deemed to be shares covered by a Non-Election (unless
thereafter covered by a duly completed Election Form) and Parent shall cause the
Certificates to be promptly returned without charge to the person submitting the
Election Form upon written request to that effect from such person.
Parent will have the discretion, which it may delegate in whole
or in part to the Exchange Agent, to determine whether Forms of Election have
been properly completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. If Parent (or the Exchange Agent) shall
determine that any purported Cash Election or Stock Election was not properly
made, such purported Cash Election or Stock Election shall have no force and
effect and the holder making such purported Cash Election or Stock Election
shall for purposes hereof be deemed to have made a Non-Election. The decision of
Parent (or the Exchange Agent) in all such matters shall be conclusive and
binding. Neither Parent nor the Exchange Agent will be under any obligation to
notify any person of any defect in a Form of Election submitted to the Exchange
Agent. The Exchange Agent shall also make all computations contemplated by this
Section 2.01 and all such computations shall be conclusive and binding on the
holders of Company Common Stock.
(c) If the sum of the aggregate number of shares covered by Cash
Elections (the "Cash Election Shares") and the aggregate number of such shares
covered by Mixed Elections to be acquired for cash (the "Mixed Election Cash
Shares") times the Per Share Cash Amount exceeds 49% (or such lesser percentage
as may be permissible to permit the reorganization tax treatment provided for
herein) of the Aggregate Merger Consideration (the "Maximum Cash Merger
Consideration"), then:
(i) all shares of Company Common Stock covered by Stock
Elections (the "Stock Election Shares") and all shares of Company Common Stock
covered by Non-Elections (the "Non-Election Shares") shall be converted into the
right to ;receive Parent Common Stock; and
(ii) each Cash Election Share and each Mixed Election Cash
Share shall be converted into the right to receive (A) a pro-rated cash portion
of the Per Share Cash Amount such that the aggregate cash payments do not exceed
the Maximum Cash Merger Consideration and (B) the balance of the Per Share Cash
Amount in Parent Common Stock at the Exchange Ratio;
(d) Each share of Company Common Stock held in the treasury of
the Company and each share of Company Common Stock owned by Parent or any direct
or indirect wholly owned subsidiary of Parent or of the Company immediately
prior to the Effective Time
6
<PAGE>
shall be canceled and extinguished without any conversion thereof and no payment
shall be made with respect thereto.
(e) Each issued and outstanding share of capital stock of Sub
shall continue as a validly issued, fully paid and nonassessable share of common
stock, par value of $.0l per share, of the Surviving Corporation Each
certificate representing any such shares of Sub shall continue to represent the
same number of shares of common stock of the Surviving Corporation.
SECTION 2.02. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, Parent shall
deposit with such bank or trust company as may be designated by Parent (the
"Exchange Agent"), for the benefit of the holders of shares of Company Common
Stock, for exchange in accordance with this Article II, through the Exchange
Agent, (i) certificates representing the shares of Parent Common Stock issuable
pursuant to Section 2.01 in exchange for outstanding shares of Company Common
Stock and (ii) cash in the amount sufficient to pay the cash portion of the
Aggregate Merger Consideration (such shares and cash consideration, together
with any dividends or distributions with respect thereto with a record date on
or after the day on which the Effective Time occurs and any cash payable in lieu
of any fractional shares of Parent Common Stock being hereinafter referred to as
the "Exchange Fund").
(b) EXCHANGE PROCEDURES. No later than the business day after the
Effective Time, the Exchange Agent shall mail or, if requested, deliver to each
holder of record of a Certificate or Certificates immediately prior to the
Effective Time, whose shares were converted into the right to receive the Merger
Consideration pursuant to Section 2 01, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration (collectively, the
"Letter of Transmittal"), unless such record holder shall have submitted a
Letter of transmittal together with the Form of Election pursuant to Section
2.01(c). Upon the later of the Effective Time and the surrender of a Certificate
for cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Exchange Agent,
the holder of such Certificate shall be entitled to receive in exchange therefor
(x) a certificate representing that number of whole shares of Parent Common
Stock and (y) a certified or bank cashier's check in the amount equal to the
cash, which such holder has the right to receive pursuant to the provisions of
this Article II (in each case, less the amount of any withholding taxes required
under applicable law), and the Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Company Common Stock which
is not registered in the transfer records of the Company, a certificate
representing the proper number of shares of Parent Common Stock may be issued to
a person (as defined in Section 8.03) other than the person in whose name the
Certificate so surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
issuance of shares of Parent Common Stock to a person other than the registered
holder of such Certificate or establish to the
7
<PAGE>
satisfaction of Parent that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.02(b), each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration and any cash in lieu of a
fractional share of Parent Common Stock which the holder thereof has the right
to receive in respect of such Certificate pursuant to this Article II. No
interest will be paid or will accrue on any cash payable to holders of
Certificates pursuant to this Article II.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.
Notwithstanding any other provisions of this Agreement, no dividends or other
distributions with respect to shares of Parent Common Stock with a record date
on or after the day on which the Effective Time occurs shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby, and no cash in lieu of a fractional share of
Parent Common Stock shall be paid to any such holder pursuant to this Article
II, and all such dividends, other distributions and cash in lieu of any
fractional share of Parent Common Stock shall be paid by Parent to the Exchange
Agent (less the amount of any required withholding taxes) and shall be included
in the Exchange Fund, in each case until the surrender of such Certificate in
accordance with this Article II. Following surrender of any such Certificate,
there shall be issued or paid, as applicable, to the holder thereof (i) at the
time of such surrender, (x) a certificate representing whole shares of Parent
Common Stock issued in exchange therefor, (y) the cash portion of the Merger
Consideration and any cash payable in lieu of a fractional share of Parent
Common Stock to which such holder is entitled pursuant to this Article II and
(z) the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock (in each case, without interest and less the amount of any required
withholding taxes); and (ii)) at the appropriate payment date, the amount of any
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole shares of Parent Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of Parent Common Stock issued and cash paid upon the surrender for
exchange of Certificates in accordance with this Article II shall be deemed to
have been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Company Common Stock theretofore represented by such Certificates,
SUBJECT, HOWEVER, to the Surviving Corporation's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
which may have been declared or made by the Company on such shares of Company
Common Stock in accordance with the terms of this Agreement or prior to the date
of this Agreement and which remain unpaid at the Effective Time, and there shall
be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. Subject to applicable law,
Certificates presented after the Effective Time to the Surviving Corporation or
the Exchange Agent for any reason shall be canceled and exchanged as provided in
this Article II.
8
<PAGE>
(e) NO FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional shares
of Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution of Parent shall relate to such
fractional share interests and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of Parent
(ii) Notwithstanding any other provision of this Agreement,
each holder of record of shares of Company Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of Parent Common Stock (after taking into account all Certificates
delivered by such holder of record) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Parent Common Stock multiplied by the closing sales price of one share of Parent
Common Stock on the NYSE Composite Transactions List (as reported by THE WALL
STREET JOURNAL or, if not reported thereby, any other authoritative source) on
the trading day immediately preceding the Closing Date.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange
Fund which remains undistributed to the holders of Certificates for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Certificates who have not theretofore complied with this Article II
shall thereafter look only to Parent for payment of their claim for the Merger
Consideration and any cash in lieu of fractional shares or other dividends or
distributions payable to such holders pursuant to this Article II, in each case
without interest thereon.
(g) NO LIABILITY. None of Parent, Sub, the Company and the
Exchange Agent shall be liable to any person in respect of any shares of Parent
Common Stock (or any dividends or distributions with respect thereto or with
respect to any shares of Company Common Stock theretofore represented by any
Certificate) or any cash from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificate shall not have been surrendered prior to the date on which any
Merger Consideration or any cash in lieu of a fractional share of Parent Common
Stock or other dividends or distributions payable to the holder of such
Certificate pursuant to this Article II would otherwise escheat to or become the
property of any Governmental Entity (as defined in Section 3.01(e)), any such
Merger Consideration or cash or other dividends or distributions shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interests of any person previously
entitled thereto.
(h) LOST, STOLEN AND DESTROYED CERTIFICATES. If any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by Parent, the posting by such person of a bond in
such reasonable amount as Parent may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration, cash in lieu of a fractional share of Parent Common Stock, and
unpaid dividends and distributions on shares of Parent Common Stock as provided
in this Article [I, deliverable in respect thereof pursuant to this Agreement
9
<PAGE>
(i) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall
invest any cash included in the Exchange Fund in U. S. government securities, as
directed by Parent, on a daily basis. Any interest and other income resulting
from such investments shall be paid to Parent.
SECTION 2.03. NO APPRAISAL RIGHTS. The holders of Company Common Stock
shall not be entitled to appraisal rights in connection with the Merger.
SECTION 2.04. STOCK OPTIONS. At the Effective Time and subject to
Section 5.12, each option granted by the Company to purchase shares of the
Company's stock (each, a "Company Option") which is outstanding immediately
prior thereto shall cease to represent a right to acquire shares of Company
Common Stock and shall be converted automatically ally into an option (the
"Exchanged Option") to purchase shares of Parent Common Stock exercisable until
the current termination of the Company Option in an amount and at an exercise
price determined as provided below (and subject to the terms of the Company's
997 Long-Term Incentive Plan and 1997 Non-Employee Directors' Stock Plan (the
"Company Stock Plans") and the agreements evidencing such grants, in the case of
the directors and executive officers of the Company other than accelerated
vesting of any such options which otherwise would occur by virtue of the
consummation of the Merger under such plans and agreements):
(a) The number of shares of Parent Common Stock to be subject to
the converted options shall be equal to the product of the number of shares of
Company Common Stock subject to the original options and the Exchange Ratio,
provided that any fractional shares of Parent Common Stock resulting from such
multiplication shall be rounded down to the nearest share; and
(b) The exercise price per share of Parent Common Stock under the
converted option shall be equal to the exercise price per share of Company
Common Stock under the original option divided by the Exchange Ratio, provided
that such exercise price shall be rounded out to the nearest cent.
(c) Parent shall (i) reserve for issuance the number of shares of
Parent Common Stock that will become issuable upon the exercise of the Exchanged
Options and (ii) promptly after the Effective Time, issue to each holder of an
Exchanged Option a document evidencing Parent's assumption of the Company's
obligations under the Company Options. The Exchanged Options shall have the same
terms and conditions as the Company Options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
set forth on the Disclosure Schedule delivered by the Company to Parent at or
prior to the execution and delivery of this Agreement (the "Company Disclosure
Schedule") or as disclosed in the Company SEC Documents (as defined in Section
3.01(f)) filed and publicly available prior to the date of this
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Agreement (the "Filed Company SEC Documents"), the Company represents and
warrants to Parent and Sub as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the
Company and its Significant Subsidiaries (as defined in Section 8.03) is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each of the Company and its Significant Subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, except jurisdictions where the
failure to be so qualified or licensed or to be in good standing individually or
in the aggregate would not have a material adverse effect (as defined in Section
8.03) on the Company. The Company has delivered to Parent prior to the execution
and delivery of this Agreement complete and correct copies of its certificate of
incorporation and by-laws.
(b) SUBSIDIARIES. Paragraph (b) of the Company Disclosure
Schedule sets forth a true and complete list of each equity investment made by
the Company or any of its subsidiaries in any other person other than the
Company's Significant Subsidiaries ("Other Interests"). All the outstanding
shares of capital stock of each subsidiary of the Company have been validly
issued and are fully paid and nonassessable and are owned by the Company, by
another subsidiary of the Company or by the Company and another such subsidiary,
free and clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens"). Any Other
Interests are owned by the Company, by one or more of the Company's subsidiaries
or by the Company and one or more of its subsidiaries, in each case free and
clear of all Liens, except for Liens created by any partnership agreements for
Other Interests.
(c) CAPITAL STRUCTURE.
(i) The authorized capital stock of the Company consists of
5,000,000 shares of Company preferred stock, $0.01 par value (the "Company
Preferred Stock"), 100,000,000 shares of Company Common Stock and 5,000,000
shares of restricted common stock, $0.01 par value (the "Restricted Company
Common Stock"). At the close of business on February 13,1998, (i) no shares of
Company Preferred Stock were issued and outstanding, (ii) l3,723,064 shares of
Company Common Stock were issued and outstanding, (iii) 1,718,823 shares of
Restricted Company Common Stock were issued and outstanding, (iv) no shares of
Company Preferred Stock, Company Common Stock or Restricted Company Common Stock
were held by the Company in its treasury or by subsidiaries of the Company, and
(v) 1,642,483 shares of Company Common Stock were reserved for issuance pursuant
to the Company Stock plans (as defined in Section 2.04). Except as set forth
above, at the close of business on February 13, 1998, no shares of capital stock
or other voting securities of the Company were issued, reserved for issuance or
outstanding. From February 13, 1998 to the date of this Agreement, no shares of
capital stock or other voting securities of the Company have been issued except
shares of Company Common Stock pursuant to the Company Stock Plans. There are no
outstanding stock appreciation rights or rights (other than the Company Options
(as defined in Section 2.04)) to receive shares of Company Common Stock on a
deferred basis granted under the Company Stock Plans or otherwise. The aggregate
number of shares of Company Common Stock subject
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to issuance upon exercise of all Company Options does not exceed the aggregate
number of shares specified for issuance upon exercise of all Company Options in
paragraph 3.01(c) of the Company Disclosure Schedule. Except as set forth
herein, there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind, to which the
Company is a party or by which it is bound, obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of the Company, or obligating the
Company to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
(ii) All outstanding shares of capital stock of the Company
are, and all shares which may be issued pursuant to the Company Stock Plans will
be when issued, duly authorized, validly issued, frilly paid and nonassessable
and not subject to preemptive rights. There are no bonds, debentures, notes or
other indebtedness of the Company having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which stockholders of the Company may vote. Paragraph 3.01(c) of the Company
Disclosure Schedule sets forth a complete and correct list, as of the date
hereof, of all holders of Company Options and the exercise prices thereof.
(iii) There are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind, to which any Significant Subsidiary of the Company is bound, obligating
such Significant Subsidiary to issue, deliver, sell, or cause to be issued
delivered or sold, additional shares of capital stock or other voting securities
of such Significant Subsidiary, or obligating such Significant Subsidiary to
issue, grant, extend or enter into any such security, option, warrant, call,
right commitment, agreement, arrangement or undertaking.
(iv) There are no outstanding contractual obligations of the
Company or any of its Significant Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
Significant Subsidiaries. There are no outstanding contractual obligations of
the Company to vote or to dispose of any shares of the capital stock of any of
its Significant Subsidiaries.
(d) CORPORATE AUTHORITY RECOMMENDATION NONCONTRAVENTION. The
Company has all requisite corporate power and authority to enter into this
Agreement and, subject to the Company Stockholder Approval (as defined in
Section 3 .01(k)) with respect to the Merger, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate action on
the part of the Company subject, in the case of the Merger, to the Company
Stockholder Approval. The Board of Directors of the Company has resolved to
recommend that the stockholders of the Company approve and adopt this Agreement
and the Merger. This Agreement has been duly executed and delivered by the
.Company and, assuming the due authorization, execution and delivery thereof by
Parent and Sub, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by general principles of equity or principles
applicable to
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creditors' rights generally. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with, or
result in any violation of, or default (after notice or lapse of time or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of the Company or any of its
subsidiaries under, (i) the certificate of incorporation or by-laws of the
Company or the comparable charter or organizational documents of any of its
Significant Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Company or any of its subsidiaries or any
of their respective properties or assets or (iii) subject to the governmental
filings and other consents and matters referred to in Section 3.01(e), any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its subsidiaries or any of their respective properties
or assets, other than, in the case of clauses (ii) and (iii), any such
conflicts, violations, defaults, rights, losses or Liens that, individually or
in the aggregate, would not (x) have a material adverse effect on the Company or
(y) prevent the consummation of any of the transactions contemplated by this
Agreement.
(e) GOVERNMENTAL AUTHORIZATION. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency (each a "Governmental
Entity") is required by or with respect to the Company or any of its
subsidiaries in connection with the execution and delivery of this Agreement by
the Company or the consummation of the transactions contemplated by this
Agreement, except for (i) the filing of a premerger notification and report form
by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder (the "HSR
Act"); (ii) the filing with the Securities and Exchange Commission (the "SEC")
of (x) a proxy statement (such proxy statement, as amended or supplemented from
time to time, the "Proxy Statement") relating to the Company Stockholders
Meeting (as defined in Section 5.01(b)) which shall also constitute a prospectus
of Parent relating to the shares of Parent Common Stock to be issued in the
Merger, and (y) such reports under Section 13(a) and Section 16 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), as may be required in connection
with this Agreement and the transactions contemplated by this Agreement; (iii)
the filing of the Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business; (iv) such filings with Governmental
Entities as may be required to satisfy the applicable requirements of state
securities or "blue sky" laws in connection with the transactions contemplated
by this Agreement; and (v) such other consents, approvals, orders,
authorizations, regulations, declarations or filings, the failure of which to
obtain or make would not have a material adverse effect on the Company.
(f) SEC DOCUMENTS: UNDISCLOSED LIABILITIES. The Company has filed
with the SEC the Company's registration statement on Form S-1 (the "Company
S-1"), which became effective on November 20, 1997 (the "S-1 Effective Date"),
and all required reports, schedules, forms, statements and other documents since
the S-1 Effective Date (together with such Form S-1 registration statement, the
"Company SEC Documents"). None of the Company's subsidiaries is
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required to file with the SEC any report, form or other document. As of their
respective dates, the Company SEC Documents complied as to form in all material
respects with the requirements of the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "Securities Act"), or the
Exchange Act, as the case may be, and none of the Company SEC Documents when
filed contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the Company
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, as permitted
by the rules and regulations of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present, in all material respects, the consolidated financial position of
the Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the Filed Company SEC Documents, and except
for liabilities and obligations incurred since the Balance Sheet Date in the
ordinary course of business consistent with past practice, as of the date of
this Agreement, neither the Company nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by generally accepted accounting principles to be
recognized or disclosed on a consolidated balance sheet of the Company and its
consolidated subsidiaries or in the notes thereto and which, individually or in
the aggregate, would have a material adverse effect on the Company.
(g) INFORMATION SUPPLIED. None of the information to be supplied
by the Company specifically for inclusion or incorporation by reference in (i)
the registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger (the
"Form S-4") will, at the time the Form S-4 is filed with the SEC, at any time it
is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Proxy Statement will, at the date
it is first mailed to the Company's stockholders or at the time of the Company
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied by Parent or Sub specifically for inclusion or
incorporation by reference in the Proxy Statement.
(h) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as contemplated
by this Agreement, since September 30, 1997 (the "Balance Sheet Date"), the
Company has conducted its business only in the ordinary course, and there has
not been (i) any material adverse change (as defined in Section 8.03) in the
Company, other than changes relating to or arising from legislative or
regulatory changes or developments generally affecting the retailing of
manufactured housing
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or general economic conditions, (ii) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to any of the Company's capital stock, (iii) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (iv) (x) any granting by the
Company or any of its subsidiaries to any executive officer or other key
employee of the Company or any of its Significant Subsidiaries of any increase
in compensation (except for normal increases in the ordinary course of business
consistent with past practice or as required under any employment agreement in
effect as of December 31, 1997) or (y) any granting by the Company or any of its
subsidiaries to any such executive officer or key employee of any increase in
severance or termination pay (except as was required under any employment,
severance or termination agreement in effect as of December 31, 1997), (v) any
damage, destruction or loss, whether or not covered by insurance, that has had
or would have a material adverse effect on the Company, or (vi) except as
required by a change in generally accepted accounting principles, any change in
accounting methods, principles or practices by the Company materially affecting
the basis of presenting or method of determining its results of operations,
assets, liabilities or businesses.
(i) LITIGATION. There is no suit, action or proceeding pending,
and the Company has not received written notification threatening any suit,
action or proceeding, against or affecting the Company or any of its
subsidiaries that individually or in the aggregate would (i) have a material
adverse effect on the Company or (ii) prevent the consummation of any of the
transactions contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company or any of its subsidiaries having any effect referred to in
.clause (i) or (ii) of this sentence.
(j) ERISA AND OTHER COMPENSATION MATTERS.
(i) Except as will not have a material adverse effect on the
Company, all employee benefit plans ("Plans") covering employees or former
employees of the Company or any of its subsidiaries ("Company Employees") have
been administered according to their terms and, to the extent subject to the
Employee Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder ("ERISA"), are in compliance with ERISA.
Except as will not have a material adverse effect on the Company, each Plan
which is an "employee pension benefit plan" within the meaning of Section 3(2)
of ERISA ("Company Pension Plan") and which is intended to be qualified under
Section 401(a) of the Code, has received a favorable determination letter from
the Internal Revenue Service (the "Service"), and the Company is not aware of
any circumstances likely to result in revocation of any such favorable
determination letter. Neither the Company nor any of its subsidiaries or Company
ERISA Affiliates (as defined below) has engaged in a transaction with respect to
any Company Plan that, assuming the taxable period of such transaction expired
as of the date hereof, could subject the Company or any of its subsidiaries or
Company ERISA Affiliates to a tax or penalty imposed by either Section 4975 of
the Code or Section 502(i) of ERISA which would have a material adverse effect
on the Company. Neither the Company nor any of its subsidiaries or any Company
ERISA Affiliates has contributed or been required to contribute to any
multi-employer plan.
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(ii) No liability under Subtitles C or D of Title IV of ERISA
has been or is expected to be incurred by the Company or any of its subsidiaries
or Company ERISA Affiliates with respect to any ongoing, frozen or terminated
Plan, currently or formerly maintained by any of them, or the Plan of any person
which is considered one employer with the Company under Section 4001 of ERISA or
Section 414 of the Code (a "Company ERISA Affiliate") which would have a
material adverse effect on the Company.
(iii) All contributions required to be made and all
contributions accrued as of the Balance Sheet Date under the terms of any Plan
for which the Company or any of its subsidiaries or ERISA Affiliates may have
liability have been timely made or have been reflected on the most recent
audited balance sheet included in the Filed Company SEC Documents. Neither any
Company Pension Plan nor any single-employer plan of the Company or any of its
subsidiaries or Company ERISA Affiliates has incurred an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA which would have a material adverse effect on the
Company. Neither the Company nor any of its subsidiaries has provided, or is
required to provide, security to any Company Pension Plan or to any Plan of a
Company ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(iv) Neither the Company nor any of its subsidiaries has any
obligations for retiree health and life benefits under any Plan, except as set
forth in the Company Disclosure Schedule, which would have a material adverse
effect on the Company.
(v) The execution and delivery of this Agreement do not, and
the performance of the transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any of the Company's Compensation and Benefit Plans
that will or may result in any payment (whether of severance or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee of the
Company or any of its subsidiaries or Company ERISA Affiliates which would have
a material adverse effect on the Company.
(vi) There is no contract, agreement, plan or arrangement
covering any employee or former employee of the Company or any of its
subsidiaries or Company ERISA Affiliates that, individually or collectively,
could give rise as a result of the transactions contemplated by this Agreement
to the payment of any amount that would not be deductible pursuant to the terms
of Section 162(a)(l) or 280G of the Code.
(vii) There has been no amendment to, written interpretation
or announcement (whether or not written) by the Company or any of its
subsidiaries or Company ERISA Affiliates relating to, or change in employee
participation or coverage under, any of the Company's Compensation and Benefit
Plans which would increase materially above the level of the expense incurred in
respect thereof for the fiscal year ended on the Balance Sheet Date.
(k) VOTING REQUIREMENTS. The affirmative vote at the Company
Stockholders Meeting of the holders of a majority of the votes represented by
the outstanding Company Common Stock (the "Company Stockholder Approval") is the
only vote of the holders of any
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class or series of the Company's capital stock necessary to approve and adopt
this Agreement and the transactions contemplated by this Agreement.
(l) STATE TAKEOVER STATUTES. The Board of Directors of the
Company has approved the terms of this Agreement and the consummation of the
Merger and the other transactions contemplated by this Agreement, and such
approval is sufficient to render inapplicable to the Merger and the other
transactions contemplated by this Agreement and the Company Stockholder
Agreement the provisions of Section 203 of the DGCL. To the knowledge of the
Company, no other state takeover statute or similar statute or regulation
applies or purports to apply to the Merger, this Agreement, the Company
Stockholder Agreement or any of the transactions contemplated by this Agreement
and no provision of the certificate of incorporation, by-laws or other governing
documents of the Company or any of its Significant Subsidiaries would, directly
or indirectly, restrict or impair the ability of Parent or any of its
Significant Subsidiaries to vote, or otherwise to exercise the rights of a
stockholder with respect to, shares of the Company Common Stock and the shares
of capital stock of its Significant Subsidiaries that may be acquired or
controlled directly or indirectly by Parent.
(m) BROKERS. No broker, investment banker, financial advisor or
other person, other than BT Alex. Brown, the fees and expenses of which will be
paid by the Company, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company or any of its subsidiaries. The Company has furnished to Parent true
and complete copies of all agreements with BT Alex. Brown under which any such
fees or expenses may be payable, including all indemnification agreements.
(n) OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of BT Alex. Brown, dated the date of this Agreement, to the effect that,
as of such date, the Aggregate Merger Consideration is fair to the Company's
stockholders from a financial point of view, a signed copy of which opinion has
been delivered to Parent.
(o) COMPLIANCE WITH APPLICABLE LAWS. Each of the Company and its
subsidiaries is in compliance with all applicable statutes, laws, ordinances,
rules, regulations, judgments, decrees and orders of any Governmental Entity
applicable to its business and operations, except for possible noncompliance
that would not, individually or in the aggregate, have a material adverse effect
on the Company.
(p) TAXES. Each of the Company and its subsidiaries has timely
filed (or has had timely filed on its behalf) or will file or cause to be timely
filed, all material Tax Returns (as defined in Section 8.03) required by
applicable law to be filed by it prior to or as of the Effective Time. All such
Tax Returns are, or will be at the time of filing, true, complete and correct in
all material respects. Each of the Company and its subsidiaries has paid (or has
had paid on its behalf), or where payment is not yet due, has established (or
has had established on its behalf and for its sole benefit and recourse), or
will establish or cause to be established on or before the Effective Time, an
adequate accrual for the payment of, all Taxes (as defined in Section 8.03) due
with respect to any period ending prior to or as of the Effective Time, except
for Taxes which would not, individually or in the aggregate, have a material
adverse effect on the Company.
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(q) LABOR. Since the Balance Sheet Date, as of the date of this
Agreement, there has not been any amendment in any material respect by the
Company or any of its subsidiaries of any collective bargaining agreement or
contract with a labor union or labor organization (each a "Collective Bargaining
Agreement") to which it is a party or otherwise bound. There is no labor strike,
labor dispute, work slowdown, labor stoppage or lockout actually pending, and
the Company has received no written notice of any threatened labor strike, labor
dispute, work slowdown, labor stoppage or lockout, against the Company or any of
its subsidiaries, nor are there, to the knowledge of the Company, any
organizational efforts presently being made involving any of the unorganized
employees of the Company or any of its subsidiaries which in any such case or
all such cases together would have a material adverse effect on the Company.
(r) ENVIRONMENTAL MATTERS.
(i) Except as disclosed in the Company Disclosure Schedule
and except for such matters that, alone or in the aggregate, would not have a
material adverse effect on the Company:
(1) the Company and its subsidiaries have complied with
all applicable Environmental Laws; (2) the properties currently
owned or operated by the Company and its subsidiaries (including
soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances;
(3) the properties formerly owned or operated by the Company or
its subsidiaries were not contaminated with Hazardous Substances
during the period of ownership or operation by the Company or
any of its subsidiaries; (4) neither the Company nor any of its
subsidiaries is subject to liability for any Hazardous Substance
disposal or contamination on any third party property; (5)
neither the Company nor any of its subsidiaries has been
associated with any release or threat of release of any
Hazardous Substance; (6) neither the Company nor any of its
subsidiaries has received any notice, demand, letter, claim or
request for information alleging that the Company or any of its
subsidiaries may be in violation of or liable under any
Environmental Law; (7) neither the Company nor any of its
subsidiaries is subject to any orders, decrees, injunctions or
other arrangements with any Governmental Entity or is subject to
any orders, decrees, injunctions or other arrangements with any
Governmental Entity or is subject to any indemnity or other
agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances; (8) there
are no circumstances or conditions involving the Company or any
of its subsidiaries that could reasonably be expected to result
in any claims, liability, investigations, costs or restrictions
on the ownership, use or transfer of any property of the Company
or its subsidiaries pursuant to any Environmental Law; (9) none
of the properties of the Company or its subsidiaries contains
any underground storage tanks, asbestos-containing material,
lead-based products, or polychlorinated biphenyls; and (10)
neither the Company nor any of its subsidiaries has engaged in
any activities involving the generation, use, handling or
disposal of any Hazardous Substances.
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(ii) As used herein:
(1) "Environmental Law" means any federal, state, local
or foreign law, regulation, treaty, order, decree, permit,
authorization, policy, opinion, common law or agency requirement
relating to: (A) the protection, investigation or restoration of
the environment, health and safety, or natural resources; (B)
the handling, use, presence, disposal, release or threatened
release of any chemical substance or waste; or (C) noise, odor,
wetlands, pollution, contamination or any injury or threat of
injury to persons or property.
(2) "Hazardous Substance" means any substance that is:
(A) listed, classified or regulated in any concentration
pursuant to any Environmental Law; (B) any petroleum product or
by-product, asbestos-containing material, lead-containing paint
or plumbing, polychlorinated biphenyls, radioactive materials or
radon; or (C) any other substance which may be the subject of
regulatory action by any Governmental Entity pursuant to any
Environmental Law.
(s) LICENSES. Each of the Company and its subsidiaries has all
permits, licenses, waivers and authorizations which are necessary for it to
conduct its business in the manner in which it is presently being conducted
(collectively, "Company Licenses"), other than any Company Licenses the failure
of which to have would not, individually or in the aggregate, have a material
adverse effect on the Company. Each of the Company and its subsidiaries is in
compliance with the terms of all Company Licenses, except for such failures so
to comply which would not have a material adverse effect on the Company. The
Company and its subsidiaries have duly performed their respective obligations
under such Company Licenses, except for such non-performance as would not have a
material adverse effect on the Company. There is no pending or, to the knowledge
of the Company, threatened application, petition, objection or other pleading
with any Governmental Entity which challenges or questions the validity of, or
any rights of the holder under, any Company License, except for such
applications, petitions, objections or other pleadings, that would not,
individually or in the aggregate, have a material adverse effect on the Company.
(t) INTELLECTUAL PROPERTY. The Company and its subsidiaries own
or have rights to use (i) all material computer software utilized in the conduct
of their respective businesses and (ii) all names and service marks used by the
Company or any such subsidiary and, to the knowledge of the Company, such use
does not conflict with any rights of others with respect thereto, except for
such failures to own or have rights to use and such conflicts that have not had
and would not have a material adverse effect on the Company.
(u) MATERIAL AGREEMENTS. Neither the Company nor any of its
subsidiaries is in breach of any material agreement, except for breaches which
would not, individually or in the aggregate, have a material adverse effect on
the Company and the Company has no material agreements other than those
specified in the Company SEC Documents. All employment agreements of the Company
are listed on the Company Disclosure Schedule and are filed with the Company SEC
Documents.
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SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Except
as set forth on the Disclosure Schedule delivered by Parent to the Company at or
prior to the execution and delivery of this Agreement (the "Parent Disclosure
Schedule") or as disclosed in the Parent SEC Documents (as defined in Section
3.02(f)) filed and publicly available prior to the date of this Agreement (the
"Filed Parent SEC Documents") or the Parent's Offering Memorandum dated February
4, 1998 (collectively with the Filed Parent SEC Documents the "Parent Disclosure
Documents"), Parent and Sub represent and warrant to the Company as follows:
(a) ORGANIZATION STANDING AND CORPORATE POWER. Each of Parent and
Sub and each of Parent's Significant Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted. Each of Parent
and its Significant Subsidiaries is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, except jurisdictions where the failure to be so qualified
or licensed or to be in good standing individually or in the aggregate would not
have a material adverse effect on Parent. Parent has delivered to the Company
prior to the execution and delivery of this Agreement complete and correct
copies of its certificate of incorporation and by-laws.
(b) SUBSIDIARIES. All the outstanding shares of capital stock of
each subsidiary of Parent have been validly issued and are frilly paid and
nonassessable and are owned by Parent, free and clear of all Liens, and
excluding the outstanding shares of Expression Homes Corporation which is 49%
owned by the Company.
(c) CAPITAL STRUCTURE.
(i) As of the date of this Agreement, the authorized capital
stock of Parent consists of 75,000,000 shares of Common Stock, par value $1.00
per share (the "Parent Common Stock"), and 10,000,000 shares of Preferred Stock,
par value $1.00 per share ("Parent Preferred Stock") of which 50,000 shares are
designated as Series A Junior Participating Preferred Stock. At the close of
business on February 10, 1998, (i) 30,858,719 shares of Parent Common Stock were
issued and outstanding, (ii) no shares of Parent Preferred Stock were issued and
outstanding, (iii) no shares of Parent Common Stock were held by Parent in its
treasury, (iv) 2,167,224 shares of Parent Common Stock were reserved for
issuance upon exercise of outstanding options under Parent's stock option plans
(the "Parent Stock Plans"), (v) 5,131,363 shares of Parent Common Stock have
been reserved for issuance upon conversion of the Trust Preferred Securities
issued by a subsidiary, and (vi) 24,070,402 shares of Parent's Series A Junior
Participating Preferred Stock were reserved for issuance pursuant to that
certain Rights Agreement, dated as of November 10, 1988 (the "Parent Rights
Agreement"), between Parent and The First National Bank of Boston, as Rights
Agent (the "Parent Rights Agent"). Except as set forth above, at the close of
business on February 10, 1998, no shares of capital stock or other voting
securities of Parent were issued, reserved for issuance or outstanding. Except
as set forth above or as otherwise contemplated by this Agreement, as of the
date of this Agreement, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind, to which Parent is a party or by which it is bound, obligating Parent
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to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of Parent, or obligating
Parent to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking.
(ii) All outstanding shares of capital stock of Parent are,
and all shares which may be issued pursuant to this Agreement will be when
issued, duly authorized, validly issued, frilly paid and nonassessable and not
subject to preemptive rights. As of the date of this Agreement, except for the
Parent's 6% Convertible Subordinated Debentures due February 15, 2028, there are
no bonds, debentures, notes or other indebtedness of Parent having the right to
vote (or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which stockholders of Parent may vote.
(iii) There are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind, to which any Significant Subsidiary of Parent is bound, obligating such
Significant Subsidiary to issue, deliver, sell, or cause to be issued delivered
or sold, additional shares of capital stock or other voting securities of such
Significant Subsidiary, or obligating such Significant Subsidiary to issue,
grant, extend or enter into any such security, option, warrant, call, right
commitment, agreement, arrangement or undertaking.
(iv) As of the date of this Agreement, there are no
outstanding contractual obligations of Parent or any of its Significant
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of Parent or any of its Significant Subsidiaries. As of the date of this
Agreement, the authorized capital stock of Sub consists of 1,000 shares of
common stock, par value $.0l per share, 100 of which have been validly issued,
are frilly paid and nonassessable and are owned by Parent free and clear of any
Lien.
(d) CORPORATE AUTHORITY, NONCONTRAVENTION. Parent and Sub have
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate action on
the part of Parent and Sub. This Agreement has been duly executed and delivered
by Parent and Sub and, assuming the due authorization, execution and delivery
thereof by the Company, constitutes a valid and binding obligation of each such
party, enforceable against such party in accordance with its terms, except as
such enforceability may be limited by general principles of equity or principles
applicable to creditors' rights generally. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not,
conflict with, or result in any violation of, or default (after notice or lapse
of time or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any Lien upon any of the properties or assets of Parent, Sub
or any of Parent's other subsidiaries under, (i) the certificate of
incorporation or by-laws of Parent or Sub or the comparable charter or
organizational documents of any of Parent's Significant Subsidiaries, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Parent, Sub or such other subsidiary or any of their respective properties or
assets or (iii) subject to the
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governmental filings and other consents and matters referred to in Section
3.02(e), any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent, Sub or such other subsidiary or any of their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights, losses or Liens that,
individually or in the aggregate, would not (x) have a material adverse effect
on Parent or (y) prevent the consummation of any of the transactions
contemplated by this Agreement.
(e) GOVERNMENTAL AUTHORIZATION. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Parent or Sub in connection with the
execution and delivery of this Agreement or the consummation by Parent or Sub,
as the case may be, of any of the transactions contemplated by this Agreement,
except for (i) the filing of a premerger notification and report form by Parent
under the HSR Act; (ii) the filing with the SEC of (x) the Form S-4 and (y) the
filing or furnishing with or to the SEC of such reports under Section 13(a) of
the Exchange Act as may be required in connection with this Agreement, and the
transactions contemplated by this Agreement; (iii) the filing of the Certificate
of Merger with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which the Company is qualified to do
business; (iv) such filings with Governmental Entities as may be required to
satisfy the applicable requirements of state securities or "blue sky" laws in
connection with the transactions contemplated by this Agreement; (v) such other
consents, approvals, orders, authorizations, regulations, declarations or
filings, the failure of which to obtain or make not have a material adverse
effect on Parent; and (vi) such filings with and approvals of the NYSE to permit
the shares of Parent Common Stock that are to be issued in the Merger to be
listed on the NYSE.
(f) SEC DOCUMENTS, UNDISCLOSED LIABILITIES. Parent has filed with
the SEC all reports, schedules, forms, statements and other documents required
to be filed since the Balance Sheet Date (the "Parent SEC Documents"). None of
Parent's subsidiaries is required to file with the SEC any report, form or other
document. As of their respective dates, the Parent SEC Documents complied as to
form in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents, and none of the
Parent SEC Documents when filed contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of Parent
included in the Parent SEC Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements, as
permitted by the rules and regulations of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present, in all material respects, the consolidated financial
position of Parent and its consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as disclosed in the Parent Disclosure Documents, and except
for liabilities and obligations incurred since October 26, 1997 (the "Parent
Balance Sheet Date") in the ordinary course of business consistent with past
practice, as of the date of this Agreement, neither Parent nor any of its
subsidiaries has any liabilities or obligations of any nature
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(whether accrued, absolute, contingent or otherwise) required by generally
accepted accounting principles to be recognized or disclosed on a consolidated
balance sheet of Parent and its consolidated subsidiaries or in the notes
thereto and which, individually or in the aggregate, would have a material
adverse effect on Parent.
(g) INFORMATION SUPPLIED. None of the information to be supplied
by Parent or Sub specifically for inclusion or incorporation by reference in (i)
the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time
it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Proxy Statement will, at the date
the Proxy Statement is first mailed to Company stockholders or at the time of
the Company Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they are not misleading.
(h) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as contemplated
by this Agreement or as disclosed in the Parent Disclosure Documents, since the
Parent Balance Sheet Date, Parent has conducted its business only in the
ordinary course, and there has not been (i) any material adverse change in
Parent, other than changes relating to or arising from legislative or regulatory
changes or developments generally affecting broadcasting or publishing
operations or general economic conditions, (ii) any declaration, setting aside
or payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of Parent's capital stock, except for regular
quarterly dividends on the Parent Common Stock, (iii) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock or (iv) any damage,
destruction or loss, whether or not covered by insurance, that has had or would
have a material adverse effect on Parent, (v) (x) any granting by Parent or any
of its subsidiaries to any executive officer or other key employee of Parent or
any of its Significant Subsidiaries of any increase in compensation (except for
normal increases in the ordinary course of business consistent with past
practice or as required under any employment agreement in effect as of the
Parent Balance Sheet Date) or (y) any granting by Parent or any of its
Significant Subsidiaries to any such executive officer or key employee of any
increase in severance or termination pay (except as was required under any
employment, severance or termination agreement in effect as of the Parent
Balance Sheet Date), (vi) any damage, destruction or loss, whether or not
covered by insurance, that has had or would have a material adverse effect on
Parent, or (vii) except as required by a change in generally accepted accounting
principles, any change in accounting methods, principles or practices by Parent
materially affecting the basis of presenting or method of determining its
results of operations, assets, liabilities or businesses.
(i) LITIGATION. There is no suit, action or proceeding pending,
and Parent has not received written notification threatening any suit, action or
proceeding, against or affecting Parent or any of its subsidiaries that
individually or in the aggregate could (i) have a material adverse effect on
Parent or (ii) prevent the consummation of any of the transactions contemplated
by this Agreement, nor is there any judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator outstanding against Parent or any of
its subsidiaries having, or
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which, insofar as reasonably can be foreseen, in the future would have, any
effect referred to in clause (i)or (ii) of this sentence.
(j) ERISA AND OTHER COMPENSATION MATTERS.
(i) Except as will not have a material adverse effect on
Parent, all Plans covering employees or former employees of Parent or any of its
subsidiaries ("Parent Employees") have been administered according to their
terms and, to the extent subject to ERISA, are in compliance with ERISA. Each
Plan which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA ("Parent Pension Plan") and which is intended to be qualified
under Section 401(a) of the Code, has received a favorable determination letter
from the Service, and Parent is not aware of any circumstances likely to result
in revocation of any such favorable determination letter. Neither Parent nor any
of its subsidiaries or Parent ERISA Affiliates (as defined below) has engaged in
a transaction with respect to any Plan that, assuming the taxable period of such
transaction expired as of the date hereof, could subject Parent or any of its
subsidiaries or Parent ERISA Affiliates to a tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA which would have a material
adverse effect on Parent. Neither Parent nor any of its subsidiaries or Parent
ERISA Affiliates has contributed or been required to contribute to any
multi-employer plan.
(ii) No liability under Subtitles C or D of Title IV of ERISA
has been or is expected to be incurred by Parent or any of its subsidiaries or
Parent ERISA Affiliates with respect to any ongoing, frozen or terminated Plan,
currently or formerly maintained by any of them, or the Plan of any person which
is considered one employer with Parent under Section 4001 of ERISA or Section
414 of the Code (a "Parent ERISA Affiliate") which would have a material adverse
effect on Parent.
(iii) All contributions required to be made and all
contributions accrued as of the Balance Sheet Date under the terms of any Plan
for which Parent or any of its subsidiaries or Parent ERISA Affiliates may have
liability have been timely made or have been reflected on the most recent
audited balance sheet included in the Filed Parent SEC Documents. Neither any
Parent Pension Plan nor any single-employer plan of Parent or any of its
subsidiaries or Parent ERISA Affiliates has incurred an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA which would have a material adverse effect on
Parent. Neither Parent nor any of its subsidiaries has provided, or is required
to provide, security to any Parent Pension Plan or to any Plan of a Parent ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(iv) Neither Parent nor any of its subsidiaries has any
obligations for retiree health and life benefits under any Plan, except as set
forth in the Parent Disclosure Schedule, which would have a material adverse
effect on Parent.
(v) The execution and delivery of this Agreement do not, and
the performance of the transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any of the Parent's Compensation and Benefit Plans
that will or may result in any payment (whether of severance or
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otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any employee
of Parent or any of its subsidiaries or Parent ERISA Affiliates which would have
a material adverse effect on Parent.
(vi) There is no contract, agreement, plan or arrangement
covering any employee or former employee of Parent or any of its subsidiaries or
Parent ERISA Affiliates that, individually or collectively, could give rise as a
result of the transactions contemplated by this Agreement to the payment of any
amount that would not be deductible pursuant to the terms of Section 1 62(a)( I)
or 280G of the Code.
(vii) There has been no amendment to, written interpretation
or announcement (whether or not written) by Parent or any of its subsidiaries or
Parent ERISA Affiliates relating to, or change in employee participation or
coverage under, any of the Parent's Compensation and Benefit Plans which would
increase materially above the level of the expense incurred in respect thereof
for the fiscal year ended on the Balance Sheet Date.
(k) BROKERS. No broker, investment banker, financial advisor or
other person, other than PaineWebber Incorporated, the fees and expenses of
which will be paid by Parent, is entitled to any broker's, finders, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub
(1) INTERIM OPERATIONS OF SUB. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby and has engaged in
no other business other than incident to its creation and this Agreement and the
transactions contemplated hereby.
(m) TAXES. Each of Parent and its subsidiaries has timely filed
(or has had timely filed on its behalf), or will file or cause to be timely
filed, all material Tax Returns required by applicable law to be filed by it
prior to or as of the Effective Time. All such Tax Returns are, or will be at
the time of filing, true, complete and correct in all material respects. Each of
Parent and its subsidiaries has paid (or has had paid on its behalf), or where
payment is not yet due, has established (or has had established on its behalf
and for its sole benefit and recourse), or will establish or cause to be
established on or before the Effective Time, an adequate accrual for the payment
of, all Taxes due with respect to any period ending prior to or as of the
Effective Time, except for Taxes which would not, individually or in the
aggregate, have a material adverse effect on Parent.
(n) COMPLIANCE WITH APPLICABLE LAWS. Each of Parent and its
subsidiaries is in compliance with all applicable statutes, laws, ordinances,
rules, regulations, judgments, decrees and orders of any Governmental Entity
applicable to its business and operations, except for possible noncompliance
that would not, individually or in the aggregate, have a material adverse effect
on Parent.
(o) LABOR. Since the Parent Balance Sheet Date, as of the date of
this Agreement, there has not been any amendment in any material respect by
Parent or any of its subsidiaries of any Collective Bargaining Agreement to
which it is a party or otherwise bound.
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There is no labor strike, labor dispute, work slowdown, labor stoppage or
lockout actually pending, and Parent has received no written notice of any
threatened labor strike, labor dispute, work slowdown, labor stoppage or
lockout, against Parent or any of its subsidiaries, nor are there, to the
knowledge of Parent, any organizational efforts presently being made involving
any of the unorganized employees of Parent or any of its subsidiaries which in
any such case or all such cases together would have a material adverse effect on
Parent.
(p) ENVIRONMENTAL MATTERS. Except for such matters that, alone or
in the aggregate, would not have a material adverse effect on Parent:
(1) Parent and its subsidiaries have complied with all applicable
Environmental Laws; (2) the properties currently owned or operated by Parent and
its subsidiaries (including soils, groundwater, surface water, buildings or
other structures) are not contaminated with any Hazardous Substances; (3) the
properties formerly owned or operated by Parent or its subsidiaries were not
contaminated with Hazardous Substances during the period of ownership or
operation by Parent or any of its subsidiaries; (4) neither Parent nor any of
its subsidiaries is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (5) neither Parent nor any of its
subsidiaries has been associated with any release or threat of release of any
Hazardous Substance; (6) neither Parent nor any of its subsidiaries has received
any notice, demand, letter, claim or request for information alleging that
Parent or any of its subsidiaries may be in violation of or liable under any
Environmental Law; (7) neither Parent nor any of its subsidiaries is subject to
any orders, decrees, injunctions or other arrangements with any Governmental
Entity or is subject to any orders, decrees, injunctions or other arrangements
with any Governmental Entity or is subject to any indemnity or other agreement
with any third party relating to liability under any Environmental Law or
relating to Hazardous Substances; (8) there are no circumstances or conditions
involving Parent or any of its subsidiaries that could reasonably be expected to
result in any claims, liability, investigations, costs or restrictions on the
ownership, use or transfer of any property of Parent or its subsidiaries
pursuant to any Environmental Law; (9) none of the properties of Parent or its
subsidiaries contains any underground storage tanks, asbestos-containing
material, lead-based products, or polychlorinated biphenyls; and (10) neither
Parent nor any of its subsidiaries has engaged in any activities involving the
generation, use, handling or disposal of any Hazardous Substances.
(q) LICENSES. Each of Parent and its subsidiaries has all
permits, licenses, waivers and authorizations which are necessary for it to
conduct its business in the manner in which they are presently being conducted
(collectively, the "Parent Licenses") other than any Parent Licenses the failure
of which to have would not, individually or in the aggregate, have a material
adverse effect on Parent. Each of Parent and its subsidiaries is in compliance
with the terms of all Parent Licenses, except for such failures such to comply
which would not have a material adverse effect on Parent. Parent and its
subsidiaries have duly performed their respective obligations under such Parent
Licenses, except for such non-performance as would not have a material adverse
effect on Parent. There is no pending or, to the knowledge of Parent, threatened
application, petition, objection or other pleading with any Governmental Entity
which challenges or questions the validity of, or any rights of the holder
under, any Parent License, except for such applications, petitions, objections
or other pleadings, that would not, individually or in the aggregate, have a
material adverse effect on Parent.
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(r) INTELLECTUAL PROPERTY. Parent and its subsidiaries own or
have rights to use (i) all material computer software utilized in the conduct of
their respective businesses and (ii) all names and service marks used by Parent
or any such subsidiary and, to the knowledge of Parent, such use does not
conflict with any rights of others with respect thereto, except for such
failures to own or have rights to use and such conflicts that have not had and
would not have a material adverse effect on Parent.
(s) MATERIAL AGREEMENTS. Neither Parent nor any of its
subsidiaries is in breach of any material agreement, except for breaches which
would not, individually or in the aggregate, have a material adverse effect on
Parent.
(t) FINANCING. At the Effective Time, Parent and Sub will have
available all of the funds necessary (i) to satisfy their respective obligations
under this Agreement, and (ii) to pay all the related fees and expenses in
connection with the foregoing.
(u) NO OWNERSHIP OF COMPANY COMMON Stock. Neither Parent nor any
of its subsidiaries owns any shares of Company Common Stock.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. CONDUCT OF BUSINESS.
(a) CONDUCT OF BUSINESS BY THE COMPANY. Prior to the Effective
Time, except as contemplated by this Agreement, the Company shall, and shall
cause each of its subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and in compliance in all material respects with all
applicable laws and regulations and, to the extent consistent therewith, use all
reasonable efforts to preserve intact their current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees and others
having business dealings with them to the end that their goodwill and ongoing
businesses shall not be impaired at the Effective Time. Without limiting the
generality of the foregoing, prior to the Effective Time, except as contemplated
by this Agreement or as set forth on the Company Disclosure Schedule, without
the prior, express written consent of Parent (which may not be unreasonably
delayed or withheld), the Company shall not, and shall not permit any of its
subsidiaries to.
(i) (x) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, other than
dividends and distributions by a direct or indirect wholly owned subsidiary of
the Company to its parent, (y) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (z) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
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(ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than the issuance of
Company Common Stock upon the exercise of Company Employee Stock Options
outstanding on the date of this Agreement in accordance with their present
terms);
(iii) amend its certificate of incorporation, by-laws or
other comparable charter or organizational documents;
(iv) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, limited liability company,
partnership, joint venture, association or other business organization or
division thereof, or (y) any assets that, individually or in the aggregate, are
material to the Company and its subsidiaries taken as a whole;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or assets,
except, in any such case, in the ordinary course of business consistent with
past practice, and except transactions between a wholly owned subsidiary of the
Company and the Company or another wholly owned subsidiary of the Company;
(vi) (x) incur any indebtedness, except for floor plan
financing and borrowings (net of cash, cash equivalents and marketable
securities held by the Company or any of its subsidiaries) not in excess of
$500,000 at any one time outstanding incurred in the ordinary course of business
consistent with past practice, or (y) except in the ordinary course of business
consistent with past practice, make any loans, advances or capital contributions
to, or investments in, any other person, other than to the Company or any direct
or indirect wholly owned subsidiary of the Company;
(vii) make or agree to make any new capital expenditure or
capital expenditures, except in the ordinary course of business consistent with
past practice;
(viii) make any material Tax election or settle or compromise
any material Tax liability;
(ix) except in the ordinary course of business or except as
would not have a material adverse effect on the Company, modify, amend or
terminate any material contract or agreement to which the Company or any
subsidiary is a party or waive, release or assign any material rights or claims
thereunder;
(x) make any material change to its accounting methods,
principles or practices, except as may be required by generally accepted
accounting principles;
(xi) except as required to comply with applicable law and
except as necessary to comply with Section 5.13, (w) adopt, enter into,
terminate or amend any of the Company's Compensation and Benefit Plans or other
arrangement for the benefit or welfare of any current or former director,
officer or employee, (x) increase in any manner the compensation or
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fringe benefits of, or pay any bonus to, any director, officer or employee
(except for normal increases, promotions or bonuses in the ordinary course of
business consistent with past practice), (y) pay any benefit not provided for
under any of the Companyts Compensation and Benefit Plans, or (z) except as
permitted in clause (x), grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or of the Company's
Compensation and Benefit Plans (including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any of the
Company's Compensation and Benefit Plans or agreement or awards made
thereunder); or
(xii) authorize, or commit or agree to take, any of the
foregoing actions.
(b) CONDUCT OF BUSINESS BY PARENT. Prior to the Effective Time,
without the prior, express written consent of the Company (which may be given or
withheld in its sole discretion), Parent shall not, and shall not permit any of
its subsidiaries to:
(i) declare, set aside or pay any dividends on, or make any
other distributions in respect of; the Parent capital stock, other than
quarterly dividends paid in accordance with past practice;
(ii) split, combine or reclassify the Parent capital stock or
issue or authorize the issuance of any other securities in respect of; in lieu
of or in substitution for the Parent Common Stock, or
(iii) authorize, or commit or agree to take, any of the
foregoing actions.
(c) ADVISEMENT OF CHANGES. The Company and Parent shall promptly
advise the other party orally and in writing upon its becoming aware of (i) any
representation or warranty made by it in this Agreement becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement or (iii) any change or
event which would have a material adverse effect on such party or on the ability
of the conditions set forth in Article VI to be satisfied; PROVIDED, HOWEVER,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
SECTION 4.02. NO SOLICITATION.
(a) The Company shall not, nor shall it permit any of its
subsidiaries to, nor shall it authorize or permit any officer, director or
employee of or any investment banker, attorney or other advisor or
representative of; the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or knowingly encourage the submission of any
takeover proposal (as defined in Section 8.03), (ii) enter into any agreement
providing for any takeover proposal or (iii) participate in any negotiations
regarding, or furnish to any person any non-public information with respect to,
or take any other action knowingly to facilitate the making of; any takeover
proposal; PROVIDED, HOWEVER, that if; at any time prior to the receipt of the
Company Stockholder Approval, the Board of Directors of the Company determines
in good faith that it is necessary to do so in
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order to comply with its fiduciary duties to the Company's stockholders under
applicable law, as advised by outside counsel, the Company may, with respect to
an actual or potential unsolicited takeover proposal and subject to compliance
with Section 4.02(c), (x) furnish non-public information with respect to the
Company to such person making such actual or potential unsolicited takeover
proposal and (y) participate in negotiations regarding such proposal.
(b) Neither the Board of Directors of the Company nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or Sub, the approval or recommendation by
such Board of Directors or any such committee of this Agreement or the Merger,
(ii) approve or recommend or propose to approve or recommend, any takeover
proposal or (iii) enter into any agreement with respect to any takeover
proposal. Notwithstanding the foregoing, the Board of Directors of the Company
may approve or recommend (and, in connection therewith, withdraw or modify its
approval or recommendation of this Agreement or the Merger) a superior proposal
(as defined in Section 8.03) if the Board of Directors of the Company shall have
determined in good faith that it is necessary, in order to comply with its
fiduciary duties to the Company's stockholders under applicable law, as advised
by outside counsel, to approve or recommend such superior proposal, and have
given notice to Parent advising Parent that the Company has received such
superior proposal from a third party, specifying the material terms and
conditions (including the identity of the third party), and specifically stating
that the Company intends to approve or recommend such superior proposal in
accordance with this Section 4.02(b) and if Parent does not, within seven
business days of Parent's receipt of such notice, make an offer which the
Company Board by a majority vote determines in its good faith judgment (based on
the written advice of a financial adviser of nationally recognized reputation)
to be as favorable to the Company's stockholders as such superior proposal.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 4.02, the Company shall promptly advise
Parent orally and in writing of any request for information or of any takeover
proposal or any inquiry with respect to or which could reasonably be expected to
lead to any takeover proposal which, in any such case, is either (i) in writing
or (ii) made to any executive officer or director of the Company (and brought to
the attention of the chief executive officer of the Company), the identity of
the person making any such request (to the extent practicable), takeover
proposal or inquiry and all the material terms and conditions thereof The
Company will keep Parent fully informed of the status and details (including
amendments or proposed amendments) of any such request, takeover proposal or
inquiry.
Nothing contained in this Section 4.02 shall prohibit the Company or its
Board of Directors from (i) taking and disclosing to its stockholders a position
contemplated by Rule I 4e-2 of the Exchange Act or (ii) making any disclosure to
its stockholders that in the judgment of its Board of Directors, as advised by
its outside legal counsel, is required under applicable law.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. PREPARATION OF THE FORM S-4 AND THE PROXY STATEMENT
STOCKHOLDERS MEETING.
(a) As soon as practicable after execution and delivery of this
Agreement, the Company and Parent shall prepare and the Company shall file with
the SEC the Proxy Statement and Parent shall prepare and file with the SEC the
Form S-4, in which the Proxy Statement will be included as a prospectus. The
Company and Parent shall each use all reasonable efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable after
such filing. The Company will provide financial and other information required
by Parent in connection with Parent's filings under the Securities Act of 1933
and the Securities Exchange Act of 1934. The Company will use all reasonable
efforts to cause the Proxy Statement to be mailed to the Company's stockholders
and Parent will use all reasonable efforts to cause an appropriate proxy
statement to be mailed to Parent's stockholders, in each case as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
Parent shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or filing a general consent to
service of process) required to be taken under any applicable state securities
or "blue sky" laws in connection with the issuance of shares of Parent Common
Stock in the Merger and the Company shall furnish all information concerning the
Company and the holders of Company Common Stock and rights to acquire Company
Common Stock pursuant to the Company Stock Plans as may be reasonably requested
in connection with any such action.
(b) The Company will, as soon as reasonably practicable following
the date of this Agreement, duly call, give notice of; convene and hold a
meeting of its stockholders (the "Company Stockholders Meeting") for the purpose
of obtaining the Company Stockholder Approval. Without limiting the generality
of the foregoing but subject to Section 4.02(b), the Company agrees that its
obligations pursuant to the first sentence of this Section 5.01(b) shall not be
affected by the commencement, public proposal, public disclosure or
communication to the Company of any takeover proposal. The Company will, through
its Board of Directors, recommend to its stockholders the approval and adoption
of this Agreement and the transactions contemplated hereby, subject to Section
4.02(b).
SECTION 5.02. LETTERS OF THE COMPANY'S ACCOUNTANTS. The Company shall
use all reasonable efforts to cause to be delivered to Parent a letter of Arthur
Andersen LLP, the Company's independent public accountants, dated a date within
two business days before the date on which the Form S-4 shall become effective,
addressed to Parent, in form reasonably satisfactory to Parent and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
SECTION 5.03. LETTERS OF PARENT'S ACCOUNTANTS. Parent shall use all
reasonable efforts to cause to be delivered to the Company a letter of Arthur
Andersen LLP, Parent's independent public accountants for the relevant periods
prior to the date hereof; dated a date within two business days before the date
on which the Form S-4 shall become effective, addressed to
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the Company, in form reasonably satisfactory to the Company and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
SECTION 5.04. ACCESS TO INFORMATION, CONFIDENTIALITY. Subject to the
Confidentiality Agreement (as defined below), Parent and the Company shall, and
shall cause each of its subsidiaries to, afford to the other party and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of the other party, reasonable access during normal business
hours during the period prior to the Effective Time to all their properties,
books, contracts, commitments, personnel and records and, during such period
(subject to existing confidentiality and similar non-disclosure obligations and
the preservation of applicable privileges), Parent and the Company shall, and
shall cause each of its subsidiaries to, furnish promptly to the other party (a)
a copy of each material report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of Federal
or state securities laws and (b) all other information concerning its business,
properties and personnel as the other party may reasonably request. Each party
will hold, and will cause its officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreement, dated as of February 9, 1998, between Parent and the Company (the
"Confidentiality Agreement").
SECTION 5.05. REASONABLE EFFORTS.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions, waivers,
consents, licenses and approvals from Governmental Entities and the making of
all necessary registrations and filings (including filings with Governmental
Entities) and the taking of all reasonable steps as may be necessary to obtain
an approval, waiver or license from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the Stockholder Agreements, or the consummation of the transactions contemplated
by this Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed and
(iv) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to carry out fully the purposes
of; this Agreement. Without limiting the foregoing, the Company and Parent shall
use all reasonable efforts and cooperate in promptly preparing and filing as
soon as practicable, and in any event within 15 business days after executing
this Agreement, notifications under the HSR Act and related filings in
connection with the Merger and the other transactions contemplated hereby, and
to respond as promptly as practicable to any injuries or requests received from
the Federal Trade Commission (the "FTC"), the Antitrust Division of the United
States Department of Justice (the "Antitrust Division") and any other
Governmental Entities for additional information or documentation.
Notwithstanding
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anything to the contrary contained in this Section 5.05, no party shall be
obligated to take any action pursuant to this Section 5.05 if the taking of such
action or the obtaining of any waiver, consent, approval or exemption would have
a material adverse effect on the Company or Parent.
(b) In connection with, but without limiting, the foregoing, the
Company and its Board of Directors shall (i) use all reasonable efforts to
ensure that no state takeover statute or similar statute or regulation is or
becomes applicable to this Agreement, the Stockholder Agreements, the Merger or
any of the other transactions contemplated by this Agreement and (ii) if any
state takeover statute or similar statute or regulation becomes applicable to
this Agreement, the Stockholder Agreements, the Merger or any of the
transactions contemplated by this Agreement, use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement.
(c) Each of Parent and the Company shall promptly provide the
other with a copy of any inquiry or request for information (including notice of
any oral request for information), pleading, order or other document either
party receives from any Governmental Entities with respect to the matters
referred to in this Section 5.05.
SECTION 5.06 INDEMNIFICATION AND INSURANCE.
(a) Parent and Sub agree that all rights to indemnification for
acts or omissions occurring at or prior to the Effective Time now existing in
favor of the current or former directors, officers, employees or agents of the
Company and its subsidiaries (the "Indemnified Parties") as provided in their
respective certificates of incorporation or bylaws (or comparable charter or
organizational documents) or otherwise (including pursuant to indemnification
agreements) shall survive the Merger and shall continue in hill force and effect
in accordance with their terms for a period of not less than six years from the
Effective Time. From and after the Effective Time, Parent shall guarantee the
performance by the Surviving Corporation of its obligations referred to in the
immediately preceding sentence, provided that, in the event any claim or claims
are asserted or made within such six-year period, all rights to indemnification
in respect of any such claim or claims, and Parent's guarantee with respect
thereto, shall continue until final disposition of any and all such claim From
and after the Effective Time, Parent also agrees to indemnify all Indemnified
Parties to the fullest extent permitted by applicable law with respect to all
acts and omissions arising out of such individuals' services as officers,
directors, employees or agents of the Company or any of its subsidiaries or as
trustees or fiduciaries of any plan for the benefit of employees or directors
of; or otherwise on behalf of; the Company or any of its subsidiaries, occurring
at or prior to the Effective Time, including the transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, from and after
the Effective Time, in the event any such Indemnified Party is or becomes
involved in any capacity in any action, proceeding or investigation in
connection with any matter, including the transactions contemplated by this
Agreement, occurring prior to or at the Effective Time, Parent shall pay as
incurred such Indemnified Party's reasonable legal and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith.
From and after the Effective Time, Parent shall pay all reasonable expenses,
including reasonable attorneys' fees, that
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may be incurred by any Indemnified Party in enforcing the indemnity and other
obligations provided for in this Section 5.06.
(b) Parent will cause to be maintained, for a period of not less
than six years from the Effective Time, the Company's current directors' and
officers insurance and indemnification policy to the extent that it provides
coverage for events occurring prior to or at the Effective Time ("D&O
Insurance"), provided that Parent shall not be obligated to pay annual premiums
for such D&O Insurance in excess of 200% of the last annual premium paid prior
to the date of this Agreement (the amount equal to such percentage of such last
annual premium, the "Maximum Premium"); PROVIDED, HOWEVER, that Parent may, in
lieu of maintaining such existing D&O Insurance as provided above, cause
coverage to be provided under any policy maintained for the benefit of Parent or
any of its subsidiaries, so long as the terms thereof are no less advantageous
to the intended beneficiaries thereof than the existing D&O Insurance. If the
existing D&O Insurance expires, is terminated or canceled or is not available
during such six-year period, Parent will use all reasonable efforts to cause to
be obtained as much D&O Insurance as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum Premium, on terms
and conditions not materially less advantageous to the covered persons than the
existing D&O Insurance. The Company represents to Parent that the Maximum
Premium is $400,000.
SECTION 5.07. FEES AND EXPENSES.
(a) All fees and expenses incurred in connection with the Merger,
this Agreement, the Stockholder Agreement and the transactions contemplated by
this Agreement and the Stockholder Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated,
except that each of Parent and the Company shall bear and pay one-half of the
costs and expenses incurred in connection with the filing, printing and mailing
of the Form S-4 and the Proxy Statement referred to in Section 5.01(a).
Notwithstanding the above, in the event that Parent terminates this Agreement
pursuant to Section 7.01 (b)(i) or Section 7.03(c) (other than a termination
that requires the Company to pay a Termination Fee as contemplated by Section
5.07(B) below) the Company shall reimburse Parent and Sub (not later than 10
days after submission of statements therefor) for all actual documented
out-of-pocket fees and expenses, not to exceed $1,000,000, incurred by either of
them or on their behalf in connection with the Merger and the transactions
contemplated by this Agreement (including without limitation fees payable to
investment bankers, counsel to any of the foregoing, and accountants).
(b) The Company shall pay, or cause to be paid, in same day funds
to Parent $6 million (the "Termination Fee") upon demand if (i) the Company or
Parent terminates this Agreement pursuant to Section 7.01(c) or (ii) if the
Company or Parent terminates this Agreement pursuant to Section 7.01 (b)(i);
PROVIDED, HOWEVER, that, with respect to clause (ii) of this paragraph (b) only,
the Termination Fee shall not be payable unless and until (x) any Person (other
than Parent) (an "Acquiring Party") has acquired, by purchase, merger,
consolidation, sale, assignment, lease, transfer or otherwise, in one
transaction or any related series of transactions within 12 months after such
termination, a majority of the voting power of the outstanding securities of the
Company or all or substantially all of the assets of the Company or (y) there
has
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been consummated within 12 months after such termination a consolidation, merger
or similar business combination between the Company and an Acquiring Party in
which stockholders of the Company immediately prior to such consolidation,
merger or similar transaction do not own securities representing at least 50% of
the outstanding voting power of the surviving entity (or, if applicable, any
entity in control of such Acquiring Party) of such consolidation, merger or
similar transaction immediately following the consummation thereof; in either of
cases (x) or (y) involving a consideration for Company Common Stock (including
the value of any stub equity) in excess of the Aggregate Merger Consideration;
and PROVIDED FURTHER, that, with respect to clause (ii) of this paragraph (b)
only, no such Termination Fee shall be payable unless there shall have been made
public prior to the Company Stockholders Meeting a takeover proposal involving
consideration for Company Common Stock (including the value of any stub equity)
in excess of the Aggregate Merger Consideration. The Company acknowledges that
the agreements contained in this Section 5.07(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent and Sub would not enter into this Agreement; accordingly, if the Company
fails promptly to pay the amount due pursuant to this Section 5.07(b) and, in
order to obtain such payment, Parent or Sub commences a suit which results in a
judgment against the Company for the Termination Fee, the Company shall pay to
Parent or Sub its costs and expenses (including attorneys' fees) in connection
with such suit, together with interest on the amount of the Termination Fee at
the prime rate of Citibank, N.A. in effect on the date such payment was required
to be made.
(c) TRANSFER AND GAINS TAXES AND CERTAIN OTHER TAXES. Parent and
Sub agree that the Surviving Corporation will pay all real property transfer,
gains and other similar taxes and all documentary stamps, filing fees, recording
fees and sales and use .taxes, if any, and any penalties or interest with
respect thereto, payable in connection with consummation of the Merger without
any offset, deduction, counterclaim or deferment of the payment of the Aggregate
Merger Consideration.
SECTION 5.08. PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, Parent
and Sub, on the one hand, and the Company, on the other hand, will use all
reasonable efforts to consult with each other before issuing, and provide each
other the opportunity to review and comment upon, any press release or other
public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court order or by obligations pursuant to any
listing agreement with any national securities exchange. The parties agree that
the initial press release to be issued with respect to the transactions
contemplated by this Agreement shall be in the form heretofore agreed to by the
parties.
SECTION 5.09. AFFILIATES. At least thirty days prior to the Closing
Date, the Company shall deliver to Parent a letter identifying all persons who
are, at the time the Merger is submitted for approval to the stockholders of the
Company, "affiliates" of the Company for purposes of Rule 145(c) under the
Securities Act. The Company shall use all reasonable efforts to cause each such
person to deliver to Parent, on or prior to the Closing Date, a written
agreement substantially in the form attached hereto as Exhibit A (each an
"Affiliate Agreement") and shall deliver to Parent on or prior to the Closing
Date the agreement of each Company director and former principal stockholder of
the Founding Companies that the one year sale restrictions in
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connection with the Company's initial public offering shall continue to apply
until November 21, 1998 with respect to 50% of the number of shares of Parent
Common Stock to which such director or stockholder would be entitled if he
elects solely to receive Parent Common Stock in the Merger.
SECTION 5.10. NYSE LISTING. Parent shall use all reasonable efforts to
cause the shares of Parent Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
SECTION 5.11. STOCKHOLDER LITIGATION. The Company shall advise Parent of
all material developments in any stockholder litigation against the Company and
its directors relating to the transactions contemplated by this Agreement and
the Company shall not agree to any settlement of such litigation without
Parent's consent, which consent shall not be unreasonably withheld.
SECTION 5.12. STOCK OPTIONS. The Parent will cause a Form S-8 ("Form
S-8") to be filed with the SEC as soon as practicable following the Effective
Time, but in no event more than thirty (30) days after the Effective Time, which
registration statement shall register the shares of the Parent Common Stock
underlying the Parent Options granted in replacement of Company Options, or will
cause such shares underlying such Parent Options to be subject to an existing
Form 5-8, and the Parent shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Parent Options remain outstanding. At or before the
Effective Time, the Company shall cause to be effected any necessary amendments
to the Plan to give effect to the foregoing provisions of this Section 5.12.
SECTION 5.13. BENEFIT PLANS. Promptly after the Effective Time, Parent
shall cause the Surviving Corporation and its subsidiaries to provide Company
employees who are employees thereof or any of its subsidiaries with compensation
and employee benefit plans that are in the aggregate similar to the compensation
and Plans provided to similarly situated employees of Parent or its subsidiaries
who are not employees of the Company; provided, however, that employees of the
Company shall not be required to satisfy' any additional copayment or other
deductible requirements in connection therewith; provided further, that this
sentence shall not apply to any employees of the Company or any of its
subsidiaries covered by a Collective Bargaining Agreement to which the Company
or any of its subsidiaries is a party or otherwise bound. For the purpose of
determining eligibility to participate in Plans, eligibility for benefit forms
and subsidies and the vesting of benefits under such Plans (including any
pension, severance, 401(k), vacation and sick pay), and for purposes of accrual
of benefits under any severance, sick leave, vacation and other similar employee
benefit plans (other than defined benefit pension plans), Parent shall give
effect to years of service (and for purposes of qualified and nonqualified
pension plans, prior earnings) with the Company or its subsidiaries, as the case
may be, as if they were with Parent or one of its subsidiaries. Parent also
shall cause the Surviving Corporation to assume and agree to perform the
Company's obligations under all employment, severance, consulting and other
compensation contracts between the Company or any of its subsidiaries and any
current or former director, officer or employee thereof. Nothing in this Section
5.13 shall be construed or applied to restrict the ability of the Surviving
Corporation to establish such types and levels of compensation and benefits as
it determines to be appropriate
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or to modify or terminate compensation or benefit programs adopted pursuant to
the first sentence of this Section 5.13.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of each of the
following conditions:
(a) STOCKHOLDER APPROVAL. The Company Stockholder Approval shall
have been obtained.
(b) HSR ACT. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired.
(c) OTHER GOVERNMENTAL APPROVALS. All other consents,
authorizations, orders and approvals of (or filings or registrations with) any
Governmental Entity (other than under the HSR Act) required in connection with
the execution, delivery and performance of this Agreement shall have been
obtained or made, except for filing the Certificate of Merger and any other
documents required to be filed after the Effective Time and except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a material adverse effect on
Parent and the Company after the Effective Time.
(d) NO INJUNCTIONS OR RESTRAINTS. There shall not be in effect
any (i) decree, temporary restraining order, preliminary or permanent injunction
or other order entered, issued or enforced by any court of competent
jurisdiction or (ii) federal statute, rule or regulation enacted or promulgated,
in each case (i) or (ii) that prohibits the consummation of the Merger. There
shall not be in effect any state or local statute, rule or regulation enacted or
promulgated that prohibits the consummation of the Merger and which would have a
material adverse effect on Parent after the Effective Time.
(e) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(f) NYSE LISTING. The shares of Parent Common Stock, issuable to
the Company's stockholders pursuant to this Agreement shall have been approved
for listing on the New York Stock Exchange, Inc. ("NYSE"), subject to official
notice of issuance.
SECTION 6.02. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to effect the Merger are further subject to
satisfaction or waiver of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and correct,
in each case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except (i)
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for representations and warranties that are made as of a specific date (in which
case such representations and warranties shall be true and correct on and as of
such date, subject to the following clause (ii)) and (ii) for inaccuracies in
such representations and warranties that individually or in the aggregate do not
have a material adverse effect on the Company. Parent shall have received a
certificate dated the Closing Date and signed on behalf of the Company by the
chief financial officer of the Company to ;i((foregoing effects.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent shall
have received a certificate dated the Closing Date signed on behalf of the
Company by the chief financial officer of the Company to such effect.
(c) TAX OPINIONS. Parent shall have received from Gibson, Dunn &
Crutcher LLP, counsel to Parent, on the date of the Proxy Statement and on the
Closing Date, opinions, in each case dated as of such respective dates and
stating that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368 of the Code and that Parent,
Sub and the Company will each be a party to that reorganization within the
meaning of Section 368 of the Code. In rendering such opinions, counsel for
Parent shall be entitled to rely upon representations of officers of Parent, Sub
and the Company and representations of stockholders of the Company, in each case
reasonably satisfactory in form and substance to such counsel.
(d) LEGAL OPINION. Parent shall have received an opinion from
Bracewell & Patterson, L.L.P., special counsel to the Company, effective as of
the Closing Date, with respect to matters customary in public company merger
transactions.
(e) WAIVERS. Each executive officer and director of the Company
and former principal stockholder of the Founding Companies shall have waived all
applicable change of control provisions with respect to the Merger in any
employment agreement, stock option agreement or other contract and all such
agreements and contracts shall remain in full force and effect as of the
Effective Time.
SECTION 6.03. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation
of the Company to effect the Merger is further subject to satisfaction or waiver
of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Sub set forth in this Agreement shall be true and
correct, in each case as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except (i) for
representations and warranties that are made as of a specific date (in which
case such representations and warranties shall be true and correct on and as of
such date, subject to the following clause (ii)) and (ii) for inaccuracies in
such representations and warranties that individually or in the aggregate do not
have a material adverse effect on Parent. Parent shall have received a
certificate dated the Closing Date and signed on behalf of Parent by the chief
financial officer of Parent to the foregoing effects.
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(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND SUB. Parent and Sub
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and the
Company shall have received a certificate signed on behalf of Parent by the
chief financial officer of Parent to such effect.
(c) TAX OPINIONS. The Company shall have received from Arthur
Andersen LLP, on the date of the Proxy Statement and on the Closing Date,
opinions, in each case dated as of such respective dates and stating that the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368 of the Code and that Parent, Sub and the
Company will each be a party to that reorganization within the meaning of
Section 368 of the Code. In rendering such opinions, Arthur Andersen LLP for the
Company shall be entitled to rely upon representations of officers of Parent,
Sub and the Company and representations of stockholders of the Company, in each
case reasonably satisfactory in form and substance to such entity.
(d) LEGAL OPINION. The Company shall have received an opinion or
opinions from Gibson, Dunn & Crutcher LLP, special counsel to Parent and Sub,
dated the Closing Date, reasonably satisfactory to the Company, with respect to
matters customary in public company merger transactions.
ARTICLE VII
TERMINATION AMENDMENT AND WAIVER
SECTION 7.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Company Stockholder
Approval:
(a) by mutual written consent of Parent, Sub and the Company; or
(b) by either Parent or the Company as follows:
(i) if the Company Stockholders Meeting (including as it may
be adjourned from time to time) shall have concluded without the Company
Stockholder Approval having been obtained;
(ii) if the Merger shall not have been consummated on or
before August 30, 1998 (the 1'Termination Datet9), provided that the party
seeking to terminate this Agreement is not otherwise in material breach of this
Agreement;
(iii) if any Governmental Entity shall have issued an order,
injunction, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, injunction,
decree, ruling or other action shall have become final and nonappealable; or
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Agreement which (x) would give rise to the failure of a condition set forth in
Section 6.02(a) or (b) or Section 6.03(a) or (b), as
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applicable, and (y) cannot be cured by the Termination Date (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained in this Agreement); or
(c) by Parent if the Board of Directors of the Company approves
or recommends a superior proposal, or by the Company if the Board of Directors
of the Company approves or recommends a superior proposal pursuant to Section
4.02(b).
SECTION 7.02. EFFECT OF TERMINATION. If this Agreement is terminated by
either the Company or Parent pursuant to Section 7.01, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of Parent, Sub or the Company, (a) other than liabilities and
obligations under Section 3.01(m), the last sentence of Section 5.04, Section
5.07, this Section 7.02 and Article VIII and (b) except that no such termination
shall relieve any party of any liability for damages resulting from any material
breach by such party of this Agreement.
SECTION 7.03. AMENDMENT. This Agreement may be amended by the parties at
any time before or after the Company Stockholder Approval; provided, however,
that after any such approval, there shall not be made any amendment that by law
requires further approval by the stockholders of the Company without obtaining
such further approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
SECTION 7.04. EXTENSION; WAIVER. At any time prior to the Effective
Time, a party may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to the proviso to the first sentence of Section 7.03, waive compliance by the
other parties with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
SECTION 7.05. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER.
A termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 shall, in order to be effective, require in the case of Parent, Sub or the
Company, action by Board of Directors or the duly authorized designee of its
Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any document or
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 8.01 shall not
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limit any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
SECTION 8.02. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses and telecopier numbers (or at such other address or telecopier number
for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
William H. Lear, Esq.
Vice President-General Counsel and Secretary
Fleetwood Enterprises, Inc.
3 125 Myers Street
Riverside, California 92503
Telephone: (909) 351-3500
Telecopy: (909) 351-3776
with a copy to:
Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, California 92614
Telephone: (714) 451-3800
Telecopy: (714)451-4220
Attention: Robert E. Dean, Esq.
(b) if to the Company, to
HomeUSA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Telephone: (713) 965-0520
Telecopy: (713) 965-0109
Attention: Cary N. Vollintine, Chief Executive Officer
with a copy to:
Bracewell & Patterson, L.L.P
South Tower Pemizoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Telephone: (713) 223-2900
Telecopy: (713)221-1212
Attention: William D. Gutermuth, Esq.
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<PAGE>
SECTION 8.03. DEFINITIONS. For purposes of this Agreement
(a) an "affiliate" of any person means another person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first person.
(b) "Compensation and Benefit Plans" means all bonus, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock and other stock
plans, all employment or severance contracts, all other employee benefit plans
and any applicable "change of control" or similar provisions in any plan,
contract or arrangement which cover employees or former employees of a person or
any of its ERISA Affiliates and all other benefit plans, contracts or
arrangements (regardless of whether they are funded or unfunded or foreign or
domestic) covering employees or former employees of a person or any of its ERISA
Affiliates, including "employee benefit plans" within the meaning of Section
3(3) of ERISA.
(c) "indebtedness" means, with respect to any person, without
duplication, (i) all obligations of such person for borrowed money, (ii) all
obligations of such person evidenced by bonds, debentures, notes or similar
instruments, (iii) all obligations of such person under conditional sale or
other title retention agreements relating to property purchased by such person,
and (iv) all guarantees of such person of any indebtedness of any other person.
(d) "person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity.
(e) "material adverse change" or "material adverse effect" means,
when used in connection with the Company or Parent, any change or effect that is
or would be materially adverse to the business, operations, management or
condition (financial or otherwise) of such party and its subsidiaries taken as a
whole.
(f) "Significant Subsidiary" means (i) with respect to the
Company, the subsidiaries listed on the Company Disclosure Schedule and (ii)
with respect to Parent, those subsidiaries listed on the Parent Disclosure
Schedule.
(g) a "subsidiary" of any person means another person, an amount
of the voting securities or other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting securities or
interests, 50% or more of the equity interests of which) is owned directly or
indirectly by such first person.
(h) "superior proposal" means (i) a bona fide takeover proposal
to acquire, directly or indirectly, all or a substantial portion of the shares
of Company Common Stock then outstanding or all or substantially all the assets
of the Company and (ii) otherwise on terms which the Board of Directors of the
Company determines in its good faith judgment to be more
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favorable to the Company's stockholders than the Merger after receipt of the
written advice of the Company's independent financial advisor.
(i) "takeover proposal" means any proposal for a merger,
consolidation or other business combination involving the Company or any of its
Significant Subsidiaries or any proposal or offer to acquire in any manner,
directly or indirectly, an equity interest in, any voting securities of; or a
substantial portion of the assets of; the Company or any of its Significant
Subsidiaries, other than the transactions contemplated by this Agreement.
(j) "Taxes" means all Federal, state, local and foreign taxes,
and other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto.
(k) "Tax Returns" means all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and information
returns and any amended tax return relating to Taxes.
SECTION 8.04. INTERPRETATION. When a reference is made in this Agreement
to an Article, Section, subsection, Exhibit or Schedule, such reference shall be
to an Article or Section, subsection of; or an Exhibit or Schedule to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. 'Whenever the words
"include", "includes" and "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The words "hereof',
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. Headings of the Articles and Sections of this Agreement are for
the convenience of reference only, and shall be given no substantive or
interpretive effect whatsoever. All terms defined in this Agreement shall have
the defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a person are also to its permitted successors and assigns
and, in the case of an individual, to his or her heirs and estate, as
applicable.
SECTION 8.05. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.06. ENTIRE AGREEMENT NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments referred to herein) and the
Confidentiality Agreement
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(a) constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) except for the provisions of Article II
and Section 5.06, are not intended to confer upon any person other than the
parties any rights or remedies. The Company Disclosure Schedule and the Parent
Disclosure Schedule and all Exhibits attached hereto are hereby incorporated
herein and made a part hereof for all ,'purposes, as if fully set forth herein.
SECTION 8.07. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.08. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct wholly owned subsidiary of Parent, but no
such assignment shall relieve Sub of any of its obligations under this
Agreement. Any attempted assignment in violation of the preceding sentence shall
be void. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of; and be enforceable by, the parties and their respective
successors and assigns.
SECTION 8.09. ENFORCEMENT. The parties agree that irreparable damage
would occur and that the parties would not have any adequate remedy at law in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal court sitting in the State of
Delaware or a Delaware state court.
SECTION 8.10. SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. [f
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
44
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement !Q be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
FLEETWOOD ENTERPRISES, INC.
By: /s/ GLENN E. KUMMER
Name: Glenn E. Kummer
Title: Chairman and Chief Executive
Officer
HUSA ACQUISITION COMPANY
By: /s/ WILLIAM H. LEAR
Name: William H. Lear
Title: President
HOMEUSA, INC.
By: /s/ CARY N. VOLLINTINE
Name: Cary N. Vollintine
Title: Chief Executive Officer
45
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EXHIBIT A
TO AGREEMENT
AND PLAN OF MERGER
FORM OF AFFILIATE LETTER
Fleetwood Enterprises, Inc.
3 125 Myers Street
Riverside, California 92503
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed
to be an affiliate" of HomeUSA, Inc., a Delaware corporation (the "Company"), as
the term "affiliate" is defined for purposes of paragraphs (c) and (d) of Rule
145 of the rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"). I understand that subject to and pursuant to the terms of
the Agreement and Plan of Merger, dated as of February 17, 1998 (the
"Agreement"), among Fleetwood Enterprises, Inc., a Delaware corporation
("Parent"), HUSA Acquisition Company, a Delaware corporation ("Sub"), and the
Company, pursuant to which the Company will be merged with and into Sub (the
"Merger").
As a result of the Merger, I may receive shares of Stock, par value
$1.00 per share, of Parent (the "Parent Stock") in exchange for shares owned by
me of Common Stock, par value $0.01 per share, of the Company ("Company Stock").
I hereby represent, warrant and covenant to Parent that in the event I
receive any Parent Stock in the Merger:
A. I will not sell, transfer or otherwise dispose of any shares
of Parent Stock in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of
the Parent Stock to the extent I felt necessary, with counsel
C. I have been advised that the issuance of Parent Stock to me
pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been
advised that at the time the Merger is submitted for a vote of the
stockholders of the Company, I may be considered an affiliate of the
Company and that the distribution by me of the Parent Stock has not been
registered under the Act. Therefore, I will not sell, transfer or
otherwise dispose of any shares of Parent Stock issued to me in the
Merger unless (i) such sale, transfer or other disposition has been
registered under the Act, (ii) such sale, transfer or other disposition
is made in conformity with Rule 145 promulgated by the Commission under
the Act ("Rule 145"), or (iii) in the opinion of counsel reasonably
acceptable to Parent, or pursuant to a
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<PAGE>
"no action" letter obtained by the undersigned from the staff of the
Commission, such sale, transfer or other disposition is otherwise exempt
from registration under the Act.
D. I understand that Parent is under no obligation to register
the sale, transfer or other disposition of shares of Parent Stock by me
or on my behalf under the Act or to take any other action necessary in
order to make compliance with an exemption from such registration
available.
E. I also understand that stop transfer instructions will be
given to Parent's transfer agents with respect to the Parent Stock and
that there will be placed on the certificates for the shares of Parent
Stock issued to me, or any substitutions therefor, a legend stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT, DATED _________ 1998, BETWEEN
THE REGISTERED HOLDER HEREOF AND FLEETWOOD ENTERPRISES, INC., A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF FLEETWOOD
ENTERPRISES, INC."
F. I also understand that unless the transfer by me of any shares
of my Parent Stock has been registered under the Act or is a sale made
in conformity with the provisions of Rule 145, Parent reserves the right
to put the following legend on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E
and F above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act or this Agreement.
It is understood and agreed that such legends and the stop orders referred to
above will be removed if (i) one year shall have elapsed from the date the
undersigned acquired the Parent Stock received in the Merger and the provisions
of Rule 145(d)(2) are then available to the undersigned, (ii) two years shall
have elapsed from the date the
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undersigned acquired the Parent Stock received in the Merger and the provisions
of Rule 145(d)(3) are then available to the undersigned, or (iii) Parent has
received either an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to Parent, or a "no action" letter obtained by the
undersigned from the staff of the Commission, to the effect that the
restrictions imposed by Rule 145 no longer apply to the undersigned.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of the Company as described in the first paragraph
of this letter or as a waiver of any rights I may have to object to any claim
that I am such an affiliate on or after the date of this letter.
This letter constitutes the complete understanding between Parent and me
concerning the subject matter hereof. The Surviving Corporation (as defined in
the Agreement) is expressly intended to be a beneficiary of this letter
agreement. Any notice required to be sent to any party hereunder shall be sent
by registered or certified mail, return receipt requested, using the addresses
set forth herein or such other address as shall be furnished in writing by
Parent and the undersigned. This letter shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Delaware applicable to
contracts made and to be performed within such state.
Very truly yours,
[Name]
Address: _____________________________
______________________________________
______________________________________
Accepted this ___ day of
__________, 199__ by
FLEETWOOD ENTERPRISES, INC.
By: _______________________
Name:
Title:
48
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made and entered into by and
between HomeUSA, Inc., a Delaware corporation ("Company"), and Philip Campbell
("Indemnitee").
INTRODUCTION
Indemnitee is a director and/or officer of the Company. The parties
desire that the Company provide indemnification (including advancement of
expenses) to Indemnitee against any and all liabilities asserted against
Indemnitee to the fullest extent permitted by the Delaware General Corporation
Law ("Act"), as the Act presently exists and may be expanded from time to time.
Based on such premise, and for certain good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. CONTINUED SERVICE. Indemnitee will serve at the will of the Company
or under separate contract, if such exists, as a director and/or officer of the
Company for so long as Indemnitee is duly elected and qualified in accordance
with the Bylaws of the Company or until Indemnitee tenders his or her
resignation to the Company.
2. INDEMNIFICATION. The Company shall indemnify Indemnitee as follows:
2.1. The Company shall indemnify Indemnitee when Indemnitee was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company), by
reason of the fact that Indemnitee is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by Indemnitee in connection with such action, suit or proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that
Indemnitee's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that Indemnitee's conduct was unlawful.
<PAGE>
2.2. The Company shall indemnify Indemnitee when Indemnitee was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such action or suit if Indemnitee
acted in good faith and in a manner that Indemnitee reasonably believed to be in
or not opposed to the best interests of the Company and except that no
indemnification pursuant to this Agreement shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company unless and only to the extent that the Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
2.3. Any indemnification under Sections 2.1 and 2.2 (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case upon a determination, in accordance with the procedures set forth
in Section 3, that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct set forth in such
Sections 2.1 and 2.2. Such determination shall be made (1) by the board of
directors of the Company by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders of the Company.
2.4. Expenses (including attorneys' fees) incurred by Indemnitee
in defending any civil, criminal, administrative, or investigative action, suit
or proceeding shall be paid by the Company in advance of the final disposition
of such action, suit or proceeding, as authorized in the manner provided in
Section 2.3, within 14 days after the receipt by the Company from Indemnitee of
a Statement of Undertaking in substantially the form set forth in Exhibit A, in
which Indemnitee (1) states that Indemnitee has reasonably incurred actual
expenses in defending a civil, criminal, administrative, or investigative
action, suit or proceeding and (2) undertakes to repay such amount if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized in this Section 2.
2.5. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Section 2 shall not be deemed exclusive of any
other rights to which Indemnitee
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<PAGE>
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office, shall
continue after Indemnitee has ceased to be a director, officer, employee or
agent of the Company, and shall inure to the benefit of the heirs, executors and
administrators of Indemnitee.
3. DETERMINATION OF RIGHT TO INDEMNIFICATION. For the purpose of making
the determination of whether to indemnify Indemnitee in a specific case under
Section 2.3, the board of directors of the Company, independent legal counsel or
stockholders, as the case may be, shall make the determination in accordance
with the following procedures:
3.1. Indemnitee shall submit to the board of directors a
Statement of Request for Indemnification in substantially the form set forth in
Exhibit B, in which Indemnitee states that Indemnitee has met the applicable
standard of conduct set forth in Sections 2.1 and 2.2.
3.2. Indemnitee's submission of a Statement of Request for
Indemnification to the board of directors shall create a rebuttable presumption
that Indemnitee has met the applicable standard of conduct set forth in Sections
2.1 and 2.2 and, therefore, is entitled to indemnification under Section 2. The
board of directors, independent legal counsel or stockholders, as the case may
be, shall determine, within 30 days after submission of the Statement of Request
for Indemnification, specifically that Indemnitee is so entitled, unless it or
they shall possess clear and convincing evidence to rebut the foregoing
presumption, which evidence shall be disclosed to Indemnitee with particularity
in a sworn written statement signed by all persons who participated in the
determination and voted to deny indemnification.
4. MERGER, CONSOLIDATION OR CHANGE IN CONTROL. If the Company is a
constituent corporation in a merger or consolidation, whether the Company is the
resulting or surviving corporation or is absorbed as a result thereof, or if
there is a change in control of the Company, Indemnitee shall stand in the same
position under this Agreement with respect to the resulting, surviving or
changed corporation as Indemnitee would have with respect to the Company if its
separate existence had continued or if there had been no change in the control
of the Company.
5. CERTAIN DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the indicated meanings and understandings:
5.1. The term "other enterprise" shall include, among others,
employee benefit plans and civic, non-profit and charitable organizations,
whether or not incorporated.
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<PAGE>
5.2. The term "fines" shall include any excise taxes assessed on
Indemnitee with respect to any employee benefit plan.
5.3. The term "serving at the request of the Company" shall
include any service, at the request or with the express or implied authorization
of the Company, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, which
service imposes duties on, or involves services by, Indemnitee with respect to
such corporation, partnership, joint venture, trust or other enterprise, its
participants or beneficiaries. If Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
such other enterprise, its participants or beneficiaries, Indemnitee shall be
deemed to have acted in a manner not opposed to the best interests of the
Company.
5.4. The term "change of control" shall include any change in the
ownership of a majority of the outstanding voting securities of the Company or
in the composition of a majority of the members of the board of directors of the
Company.
6. ATTORNEYS' FEES. If Indemnitee institutes any legal action to enforce
Indemnitee's rights under this Agreement, or to recover damages for breach of
this Agreement, Indemnitee, if Indemnitee prevails in whole or in part, shall be
entitled to recover from the Company all fees and expenses (including attorneys'
fees) incurred by Indemnitee in connection therewith.
7. DEPOSIT OF FUNDS IN TRUST. If the Company voluntarily decides to
dissolve or to file a petition for relief under the applicable bankruptcy,
moratorium or similar laws, then not later than 10 days prior to such
dissolution or filing, the Company shall deposit in trust for the sole and
exclusive benefit of Indemnitee a cash amount equal to all amounts previously
authorized to be paid to Indemnitee hereunder, such amounts to be used to
discharge the Company's obligations to Indemnitee hereunder. Any amounts in such
trust not required for such purpose shall be returned to the Company. This
Section 7 shall not apply to the dissolution of the Company in connection with a
transaction as to which Section 4 applies.
8. AMENDMENTS TO ACT. This Agreement is intended to provide indemnity to
Indemnitee to the fullest extent allowed under Delaware law. Accordingly, to the
extent permitted by law, if the Act permits greater indemnity than the indemnity
set forth herein, or if any amendment is made to the Act expanding the indemnity
permissible under Delaware law, the indemnity obligations contained herein
automatically shall be expanded, without the necessity of action on the part of
any party, to the extent necessary to provide to Indemnitee the fullest
indemnity permissible under Delaware law.
-4-
<PAGE>
9. MISCELLANEOUS PROVISIONS.
9.1. SURVIVAL. The provisions of this Agreement shall survive
the termination of Indemnitee's service as a director or officer of the Company.
9.2. ENTIRE AGREEMENT. This Agreement constitutes the full
understanding of the parties and a complete and exclusive statement of the terms
and conditions of their agreement relating to the subject matter hereof and
supersedes all prior negotiations, understandings and agree ments, whether
written or oral, between the parties, their affiliates, and their respective
principals, shareholders, directors, officers, employees, consultants and agents
with respect thereto.
9.3. AMENDMENTS AND WAIVERS. No alteration, modification,
amendment, change or waiver of any provision of this Agreement shall be
effective or binding on any party hereto unless the same is in writing and is
executed by all parties hereto.
9.4. MODIFICATION AND SEVERABILITY. If a court of competent
jurisdiction declares that any provision of this Agreement is illegal, invalid
or unenforceable, then such provision shall be modified automatically to the
extent necessary to make such provision fully legal, valid or enforce able. If
such court does not modify any such provision as contemplated herein, but
instead declares it to be wholly illegal, invalid or unenforceable, then such
provision shall be severed from this Agreement, this Agreement and the rights
and obligations of the parties hereto shall be construed as if this Agreement
did not contain such severed provision, and this Agreement otherwise shall
remain in full force and effect.
9.5. ENFORCEABILITY. This Agreement shall be enforceable by and
against the Company, the Indemnitee and their respective executors, legal
representatives, administrators, heirs, successors and assignees.
9.6. GOVERNING LAW. This Agreement shall be governed by,
construed under, and enforce in accordance with the laws of the State of
Delaware without reference to the conflict-of-laws provisions thereof.
9.7. MULTIPLE COUNTERPARTS. This Agreement may be executed by the
parties hereto in multiple counterparts, each of which shall be deemed an
original for all purposes, and all of which together shall constitute one and
the same instrument.
-5-
<PAGE>
The parties hereto have executed this Agreement to be effective as of
November 26, 1997.
COMPANY:
HomeUSA, Inc.
By:
Name:
Title:
INDEMNITEE:
By:
Name:
Title:
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<PAGE>
EXHIBIT A
STATEMENT OF UNDERTAKING
STATE OF __________________ ss.
ss.
COUNTY OF _________________ ss.
I, __________________________________, being first duly sworn, depose
and say as follows:
1. This Statement of Undertaking is submitted pursuant to the Indemnity
Agreement dated __________________, between HomeUSA, Inc., a Delaware
corporation ("Company"), and me.
2. I am requesting the advancement of certain actual expenses which I
have reasonably incurred in defending a civil or criminal action, suit or
proceeding by reason of the fact that I am or was a director and/or officer of
the Company.
3. I hereby undertake to repay this advancement of expenses if it is
ultimately determined that I am not entitled to be indemnified by the Company.
4. I am requesting the advancement of expenses in connection with the
following action, suit or proceeding:
I have executed this Statement of Undertaking on .
_____________________________
Signature
_____________________________
Print Name
Subscribed and sworn to before me on ___________________.
Notary Public in and for
said state and county
My commission expires:
-7-
<PAGE>
EXHIBIT B
STATEMENT OF REQUEST FOR INDEMNIFICATION
STATE OF __________________ ss.
ss.
COUNTY OF _________________ ss.
I, _______________________________, being first duly sworn, depose and
say as follows:
1. This Statement of Request for Indemnification is submitted pursuant
to the Indemnity Agreement dated _________________, between HomeUSA, Inc., a
Delaware corporation ("Company"), and me.
2. I am requesting indemnification against expenses (including
attorneys' fees) and, with respect to any action not by or in the right of the
Company, judgments, fines and amounts paid in settlement, all of which have been
actually and reasonably incurred by me in connection with a certain action, suit
or proceeding to which I am a party or am threatened to be made a party by
reason of the fact that I am or was a director and/or officer of the Company.
3. With respect to all matters related to any such action, suit or
proceeding, I acted in good faith and in a manner I reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, I had no reason to believe that my conduct was
unlawful.
4. I am requesting indemnification in connection with the following
suit, action or proceeding:
I have executed this Statement of Request for Indemnification on
_______________.
_____________________________
Signature
_____________________________
Print Name
Subscribed and sworn to before me on ___________________.
Notary Public in and for
said state and county
My Commission expires:
-8-
<PAGE>
EXECUTION COPY
CREDIT AGREEMENT
Dated as of February 16, 1998
among
HOMEUSA, INC.
THE INSTITUTIONS FROM TIME TO TIME
PARTIES HERETO AS LENDERS
and
FIRST CHICAGO CAPITAL CORPORATION
as Agent
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I: DEFINITIONS
1.1 Certain Defined Terms .............................................. 1
1.2 References ......................................................... 23
ARTICLE II: THE LOAN FACILITIES
2.1 Loans .............................................................. 23
2.2 Rate Options for all Advances ...................................... 25
2.3 Optional Payments; Mandatory Prepayments ........................... 25
2.4 Reduction of Commitments ........................................... 26
2.5 Method of Borrowing ................................................ 26
2.6 Method of Selecting Types and Interest Periods for Advances ........ 26
2.7 Minimum Amount of Each Advance ..................................... 27
2.8 Method of Selecting Types and Interest Periods for Conversion
and Continuation of Advances ..................................... 27
2.9 Default Rate ....................................................... 27
2.10 Method of Payment .................................................. 28
2.11 Revolving Notes, Telephonic Notices ................................ 28
2.12 Promise to Pay; Interest and Commitment Fees; Interest
Payment Dates; Interest and Fee Basis; Taxes; Loan
and Control Accounts .............................................. 28
2.13 Notification of Advances, Interest Rates, Prepayments and
Aggregate Commitment Reductions ................................... 34
2.14 Lending Installations .............................................. 34
2.15 Non-Receipt of Funds by the Agent .................................. 34
2.16 Termination Date ................................................... 35
2.17 Replacement of Certain Lenders ..................................... 35
ARTICLE III: THE LETTER OF CREDIT FACILITY
3.1 Obligation to Issue ................................................ 36
3.2 Types and Amounts .................................................. 36
3.3 Conditions ......................................................... 36
3.4 Procedure for Issuance of Letters of Credit ........................ 37
3.5 Letter of Credit Participation ..................................... 37
3.6 Reimbursement Obligation ........................................... 38
3.7 Letter of Credit Fees .............................................. 38
3.8 Issuing Bank Reporting Requirements ................................ 39
3.9 Indemnification; Exoneration ....................................... 39
3.10 Cash Collateral .................................................... 40
ARTICLE IV: CHANGE IN CIRCUMSTANCES
4.1 Yield Protection ................................................... 41
4.2 Changes in Capital Adequacy Regulations ............................ 42
4.3 Availability of Types of Advances .................................. 42
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4.4 Funding Indemnification ............................................ 42
4.5 Lender Statements; Survival of Indemnity ........................... 43
ARTICLE V: CONDITIONS PRECEDENT
5.1 Initial Advances and Letters of Credit ............................. 43
5.2 Each Advance and Letter of Credit .................................. 45
ARTICLE VI: REPRESENTATIONS AND WARRANTIES
6.1 Organization; Corporate Powers ..................................... 46
6.2 Authority .......................................................... 46
6.3 No Conflict; Governmental Consents ................................. 47
6.4 Financial Statements ............................................... 47
6.5 No Material Adverse Change ......................................... 48
6.6 Taxes .............................................................. 48
6.7 Litigation; Loss Contingencies and Violations ...................... 49
6.8 Subsidiaries ....................................................... 49
6.9 ERISA .............................................................. 50
6.10 Accuracy of Information ............................................ 50
6.11 Securities Activities .............................................. 51
6.12 Material Agreements ................................................ 51
6.13 Compliance with Laws ............................................... 51
6.14 Assets and Properties .............................................. 51
6.15 Statutory Indebtedness Restrictions ................................ 51
6.16 Insurance .......................................................... 52
6.17 Labor Matters ...................................................... 52
6.18 Initial Acquisitions; Related Transactions ......................... 52
6.19 Environmental Matters .............................................. 52
6.20 The Public Offering ................................................ 53
6.21 Benefits ........................................................... 54
ARTICLE VII: COVENANTS
7.1 Reporting ........................................................... 54
7.2 Affirmative Covenants ............................................... 58
7.3 Negative Covenants .................................................. 61
7.4 Financial Covenants ................................................. 70
ARTICLE VIII: DEFAULTS
8.1 Defaults ............................................................ 71
ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS,
AMENDMENTS AND REMEDIES
9.1 Termination of Commitments; Acceleration ............................ 74
9.2 Defaulting Lender ................................................... 74
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9.3 Amendments .......................................................... 76
9.4 Preservation of Rights .............................................. 77
ARTICLE X: GENERAL PROVISIONS
10.1 Survival of Representations ........................................ 77
10.2 Governmental Regulation ............................................ 77
10.3 Performance of Obligations ......................................... 77
10.4 Headings ........................................................... 78
10.5 Entire Agreement ................................................... 78
10.6 Several Obligations; Benefits of this Agreement .................... 78
10.7 Expenses; Indemnification .......................................... 78
10.8 Numbers of Documents ............................................... 80
10.9 Accounting ......................................................... 80
10.10 Severability of Provisions ........................................ 80
10.11 Nonliability of Lenders ........................................... 80
10.12 GOVERNING LAW ..................................................... 81
10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL ........... 81
10.14 No Strict Construction ............................................ 82
10.15 Subordination of Intercompany Indebtedness ........................ 83
10.16 Usury Not Intended ................................................ 84
10.17 Business Loans .................................................... 85
ARTICLE XI: THE AGENT
11.1 Appointment; Nature of Relationship ................................ 85
11.2 Powers ............................................................. 85
11.3 General Immunity ................................................... 85
11.4 No Responsibility for Loans, Creditworthiness,
Collateral, Recitals, Etc ........................................ 86
11.5 Action on Instructions of Lenders .................................. 86
11.6 Employment of Agents and Counsel ................................... 86
11.7 Reliance on Documents; Counsel ..................................... 86
11.8 The Agent's Reimbursement and Indemnification ...................... 86
11.9 Rights as a Lender ................................................. 87
11.10 Lender Credit Decision ............................................ 87
11.11 Successor Agent ................................................... 87
11.12 Collateral Documents .............................................. 88
ARTICLE XII: SETOFF; RATABLE PAYMENTS
12.1 Setoff ............................................................. 89
12.2 Ratable Payments ................................................... 89
12.3 Application of Payments ............................................ 89
12.4 Relations Among Lenders ............................................ 90
ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
iii
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13.1 Successors and Assigns ............................................. 91
13.2 Participations ..................................................... 91
13.3 Assignments ........................................................ 92
13.4 Confidentiality .................................................... 94
13.5 Dissemination of Information ....................................... 94
ARTICLE XIV: NOTICES
14.1 Giving Notice ...................................................... 94
14.2 Chang of Address ................................................... 94
ARTICLE XV: COUNTERPARTS
iv
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBITS
EXHIBIT A -- Form of Assignment Agreement
(Definitions, Sections 2.17 and 13.3)
EXHIBIT B -- Commitments
(Definitions)
EXHIBIT C-1 -- Form of Revolving Note
(Definitions)
EXHIBIT C-2 -- Form of Swing Line Note
(Definitions)
EXHIBIT D -- Form of Borrowing Notice (Section 2.6)
EXHIBIT E -- Form of Request for Letter of Credit (Section 3.3)
EXHIBIT F -- Form of Borrower's Counsel's Opinion
(Section 5.1)
EXHIBIT G -- List of Closing Documents
(Section 5.1)
EXHIBIT H -- Form of Officer's Certificate
(Sections 5.2 and 7.1(A)(iii))
EXHIBIT I -- Form of Compliance Certificate
(Sections 5.2 and 7.1(A)(iii))
EXHIBIT J -- Form of Guaranty Supplement
(Section 7.3(G)(ii))
EXHIBIT K -- Form of Pledge Supplement
(Section 7.3(G)(ii))
v
<PAGE>
SCHEDULES
Schedule 1.1.1 -- Founding Companies (Definitions)
Schedule 1.1.2 -- Initial Shareholders
Schedule 1.1.3 -- Permitted Existing Indebtedness (Definitions)
Schedule 1.1.4 -- Permitted Existing Investments (Definitions)
Schedule 1.1.5 -- Permitted Existing Liens (Definitions)
Schedule 6.8 -- Subsidiaries (Section 6.8)
Schedule 6.19 -- Environmental Matters (Section 6.19)
Schedule 7.3 -- Subordination Terms (Section 7.3(A)(iii)
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<PAGE>
CREDIT AGREEMENT
This Credit Agreement dated as of February 16, 1998 is entered into
among HomeUSA, Inc., a Delaware corporation, the institutions from time to time
parties hereto as Lenders, whether by execution of this Agreement or an
Assignment Agreement pursuant to SECTION 13.3, and First Chicago Capital
Corporation, in its capacity as contractual representative for itself and the
other Lenders. The parties hereto agree as follows:
ARTICLE I: DEFINITIONS
. In addition to the terms defined above, the following terms used in
this Agreement shall have the following meanings, applicable both to the
singular and the plural forms of the terms defined.
As used in this Agreement:
"ACQUISITION" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage of voting power) of the
outstanding equity interests of another Person.
"ACQUISITION DOCUMENTS" means all material documents, instruments and
agreements entered into in connection with the Initial Acquisitions.
"ADJUSTED EBITDA" means EBITDA PLUS the PRO FORMA adjustments which are
consistent with the Commission's regulations and practices as of the Closing
Date (whether or not applicable) to account for adjustments to historical EBITDA
for the Founding Companies as described in the Prospectus and other acquired
entities (other than the Founding Companies) which are the result of a Permitted
Acquisition.
"ADJUSTED LEVERAGE RATIO" means the ratio of (i) Total Debt of the
Borrower and its consolidated Subsidiaries to (ii) the sum of (A) EBITDA of the
Borrower and its Subsidiaries PLUS (B) the PRO FORMA adjustments which are
consistent with the Commission's regulations and practices as of the Closing
Date (whether or not applicable) to account for adjustments to historical EBITDA
for the Founding Companies PLUS (C) any PRO FORMA adjustments reasonably
acceptable to the Agent to account for adjustments to historical EBITDA with
respect to salary expenses of top management and officers historically
experienced by any acquired entity (other than the Founding Companies) which are
the result of a Permitted Acquisition.
<PAGE>
"ADJUSTED REVENUES" means revenues calculated for any period by
including the actual amount for the applicable period ending on such day for the
Borrower and its Subsidiaries, including the actual revenues of the targets from
any Permitted Acquisitions from the first day of the applicable period through
the date of the closing of each Permitted Acquisition, utilizing (a) where
available or required pursuant to the terms of this Agreement, historical
audited and/or reviewed unaudited financial statements obtained from the seller,
broken down by fiscal quarter in the Borrower's reasonable judgment or (b)
unaudited financial statements (where no audited or reviewed financial
statements are required pursuant to the terms of this Agreement) reviewed
internally by the Borrower, broken down by fiscal quarter in the Borrower's
reasonable judgment.
"ADVANCE" means a borrowing hereunder consisting of the aggregate amount
of the several Revolving Loans made by the Lenders to the Borrower of the same
Type and, in the case of Eurodollar Rate Advances, for the same Interest Period.
"AFFECTED LENDER" is defined in SECTION 2.17 hereof.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person is the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of greater than ten percent (10%) or more of any class of voting
securities (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether through ownership of
Capital Stock, by contract or otherwise.
"AGENT" means FCCC in its capacity as contractual representative for
itself and the Lenders pursuant to ARTICLE XI hereof and any successor Agent
appointed pursuant to ARTICLE XI hereof.
"AGGREGATE COMMITMENT" means the aggregate of the Commitments of all the
Lenders, as amended from time to time pursuant to the terms hereof. The initial
Aggregate Commitment is Twenty-five Million and 00/100 Dollars ($25,000,000.00).
"AGREEMENT" means this Credit Agreement, as it may be amended, restated
or otherwise modified and in effect from time to time.
"AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting
principles in effect from time to time, applied in a manner consistent with that
used in preparing the financial statements referred to in SECTION 6.4(A) hereof,
PROVIDED, HOWEVER, that with respect to the calculation of financial ratios and
other financial tests required by this Agreement, "Agreement Accounting
Principles" means generally accepted accounting principles as in effect as of
the date of this Agreement, applied in a manner consistent with that used in
preparing the financial statements referred to in Section 6.4(A) hereof;
PROVIDED, further, however, all pro forma financial statements reflecting
Acquisitions shall be prepared in accordance with the requirements established
by the Commission for acquisition accounting for reporting acquisitions by
public companies (whether or not such Acquisitions are required to be publicly
reported or not).
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"ALTERNATE BASE RATE" means, for any day, a fluctuating rate of interest
per annum equal to the higher of (i) the Corporate Base Rate for such day and
(ii) the sum of (a) the Federal Funds Effective Rate for such day and (b)
one-half of one percent (0.5%) per annum.
"APPLICABLE COMMITMENT FEE PERCENTAGE" means, as at any date of
determination, the rate per annum then applicable in the determination of the
amount payable under SECTION 2.12(C)(i) hereof determined in accordance with the
provisions of SECTION 2.12(D)(ii) hereof.
"APPLICABLE EURODOLLAR MARGIN" means, as at any date of determination
prior to the Conversion Date, the rate per annum then applicable to Eurodollar
Rate Loans determined in accordance with the provisions of SECTION 2.12(D)(II)
hereof and, at any date thereafter, 5.25%.
"APPLICABLE FLOATING RATE MARGIN" means, as at any date of determination
prior to the Conversion Date, the rate per annum then applicable to Floating
Rate Loans determined in accordance with the provisions of SECTION 2.12(D)(ii)
hereof and, at any date thereafter, 4.0%.
"APPLICABLE L/C FEE PERCENTAGE" means, with respect to any Letter of
Credit and as at any date of determination, a rate per annum equal to the
Applicable Eurodollar Margin in effect on such date.
"ARRANGER" means First Chicago Capital Markets, Inc., in its capacity as
the arranger for the loan transaction evidenced by this Agreement.
"ASSET SALE" means, with respect to any Person, the sale, lease,
conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-leaseback transaction and including the sale or
other transfer of any of the Equity Interests of any Subsidiary of such Person).
"ASSIGNMENT AGREEMENT" shall mean an assignment and acceptance agreement
entered into in connection with an assignment pursuant to SECTION 13.3 hereof in
substantially the form of EXHIBIT A.
"AUTHORIZED OFFICER" means any of the Chief Executive Officer, Chief
Financial Officer, Vice President-Administration or Treasurer of the Borrower,
acting singly.
"BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35)
of ERISA (other than a Multiemployer Plan) in respect of which the Borrower or
any other member of the Controlled Group is, or within the immediately preceding
six (6) years was, an "employer" as defined in Section 3(5) of ERISA.
"BORROWER" means HomeUSA, Inc., a Delaware corporation, together with
its successors and assigns, including a debtor-in-possession on behalf of the
Borrower.
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<PAGE>
"BORROWING DATE" means a date on which an Advance or Swing Line Loan is
made hereunder.
"BORROWING NOTICE" is defined in SECTION 2.6 hereof.
"BUSINESS DAY" means (i) with respect to any borrowing, payment or rate
selection of Loans bearing interest at the Eurodollar Rate, a day (other than a
Saturday or Sunday) on which banks are open for business in Chicago, Illinois
and on which dealings in Dollars are carried on in the London interbank market
and (ii) for all other purposes a day (other than a Saturday or Sunday) on which
banks are open for business in Chicago, Illinois.
"CAPITAL EXPENDITURES" means, for any period, the aggregate of all
expenditures (whether paid in cash or accrued as liabilities, including
Capitalized Leases and Permitted Purchase Money Indebtedness) (other than in
connection with Permitted Acquisitions) by the Borrower and its Subsidiaries
during that period that, in conformity with Agreement Accounting Principles, are
required to be included in or reflected by the property, plant, equipment or
similar fixed asset accounts reflected in the consolidated balance sheet of the
Borrower and its Subsidiaries.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CAPITALIZED LEASE" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be capitalized
on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
Eurodollar certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, any foreign bank, or its branches or agencies (fully protected against
currency fluctuations for any such deposits with a term of more than ten (10)
days); (iii) shares of money market, mutual or similar funds having assets in
excess of $100,000,000 and the investments of which are limited to investment
grade securities (i.e., securities rated at least Baa by Moody's Investors
Service, Inc. or at least BBB by Standard & Poor's Ratings Group); (iv)
commercial paper of United States and foreign banks and bank holding companies
and their subsidiaries and United States and foreign finance,
4
<PAGE>
commercial industrial or utility companies which, at the time of acquisition,
are rated A-1 (or better) by Standard & Poor's Ratings Group or P-1 (or better)
by Moody's Investors Services, Inc.; (v) corporate bonds, mortgage-backed
securities and municipal bonds in each case of a domestic issuer rated at the
date of acquisition not less than Aaa by Moody's Investor Services, Inc. or AAA
by Standard & Poor's Ratings Group with maturities of no more than two (2) years
from the date of acquisition; (vi) repurchase agreements secured by debt
securities of the type described in part (i) above, the market value of which,
including accrued interest, is not less than 100% of the amount of the
repurchase agreement, with maturities of no more than two years from the date of
acquisition, issued by or acquired from or through any Lender or any bank or
trust company organized under the laws of the United States or any state thereof
and having capital and surplus aggregating at least $100,000,000.00; and (vii)
money market funds with respect to which not less than 90% of such funds are
invested in the type of investments specified in clauses (i) through (v) above;
PROVIDED, unless the context otherwise requires, that the maturities of such
Cash Equivalents shall not exceed 365 days.
"CHANGE" is defined in SECTION 4.2 hereof.
"CHANGE OF CONTROL" means an event or series of events by which:
(i) any "person" or "group" (as such terms are used in SECTIONS
13(D) and 14(D) of the Exchange Act), other than the Initial
Shareholders, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person
has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of 30% or
more of the combined voting power of the Borrower's Capital Stock
ordinarily having the right to vote at an election of directors;
(ii) during any period of 24 consecutive calendar months,
individuals:
(a) who were directors of the Borrower on the first day of such
period, or
(b) whose election or nomination for election to the board of
directors of the Borrower was recommended or approved by at
least a majority of the directors then still in office who
were directors of the Borrower on the first day of such
period, or whose election or nomination for election was so
approved,
shall cease to constitute a majority of the board of directors of the
Borrower;
(iii) the Borrower consolidates with or merges into another
corporation or conveys, transfers or leases all or substantially all of
its property to any Person, or any corporation consolidates with or
merges into the Borrower, in either event pursuant to a transaction in
which the outstanding Capital Stock of the Borrower is reclassified or
changed into or exchanged for cash, securities or other property; and
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(iv) other than as a result of a transaction permitted under the
terms of this Agreement, the Borrower shall cease (a) to own, of record
and beneficially, with sole voting and dispositive power, (1) 100% of
the outstanding shares of Capital Stock of each of the Founding
Companies, or (2) 80% of the outstanding shares of Capital Stock of each
of the other Guarantors or (b) to have the power, directly or
indirectly, to elect a majority of the members of the board of directors
of each of the Guarantors.
"CLOSING DATE" means the date on which the initial Loans are advanced
hereunder.
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time, or any successor statute.
"COLLATERAL" means any property owned by the Borrower or any of its
Subsidiaries and pledged to the Agent pursuant to the Pledge Agreements to
secure the Secured Obligations.
"COMMISSION" means the Securities and Exchange Commission and any Person
succeeding to the functions thereof.
"COMMITMENT" means, for each Lender, the obligation of such Lender to
make Revolving Loans and to purchase participations in Letters of Credit not
exceeding the amount set forth on EXHIBIT B to this Agreement opposite its name
thereon under the heading "Commitment" or on Schedule 1 of the Assignment
Agreement by which it became a Lender, as such amount may be modified from time
to time pursuant to the terms of this Agreement or to give effect to any
applicable Assignment Agreement.
"CONSOLIDATED TANGIBLE ASSETS" means the total assets of the Borrower
and its Subsidiaries on a consolidated basis, but excluding therefrom all items
that are treated as intangibles under Agreement Accounting Principles.
"CONSOLIDATED NET WORTH" means, at a particular date, all amounts which
would be included under shareholders' equity for the Borrower and its
consolidated Subsidiaries determined in accordance with Agreement Accounting
Principles.
"CONTAMINANT" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBs"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
"CONTINGENT OBLIGATION", as applied to any Person, means any Contractual
Obligation, contingent or otherwise, of that Person with respect to any
Indebtedness of another or other obligation or liability of another, including,
without limitation, any such Indebtedness, obligation or liability of another
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including
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Contractual Obligations (contingent or otherwise) arising through any agreement
to purchase, repurchase, or otherwise acquire such Indebtedness, obligation or
liability or any security therefor, or to provide funds for the payment or
discharge thereof (whether in the form of loans, advances, stock purchases,
capital contributions or otherwise), or to maintain solvency, assets, level of
income, or other financial condition, or to make payment other than for value
received.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision
of any equity or debt securities issued by that Person or any indenture,
mortgage, deed of trust, security agreement, pledge agreement, guaranty,
contract, undertaking, agreement or instrument, in each case in writing, to
which that Person is a party or by which it or any of its properties is bound,
or to which it or any of its properties is subject.
"CONTROLLED GROUP" means the group consisting of (i) any corporation
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Borrower; (ii) a partnership or
other trade or business (whether or not incorporated) which is under common
control (within the meaning of Section 414(c) of the Code) with the Borrower;
and (iii) a member of the same affiliated service group (within the meaning of
Section 414(m) of the Code) as the Borrower, any corporation described in CLAUSE
(i) above or any partnership or trade or business described in CLAUSE (ii)
above.
"CONTROLLED SUBSIDIARY" of any Person means a Subsidiary of such Person
(i) 90% or more of the total Equity Interests or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more wholly-owned Subsidiaries of such Person and (ii)
of which such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies, whether through the ownership
of voting securities, by agreement or otherwise.
"CONVERSION/CONTINUATION NOTICE" is defined in SECTION 2.8(D) hereof.
"CONVERSION DATE" means August 16, 1998.
"CORPORATE BASE RATE" means the corporate base rate of interest
announced by First Chicago from time to time, changing when and as said
corporate base rate changes.
"CURE LOAN" is defined in SECTION 9.2(iii) hereof.
"CUSTOMARY PERMITTED LIENS" means:
(i) Liens with respect to the payment of taxes, assessments or
governmental charges in all cases which are not yet due or (if
foreclosure, distraint, sale or other similar proceedings shall not have
been commenced) which are being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and with
respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with Agreement Accounting Principles;
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(ii) statutory Liens of landlords and Liens of suppliers,
mechanics, carriers, materialmen, warehousemen or workmen and other
similar Liens imposed by law created in the ordinary course of business
for amounts not yet due or which are being contested in good faith by
appropriate proceedings properly instituted and diligently conducted and
with respect to which adequate reserves or other appropriate provisions
are being maintained in accordance with Agreement Accounting Principles;
(iii) Liens incurred or deposits made, in each case, in the
ordinary course of business in connection with worker's compensation,
unemployment insurance or other types of social security benefits or to
secure the performance of bids, tenders, sales, contracts (other than
for the repayment of borrowed money), surety, appeal and performance
bonds; PROVIDED that (A) all such Liens do not in the aggregate
materially detract from the value of the Borrower's or such Subsidiary's
assets or property taken as a whole or materially impair the use thereof
in the operation of the businesses taken as a whole, and (B) with
respect to Liens securing bonds to stay judgments or in connection with
appeals do not secure at any time an aggregate amount which if paid at
such time would result in the occurrence or existence of a Default;
(iv) Liens arising with respect to zoning restrictions,
easements, licenses, reservations, covenants, rights-of-way, utility
easements, building restrictions and other similar charges or
encumbrances on the use of real property which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Borrower or
any of its Subsidiaries;
(v) Liens of attachment or judgment with respect to judgments,
writs or warrants of attachment, or similar process against the Borrower
or any of its Subsidiaries which do not constitute a Default under
SECTION 8.1(h) hereof; and
(vi) any interest or title of the lessor in the property subject
to any operating lease entered into by the Borrower or any of its
Subsidiaries in the ordinary course of business.
"DEFAULT" means an event described in ARTICLE VIII hereof.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the Termination Date.
"DOL" means the United States Department of Labor and any Person
succeeding to the functions thereof.
"DOLLAR" and "$" means dollars in the lawful currency of the United
States.
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"EBITDA" means, for any period, on a consolidated basis for the Borrower
and its Subsidiaries, the sum of the amounts for such period, without
duplication, of:
(i) Net Income,
PLUS (ii) Interest Expense,
PLUS (iii) charges against income for foreign, federal, state
and local taxes, to the extent deducted in computing Net
Income,
PLUS (iv) depreciation expense, to the extent deducted in computing
Net Income,
PLUS (v) amortization expense, including, without limitation,
amortization of goodwill, other intangible assets and
Transaction Costs, to the extent deducted in computing Net
Income,
PLUS (vi) other non-cash charges classified as long-term
deferrals in accordance with Agreement Accounting
Principles, to the extent deducted in computing Net
Income,
MINUS (vii) Net Extraordinary Gains, and
PLUS (viii) for the fiscal quarters ending prior to the fiscal
quarter ending December 31, 1998, all non-cash
compensation expenses of the Borrower associated with the
issuance of common stock of the Borrower in connection
with the Public Offering to management of the Borrower or
the Founding Companies and consultants to the Borrower.
As used herein "NET EXTRAORDINARY GAINS" shall mean the sum of, but only if
positive, extraordinary gains (and any nonrecurring unusual gains arising in or
outside of the ordinary course of business not included in extraordinary gains
determined in accordance with Agreement Accounting Principles which have been
included in the determination of Net Income) MINUS extraordinary losses (and any
nonrecurring unusual losses arising in or outside of the ordinary course of
business not included in extraordinary losses determined in accordance with
Agreement Accounting Principles). EBITDA shall be calculated for any period by
including the actual amount for the applicable period ending on such day,
including the EBITDA attributable to Permitted Acquisitions occurring during
such period on a PRO FORMA basis for the period from the first day of the
applicable period through the date of the closing of each Permitted Acquisition,
utilizing (a) where available or required pursuant to the terms of this
Agreement, historical audited and/or reviewed unaudited financial statements
obtained from the seller, broken down by fiscal quarter in the Borrower's
reasonable judgment or (b) unaudited financial statements (where no audited or
reviewed financial statements are required pursuant to the terms of this
Agreement) reviewed internally by the Borrower, broken down in the Borrower's
reasonable judgment.
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"ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all
Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. SS 9601 ET SEQ., the Occupational Safety and Health Act of 1970,
29 U.S.C. SS 651 ET SEQ., and the Resource Conservation and Recovery Act of
1976, 42 U.S.C. SS 6901 ET SEQ., in each case including any amendments thereto,
any successor statutes, and any regulations or guidance promulgated thereunder,
and any state or local equivalent thereof.
"ENVIRONMENTAL LIEN" means a lien in favor of any Governmental Authority
for (a) any liability under Environmental, Health or Safety Requirements of Law,
or (b) damages arising from, or costs incurred by such Governmental Authority in
response to, a Release or threatened Release of a Contaminant into the
environment.
"ENVIRONMENTAL PROPERTY TRANSFER ACT" means any applicable requirement
of law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Industrial Site Recovery
Act" or "Responsible Property Transfer Act."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"EURODOLLAR BASE RATE" means, with respect to a Eurodollar Rate Loan for
the relevant Interest Period, the rate determined by the Agent to be the
arithmetic average of the respective rates at which deposits in Dollars are
offered by First Chicago to first-class banks in the London interbank market at
approximately 11 a.m. (London time) two Business Days prior to the first day of
such Interest Period, in the approximate amounts of the portions of the relevant
Eurodollar Rate Loan of First Chicago, and having a maturity approximately equal
to such Interest Period, as adjusted for Reserves.
"EURODOLLAR RATE" means, with respect to a Eurodollar Rate Loan for the
relevant Interest Period, the Eurodollar Base Rate applicable to such Interest
Period PLUS the then Applicable Eurodollar Margin. The Eurodollar Rate shall be
rounded to the next higher multiple of 1/16 of 1% if the rate is not such a
multiple.
"EURODOLLAR RATE ADVANCE" means an Advance which bears interest at the
Eurodollar Rate.
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"EURODOLLAR RATE LOAN" means a Revolving Loan, or portion thereof, which
bears interest at the Eurodollar Rate.
"FAIR VALUE" means (a) with respect to the Capital Stock of the
Borrower, the closing price for such Capital Stock on the trading date
immediately preceding the date of the applicable acquisition agreement;
PROVIDED, such amount may be discounted to the extent such discount is permitted
by Agreement Accounting Principles and (b) with respect to other assets, the
value of the relevant asset as of the date of acquisition or sale determined in
an arm's-length transaction conducted in good faith between an informed and
willing buyer and an informed and willing seller under no compulsion to buy.
"FCCC" means First Chicago Capital Corporation, in its individual
capacity, and its successors.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"FIRST CHICAGO" means The First National Bank of Chicago, in its
individual capacity, and its successors.
"FIXED CHARGE COVERAGE RATIO" is defined in SECTION 7.4(A) hereof.
"FLOATING RATE" means, for any day for any Revolving Loan, a rate per
annum equal to the Alternate Base Rate for such day PLUS the then Applicable
Floating Rate Margin, changing and as the Alternate Base Rate or Applicable
Floating Rate Margin changes.
"FLOATING RATE ADVANCE" means an Advance which bears interest at the
Floating Rate.
"FLOATING RATE LOAN" means a Loan, or portion thereof, which bears
interest at the Floating Rate.
"FOUNDING COMPANIES" means each of the Persons listed on SCHEDULE 1.1.1
hereto.
"GOVERNMENTAL ACTS" is defined in SECTION 3.9(a) hereof.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
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"GROSS NEGLIGENCE" means recklessness, the absence of the slightest care
or the complete disregard of consequences. Gross Negligence does not mean the
absence of ordinary care or diligence, or an inadvertent act or inadvertent
failure to act. If the term "gross negligence" is used with respect to the Agent
or any Lender or any indemnitee in any of the other Loan Documents, it shall
have the meaning set forth herein.
"GUARANTORS" means all of the Borrower's Material Subsidiaries (which
shall include the Founding Companies) as of the Closing Date and any other New
Subsidiaries which have satisfied the provisions of SECTION 7.3(F)(ii) hereof,
and their respective successors and assigns.
"GUARANTY" means that certain Subsidiary Guaranty dated as of the date
hereof executed by the Guarantors in favor of the Agent, for the ratable benefit
of the Lenders, as it may be amended, modified, supplemented and/or restated
(including to add new Guarantors), and as in effect from time to time.
"HEDGING OBLIGATIONS" of a Person means any and all obligations of such
Person, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"INDEBTEDNESS" of any Person means, without duplication, such Person's
(a) obligations for borrowed money, (b) obligations representing the deferred
purchase price of property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (c) obligations, whether or not assumed, secured by Liens or payable out
of the proceeds or production from property or assets now or hereafter owned or
acquired by such Person, (d) obligations which are evidenced by notes,
acceptances or other instruments, (e) Capitalized Lease Obligations, (f)
reimbursement obligations with respect to letters of credit (other than
commercial letters of credit) issued for the account of such Person, (g) Hedging
Obligations, (h) Off Balance Sheet Liabilities and (i) Contingent Obligations in
respect of obligations of another Person of the type described in the foregoing
clauses (a) through (h). The amount of Indebtedness of any Person at any date
shall be without duplication (i) the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such Contingent Obligations at such date and (ii) in the case of Indebtedness of
others secured by a Lien to which the property or assets owned or held by such
Person is subject, the lesser of the fair market value at such date of any asset
subject to a Lien securing the Indebtedness of others and the amount of the
Indebtedness secured.
"INDEMNIFIED MATTERS" is defined in SECTION 10.7(B) hereof.
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"INDEMNITEES" is defined in SECTION 10.7(B) hereof.
"INFORMATION MEMORANDUM" is defined in SECTION 6.4(A).
"INITIAL ACQUISITIONS" means the acquisition by the Borrower in separate
merger transactions (the "MERGERS"), in exchange for cash and shares of its
common stock, of the Founding Companies.
"INITIAL SHAREHOLDERS" means each of the Persons listed on SCHEDULE
1.1.2 hereto.
"INTEREST EXPENSE" means, for any period, the total interest expense of
the Borrower and its consolidated Subsidiaries, whether paid or accrued
(including the interest component of Capitalized Leases, commitment and letter
of credit fees), but excluding interest expense not payable in cash (including
amortization of discount), all as determined in conformity with Agreement
Accounting Principles. Interest Expense shall be calculated for any period by
including the actual amount for the applicable period ending on such day for the
Borrower and its Subsidiaries, including the actual Interest Expense of the
Founding Companies and the targets from any Permitted Acquisitions for the
period from the first day of the applicable period through the date of the
closing of each Permitted Acquisition, utilizing (a) where available or required
pursuant to the terms of this Agreement, historical audited and/or reviewed
unaudited financial statements obtained from the seller, broken down by fiscal
quarter in the Borrower's reasonable judgment or (b) unaudited financial
statements (where no audited or reviewed financial statements are required
pursuant to the terms of this Agreement) reviewed internally by the Borrower,
broken down in the Borrower's reasonable judgment.
"INTEREST PERIOD" means, with respect to a Eurodollar Rate Loan, a
period of one (1), two (2), three (3) or six (6) months commencing on a Business
Day selected by the Borrower pursuant to this Agreement. Such Interest Period
shall end on (but exclude) the day which corresponds numerically to such date
one, two, three or six months thereafter; PROVIDED, HOWEVER, that if there is no
such numerically corresponding day in such next, second, third or sixth
succeeding month, such Interest Period shall end on the last Business Day of
such next, second, third or sixth succeeding month. If an Interest Period would
otherwise end on a day which is not a Business Day, such Interest Period shall
end on the next succeeding Business Day, PROVIDED, HOWEVER, that if said next
succeeding Business Day falls in a new calendar month, such Interest Period
shall end on the immediately preceding Business Day.
"INVESTMENT" means, with respect to any Person, (i) any purchase or
other acquisition by that Person of any Indebtedness, Equity Interests or other
securities, or of a beneficial interest in any Indebtedness, Equity Interests or
other securities, issued by any other Person, (ii) any purchase by that Person
of all or substantially all of the assets of a business conducted by another
Person, and (iii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, advances to employees and similar items made or incurred in the
ordinary course of business) or capital contribution by that Person to any other
Person, including all Indebtedness to such Person arising from a sale of
property by such Person other than in the ordinary course of its business.
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"IRS" means the Internal Revenue Service and any Person succeeding to
the functions thereof.
"ISSUING BANKS" means FCCC and one of its Affiliates and any other
Lender which, at the Borrower's request, agrees, in each such Lender's sole
discretion, to become an Issuing Bank for the purpose of issuing Letters of
Credit, and their respective successors and assigns, in each case in such
Lender's separate capacity as an issuer of Letters of Credit pursuant to SECTION
3.1. The designation of any Lender as an Issuing Bank after the date hereof
shall be subject to the prior written consent of the Agent.
"L/C DRAFT" means a draft drawn on an Issuing Bank pursuant to a Letter
of Credit.
"L/C INTEREST" shall have the meaning ascribed to such term in SECTION
3.5 hereof.
"L/C OBLIGATIONS" means, without duplication, an amount equal to the sum
of (i) the aggregate of the amount then available for drawing under each of the
Letters of Credit, (ii) the face amount of all outstanding L/C Drafts
corresponding to the Letters of Credit, which L/C Drafts have been accepted by
the applicable Issuing Bank, (iii) the aggregate outstanding amount of all
Reimbursement Obligations at such time and (iv) the aggregate face amount of all
Letters of Credit requested by the Borrower but not yet issued (unless the
request for an unissued Letter of Credit has been denied).
"LENDERS" means the lending institutions listed on the signature pages
of this Agreement or any other institution which becomes a party to this
Agreement pursuant to an Assignment Agreement, and their respective successors
and assigns.
"LENDING INSTALLATION" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"LETTER OF CREDIT" means the letters of credit issued by the Issuing
Banks pursuant to SECTION 3.1 hereof.
"LEVERAGE RATIO" is defined in SECTION 7.4(B) hereof.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, encumbrance or security agreement or preferential
arrangements of any kind or nature whatsoever (including, without limitation,
the interest of a vendor or lessor under any conditional sale, Capitalized Lease
or other title retention agreement).
"LOAN(S)" means, with respect to a Lender, a Revolving Loan and
collectively, the Revolving Loans, and in the case of the Swing Line Bank, any
Swing Line Loan made pursuant to SECTION 2.1(B) hereof, and collectively all
such Revolving Loans and Swing Line Loans, whether made or continued as or
converted to Floating Rate Loans or Eurodollar Rate Loans.
"LOAN ACCOUNT" is defined in SECTION 2.12(F) hereof.
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"LOAN DOCUMENTS" means this Agreement, the Revolving Notes, the
Guaranty, the Pledge Agreements and all other documents, instruments and
agreements executed in connection therewith or contemplated thereby, as the same
may be amended, restated or otherwise modified and in effect from time to time.
"MARGIN STOCK" shall have the meaning ascribed to such term in
Regulation U.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance or
properties of the Borrower, or the Borrower and its Subsidiaries, taken as a
whole, (b) the ability of the Borrower or any of its Subsidiaries to perform
their respective obligations under the Loan Documents in any material respect or
(c) the ability of the Lenders or the Agent to enforce in any material respect
their rights with respect to the Collateral.
"MATERIAL SUBSIDIARY" means (a) any "Significant Subsidiary" as defined
in Regulation S-X issued pursuant to the Securities Act of 1933 and the
Securities Exchange Act of 1934 and (b) any other Subsidiary of the Borrower
which at any time comprises ten percent (10%) or more of the Borrower's
Consolidated Tangible Assets.
"MAXIMUM RATE" means the maximum nonusurious interest rate under
applicable law. To the extent Texas law may apply to this Agreement, the maximum
lawful rate under this Agreement shall be the weekly indicated rate ceiling
under Article 5069-1.04 of the Texas Revised Civil Statutes, unless any other
lawful rate ceiling exceeds the rate ceiling so determined, and then the higher
rate ceiling shall apply.
"MERGER(S)" is defined in the definition of Initial Acquisitions above.
"MULTIEMPLOYER PLAN" means a "Multiemployer Plan" as defined in Section
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by either the Borrower or any member of the Controlled
Group.
"NET INCOME" means, for any period, the net earnings (or loss) after
taxes of the Borrower and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with
Agreement Accounting Principles.
"NEW SUBSIDIARY" is defined in SECTION 7.3(F)(ii).
"NON PRO RATA LOAN" is defined in SECTION 9.2 hereof.
"NOTES" means the Revolving Notes and the Swing Line Note.
"NOTICE OF ASSIGNMENT" is defined in SECTION 13.3(B) hereof.
"OBLIGATIONS" means all Loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Borrower to the Agent, any
Lender, the Swing Line Bank, the Arranger, any
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Affiliate of the Agent or any Lender, or any Indemnitee, of any kind or nature,
present or future, arising under this Agreement, the Notes or any other Loan
Document, whether or not evidenced by any note, guaranty or other instrument,
whether or not for the payment of money, whether arising by reason of an
extension of credit, loan, guaranty, indemnification, or in any other manner,
whether direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and however
acquired. The term includes, without limitation, all interest, charges,
expenses, fees, attorneys' fees and disbursements, paralegals' fees (in each
case whether or not allowed), and any other sum chargeable to the Borrower under
this Agreement or any other Loan Document.
"OFF BALANCE SHEET LIABILITIES" of a Person means (a) any repurchase
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any liability under any sale and leaseback transactions which do not create
a liability on the consolidated balance sheet of such Person, (c) any liability
under any financing lease or so-called "synthetic" lease transaction, or (d) any
obligations arising with respect to any other transaction which is the
functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the consolidated balance sheets of such Person and its
Subsidiaries.
"OTHER TAXES" is defined in SECTION 2.12(E)(ii) hereof.
"PARTICIPANTS" is defined in SECTION 13.2(A) hereof.
"PAYMENT DATE" means the last Business Day of each March, June,
September and December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"PERMITTED ACQUISITION" is defined in SECTION 7.3(F)(iii) hereof.
"PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the Borrower
and its Subsidiaries identified as such on SCHEDULE 1.1.3 to this Agreement.
"PERMITTED EXISTING INVESTMENTS" means the Investments of the Borrower
and its Subsidiaries identified as such on SCHEDULE 1.1.4 to this Agreement.
"PERMITTED EXISTING LIENS" means the Liens on assets of the Borrower and
its Subsidiaries identified as such on SCHEDULE 1.1.5 to this Agreement.
"PERMITTED FLOOR PLAN FINANCING" is defined in SECTION 7.3(A)(xiv).
"PERMITTED PURCHASE MONEY INDEBTEDNESS" is defined in SECTION 7.3(A)(ix)
hereof.
"PERMITTED REFINANCING INDEBTEDNESS" means any replacement, renewal,
refinancing or extension of any Indebtedness permitted by this Agreement that
(i) does not exceed the aggregate
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principal amount (plus associated fees and expenses) of the Indebtedness being
replaced, renewed, refinanced or extended, (ii) does not rank at the time of
such replacement, renewal, refinancing or extension senior to the Indebtedness
being replaced, renewed, refinanced or extended, and (iii) does not contain
terms (including, without limitation, terms relating to security, amortization,
interest rate, premiums, fees, covenants, event of default and remedies)
materially less favorable to the Borrower or to the Lenders than those
applicable to the Indebtedness being replaced, renewed, refinanced or extended.
"PERMITTED SUBORDINATED INDEBTEDNESS" is defined in SECTION 7.3(A)(iii)
hereof.
"PERSON" means any individual, corporation, firm, enterprise,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability company or other entity of any kind, or
any government or political subdivision or any agency, department or
instrumentality thereof.
"PLAN" means an employee benefit plan defined in Section 3(3) of ERISA
in respect of which the Borrower or any member of the Controlled Group is, or
within the immediately preceding six (6) years was, an "employer" as defined in
Section 3(5) of ERISA.
"PLEDGE AGREEMENTS" means the (i) Pledge Agreement dated as of the date
hereof executed by the Borrower in favor of the Agent, (ii) Pledge Agreement
dated as of the date hereof executed by Cooper's Mobile Homes, Inc., in favor of
the Agent, (iii) Pledge Agreement dated as of the date hereof executed by First
American Homes, Inc., in favor of the Agent, (iv) Pledge Agreement dated as of
the date hereof executed by HUSA GP, Inc., in favor of the Agent, and (v) Pledge
Agreement dated as of the date hereof executed by HUSA LP, Inc., in favor of the
Agent, in each case, for the ratable benefit of the Lenders as each may be
amended, modified, supplemented and/or restated (including to add new "Pledged
Collateral" as defined in each such Pledge Agreement), and as in effect from
time to time.
"PLEDGED SUBSIDIARY" means a direct or indirect Subsidiary of the
Borrower, all of the Capital Stock of which is pledged to the Agent pursuant to
a Pledge Agreement.
"PRO RATA SHARE" means, with respect to any Lender, the percentage
obtained by dividing (A) such Lender's Commitment at such time (as adjusted from
time to time in accordance with the provisions of this Agreement) by (B) the sum
of the Aggregate Commitments at such time; PROVIDED, HOWEVER, if the Commitments
are terminated pursuant to the terms of this Agreement, then "Pro Rata Share"
means the percentage obtained by dividing (x) the sum of such Lender's L/C
Obligations and Revolving Loans, and in the case of the Swing Line Bank, Swing
Line Loans by (y) the aggregate amount of all Revolving Loans, Swing Line Loans
and L/C Obligations.
"PROSPECTUS" means the Prospectus filed by the Borrower with the
Commission and dated November 21, 1997, with respect to the initial public
offerings of its common stock, $.01 par value.
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"PUBLIC OFFERING" means the offering by the Borrower of 5,000,000 shares
of its common stock, $.01 par value, pursuant to the Prospectus.
"PUBLIC OFFERING DOCUMENTS" means the Prospectus, the Underwriting
Agreement, and all other material instruments and agreements executed or
obtained by the Borrower or any of its Subsidiaries pursuant to or in connection
with the Public Offering.
"PURCHASERS" is defined in SECTION 13.3(A) hereof.
"RATE OPTION" means the Eurodollar Rate or the Floating Rate.
"REGISTER" is defined in SECTION 13.3(C) hereof.
"REGULATION B" means Regulation B of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
prohibition of certain discriminatory practices with respect to credit
transactions (as defined therein).
"REGULATION G" means Regulation G of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by nonbank, nonbroker lenders for the purpose of purchasing
or carrying margin stock (as defined therein).
"REGULATION T" means Regulation T of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by and to brokers and dealers of securities for the purpose
of purchasing or carrying margin stock (as defined therein).
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying Margin
Stock applicable to member banks of the Federal Reserve System.
"REGULATION X" means Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by foreign lenders for the purpose of purchasing or carrying
margin stock (as defined therein).
"REGULATION Z" means Regulation Z of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors which implement
provisions of the Truth in Lending Act.
"REIMBURSEMENT OBLIGATION" is defined in SECTION 3.6 hereof.
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"RELATED TRANSACTIONS" means the Initial Acquisitions, the Mergers and
the Public Offering.
"RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including the movement of Contaminants
through or in the air, soil, surface water or groundwater.
"RENTALS" of a Person means the aggregate fixed amounts payable by such
Person under any lease of real or personal property but does not include any
amounts payable under Capitalized Leases of such Person. Rentals shall be
calculated for any period by including the actual amount for the applicable
period ending on such day for the Borrower and its Subsidiaries, including the
actual Rentals of the targets from any Permitted Acquisitions for the period
from the first day of the applicable period through the date of the closing of
each Permitted Acquisition, utilizing (a) where available or required pursuant
to the terms of this Agreement, historical audited and/or reviewed unaudited
financial statements obtained from the seller, broken down by fiscal quarter in
the Borrower's reasonable judgment or (b) unaudited financial statements (where
no audited or reviewed financial statements are required pursuant to the terms
of this Agreement) reviewed internally by the Borrower, broken down in the
Borrower's reasonable judgment.
"REPLACEMENT LENDER" is defined in SECTION 2.17 hereof.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days after
such event occurs, PROVIDED, HOWEVER, that a failure to meet the minimum funding
standards of Section 412 of the Code and of Section 302 of ERISA shall be a
Reportable Event regardless of the issuance of any such waiver of the notice
requirement in accordance with either Section 4043(a) of ERISA or Section 412(d)
of the Code.
"REQUIRED LENDERS" means Lenders whose Pro Rata Shares, in the
aggregate, are equal to or greater than FIFTY-ONE percent (51%); PROVIDED,
HOWEVER, that, if any of the Lenders shall have failed to fund its Pro Rata
Share of any Revolving Loan requested by the Borrower, or any Swing Line Loan as
requested by the Agent which such Lenders are obligated to fund under the terms
of this Agreement and any such failure has not been cured, then for so long as
such failure continues, "REQUIRED LENDERS" means Lenders (excluding all Lenders
whose failure to fund their respective Pro Rata Shares of such Revolving Loans
or Swing Line Loans has not been so cured) whose Pro Rata Shares represent at
least FIFTY-ONE percent (51%) of the aggregate Pro Rata Shares of such Lenders;
PROVIDED FURTHER, HOWEVER, that, if the Commitments have been terminated
pursuant to the terms of this Agreement, "REQUIRED LENDERS" means Lenders
(without regard to such Lenders' performance of their respective obligations
hereunder) whose aggregate ratable shares (stated as a percentage) of the
aggregate outstanding principal balance of all Loans and L/C Obligations are
equal to or greater than FIFTY-ONE percent (51%).
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"REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws
or other organizational or governing documents of such Person, and any law, rule
or regulation, or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is subject
including, without limitation, the Securities Act of 1933, the Securities
Exchange Act of 1934, Regulations B, G, T, U, X and Z, ERISA, the Fair Labor
Standards Act, the Worker Adjustment and Retraining Notification Act, Americans
with Disabilities Act of 1990, the National Mobile Home Construction and Safety
Standards Act of 1974, the Federal Consumer Credit Protection Act, the Federal
Equal Credit Opportunity Act, the Federal Fair Credit Reporting Act, any
applicable state mortgage or consumer finance brokerage licencing acts, any
applicable state insurance brokerage licencing acts and any certificate of
occupancy, zoning ordinance, building, environmental or land use requirement or
permit or environmental, labor, employment, occupational safety or health law,
rule or regulation, including Environmental, Health or Safety Requirements of
Law.
"RESERVES" shall mean the maximum reserve requirement, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) with
respect to "Eurocurrency liabilities" or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Eurodollar Rate Loans is determined or category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution,
direct or indirect, on account of any Equity Interests of the Borrower now or
hereafter outstanding, except a dividend payable solely in the Borrower's
Capital Stock (other than Disqualified Stock) or in options, warrants or other
rights to purchase such Capital Stock, (ii) any redemption, retirement, purchase
or other acquisition for value, direct or indirect, of any Equity Interests of
the Borrower or any of its Subsidiaries now or hereafter outstanding, other than
in exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Borrower) of other Equity Interests of the
Borrower (other than Disqualified Stock), (iii) any redemption, purchase,
retirement, defeasance, prepayment or other acquisition for value, direct or
indirect, of any Permitted Subordinated Indebtedness, and (iv) any payment of a
claim for the rescission of the purchase or sale of, or for material damages
arising from the purchase or sale of, any Permitted Subordinated Indebtedness or
any Equity Interests of the Borrower or any of the Borrower's Subsidiaries, or
of a claim for reimbursement, indemnification or contribution arising out of or
related to any such claim for damages or rescission.
"REVOLVING CREDIT AVAILABILITY" means, at any particular time, the
amount by which the Aggregate Commitment at such time exceeds the Revolving
Credit Obligations at such time.
"REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum of
(i) the outstanding principal amount of the Loans (including the Swing Line
Loans) at such time, plus (ii) the L/C Obligations at such time.
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"REVOLVING LOAN(S)" means, with respect to a Lender, such Lender's
portion of any Advance made pursuant to Section 2.1(a) hereof.
"REVOLVING NOTE" means a promissory note, in substantially the form of
EXHIBIT C-1 hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Commitment, including any amendment, restatement,
modification, renewal or replacement of such Revolving Note.
"RISK-BASED CAPITAL GUIDELINES" is defined in SECTION 4.2 hereof.
"SECURED OBLIGATIONS" means, collectively, (i) the Obligations and (ii)
all Hedging Obligations owing to any Lender or any affiliate of any Lender under
agreements with respect thereto entered into with any Lender or any affiliate of
any Lender.
"SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"SWING LINE BANK" means FCCC or any other Lender as a successor Swing
Line Bank.
"SWING LINE COMMITMENT" means the obligation of the Swing Line Bank to
make Swing Line Loans up to a maximum principal amount of $5,000,000 at any one
time outstanding.
"SWING LINE LOAN" means a Loan made available to the Borrower by the
Swing Line Bank pursuant to SECTION 2.1(b) hereof.
"SWING LINE NOTE" means a promissory note, in substantially the form of
EXHIBIT C-2 hereto, duly executed by the Borrower and payable to the order of
the Swing Line Bank in the amount of its Swing Line Commitment, including any
amendment, restatement, modification, renewal or replacement of such Swing Line
Note.
"SYNDICATION PERIOD" is defined in SECTION 2.2 hereof.
"TAXES" is defined in SECTION 2.12(E)(i) hereof.
"TERMINATION DATE" means the earlier of (a) February 16, 2001 and (b)
the date of termination of the Aggregate Commitment pursuant to SECTION 2.4
hereof or the Commitments pursuant to SECTION 9.1 hereof.
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"TERMINATION EVENT" means (i) a Reportable Event with respect to any
Benefit Plan; (ii) the withdrawal of the Borrower or any member of the
Controlled Group from a Benefit Plan during a plan year in which the Borrower or
such Controlled Group member was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the cessation of operations which results in the
termination of employment of twenty percent (20%) of Benefit Plan participants
who are employees of the Borrower or any member of the Controlled Group; (iii)
the imposition of an obligation on the Borrower or any member of the Controlled
Group under Section 4041 of ERISA to provide affected parties written notice of
intent to terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to
terminate a Benefit Plan; (v) any event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Benefit Plan; or (vi) the partial or complete
withdrawal of the Borrower or any member of the Controlled Group from a
Multiemployer Plan.
"TOTAL DEBT" means, for any period, on a consolidated basis for the
Borrower and its Subsidiaries, the sum of Indebtedness of the Borrower and its
Subsidiaries, other than Hedging Obligations.
"TRANSACTION COSTS" means the fees, costs and expenses payable by the
Borrower in connection with the execution, delivery and performance of the
Transaction Documents, in connection with the Public Offering, and the
consummation of the Initial Acquisitions and the Related Transactions.
"TRANSACTION DOCUMENTS" means the Loan Documents, the Public Offering
Documents, the Acquisition Documents and the other material documents executed
in connection with the Related Transactions.
"TRANSFEREE" is defined in SECTION 13.5 hereof.
"TYPE" means, with respect to any Revolving Loan, its nature as a
Floating Rate Loan or a Eurodollar Rate Loan.
"UNDERWRITING AGREEMENT" means that certain Underwriting Agreement from
the Borrower confirmed and accepted by Alex. Brown & Sons Incorporated for
itself and certain other underwriters in connection with the Public Offering.
"UNFUNDED LIABILITIES" means (i) in the case of Single Employer Plans,
the amount (if any) by which the present value of all vested nonforfeitable
benefits under all Single Employer Plans exceeds the fair market value of all
such Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plans, and (ii) in the case of Multiemployer
Plans, the withdrawal liability that would be incurred by the Controlled Group
if all members of the Controlled Group completely withdrew from all
Multiemployer Plans.
"UNMATURED DEFAULT" means an event which, but for the lapse of time or
the giving of notice, or both, would constitute a Default.
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Any accounting terms used in this Agreement which are not specifically
defined herein shall have the meanings customarily given them in accordance with
generally accepted accounting principles in existence as of the date hereof.
. The existence throughout the Agreement of references to the Borrower's
Subsidiaries is for a matter of convenience only. Any references to Subsidiaries
of the Borrower set forth herein shall (i) with respect to representations and
warranties which deal with historical matters be deemed to include each of the
Founding Companies and their respective subsidiaries, together with the
businesses acquired pursuant to the Initial Acquisitions; and (ii) shall not in
any way be construed as consent by the Agent or any Lender to the establishment,
maintenance or acquisition of any Subsidiary, except as may otherwise be
permitted hereunder.
ARTICLE II: THE LOAN FACILITIES
2.1 LOANS. (a) REVOLVING LOANS. Upon the satisfaction of the conditions
precedent set forth in SECTIONS 5.1 and 5.2, from and including the date of this
Agreement and prior to the Conversion Date, each Lender severally and not
jointly agrees, on the terms and conditions set forth in this Agreement, to make
Revolving Loans to the Borrower from time to time, in Dollars, in an amount not
to exceed such Lender's Pro Rata Share of Revolving Credit Availability at such
time; PROVIDED, HOWEVER, at no time shall the Revolving Credit Obligations
exceed the Aggregate Commitment at such time. Subject to the terms of this
Agreement, the Borrower may borrow, repay and reborrow Revolving Loans at any
time prior to the Conversion Date. The Revolving Loans made on the Closing Date
shall initially be Floating Rate Loans and thereafter may be continued as
Floating Rate Loans or converted into Eurodollar Rate Loans in the manner
provided in SECTION 2.8 and subject to the other conditions and limitations
therein set forth and set forth in this ARTICLE II. On the Conversion Date, the
Borrower's option to borrow and reborrow Revolving Loans shall terminate, the
Aggregate Commitment shall be reduced to zero, the outstanding principal balance
of the Revolving Loans shall be repaid in nine (9) equal consecutive quarterly
installments of principal, payable on the last Business Day of each calendar
quarter, commencing on September 30, 1998 and continuing thereafter until
December 31, 2000, and a final installment of the then outstanding principal
balance of the Revolving Loans on the Termination Date. The Revolving Loans
shall be permanently reduced by the amount of each installment on the date
payment thereof is made hereunder. Notwithstanding the foregoing, the then
outstanding principal balance of all Revolving Loans, if any, shall be due and
payable on the Termination Date.
(b) SWING LINE LOANS.
(i) AMOUNT OF SWING LINE LOANS. Upon the satisfaction of the
conditions precedent set forth in SECTION 5.1 and 5.2, from and
including the date of this Agreement and prior to the Termination Date,
the Swing Line Bank agrees, on the terms and conditions set forth in
this Agreement, to make swing line loans to the Borrower from time to
time, in Dollars, in an amount not to exceed the Swing Line Commitment
(each,
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individually, a "SWING LINE LOAN" and collectively, the "SWING LINE
LOANS"); PROVIDED, HOWEVER, at no time shall the Revolving Credit
Obligations exceed the Aggregate Commitment; and PROVIDED, FURTHER, that
at no time shall the sum of (a) the outstanding amount of the Swing Line
Loans, PLUS (b) the outstanding amount of Revolving Loans made by the
Swing Line Bank pursuant to SECTION 2.1(A) (after giving effect to any
concurrent repayment of Loans), exceed the Swing Line Bank's Commitment
at such time. Subject to the terms of this Agreement, the Borrower may
borrow, repay and reborrow Swing Line Loans at any time prior to the
Termination Date.
(ii) BORROWING NOTICE. The Borrower shall deliver to the Agent
and the Swing Line Bank a Borrowing Notice, signed by it, not later than
10:00 a.m. (Chicago time) on the Borrowing Date of each Swing Line Loan,
specifying (i) the applicable Borrowing Date (which shall be a Business
Day), and (ii) the aggregate amount of the requested Swing Line Loan.
The Swing Line Loans shall at all times be Floating Rate Loans, which
shall be an amount not less than $250,000 and increments of $100,000 in
excess thereof.
(iii) MAKING OF SWING LINE LOANS. Promptly after receipt of the
Borrowing Notice under SECTION 2.1(B)(II) in respect of Swing Line
Loans, the Agent shall notify each Lender by telex or telecopy, or other
similar form of transmission, of the requested Swing Line Loan. Not
later than 2:00 p.m. (Chicago time) on the applicable Borrowing Date,
the Swing Line Bank shall make available its Swing Line Loan, in funds
immediately available in Chicago to the Agent at its address specified
pursuant to ARTICLE XIV. The Agent will promptly make the funds so
received from the Swing Line Bank available to the Borrower at the
Agent's aforesaid address.
(iv) REPAYMENT OF SWING LINE LOANS. The Swing Line Loans shall be
evidenced by the Swing Line Note, and each Swing Line Loan shall be paid
in full by the Borrower on or before the fifth Business Day after the
Borrowing Date for such Swing Line Loan. The Borrower may at any time
prepay, without penalty or premium, all outstanding Swing Line Loans or,
in a minimum amount and increments of $100,000, any portion of the
outstanding Swing Line Loans, upon notice to the Agent and the Swing
Line Bank. In addition, the Agent (i) may at any time in its sole
discretion with respect to any outstanding Swing Line Loan, or (ii)
shall on the fifth Business Day after the Borrowing Date of any Swing
Line Loan, require each Lender (including the Swing Line Bank) to make a
Revolving Loan in the amount of such Lender's Pro Rata Share of such
Swing Line Loan, for the purpose of repaying such Swing Line Loan. Not
later than 2:00 p.m. (Chicago time) on the date of any notice received
pursuant to this SECTION 2.1(B)(IV), each Lender shall make available
its required Revolving Loan or Revolving Loans, in funds immediately
available in Chicago to the Agent at its address specified pursuant to
ARTICLE XIV. Revolving Loans made pursuant to this SECTION 2.1(B)(IV)
shall initially be Floating Rate Loans and thereafter may be continued
as Floating Rate Loans or converted into Eurodollar Rate Loans in the
manner provided in SECTION 2.8 and subject to the other conditions and
limitations therein set forth and set forth in this ARTICLE II. Unless a
Lender shall have notified the Swing Line Bank, prior to its making any
Swing Line Loan, that any applicable condition precedent set forth in
SECTIONS 5.1 and 5.2 had not then been
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satisfied, such Lender's obligation to make Revolving Loans pursuant to
this SECTION 2.1(B)(IV) to repay Swing Line Loans shall be
unconditional, continuing, irrevocable and absolute and shall not be
affected by any circumstances, including, without limitation, (A) any
set-off, counterclaim, recoupment, defense or other right which such
Lender may have against the Agent, the Swing Line Bank or any other
Person, (B) the occurrence of continuance of a Default or Unmatured
Default, (C) any adverse change in the condition (financial or
otherwise) of the Borrower, or (D) any other circumstances, happening or
event whatsoever. In the event that any Lender fails to make payment to
the Agent of any amount due under this SECTION 2.1(B)(IV), the Agent
shall be entitled to receive, retain and apply against such obligation
the principal and interest otherwise payable to such Lender hereunder
until the Agent receives such payment from such Lender or such
obligation is otherwise fully satisfied. In addition to the foregoing,
if for any reason any Lender fails to make payment to the Agent of any
amount due under this SECTION 2.1(B)(IV), such Lender shall be deemed,
at the option of the Agent, to have unconditionally and irrevocably
purchased from the Swing Line Bank, without recourse or warranty, an
undivided interest and participation in the applicable Swing Line Loan
in the amount of such Revolving Loan, and such interest and
participation may be recovered from such Lender together with interest
thereon at the Federal Funds Effective Rate for each day during the
period commencing on the date of demand and ending on the date such
amount is received. On the Termination Date, the Borrower shall repay in
full the outstanding principal balance of the Swing Line Loans.
2.2 RATE OPTIONS FOR ALL ADVANCES. The Revolving Loans may be Floating
Rate Advances or Eurodollar Rate Advances, or a combination thereof, selected by
the Borrower in accordance with SECTION 2.8. The Borrower may select, in
accordance with SECTION 2.8, Rate Options and Interest Periods applicable to
portions of the Revolving Loans; PROVIDED that there shall be no more than seven
(7) Interest Periods in effect with respect to all of the Revolving Loans at any
time; and PROVIDED, FURTHER, HOWEVER, notwithstanding anything herein to the
contrary, the Borrower may not select the Eurodollar Rate for any Revolving
Loans without the Agent's consent during the period from the Closing Date
through the earlier to occur of (i) the date that is 60 days after the Closing
Date and (ii) the date on which the Arranger notifies the Borrower that the
primary syndication of the Loans and Commitments has been completed (the
"SYNDICATION PERIOD"). The Swing Line Loans shall at all times be Floating Rate
Loans.
2.3 OPTIONAL PAYMENTS; MANDATORY PREPAYMENTS.
(A) OPTIONAL PAYMENTS. The Borrower may from time to time repay or
prepay, without penalty or premium all or any part of outstanding Floating Rate
Advances in a minimum amount for each such repayment or prepayment of $1,000,000
and in increments of $100,000 in excess thereof; PROVIDED, that the Borrower may
not so prepay Floating Rate Advances unless it shall have provided at least one
Business Day's written notice to the Agent of such prepayment. Each Eurodollar
Rate Advance may be voluntarily repaid or prepaid in full, or in part, prior to
the last day of the applicable Interest Period, subject to the indemnification
provisions contained in SECTION 4.4, PROVIDED, that the Borrower may not so
prepay Eurodollar Rate Advances unless it
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shall have provided at least two (2) Business Days' written notice to the Agent
of such prepayment.
(B) MANDATORY PREPAYMENTS. If at any time and for any reason the
Revolving Credit Obligations are greater than the Aggregate Commitment, the
Borrower shall immediately make a mandatory prepayment of the Obligations in an
amount equal to such excess. In addition, if Revolving Credit Availability is at
any time less than the amount of contingent L/C Obligations outstanding at any
time, the Borrower shall deposit cash collateral with the Agent in an amount
equal to the amount by which such L/C Obligations exceed such Revolving Credit
Availability. All of the mandatory prepayments made under this SECTION 2.3(B)
shall be applied first to Floating Rate Loans and to any Eurodollar Rate Loans
maturing on such date and then to subsequently maturing Eurodollar Rate Loans in
order of maturity.
2.4 REDUCTION OF COMMITMENTS. The Borrower may permanently reduce the
Aggregate Commitment in whole, or in part ratably among the Lenders, in an
aggregate minimum amount of $5,000,000 and integral multiples of $5,000,000 in
excess of that amount (unless the Aggregate Commitment is reduced in whole),
upon at least three (3) Business Days' written notice to the Agent, which notice
shall specify the amount of any such reduction; PROVIDED, HOWEVER, that the
amount of the Aggregate Commitment may not be reduced below the aggregate
principal amount of the outstanding Revolving Credit Obligations. All accrued
commitment fees shall be payable on the effective date of any partial or
complete termination of the obligations of the Lenders to make Revolving Loans
hereunder.
2.5 METHOD OF BORROWING. Not later than 2:00 p.m. (Chicago time) on each
Borrowing Date, each Lender shall make available its Revolving Loan, in funds
immediately available in Chicago to the Agent at its address specified pursuant
to ARTICLE XIV. The Agent will promptly make the funds so received from the
Lenders available to the Borrower at the Agent's aforesaid address.
2.6 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR ADVANCES. The
Borrower shall select the Type of Advance and, in the case of each Eurodollar
Rate Advance, the Interest Period applicable to each Advance from time to time.
The Borrower shall give the Agent irrevocable notice in substantially the form
of EXHIBIT D hereto (a "BORROWING NOTICE") not later than 10:00 a.m. (Chicago
time) (a) on the Borrowing Date of each Floating Rate Advance and (b) three
Business Days before the Borrowing Date for each Eurodollar Rate Advance,
specifying: (i) the Borrowing Date (which shall be a Business Day) of such
Advance; (ii) the aggregate amount of such Advance; (iii) the Type of Advance
selected; and (iv) in the case of each Eurodollar Rate Advance, the Interest
Period applicable thereto. Each Floating Rate Advance and all Obligations (other
than Eurodollar Loans) shall bear interest from and including the date of the
making of such Advance or the incurrence of such Obligation to (but not
including) the date of repayment thereof at the Floating Rate, changing when and
as such Floating Rate changes. Changes in the rate of interest on that portion
of any Advance maintained as a Floating Rate Loan will take effect
simultaneously with each change in the Alternate Base Rate. Each Eurodollar Rate
Advance shall bear interest from and including the first day of the Interest
Period applicable thereto to (but not
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including) the last day of such Interest Period at the interest rate determined
as applicable to such Eurodollar Rate Advance.
2.7 MINIMUM AMOUNT OF EACH ADVANCE. Each Advance (other than an Advance
to repay Swing Line Loans pursuant to Section 2.1(b)(iv) or a Reimbursement
Obligation pursuant to SECTION 3.6) shall be in the minimum amount of $1,000,000
(and in multiples of $100,000 if in excess thereof), PROVIDED, HOWEVER, that any
Floating Rate Advance may be in the amount of the unused Aggregate Commitment.
2.8 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR CONVERSION AND
CONTINUATION OF ADVANCES.
(A) RIGHT TO CONVERT. The Borrower may elect from time to time, subject
to the provisions of SECTION 2.2 and this SECTION 2.8, and, for any conversion
of a Eurodollar Rate Advance other than at the end of an Interest Period,
subject to payment of amounts payable under SECTION 4.4, to convert all or any
part of a Revolving Loan of any Type into any other Type or Types of Loans.
(B) AUTOMATIC CONVERSION AND CONTINUATION. Floating Rate Loans shall
continue as Floating Rate Loans unless and until such Floating Rate Loans are
converted into Eurodollar Rate Loans. Eurodollar Rate Loans shall continue as
Eurodollar Rate Loans until the end of the then applicable Interest Period
therefor, at which time such Eurodollar Rate Loans shall be automatically
converted into Floating Rate Loans unless the Borrower shall have given the
Agent notice in accordance with SECTION 2.8(D) requesting that, at the end of
such Interest Period, such Eurodollar Rate Loans continue as a Eurodollar Rate
Loan.
(C) NO CONVERSION POST-DEFAULT OR POST-UNMATURED DEFAULT.
Notwithstanding anything to the contrary contained in SECTION 2.8(A) or SECTION
2.8(B), no Revolving Loan may be converted into or continued as a Eurodollar
Rate Loan (except with the consent of the Required Lenders) when any Default or
Unmatured Default has occurred and is continuing.
(D) CONVERSION/CONTINUATION NOTICE. The Borrower shall give the Agent
irrevocable notice (a "CONVERSION/CONTINUATION NOTICE") of each conversion of a
Floating Rate Loan into a Eurodollar Rate Loan or continuation of a Eurodollar
Rate Loan not later than 10:00 a.m. (Chicago time) three (3) Business Days prior
to the date of the requested conversion or continuation, specifying: (1) the
requested date (which shall be a Business Day) of such conversion or
continuation; (2) the amount and Type of the Revolving Loan to be converted or
continued; and (3) the amount of Eurodollar Rate Loan(s) into which such
Revolving Loan is to be converted or continued and the duration of the Interest
Period applicable thereto.
2.9 DEFAULT RATE. After the occurrence and during the continuance of a
Default, at the option of the Agent or at the direction of the Required Lenders,
the interest rate(s) applicable to the Obligations shall be equal to the
Floating Rate PLUS two percent (2.0%) per annum and fees payable under SECTION
3.7 with respect to Letters of Credit shall be increased by two percent (2.0%)
per annum.
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2.10 METHOD OF PAYMENT. All payments of principal, interest, and fees
hereunder shall be made, without setoff, deduction or counterclaim, in
immediately available funds to the Agent at the Agent's address specified
pursuant to ARTICLE XIV, or at any other Lending Installation of the Agent
specified in writing by the Agent to the Borrower, by 2:00 p.m. (Chicago time)
on the date when due and shall be made ratably among the Lenders (unless such
amount is not to be shared ratably in accordance with the terms hereof). Each
payment delivered to the Agent for the account of any Lender shall be delivered
promptly by the Agent to such Lender in the same type of funds which the Agent
received at its address specified pursuant to ARTICLE XIV or at any Lending
Installation specified in a notice received by the Agent from such Lender. The
Borrower authorizes the Agent to charge the account of the Borrower maintained
with First Chicago for each payment of principal, interest, fees and other
amounts as it becomes due hereunder.
2.11 REVOLVING NOTES, TELEPHONIC NOTICES. Each Lender is authorized to
record the principal amount of each of its Revolving Loans and each repayment
with respect to its Revolving Loans on the schedule attached to its respective
Revolving Note; PROVIDED, HOWEVER, that the failure to so record shall not
affect the Borrower's obligations under any such Revolving Note. The Borrower
authorizes the Lenders and the Agent to extend Advances, effect selections of
Types of Advances and to transfer funds based on telephonic notices made by any
person or persons the Agent or any Lender in good faith believes to be acting on
behalf of the Borrower. The Borrower agrees to deliver promptly to the Agent a
written confirmation, signed by an Authorized Officer, if such confirmation is
requested by the Agent or any Lender, of each telephonic notice. If the written
confirmation differs in any material respect from the action taken by the Agent
and the Lenders, (i) the telephonic notice shall govern absent manifest error
and (ii) the Agent or the Lender, as applicable, shall promptly notify the
Authorized Officer who provided such confirmation of such difference.
2.12 PROMISE TO PAY; INTEREST AND COMMITMENT FEES; INTEREST PAYMENT
DATES; INTEREST AND FEE BASIS; TAXES; LOAN AND CONTROL ACCOUNTS.
(A) PROMISE TO PAY. The Borrower unconditionally promises to pay when
due the principal amount of each Loan and all other Obligations incurred by it,
and to pay all unpaid interest accrued thereon, in accordance with the terms of
this Agreement and the Notes.
(B) INTEREST PAYMENT DATES. Interest accrued on each Floating Rate Loan
shall be payable on each Payment Date, commencing with the first such date to
occur after the Closing Date and at maturity (whether by acceleration or
otherwise). Interest accrued on each Eurodollar Rate Loan shall be payable on
the last day of its applicable Interest Period, on any date on which the
Eurodollar Rate Loan is prepaid, whether by acceleration or otherwise, and at
maturity; PROVIDED, HOWEVER, interest accrued on each Eurodollar Rate Loan
having an Interest Period longer than three months shall also be payable on the
last day of each three-month interval during such Interest Period. Interest
accrued on the principal balance of all other Obligations shall be payable in
arrears (i) on the last day of each calendar month, commencing on the first such
day following the incurrence of such Obligation, (ii) upon repayment thereof in
full or in part, and (iii) if not theretofore paid in full, at the time such
other Obligation becomes due and payable (whether by acceleration or otherwise).
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(C) COMMITMENT FEES; CONVERSION FEE. (i) The Borrower shall pay to the
Agent, for the account of the Lenders in accordance with their Pro Rata Shares,
from and after the Closing Date until the date on which the Aggregate Commitment
shall be terminated in whole, a commitment fee accruing at the rate of the then
Applicable Commitment Fee Percentage, on the amount by which (A) the Aggregate
Commitment in effect from time to time exceeds (B) the Revolving Credit
Obligations in effect from time to time. All such commitment fees payable under
this CLAUSE (C) shall be payable quarterly in arrears on each Payment Date
occurring after the Closing Date (with the first such payment being calculated
for the period from the Closing Date and ending on such Payment Date), and, in
addition, on the date on which the Aggregate Commitment shall be terminated in
whole.
(ii) The Borrower agrees to pay to the Agent for the sole account of the
Agent and the Arranger (unless otherwise agreed between the Agent or the
Arranger and any Lender) the fees set forth in the letter agreement between the
Agent and the Borrower dated October 30, 1997, payable at the times and in the
amounts set forth therein.
(D) INTEREST AND FEE BASIS; APPLICABLE EURODOLLAR MARGIN, APPLICABLE
FLOATING RATE MARGIN AND APPLICABLE COMMITMENT FEE PERCENTAGE.
(i) Interest and fees shall be calculated for actual days elapsed on the
basis of a 360-day year. Interest shall be payable for the day an Obligation is
incurred but not for the day of any payment on the amount paid if payment is
received prior to 2:00 p.m. (Chicago time) at the place of payment. If any
payment of principal of or interest on a Loan or any payment of any other
Obligations shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
(ii) At any time prior to the Conversion Date, the Applicable Eurodollar
Margin, Applicable Floating Rate Margin and Applicable Commitment Fee Percentage
shall be determined from time to time by reference to the table set forth below,
on the basis of the then applicable Adjusted Leverage Ratio as described in this
SECTION 2.12(D)(II); PROVIDED, HOWEVER, for the period from the Closing Date
until the Applicable Eurodollar Margins, Applicable Floating Rate Margin and
Applicable Commitment Fee Percentage are first adjusted pursuant to this CLAUSE
(D), it shall be assumed that the Adjusted Leverage Ratio is 2.75 to 1.00.
(iii) The Borrower agrees to pay the Agent, for the account of the
Lenders in accordance with their Pro Rata Shares, on the Conversion Date, a
conversion fee in the amount equal to two percent (2%) of the Aggregate
Commitment, as measured on the Closing Date.
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<TABLE>
<CAPTION>
Level I Level II Level III Level IV Level V
-------------------------- -------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Adjusted Less than or equal to 3.00 Greater than 3.00 Greater than 3.25 Greater than 3.50 Greater than
Leverage Ratio to 1.00 to 1.00 to 1.00 to 1.00 3.75 to 1.00
and and and
Less than or equal Less than or equal Less than or equal
3.25 to 1.00 to 3.50 to 1.00 to 3.75 to 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Applicable
Commitment 0.50% 0.50% 0.50% 0.50% 0.50%
Fee Percentage
- ------------------------------------------------------------------------------------------------------------------------------------
Applicable
Eurodollar 2.00% 2.25% 2.50% 2.75% 3.00%
Rate Margin and
Applicable L/C
Fee Percentage
- ------------------------------------------------------------------------------------------------------------------------------------
Applicable
Floating Rate
Margin 0.75% 1.00% 1.25% 1.50% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this SECTION 2.12(D)(II), the Adjusted Leverage Ratio shall be
determined as of the last day of each fiscal quarter based upon (a) for Total
Debt, Total Debt as of the last day of each such fiscal quarter; and (b) for
EBITDA, EBITDA for the twelve-month period ending on such day calculated as set
forth in the definition thereof. Upon receipt of the financial statements
delivered pursuant to SECTIONS 7.1(A)(I) (subject to adjustment upon receipt of
the financial statements delivered pursuant to SECTION 7.1(A)(II)), the
Applicable Eurodollar Margin, Applicable Floating Rate Margin and Applicable
Commitment Fee Percentage shall be adjusted, such adjustment being effective
five (5) Business Days following the Agent's receipt of such financial
statements and the compliance certificate required to be delivered in connection
therewith pursuant to SECTION 7.1(A)(III); PROVIDED, that if the Borrower shall
not have timely delivered its financial statements in accordance with SECTION
7.1(A)(I) or (II), as applicable, then commencing on the date upon which such
financial statements should have been delivered and continuing until such
financial statements are actually delivered, it shall be assumed for purposes of
determining the Applicable Eurodollar Margin, Applicable Floating Rate Margin
and Applicable Commitment Fee Percentage that the Adjusted Leverage Ratio was
greater than 2.75 to 1.0.
(E) TAXES.
(i) Any and all payments by the Borrower hereunder shall be made
free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings or
any liabilities with respect thereto including
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those arising after the date hereof as a result of the adoption of or
any change in any law, treaty, rule, regulation, guideline or
determination of a Governmental Authority or any change in the
interpretation or application thereof by a Governmental Authority but
excluding, in the case of each Lender and the Agent, such taxes
(including income taxes, franchise taxes and branch profit taxes) as are
imposed on or measured by such Lender's or Agent's, as the case may be,
income by the United States of America or any Governmental Authority of
the jurisdiction under the laws of which such Lender or Agent (other
than due to a Lender's failure to comply with SECTION 2.12(E)(VI)), as
the case may be, is organized (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings, and liabilities which the
Agent or a Lender determines to be applicable to this Agreement, the
other Loan Documents, the Commitments, the Loans or the Letters of
Credit being hereinafter referred to as "TAXES"). If the Borrower shall
be required by law to deduct any Taxes from or in respect of any sum
payable hereunder or under the other Loan Documents to any Lender or the
Agent, (i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions
applicable to additional sums payable under this SECTION 2.12(E)) such
Lender or the Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions, and (iii) the Borrower shall pay
the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law. If a withholding tax of the
United States of America or any other Governmental Authority shall be or
become applicable (y) after the date of this Agreement, to such payments
by the Borrower made to the Lending Installation or any other office
that a Lender may claim as its Lending Installation, or (z) after such
Lender's selection and designation of any other Lending Installation, to
such payments made to such other Lending Installation, such Lender shall
use reasonable efforts to make, fund and maintain its Loans through
another Lending Installation of such Lender in another jurisdiction so
as to reduce the Borrower's liability hereunder, if the making, funding
or maintenance of such Loans through such other Lending Installation of
such Lender does not, in the reasonable judgment of such Lender,
otherwise adversely affect such Loans, or obligations under the
Commitments or such Lender.
(ii) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges, or similar levies which arise from any payment made hereunder,
from the issuance of Letters of Credit hereunder, or from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement, the other Loan Documents, the Commitments, the Loans or the
Letters of Credit (hereinafter referred to as "OTHER TAXES").
(iii) The Borrower indemnifies each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any Governmental Authority on amounts
payable under this SECTION 2.12(E)) paid by such Lender or the Agent (as
the case may be) and any liability (including penalties, interest, and
expenses) arising therefrom or with respect
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thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within thirty (30)
days after the date such Lender or the Agent (as the case may be) makes
written demand therefor. A certificate as to any additional amount
payable to any Lender or the Agent under this SECTION 2.12(E) submitted
to the Borrower and the Agent (if a Lender is so submitting) by such
Lender or the Agent shall show in reasonable detail the amount payable
and the calculations used to determine such amount and shall, absent
manifest error, be final, conclusive and binding upon all parties
hereto. With respect to such deduction or withholding for or on account
of any Taxes and to confirm that all such Taxes have been paid to the
appropriate Governmental Authorities, the Borrower shall promptly (and
in any event not later than thirty (30) days after receipt) furnish to
each Lender and the Agent such certificates, receipts and other
documents as may be required (in the judgment of such Lender or the
Agent) to establish any tax credit to which such Lender or the Agent may
be entitled.
(iv) Within thirty (30) days after the date of any payment of
Taxes or Other Taxes by the Borrower, the Borrower shall furnish to the
Agent the original or a certified copy of a receipt evidencing payment
thereof.
(v) Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower
contained in this SECTION 2.12(E) shall survive the payment in full of
principal and interest hereunder, the termination of the Letters of
Credit and the termination of this Agreement.
(vi) Without limiting the obligations of the Borrower under this
SECTION 2.12(E), each Lender that is not created or organized under the
laws of the United States of America or a political subdivision thereof
shall deliver to the Borrower and the Agent on or before the Closing
Date, or, if later, the date on which such Lender becomes a Lender
pursuant to SECTION 13.3, a true and accurate certificate executed in
duplicate by a duly authorized officer of such Lender, in a form
satisfactory to the Borrower and the Agent, to the effect that such
Lender is capable under the provisions of an applicable tax treaty
concluded by the United States of America (in which case the certificate
shall be accompanied by two executed copies of Form 1001 of the IRS) or
under Section 1442 of the Code (in which case the certificate shall be
accompanied by two copies of Form 4224 of the IRS) of receiving payments
of interest hereunder without deduction or withholding of United States
federal income tax. Each such Lender further agrees to deliver to the
Borrower and the Agent from time to time a true and accurate certificate
executed in duplicate by a duly authorized officer of such Lender
substantially in a form satisfactory to the Borrower and the Agent,
before or promptly upon the occurrence of any event requiring a change
in the most recent certificate previously delivered by it to the
Borrower and the Agent pursuant to this SECTION 2.12(E)(VI). Further,
each Lender which delivers a certificate accompanied by Form 1001 of the
IRS covenants and agrees to deliver to the Borrower and the Agent within
fifteen (15) days prior to March 1, 1998, and every third (3rd)
anniversary of
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<PAGE>
such date thereafter on which this Agreement is still in effect, another
such certificate and two accurate and complete original signed copies of
Form 1001 (or any successor form or forms required under the Code or the
applicable regulations promulgated thereunder), and each Lender that
delivers a certificate accompanied by Form 4224 of the IRS covenants and
agrees to deliver to the Borrower and the Agent within fifteen (15) days
prior to the beginning of each subsequent taxable year of such Lender
during which this Agreement is still in effect, another such certificate
and two accurate and complete original signed copies of IRS Form 4224
(or any successor form or forms required under the Code or the
applicable regulations promulgated thereunder). Each such certificate
shall certify as to one of the following:
(a) that such Lender is capable of receiving payments of
interest hereunder without deduction or withholding of United
States of America federal income tax;
(b) that such Lender is not capable of receiving payments
of interest hereunder without deduction or withholding of United
States of America federal income tax as specified therein but is
capable of recovering the full amount of any such deduction or
withholding from a source other than the Borrower and will not
seek any such recovery from the Borrower; or
(c) that, as a result of the adoption of or any change in
any law, treaty, rule, regulation, guideline or determination of
a Governmental Authority or any change in the interpretation or
application thereof by a Governmental Authority after the date
such Lender became a party hereto, such Lender is not capable of
receiving payments of interest hereunder without deduction or
withholding of United States of America federal income tax as
specified therein and that it is not capable of recovering the
full amount of the same from a source other than the Borrower.
Each Lender shall promptly furnish to the Borrower and the Agent such
additional documents as may be reasonably required by the Borrower or
the Agent to establish any exemption from or reduction of any Taxes or
Other Taxes required to be deducted or withheld and which may be
obtained without undue expense to such Lender.
(F) LOAN ACCOUNT. Each Lender shall maintain in accordance with its
usual practice an account or accounts (a "LOAN ACCOUNT") evidencing the
Obligations of the Borrower to such Lender owing to such Lender from time to
time, including the amount of principal and interest payable and paid to such
Lender from time to time hereunder and under the Notes.
(G) CONTROL ACCOUNT. The Register maintained by the Agent pursuant to
SECTION 13.3(C) shall include a control account, and a subsidiary account for
each Lender, in which
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<PAGE>
accounts (taken together) shall be recorded (i) the date and amount of each
Advance made hereunder, the type of Revolving Loan comprising such Advance and
any Interest Period applicable thereto, (ii) the effective date and amount of
each Assignment Agreement delivered to and accepted by it and the parties
thereto pursuant to SECTION 13.3, (iii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder or under the Revolving Notes, (iv) the amount of any sum received by
the Agent from the Borrower hereunder and each Lender's share thereof and (v)
all other appropriate debits and credits as provided in this Agreement,
including, without limitation, all fees, charges, expenses and interest.
(H) ENTRIES BINDING. The entries made in the Register and each Loan
Account shall be conclusive and binding for all purposes, absent manifest error,
unless the Borrower objects to information contained in the Register and each
Loan Account within thirty (30) days of the Borrower's receipt of such
information.
2.13 NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENTS AND AGGREGATE
COMMITMENT REDUCTIONS. Promptly after receipt thereof, the Agent will notify
each Lender of the contents of each Aggregate Commitment reduction notice,
Borrowing Notice, Continuation/Conversion Notice, and prepayment notice received
by it hereunder. The Agent will notify each Lender of the interest rate
applicable to each Eurodollar Rate Loan promptly upon determination of such
interest rate and will give each Lender prompt notice of each change in the
Alternate Base Rate.
2.14 LENDING INSTALLATIONS. Each Lender may book its Loans at any
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Revolving Notes shall be deemed held by each
Lender for the benefit of such Lending Installation. Each Lender may, by written
or facsimile notice to the Agent and the Borrower, designate a Lending
Installation through which Loans will be made by it and for whose account Loan
payments are to be made.
2.15 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Borrower or a Lender,
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (i) in the case of payment by a Lender, the
Federal Funds
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<PAGE>
Effective Rate for such day or (ii) in the case of payment by the Borrower, the
interest rate applicable to the relevant Loan.
2.16 TERMINATION DATE. This Agreement shall be effective until the
Termination Date. Notwithstanding the termination of this Agreement on the
Termination Date, until all of the Obligations (other than contingent indemnity
obligations) shall have been fully and indefeasibly paid and satisfied, all
financing arrangements among the Borrower and the Lenders in connection with
this Agreement shall have been terminated (other than under agreements with
respect to Hedging Obligations) and all of the Letters of Credit shall have
expired, been canceled or terminated, all of the rights and remedies under this
Agreement and the other Loan Documents shall survive and the Agent shall be
entitled to retain its security interest in and to all existing and future
Collateral.
2.17 REPLACEMENT OF CERTAIN LENDERS. In the event a Lender ("AFFECTED
LENDER") shall have: (i) failed to fund its Pro Rata Share of any Advance
requested by the Borrower, or to fund a Revolving Loan in order to repay Swing
Line Loans pursuant to SECTION 2.1(B)(IV), which such Lender is obligated to
fund under the terms of this Agreement and which failure has not been cured,
(ii) requested compensation from the Borrower under SECTIONS 2.12(E), 4.1 or 4.2
to recover Taxes, Other Taxes or other additional costs incurred by such Lender
which are not being incurred generally by the other Lenders, (iii) delivered a
notice pursuant to SECTION 4.3 claiming that such Lender is unable to extend
Eurodollar Rate Loans to the Borrower for reasons not generally applicable to
the other Lenders or (iv) has invoked SECTION 10.2, then, in any such case, the
Borrower or the Agent may make written demand on such Affected Lender (with a
copy to the Agent in the case of a demand by the Borrower and a copy to the
Borrower in the case of a demand by the Agent) for the Affected Lender to
assign, and such Affected Lender shall use its best efforts to assign pursuant
to one or more duly Assignment Agreements five (5) Business Days after the date
of such demand, to one or more financial institutions that comply with the
provisions of SECTION 13.3(A) which the Borrower or the Agent, as the case may
be, shall have engaged for such purpose ("REPLACEMENT LENDER"), all of such
Affected Lender's rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitment, all Loans owing to it,
all of its participation interests in existing Letters of Credit, and its
obligation to participate in additional Letters of Credit hereunder) in
accordance with SECTION 13.3. The Agent agrees, upon the occurrence of such
events with respect to an Affected Lender and upon the written request of the
Borrower, to use its reasonable efforts to obtain the Commitments from one or
more financial institutions to act as a Replacement Lender. The Agent is
authorized to execute one or more of such assignment agreements as
attorney-in-fact for any Affected Lender failing to execute and deliver the same
within five (5) Business Days after the date of such demand. Further, with
respect to such assignment the Affected Lender shall have concurrently received,
in cash, all amounts due and owing to the Affected Lender hereunder or under any
other Loan Document, including, without limitation, the aggregate outstanding
principal amount of the Loans owed to such Lender, together with accrued
interest thereon through the date of such assignment, amounts payable under
SECTIONS 2.12(E), 4.1, and 4.2 with respect to such Affected Lender and
compensation payable under SECTION 2.12(C) in the event of any
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replacement of any Affected Lender under CLAUSE (II) or CLAUSE (III) of this
SECTION 2.17; PROVIDED that upon such Affected Lender's replacement, such
Affected Lender shall cease to be a party hereto but shall continue to be
entitled to the benefits of SECTIONS 2.12(E), 4.1, 4.2, 4.4, and 10.7, as well
as to any fees accrued for its account hereunder and not yet paid, and shall
continue to be obligated under SECTION 11.8. Upon the replacement of any
Affected Lender pursuant to this SECTION 2.17, the provisions of SECTION 9.2
shall continue to apply with respect to Advances which are then outstanding with
respect to which the Affected Lender failed to fund its Pro Rata Share and which
failure has not been cured.
ARTICLE III: THE LETTER OF CREDIT FACILITY
3.1 OBLIGATION TO ISSUE. Subject to the terms and conditions of this
Agreement and in reliance upon the representations, warranties and covenants of
the Borrower herein set forth, each Issuing Bank hereby agrees to issue for the
account of the Borrower through such Issuing Bank's branches as it and the
Borrower may jointly agree, one or more Letters of Credit in accordance with
this ARTICLE III, from time to time during the period, commencing on the date
hereof and ending on the Business Day prior to the Conversion Date.
3.2 TYPES AND AMOUNTS. No Issuing Bank shall have any obligation to and
no Issuing Bank shall:
(i) issue any Letter of Credit if on the date of issuance, before
or after giving effect to the Letter of Credit requested hereunder, (a)
the Revolving Credit Obligations at such time would exceed the Aggregate
Commitment at such time, or (b) the aggregate outstanding amount of the
L/C Obligations would exceed $7,500,000; or
(ii) issue any Letter of Credit which has an expiration date
later than five (5) Business Days immediately preceding the Conversion
Date.
3.3 CONDITIONS. In addition to being subject to the satisfaction of the
conditions contained in SECTIONS 5.1 and 5.2, the obligation of an Issuing Bank
to issue any Letter of Credit is subject to the satisfaction in full of the
following conditions:
(i) the Borrower shall have delivered to the applicable Issuing
Bank at such times and in such manner as such Issuing Bank may
reasonably prescribe, a request for issuance of such Letter of Credit in
substantially the form of EXHIBIT E hereto, duly executed applications
for such Letter of Credit, and such other documents, instructions and
agreements as may be reasonably required pursuant to the terms thereof,
and the proposed Letter of Credit shall be reasonably satisfactory to
such Issuing Bank as to form and content; and
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(ii) as of the date of issuance no order, judgment or decree of
any court, arbitrator or Governmental Authority shall purport by its
terms to enjoin or restrain the applicable Issuing Bank from issuing
such Letter of Credit and no law, rule or regulation applicable to such
Issuing Bank and no request or directive (whether or not having the
force of law) from a Governmental Authority with jurisdiction over such
Issuing Bank shall prohibit or request that such Issuing Bank refrain
from the issuance of Letters of Credit generally or the issuance of that
Letter of Credit.
If any provision in a letter of credit application delivered in connection with
the foregoing is inconsistent with or more restrictive than a provision
contained in this Agreement, the provisions contained in this Agreement shall
control.
3.4 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. (a) Subject to the
terms and conditions of this ARTICLE III and provided that the applicable
conditions set forth in SECTIONS 5.1 and 5.2 hereof have been satisfied, the
applicable Issuing Bank shall, on the requested date, issue a Letter of Credit
on behalf of the Borrower in accordance with such Issuing Bank's usual and
customary business practices and, in this connection, such Issuing Bank may
assume that the applicable conditions set forth in SECTION 5.2 hereof have been
satisfied unless it shall have received notice to the contrary from the Agent or
a Lender or has knowledge that the applicable conditions have not been met.
(b) The applicable Issuing Bank shall give the Agent written or telex
notice, or telephonic notice confirmed promptly thereafter in writing, of the
issuance of a Letter of Credit, PROVIDED, HOWEVER, that the failure to provide
such notice shall not result in any liability on the part of such Issuing Bank.
(c) No Issuing Bank shall extend or amend any Letter of Credit unless
the requirements of this SECTION 3.4 are met as though a new Letter of Credit
was being requested and issued.
3.5 LETTER OF CREDIT PARTICIPATION. Unless a Lender shall have notified
the Issuing Bank prior to its issuance of a Letter of Credit that any applicable
condition precedent set forth in SECTIONS 5.1 and 5.2 had not been satisfied,
then immediately upon the issuance of each Letter of Credit hereunder, each
Lender shall be deemed to have automatically, irrevocably and unconditionally
purchased and received from the applicable Issuing Bank an undivided interest
and participation in and to such Letter of Credit, the obligations of the
Borrower in respect thereof, and the liability of such Issuing Bank thereunder
(collectively, an "L/C INTEREST") in an amount equal to the amount available for
drawing under such Letter of Credit multiplied by such Lender's Pro Rata Share.
Each Issuing Bank will notify each Lender promptly upon presentation to it of an
L/C Draft or upon any other draw under a Letter of Credit. On or before the
Business Day on which an Issuing Bank makes payment of each such L/C Draft or,
in the case of any other draw on a Letter of Credit, on demand by the Agent,
each Lender shall make payment to the Agent, for the account of the applicable
Issuing Bank,
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in immediately available funds in an amount equal to such Lender's Pro Rata
Share of the amount of such payment or draw. The obligation of each Lender to
reimburse the Issuing Banks under this SECTION 3.5 shall be unconditional,
continuing, irrevocable and absolute. In the event that any Lender fails to make
payment to the Agent of any amount due under this SECTION 3.5, the Agent shall
be entitled to receive, retain and apply against such obligation the principal
and interest otherwise payable to such Lender hereunder until the Agent receives
such payment from such Lender or such obligation is otherwise fully satisfied;
PROVIDED, HOWEVER, that nothing contained in this sentence shall relieve such
Lender of its obligation to reimburse the applicable Issuing Bank for such
amount in accordance with this SECTION 3.5.
3.6 REIMBURSEMENT OBLIGATION. The Borrower agrees unconditionally,
irrevocably and absolutely to pay immediately to the Agent, for the account of
the Lenders, the amount of each advance which may be drawn under or pursuant to
a Letter of Credit or an L/C Draft related thereto (such obligation of the
Borrower to reimburse the Agent for an advance made under a Letter of Credit or
L/C Draft being hereinafter referred to as a "REIMBURSEMENT OBLIGATION" with
respect to such Letter of Credit or L/C Draft). If the Borrower at any time
fails to repay a Reimbursement Obligation pursuant to this SECTION 3.6, the
Borrower shall be deemed to have elected to borrow Revolving Loans from the
Lenders, as of the date of the advance giving rise to the Reimbursement
Obligation, equal in amount to the amount of the unpaid Reimbursement
Obligation. Such Revolving Loans shall be made as of the date of the payment
giving rise to such Reimbursement Obligation, automatically, without notice and
without any requirement to satisfy the conditions precedent otherwise applicable
to an Advance of Revolving Loans. Such Revolving Loans shall constitute a
Floating Rate Advance, the proceeds of which Advance shall be used to repay such
Reimbursement Obligation. If, for any reason, the Borrower fails to repay a
Reimbursement Obligation on the day such Reimbursement Obligation arises and,
for any reason, the Lenders are unable to make or have no obligation to make
Revolving Loans, then such Reimbursement Obligation shall bear interest from and
after such day, until paid in full, at the interest rate applicable to a
Floating Rate Advance.
3.7 LETTER OF CREDIT FEES. The Borrower agrees to pay (i) quarterly, in
arrears, on each Payment Date to the Agent for the ratable benefit of the
Lenders, except as set forth in SECTION 9.2, a letter of credit fee at a rate
per annum equal to the Applicable L/C Fee Percentage on the average daily
outstanding face amount available for drawing under all Letters of Credit, (ii)
quarterly in arrears to the Agent for the sole account of the Issuing Banks, a
fronting fee at such percentage rate per annum as shall be agreed between the
Borrower and each such Issuing Bank on the aggregate average daily outstanding
amount available for drawing under each such Issuing Bank's Letters of Credit,
payable quarterly in arrears, and (iii) to the Agent for the benefit of each
Issuing Bank, all customary fees and other issuance, amendment, document
examination, negotiation and presentment expenses and related charges in
connection with the issuance, amendment, presentation of L/C Drafts, and the
like customarily charged by the Issuing Banks with respect to standby and
commercial Letters of Credit, including, without limitation, standard
commissions with respect to commercial Letters of Credit, payable at the time of
invoice of such amounts.
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3.8 ISSUING BANK REPORTING REQUIREMENTS. In addition to the notices
required by SECTION 3.4(C), each Issuing Bank shall, no later than the tenth
Business Day following the last day of each month, provide to the Agent, upon
the Agent's request, schedules, in form and substance reasonably satisfactory to
the Agent, showing the date of issue, account party, amount, expiration date and
the reference number of each Letter of Credit issued by it outstanding at any
time during such month and the aggregate amount payable by the Borrower during
such month. In addition, upon the request of the Agent, each Issuing Bank shall
furnish to the Agent copies of any Letter of Credit and any application for or
reimbursement agreement with respect to a Letter of Credit to which the Issuing
Bank is party and such other documentation as may reasonably be requested by the
Agent. Upon the request of any Lender, the Agent will provide to such Lender
information concerning such Letters of Credit.
3.9 INDEMNIFICATION; EXONERATION. (a) In addition to amounts payable as
elsewhere provided in this ARTICLE III, the Borrower hereby agrees to protect,
indemnify, pay and save harmless the Agent, each Issuing Bank and each Lender
from and against any and all liabilities and costs which the Agent, such Issuing
Bank or such Lender may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of any Letter of Credit other than, in the case of
the applicable Issuing Bank, as a result of its Gross Negligence or willful
misconduct, as determined by the final judgment of a court of competent
jurisdiction, or (ii) the failure of the applicable Issuing Bank to honor a
drawing under a Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future DE JURE or DE FACTO Governmental
Authority (all such acts or omissions herein called "GOVERNMENTAL ACTS").
(b) As among the Borrower, the Lenders, the Agent and the Issuing Banks,
the Borrower assumes all risks of the acts and omissions of, or misuse of such
Letter of Credit by, the beneficiary of any Letters of Credit. In furtherance
and not in limitation of the foregoing, subject to the provisions of the Letter
of Credit applications and Letter of Credit reimbursement agreements executed by
the Borrower at the time of request for any Letter of Credit, neither the Agent,
any Issuing Bank nor any Lender shall be responsible (in the absence of Gross
Negligence or willful misconduct in connection therewith, as determined by the
final judgment of a court of competent jurisdiction): (i) for the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
the Letters of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of a
Letter of Credit to comply duly with conditions required in order to draw upon
such Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex, or
other similar form of teletransmission or otherwise; (v) for errors in
interpretation of technical trade terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of
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Credit; and (viii) for any consequences arising from causes beyond the control
of the Agent, the Issuing Banks and the Lenders, including, without limitation,
any Governmental Acts. None of the above shall affect, impair, or prevent the
vesting of any Issuing Bank's rights or powers under this SECTION 3.9.
(c) In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any Issuing
Bank under or in connection with the Letters of Credit or any related
certificates shall not, in the absence of Gross Negligence or willful
misconduct, as determined by the final judgment of a court of competent
jurisdiction, put the applicable Issuing Bank, the Agent or any Lender under any
resulting liability to the Borrower or relieve the Borrower of any of its
obligations hereunder to any such Person.
(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this SECTION 3.9 shall survive the payment in full of principal and interest
hereunder, the termination of the Letters of Credit and the termination of this
Agreement.
3.10 CASH COLLATERAL. Notwithstanding anything to the contrary herein or
in any application for a Letter of Credit, after the occurrence and during the
continuance of Default, the Borrower shall, upon the Agent's demand, deliver to
the Agent for the benefit of the Lenders and the Issuing Banks, cash, or other
collateral of a type satisfactory to the Required Lenders, having a value, as
determined by such Lenders, equal to the aggregate outstanding L/C Obligations.
In addition, if the Revolving Credit Availability is at any time less than the
amount of contingent L/C Obligations outstanding at any time, the Borrower shall
deposit cash collateral with the Agent in an amount equal to the amount by which
such L/C Obligations exceed such Revolving Credit Availability. Any such
collateral shall be held by the Agent in a separate account appropriately
designated as a cash collateral account in relation to this Agreement and the
Letters of Credit and retained by the Agent for the benefit of the Lenders and
the Issuing Banks as collateral security for the Borrower's obligations in
respect of this Agreement and each of the Letters of Credit and L/C Drafts. Such
amounts shall be applied to reimburse the Issuing Banks for drawings or payments
under or pursuant to Letters of Credit or L/C Drafts, or if no such
reimbursement is required, to payment of such of the other Obligations as the
Agent shall determine. If no Default shall be continuing, amounts remaining in
any cash collateral account established pursuant to this SECTION 3.10 which are
not to be applied to reimburse an Issuing Bank for amounts actually paid or to
be paid by such Issuing Bank in respect of a Letter of Credit or L/C Draft,
shall be returned to the Borrower (after deduction of the Agent's expenses
incurred in connection with such cash collateral account).
ARTICLE IV: CHANGE IN CIRCUMSTANCES
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4.1 YIELD PROTECTION. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law) adopted after the date of this Agreement and having
general applicability to all banks within the jurisdiction in which such Lender
operates (excluding, for the avoidance of doubt, the effect of and phasing in of
capital requirements or other regulations or guidelines passed prior to the date
of this Agreement), or any interpretation or application thereof by any
Governmental Authority charged with the interpretation or application thereof,
or the compliance of any Lender therewith,
(i) to the extent not otherwise covered pursuant to the
provisions of SECTION 2.12(E), subjects any Lender or any applicable
Lending Installation to any tax, duty, charge or withholding on or from
payments due from the Borrower (excluding, in the case of each Lender
and the Agent, such taxes (including income taxes, franchise taxes and
branch profit taxes) as are imposed on or measured by such Lender's or
Agent's, as the case may be, income by the United States of America or
any Governmental Authority of the jurisdiction under the laws of which
such Lender or Agent, as the case may be, is organized), or changes the
basis of taxation of payments to any Lender in respect of its Loans, its
L/C Interests, the Letters of Credit or other amounts due it hereunder,
or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, any Lender or any applicable Lending Installation (other
than reserves and assessments taken into account in determining the
interest rate applicable to Eurodollar Rate Loans) with respect to its
Loans, L/C Interests or the Letters of Credit, or
(iii) imposes any other condition the result of which is to
increase the cost to any Lender or any applicable Lending Installation
of making, funding or maintaining the Loans, the L/C Interests or the
Letters of Credit or reduces any amount received by any Lender or any
applicable Lending Installation in connection with Loans or Letters of
Credit, or requires any Lender or any applicable Lending Installation to
make any payment calculated by reference to the amount of Loans or L/C
Interests held or interest received by it or by reference to the Letters
of Credit, by an amount deemed material by such Lender;
and the result of any of the foregoing is to increase the cost to that Lender of
making, renewing or maintaining its Loans, L/C Interests or Letters of Credit or
to reduce any amount received under this Agreement, then, within 15 days after
receipt by the Borrower of written demand by such Lender pursuant to SECTION
4.5, the Borrower shall pay such Lender that portion of such increased expense
incurred or reduction in an amount received which such Lender determines is
attributable to making, funding and maintaining its Loans, L/C Interests,
Letters of Credit and its Commitment.
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4.2 CHANGES IN CAPITAL ADEQUACY REGULATIONS. If a Lender determines (i)
the amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a "Change" (as defined below), and (ii) such
increase in capital will result in an increase in the cost to such Lender of
maintaining its Loans, L/C Interests, the Letters of Credit or its obligation to
make Loans hereunder, then, within 15 days after receipt by the Borrower of
written demand by such Lender pursuant to SECTION 4.5, the Borrower shall pay
such Lender the amount necessary to compensate for any shortfall in the rate of
return on the portion of such increased capital which such Lender determines is
attributable to this Agreement, its Loans, its L/C Interests, the Letters of
Credit or its obligation to make Loans hereunder (after taking into account such
Lender's policies as to capital adequacy). "CHANGE" means (i) any change after
the date of this Agreement in the "Risk-Based Capital Guidelines" (as defined
below) excluding, for the avoidance of doubt, the effect of any phasing in of
such Risk-Based Capital Guidelines or any other capital requirements passed
prior to the date hereof, or (ii) any adoption of or change in any other law,
governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after the
date of this Agreement and having general applicability to all banks and
financial institutions within the jurisdiction in which such Lender operates
which affects the amount of capital required or expected to be maintained by any
Lender or any Lending Installation or any corporation controlling any Lender.
"RISK-BASED CAPITAL GUIDELINES" means (i) the risk-based capital guidelines in
effect in the United States on the date of this Agreement, including transition
rules, and (ii) the corresponding capital regulations promulgated by regulatory
authorities outside the United States implementing the July 1988 report of the
Basle Committee on Banking Regulation and Supervisory Practices Entitled
"International Convergence of Capital Measurements and Capital Standards,"
including transition rules, and any amendments to such regulations adopted prior
to the date of this Agreement.
4.3 AVAILABILITY OF TYPES OF ADVANCES. If (i) any Lender determines that
maintenance of its Eurodollar Rate Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation or directive, whether or not
having the force of law, or (ii) the Required Lenders determine that (x)
deposits of a type and maturity appropriate to match fund Eurodollar Rate
Advances are not available or (y) the interest rate applicable to a Type of
Advance does not accurately reflect the cost of making or maintaining such an
Advance, then the Agent shall suspend the availability of the affected Type of
Advance and, in the case of any occurrence set forth in clause (i) require any
Advances of the affected Type to be converted to Floating Rate Loans until the
circumstances giving rise to such suspension no longer exist.
4.4 FUNDING INDEMNIFICATION. If any payment of a Eurodollar Rate Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment, or otherwise, or a Eurodollar Rate
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lenders, or a Eurodollar Rate Advance is converted on a day
other than the last day of the applicable Interest Period, the Borrower
indemnifies each Lender for any loss or cost incurred by it resulting therefrom
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(including loss of profit other than loss of profit represented by the
Applicable Eurodollar Margin which would have been payable for such Interest
Period), including, without limitation, any loss or cost in liquidating or
employing deposits acquired to fund or maintain the Eurodollar Rate Advance. In
connection with any assignment by any Lender of any portion of the Loans made
pursuant to SECTION 13.3 and made during the Syndication Period, and if,
notwithstanding the provisions of SECTION 2.2, the Borrower has requested and
the Agent has consented to the use of the Eurodollar Rate, the Borrower shall be
deemed to have repaid all outstanding Eurodollar Rate Advances as of the
effective date of such assignment and reborrowed such amount as a Floating Rate
Advance and/or Eurodollar Rate Advance (chosen in accordance with the provisions
of SECTION 2.2) and the indemnification provisions under this SECTION 4.4 shall
apply.
4.5 LENDER STATEMENTS; SURVIVAL OF INDEMNITY. If reasonably possible,
each Lender shall designate an alternate Lending Installation with respect to
its Eurodollar Rate Loans to reduce any liability of the Borrower to such Lender
under SECTIONS 4.1 and 4.2 or to avoid the unavailability of a Type of Advance
under SECTION 4.3, so long as such designation is not disadvantageous to such
Lender. Each Lender requiring compensation pursuant to SECTION 2.12(E) or to
this ARTICLE IV shall use its reasonable efforts to notify the Borrower and the
Agent in writing of any Change, law, policy, rule, guideline or directive giving
rise to such demand for compensation not later than ninety (90) days following
the date upon which the responsible account officer of such Lender knows or
should have known of such Change, law, policy, rule, guideline or directive;
PROVIDED, HOWEVER, that the failure to so notify the Borrower shall not affect
the Borrower's obligations under this SECTION 4.5. Any demand for compensation
pursuant to this ARTICLE IV shall be in writing and shall state the amount due,
if any, under SECTION 4.1, 4.2 or 4.4 and shall set forth in reasonable detail
the calculations upon which such Lender determined such amount. Such written
demand shall be rebuttably presumed correct for all purposes. Determination of
amounts payable under such Sections in connection with a Eurodollar Rate Loan
shall be calculated as though each Lender funded its Eurodollar Rate Loan
through the purchase of a deposit of the type and maturity corresponding to the
deposit used as a reference in determining the Eurodollar Rate applicable to
such Revolving Loan, whether in fact that is the case or not. The obligations of
the Borrower under SECTIONS 4.1, 4.2 and 4.4 shall survive payment of the
Obligations and termination of this Agreement.
ARTICLE V: CONDITIONS PRECEDENT
5.1 INITIAL ADVANCES AND LETTERS OF CREDIT. The Lenders shall not be
required to make the initial Revolving Loans or issue any Letters of Credit or
purchase any participations therein unless (i) the Lenders shall be satisfied in
all material respects that the Borrower has received net proceeds (net of
underwriting discount and Transaction Costs) from the Public Offering of not
less than $30,000,000; (ii) no law, regulation, order, judgment or decree of any
Governmental Authority shall, and the Agent shall not have received any notice
that litigation is pending or threatened which is likely to, (A) enjoin,
prohibit or restrain the making of the
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initial Revolving Loans on the Closing Date or (B) impose or result in the
imposition of a Material Adverse Effect; (iii) the Related Transactions have all
been consummated; (iv) there shall have occurred no material adverse change in
the primary and secondary loan syndication markets or capital markets generally;
and (v) the Borrower has furnished to the Agent each of the following, with
sufficient copies for the Lenders, all in form and substance satisfactory to the
Agent and the Lenders:
(a) Certificates of good standing for the Borrower and each of
the Guarantors from its jurisdiction of incorporation or formation, in
the case of a limited liability company and each other jurisdiction
where the nature of its business requires it to be qualified as a
foreign corporation;
(b) Copies, certified by the Secretary or Assistant Secretary of
the Borrower and each Guarantor, or in the case of any Guarantor which
is a limited liability company, certified by the managing member or sole
member, of its articles or certificate of incorporation or formation, if
applicable, (which copies shall be certified as of a recent date by the
appropriate governmental officer in its respective jurisdiction of
incorporation or formation), its by-laws or similar governing
documentation, in the case of a limited liability company, and of its
Board of Directors' resolutions or similar authorization documentation,
in the case of a limited liability company, (and resolutions of other
bodies, if any are deemed necessary by counsel for any Lender)
authorizing the execution of the Loan Documents;
(c) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower and each Guarantor or, where
applicable, executed by the managing member or sole member, which shall
identify by name and title and bear the signature of the officers of the
Borrower and Guarantors authorized to sign the Loan Documents and, in
the case of the Borrower, to request Revolving Loans and Letters of
Credit hereunder, upon which certificate the Lenders shall be entitled
to rely until informed of any change in writing by the Borrower;
(d) A certificate, in form and substance satisfactory to the
Agent, signed by the chief financial officer of the Borrower, (i)
certifying that on the Closing Date no Default or Unmatured Default has
occurred and is continuing, (ii) setting forth the calculation of the
Adjusted Leverage Ratio as of September 30, 1997, (iii) certifying
receipt of not less than $30,000,000 of net proceeds from the Public
Offering and (iv) certifying that no change in the business, condition
(financial or otherwise), operations, performance, properties or
prospects of the Borrower and its Subsidiaries, taken as a whole, shall
have occurred since November 21, 1997 which has had or could reasonably
be expected to have a Material Adverse Effect;
(e) A written opinion of the Borrower's and Guarantors' counsel,
addressed to the Agent and the Lenders, addressing the issues identified
in EXHIBIT F hereto containing assumptions and qualifications acceptable
to the Agent and the Lenders;
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(f) Revolving Notes payable to the order of each of the
applicable Lenders;
(g) A Swing Line Note payable to the order of FCCC;
(h) Written money transfer instructions reasonably requested by
the Agent, addressed to the Agent and signed by an Authorized Officer;
(i) The Guaranty executed by each of the Guarantors;
(j) The Pledge Agreements executed by the pledgor thereof
together with the appropriate stock certificates and stock powers
executed in blank or pledge instructions, where appropriate, and
including Uniform Commercial Code Financing Statements naming such
pledgor as "Debtor" and the Agent as "Secured Party" to be filed with
the appropriate Secretary of State; and
(k) Such other documents as the Agent or any Lender or its
counsel may have reasonably requested, including, without limitation all
of the documents reflected on the List of Closing Documents attached as
EXHIBIT G to this Agreement.
5.2 EACH ADVANCE AND LETTER OF CREDIT. The Lenders shall not be required
to make any Advance, issue any Letter of Credit or purchase any participation
therein, unless on the applicable Borrowing Date, or in the case of a Letter of
Credit, the date on which the Letter of Credit is to be issued:
(i) There exists no Default or Unmatured Default; and
(ii) The representations and warranties contained in ARTICLE VI
are true and correct as of such Borrowing Date (unless such
representation and warranty expressly relates to an earlier date or is
no longer true solely as a result of transactions permitted by this
Agreement).
Each Borrowing Notice with respect to each such Advance and the letter
of credit application with respect to a Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions contained in
SECTIONS 5.2(I) and (II) have been satisfied. If any Lender has a reasonable
basis for believing a Default or Unmatured Default may have occurred and is
continuing or that the Borrower is not able to make one or more of the
representations and warranties set forth in ARTICLE VI, such Lender may require
a duly completed officer's certificate in substantially the form of EXHIBIT H
hereto and/or a duly completed compliance certificate in substantially the form
of EXHIBIT I hereto as a condition to making an Advance or the issuance of any
Letter of Credit.
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ARTICLE VI: REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows to each Lender and the
Agent as of the Closing Date, giving effect to the Initial Acquisitions, the
consummation of the Mergers, the consummation of the Public Offering and the
consummation of the other transactions contemplated by the Transaction Documents
on the Closing Date, and thereafter on each date as required by SECTION 5.2:
6.1 ORGANIZATION; CORPORATE POWERS. The Borrower and each of its
Subsidiaries (i) is a corporation or a limited liability company duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization or formation, (ii) is duly qualified to do business and is in good
standing under the laws of each jurisdiction in which failure to be so qualified
and in good standing could not reasonably be expected to have a Material Adverse
Effect and (iii) has all requisite corporate power and authority to own, operate
and encumber its property and to conduct its business as presently conducted and
as proposed to be conducted.
6.2 AUTHORITY.
(A) The Borrower and each of its Subsidiaries has the requisite power
and authority (i) to execute, deliver and perform each of the Transaction
Documents in connection with the Initial Acquisitions, the Mergers, the Public
Offering and the Related Transactions which have been executed by it as required
by this Agreement on or prior to Closing Date and (ii) to file the Transaction
Documents in connection with the Initial Acquisitions, the Mergers, the Public
Offering and the Related Transactions or which have been filed by it as required
by this Agreement on or prior to the Closing Date with any Governmental
Authority.
(B) The execution, delivery, performance and filing, as the case may be,
of each of the Transaction Documents by the Borrower or any of its Subsidiaries
in connection with the Initial Acquisitions, the Mergers, the Public Offering
and the Related Transactions which have been executed or filed as required by
this Agreement on or prior to the Closing Date and to which the Borrower or any
of its Subsidiaries is party, and the consummation of the transactions
contemplated thereby, have been duly approved by the respective boards of
directors and, if necessary, the shareholders of the Borrower and its
Subsidiaries, and such approvals have not been rescinded. No other corporate
action or proceedings on the part of the Borrower or its Subsidiaries are
necessary to consummate the Related Transactions.
(C) Each of the Transaction Documents to which the Borrower or any of
its Subsidiaries is a party has been duly executed, delivered or filed, as the
case may be, by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, is in full force and effect
and no material term or condition thereof has been amended, modified or waived
from the terms and conditions described in the Prospectus without the prior
written consent of the Required Lenders, and the Borrower and its Subsidiaries
have,
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and, to the best of the Borrower's and its Subsidiaries' knowledge, all other
parties thereto have, performed and complied with all the material terms,
provisions, agreements and conditions set forth therein and required to be
performed or complied with by such parties on or before the Closing Date, and no
unmatured default, default or breach of any material covenant by any such party
exists thereunder.
6.3 NO CONFLICT; GOVERNMENTAL CONSENTS. The execution, delivery and
performance of each of the Loan Documents and other Transaction Documents to
which the Borrower or any of its Subsidiaries is a party do not and will not (i)
conflict with the certificate or articles of incorporation or by-laws of the
Borrower or any such Subsidiary, (ii) with respect to the Transaction Documents
other than the Loan Documents, to the Borrower's knowledge after diligent
inquiry of all relevant Persons constitute a tortious interference with any
Contractual Obligation of any Person or conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a default under any
Requirement of Law (including, without limitation, any Environmental Property
Transfer Act) or Contractual Obligation of the Borrower or any such Subsidiary,
or require termination of any Contractual Obligation, except such interference,
breach, default or termination which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect, (iii) with respect to
the Loan Documents, constitute a tortious interference with any Contractual
Obligation of any Person or conflict with, result in a breach of or constitute
(with or without notice or lapse of time or both) a default under any
Requirement of Law (including, without limitation, any Environmental Property
Transfer Act) or Contractual Obligation of the Borrower or any such Subsidiary,
or require termination of any Contractual Obligation, except such interference,
breach, default or termination which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect, (iv) result in or
require the creation or imposition of any Lien whatsoever upon any of the
property or assets of the Borrower or any such Subsidiary, other than Liens
permitted by the Loan Documents, or (v) require any approval of the Borrower's
or any such Subsidiary's shareholders except such as have been obtained. The
execution, delivery and performance of each of the Transaction Documents to
which the Borrower or any of its Subsidiaries is a party do not and will not
require any registration with, consent or approval of, or notice to, or other
action to, with or by any Governmental Authority, including under any
Environmental Property Transfer Act, except filings, consents or notices which
have been made, obtained or given, or which, if not made, obtained or given,
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
6.4 FINANCIAL STATEMENTS.
(A) The PRO FORMA financial statements of the Borrower and its
Subsidiaries, contained in the Prospectus present on a PRO FORMA basis the
financial condition of the Borrower and such Subsidiaries as of the dates
contained therein, and reflect on a PRO FORMA basis those liabilities reflected
in the notes thereto and resulting from consummation of the Initial
Acquisitions, the Mergers, the Public Offering and the Related Transactions and
the other transactions contemplated by this Agreement, and the payment or
accrual of all Transaction Costs payable
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on the Closing Date with respect to any of the foregoing. The projections and
assumptions contained in Section 9 of the confidential information memorandum
entitled "HOMEUSA $50,000,000 Senior Revolving Credit Facility" dated December
1997 and furnished on behalf of the Borrower to financial institutions invited
to participate in the credit facility evidenced by this Agreement (the
"INFORMATION MEMORANDUM") were prepared in good faith and represent management's
opinion as of such date based on the information available to the Borrower at
the time so furnished.
(B) The historical financial statements of the Borrower and each of the
Founding Companies included in the Prospectus, were prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods covered thereby (except as otherwise expressly noted therein), (ii) to
the Borrower's knowledge, after diligent inquiry, fairly present the financial
condition of each of the Borrower and the Founding Companies as of the dates
thereof and the results of operations for the periods covered thereby; and (iii)
show all material indebtedness and other liabilities, direct or contingent, of
each of the Borrower and the Founding Companies as of the dates thereof.
6.5 NO MATERIAL ADVERSE CHANGE. (a) Since September 30, 1997 up to the
Closing Date, there has occurred no event or circumstance which has had or could
reasonably be expected to have a Material Adverse Effect.
(b) Since the Closing Date, there has occurred no event or circumstance
which has had or could reasonably be expected to have a Material Adverse Effect.
6.6 TAXES.
(A) TAX EXAMINATIONS. All material deficiencies which have been asserted
against the Borrower or any of the Borrower's Subsidiaries as a result of any
federal, state, local or foreign tax examination for each taxable year in
respect of which an examination has been conducted have been fully paid or
finally settled or are being contested in good faith, and as of the Closing Date
no issue has been raised by any taxing authority in any such examination which,
by application of similar principles, reasonably can be expected to result in
assertion by such taxing authority of a material deficiency for any other year
not so examined which has not been reserved for in the Borrower's consolidated
financial statements to the extent, if any, required by Agreement Accounting
Principles. Neither the Borrower nor any of the Borrower's Subsidiaries
anticipates any material tax liability with respect to the years which have not
been closed pursuant to applicable law.
(B) PAYMENT OF TAXES. All tax returns and reports of the Borrower and
its Subsidiaries required to be filed have been timely filed, and all taxes,
assessments, fees and other governmental charges thereupon and upon their
respective property, assets, income and franchises which are shown in such
returns or reports to be due and payable have been paid except those items which
are being contested in good faith and have been reserved for in accordance with
Agreement Accounting Principles or for which the failure to file could not
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reasonably be expected to have a Material Adverse Effect. The Borrower has no
knowledge of any proposed tax assessment against the Borrower or any of its
Subsidiaries that will have or could reasonably be expected to have a Material
Adverse Effect.
6.7 LITIGATION; LOSS CONTINGENCIES AND VIOLATIONS. There is no action,
suit, proceeding, arbitration or, to the Borrower's knowledge after diligent
inquiry, investigation before or by any Governmental Authority or private
arbitrator pending or, to the Borrower's knowledge after diligent inquiry,
threatened against the Borrower or any of its Subsidiaries or any property of
any of them (i) challenging the validity or the enforceability of any material
provision of the Transaction Documents or (ii) which will have or could
reasonably be expected to have a Material Adverse Effect. There is no material
loss contingency within the meaning of Agreement Accounting Principles which has
not been reflected in the consolidated financial statements of the Borrower and
its Subsidiaries prepared and delivered pursuant to SECTION 7.1(A) for the
fiscal period during which such material loss contingency was incurred. Neither
the Borrower nor any of its Subsidiaries is (A) in violation of any applicable
Requirements of Law which violation will have or could reasonably be expected to
have a Material Adverse Effect, or (B) subject to or in default with respect to
any final judgment, writ, injunction, restraining order or order of any nature,
decree, rule or regulation of any court or Governmental Authority which will
have or could reasonably be expected to have a Material Adverse Effect.
6.8 SUBSIDIARIES. SCHEDULE 6.8 to this Agreement (i) contains a
description as of the Closing Date (or as of the date of any supplement thereto)
of the corporate structure of, the Borrower and its Subsidiaries and any other
Person in which the Borrower or any of its Subsidiaries holds an Equity
Interest; and (ii) accurately sets forth as of the Closing Date (or as of the
date of any supplement thereto) (A) the correct legal name, the jurisdiction of
incorporation and the jurisdictions in which each of the Borrower and the
Subsidiaries of the Borrower is qualified to transact business as a foreign
corporation, (B) for each Subsidiary of the Borrower which is not a wholly-owned
Subsidiary, the authorized, issued and outstanding shares of each class of
Capital Stock of such Subsidiaries and the owners of such shares (both as of the
Closing Date and on a fully-diluted basis), and (C) a summary of the direct and
indirect partnership, joint venture, or other Equity Interests, if any, of the
Borrower and each Subsidiary of the Borrower in any Person that is not a
corporation. After the formation or acquisition of any New Subsidiary permitted
under SECTION 7.3(F)(II), if requested by the Agent, the Borrower shall provide
a supplement to SCHEDULE 6.8 to this Agreement. Except as set forth on SCHEDULE
6.8, none of the issued and outstanding Capital Stock of the Borrower or any of
its Subsidiaries is subject to any redemption or repurchase agreement. The
outstanding Capital Stock of the Borrower and each of the Borrower's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and, prior to the Public Offering, is not Margin Stock. The Borrower has no
Subsidiaries other than (i) the Subsidiaries set forth on SCHEDULE 6.8 and (ii)
any Subsidiaries acquired or formed in connection with a Permitted Acquisition,
in connection with which the Borrower shall have provided all of the documents,
instruments and agreements as required by this Agreement.
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6.9 ERISA. No Benefit Plan has incurred any material accumulated funding
deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code)
whether or not waived. Neither the Borrower nor any member of the Controlled
Group has incurred any material liability to the PBGC which remains outstanding
other than the payment of premiums, and there are no premium payments which have
become due which are unpaid. Schedule B to the most recent annual report filed
with the IRS with respect to each Benefit Plan and, if so requested, furnished
to the Lenders, is complete and accurate in all material respects. Since the
date of each such Schedule B, there has been no material adverse change in the
funding status or financial condition of the Benefit Plan relating to such
Schedule B. Neither the Borrower nor any member of the Controlled Group has (i)
failed to make a required contribution or payment to a Multiemployer Plan or
(ii) made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA
from a Multiemployer Plan, in either event which could result in any material
liability. Neither the Borrower nor any member of the Controlled Group has
failed to make a required installment or any other required payment under
Section 412 of the Code, in either case involving any material amount, on or
before the due date for such installment or other payment. Neither the Borrower
nor any member of the Controlled Group is required to provide security to a
Benefit Plan under Section 401(a)(29) of the Code due to a Plan amendment that
results in an increase in current liability for the plan year. Neither the
Borrower nor any of its Subsidiaries maintains or contributes to any employee
welfare benefit plan within the meaning of Section 3(1) of ERISA which provides
benefits to employees after termination of employment other than as required by
Section 601 of ERISA. Each Plan which is intended to be qualified under Section
401(a) of the Code as currently in effect is so qualified, and each trust
related to any such Plan is exempt from federal income tax under Section 501(a)
of the Code as currently in effect. The Borrower and all Subsidiaries are in
compliance in all material respects with the responsibilities, obligations and
duties imposed on them by ERISA and the Code with respect to all Plans. Neither
the Borrower nor any of its Subsidiaries nor any fiduciary of any Plan has
engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA
or 4975 of the Code which could reasonably be expected to subject the Borrower
or any Guarantor to material liability. Neither the Borrower nor any member of
the Controlled Group has taken or failed to take any action which would
constitute or result in a Termination Event, which action or inaction could
reasonably be expected to subject the Borrower to material liability. Neither
the Borrower nor any Subsidiary is subject to any liability under Sections 4063,
4064, 4069, 4204 or 4212(c) of ERISA and no other member of the Controlled Group
is subject to any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of
ERISA which could reasonably be expected to subject the Borrower or any
Guarantor to material liability. Neither the Borrower nor any of its
Subsidiaries has, by reason of the transactions contemplated hereby, any
obligation to make any payment to any employee pursuant to any Plan or existing
contract or arrangement. For purposes of this SECTION 6.9 "material" means any
noncompliance or basis for liability which could reasonably be likely to subject
the Borrower or any of its Subsidiaries to liability individually or in the
aggregate for all such matters in excess of $2,500,000.
6.10 ACCURACY OF INFORMATION. The information, exhibits and reports
furnished by or on behalf of the Borrower and any of its Subsidiaries to the
Agent or to any Lender in
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connection with the negotiation of, or compliance with, the Loan Documents,
including, without limitation, the Information Memorandum (other than the
projections contained in Section 9 thereof), the representations and warranties
of the Borrower and its Subsidiaries contained in the Transaction Documents, and
all certificates and documents delivered to the Agent and the Lenders pursuant
to the terms thereof, taken as a whole, do not contain as of the date furnished
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein, taken as
a whole, in light of the circumstances under which they were made, not
misleading.
6.11 SECURITIES ACTIVITIES. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
6.12 MATERIAL AGREEMENTS. Neither the Borrower nor any of its
Subsidiaries is a party to any Contractual Obligation or subject to any charter
or other corporate restriction which individually or in the aggregate will have
or could reasonably be expected to have a Material Adverse Effect. Neither the
Borrower nor any of its Subsidiaries has received notice or has knowledge that
(i) it is in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Contractual Obligation
applicable to it, or (ii) any condition exists which, with the giving of notice
or the lapse of time or both, would constitute a default with respect to any
such Contractual Obligation, in each case, except where such default or
defaults, if any, individually or in the aggregate will not have or could not
reasonably be expected to have a Material Adverse Effect.
6.13 COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries are in
compliance with all Requirements of Law applicable to them and their respective
businesses, in each case where the failure to so comply individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
6.14 ASSETS AND PROPERTIES. The Borrower and each of its Subsidiaries
has good and marketable title to all of its assets and properties (tangible and
intangible, real or personal) owned by it or a valid leasehold interest in all
of its leased assets (except insofar as marketability may be limited by any laws
or regulations of any Governmental Authority affecting such assets), except
where the failure to have any such title will not have or could not reasonably
be expected to have a Material Adverse Effect, and all such assets and property
are free and clear of all Liens, except Liens permitted under SECTION 7.3(C).
Substantially all of the assets and properties owned by, leased to or used by
the Borrower and/or each such Subsidiary of the Borrower are in adequate
operating condition and repair, ordinary wear and tear excepted. Neither this
Agreement nor any other Transaction Document, nor any transaction contemplated
under any such agreement, will affect any right, title or interest of the
Borrower or such Subsidiary in and to any of its assets in a manner that will
have or could reasonably be expected to have a Material Adverse Effect.
6.15 STATUTORY INDEBTEDNESS RESTRICTIONS. Neither the Borrower nor any
of its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935,
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the Federal Power Act, the Interstate Commerce Act, or the Investment Company
Act of 1940, or any other federal, state or local statute, ordinance or
regulation which limits its ability to incur indebtedness or its ability to
consummate the transactions contemplated hereby or in connection with Initial
Acquisitions, the Mergers, the Public Offering and the Related Transactions.
6.16 INSURANCE. The Borrower's and its Subsidiaries' insurance policies
and programs reflect coverage that is reasonably consistent with prudent
industry practice.
6.17 LABOR MATTERS.
As of the Closing Date, to the Borrower's and its Subsidiaries'
knowledge, there are no material labor disputes to which the Borrower or any of
its Subsidiaries may become a party, including, without limitation, any strikes,
lockouts or other disputes relating to such Persons' plants and other
facilities.
6.18 INITIAL ACQUISITIONS; RELATED TRANSACTIONS. As of the Closing Date
and immediately prior to the making of the initial Loans:
(i) the Acquisition Documents are in full force and effect, no
material breach, default or waiver of any material term or provision
thereof by the Borrower or any of its Subsidiaries or, to the best of
the Borrower's knowledge, the other parties thereto, has occurred
(except for such breaches, defaults and waivers, if any, consented to in
writing by the Agent and the Required Lenders) and no action has been
taken by any competent authority which restrains, prevents or imposes
any material adverse condition upon, or seeks to restrain, prevent or
impose any material adverse condition upon, any of the Initial
Acquisitions, the Mergers or the Related Transactions; and
(ii) all material conditions precedent to, all consents from
applicable Governmental Authorities, and all other material consents
necessary to permit, the Initial Acquisitions pursuant to the
Acquisition Documents have been satisfied, the Initial Acquisitions have
been consummated on the terms described in the Prospectus, the Mergers
have been consummated and the Related Transactions have been
consummated.
6.19 ENVIRONMENTAL MATTERS. (a) Except as disclosed on SCHEDULE 6.19 to
this Agreement:
(i) the operations of the Borrower and its Subsidiaries comply in
all material respects with Environmental, Health or Safety Requirements
of Law;
(ii) the Borrower and its Subsidiaries have all material permits,
licenses or other authorizations required under Environmental, Health or
Safety Requirements of Law and are in material compliance with such
permits;
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(iii) neither the Borrower, any of its Subsidiaries nor any of
their respective present property or operations, or, to the best of, the
Borrower's or any of its Subsidiaries' knowledge, any of their
respective past property or operations, are subject to or the subject
of, any investigation known to the Borrower or any of its Subsidiaries,
any judicial or administrative proceeding, order, judgment, decree,
settlement or other agreement respecting: (A) any material violation of
Environmental, Health or Safety Requirements of Law; (B) any material
remedial action; or (C) any material claims or liabilities arising from
the Release or threatened Release of a Contaminant into the environment;
(iv) there is not now, nor to the best of the Borrower's or any
of its Subsidiaries' knowledge has there ever been on or in the property
of the Borrower or any of its Subsidiaries any landfill, waste pile,
underground storage tanks, aboveground storage tanks, surface
impoundment or hazardous waste storage facility of any kind, any
polychlorinated biphenyls (PCBs) used in hydraulic oils, electric
transformers or other equipment, or any asbestos containing material
that in the case of any of the foregoing could be reasonably expected to
result in any material claims against or liabilities of the Borrower or
any of its Subsidiaries; and
(v) neither the Borrower nor any of its Subsidiaries has any
material Contingent Obligation in connection with any Release or
threatened Release of a Contaminant into the environment.
(b) For purposes of this SECTION 6.19 "material" means any noncompliance
or basis for liability which could reasonably be expected individually or in the
aggregate to have a Material Adverse Effect.
6.20 THE PUBLIC OFFERING. As of the Closing Date:
(a) The Prospectus is effective under the Securities Act of 1933; the
Public Offering Documents comply in all material respects with the provisions of
the Securities Act of 1933, any other federal securities law, applicable state
securities or "Blue Sky" law, applicable foreign securities law or applicable
general corporation law, and, in each case, the rules and regulations
thereunder.
(b) All conditions precedent to, and all consents necessary to permit,
the Public Offering have been satisfied or delivered, and no action has been
taken by any competent authority which restrains, prevents or imposes material
adverse conditions upon, or seeks to restrain, prevent or impose material
adverse conditions upon, the Public Offering or the funding of any Revolving
Loans and the issuance of any Letters of Credit hereunder.
(c) The Borrower has issued 5,000,000 shares of its common stock, $0.01
par value per share, in connection with the Public Offering, the Public Offering
has been consummated, and the Borrower has received the proceeds thereof (net of
underwriting
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discount and other Transaction Costs) of not less than $30,000,000 and applied
such proceeds in the manner and for the purposes set forth in the Prospectus.
6.21. BENEFITS. Each of the Borrower and its Subsidiaries will benefit
from the financing arrangement established by this Agreement. The Agent and the
Lenders have stated and the Borrower acknowledges that, but for the agreement by
each of the Guarantors to execute and deliver the Guaranty, the Agent and the
Lenders would not have made available the credit facilities established hereby
on the terms set forth herein.
ARTICLE VII : COVENANTS
The Borrower covenants and agrees that so long as any Commitments are
outstanding and thereafter until payment in full of all of the Obligations
(other than contingent indemnity obligations), unless the Required Lenders shall
otherwise give prior written consent:
7.1 REPORTING. The Borrower shall:
(A) FINANCIAL REPORTING. Furnish to the Lenders:
(i) QUARTERLY REPORTS. As soon as practicable, and in any event
within forty-five (45) days after the end of each of the first three
quarters in each fiscal year, the consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such period and the
related consolidated statements of income and cash flows of the Borrower
and its Subsidiaries for such fiscal quarter and for the period from the
beginning of the then current fiscal year to the end of such fiscal
quarter, certified by the chief financial officer of the Borrower on
behalf of the Borrower as fairly presenting the consolidated financial
position of the Borrower and its Subsidiaries as at the dates indicated
and the results of their operations and cash flows for the periods
indicated in accordance with Agreement Accounting Principles, subject to
normal year end adjustments. In addition, as soon as practicable, and in
any event within sixty (60) days after the end of the fourth fiscal
quarter in each fiscal year, such financial statements and information
as shall be reasonably acceptable to the Agent as sufficient for the
calculation of the Adjusted Leverage Ratio as of the end of such fiscal
quarter, certified by the chief financial officer of the Borrower.
(ii) ANNUAL REPORTS. As soon as practicable, and in any event
within ninety (90) days after the end of each fiscal year, (a) the
consolidated balance sheet of the Borrower and its Subsidiaries as at
the end of such fiscal year and the related consolidated statements of
income, stockholders' equity and cash flows of the Borrower and its
Subsidiaries for such fiscal year, and in comparative form the
corresponding figures for the previous fiscal year in form and substance
sufficient to calculate the financial covenants set forth in SECTION
7.4, (b) a schedule from the Borrower setting forth for each item in
CLAUSE (A) hereof, the corresponding figures from the consolidated
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financial budget for the current fiscal year delivered pursuant to
SECTION 7.1(A)(IV), and (c) an audit report on the items listed in
CLAUSE (A) hereof of independent certified public accountants of
recognized national standing, which audit report shall be unqualified
and shall state that such financial statements fairly present the
consolidated financial position of the Borrower and its Subsidiaries as
at the dates indicated and the results of their operations and cash
flows for the periods indicated in conformity with Agreement Accounting
Principles and that the examination by such accountants in connection
with such consolidated financial statements has been made in accordance
with generally accepted auditing standards. The deliveries made pursuant
to this CLAUSE (II) shall be accompanied by any management letter
prepared by the above-referenced accountants.
(iii) OFFICER'S CERTIFICATE. Together with each delivery of any
financial statement (a) pursuant to CLAUSES (I)and (II) of this SECTION
7.1(A), an Officer's Certificate of the Borrower, substantially in the
form of EXHIBIT H attached hereto and made a part hereof, stating that
no Default or Unmatured Default exists, or if any Default or Unmatured
Default exists, stating the nature and status thereof and (b) pursuant
to CLAUSES (I) and (II) of this SECTION 7.1(A), a compliance
certificate, substantially in the form of EXHIBIT I attached hereto and
made a part hereof, signed by the Borrower's chief financial officer or
treasurer, setting forth calculations for the period then ended, which
demonstrate compliance, when applicable, with the provisions of SECTION
7.4, and which calculate the Leverage Ratio for purposes of determining
the then Applicable Eurodollar Margin, Applicable Floating Rate Margin
and Applicable Commitment Fee Percentage.
(iv) BUDGETS; BUSINESS PLANS; FINANCIAL PROJECTIONS. Not less
frequently than once during each 12-month period following the Closing
Date, a copy of the plan and forecast (including a projected balance
sheet, income statement and statement of cash flow) of the Borrower and
its Subsidiaries for the upcoming 12-month period prepared in such
detail as shall be reasonably satisfactory to the Agent.
(B) NOTICE OF DEFAULT. Promptly upon any of the chief executive officer,
chief operating officer, chief financial officer, treasurer or controller of the
Borrower obtaining knowledge (i) of any condition or event which constitutes a
Default or Unmatured Default, or becoming aware that any Lender or Agent has
given any written notice with respect to a claimed Default or Unmatured Default
under this Agreement, or (ii) that any Person has given any written notice to
the Borrower or any Subsidiary of the Borrower or taken any other action with
respect to a claimed default or event or condition of the type referred to in
SECTION 8.1(e), deliver to the Agent and the Lenders a notice specifying (a) the
nature and period of existence of any such claimed default, Default, Unmatured
Default, condition or event, (b) the notice given or action taken by such Person
in connection therewith, and (c) what action the Borrower has taken, is taking
and proposes to take with respect thereto.
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(C) LAWSUITS. (i) Promptly upon the Borrower obtaining knowledge of the
institution of, or written threat of, any action, suit, proceeding, governmental
investigation or arbitration against or affecting the Borrower or any of its
Subsidiaries or any property of the Borrower or any of its Subsidiaries not
previously disclosed pursuant to SECTION 6.7, which action, suit, proceeding,
governmental investigation or arbitration exposes, or in the case of multiple
actions, suits, proceedings, governmental investigations or arbitrations arising
out of the same general allegations or circumstances which could reasonably be
expected to have a Material Adverse Effect, give written notice thereof to the
Agent and the Lenders and provide such other information as may be reasonably
available to enable each Lender and the Agent and its counsel to evaluate such
matters; and (ii) in addition to the requirements set forth in CLAUSE (I) of
this SECTION 7.1(C), upon request of the Agent or the Required Lenders, promptly
give written notice of the status of any action, suit, proceeding, governmental
investigation or arbitration covered by a report delivered pursuant to CLAUSE
(I) above or disclosed in any filing with the Commission and provide such other
information as may be reasonably available to it that would not violate any
attorney-client privilege by disclosure to the Lenders to enable each Lender and
the Agent and its counsel to evaluate such matters.
(D) ERISA NOTICES. Deliver or cause to be delivered to the Agent and the
Lenders, at the Borrower's expense, the following information and notices as
soon as reasonably possible, and in any event:
(i) (a) within ten (10) Business Days after the Borrower obtains
knowledge that a Termination Event has occurred, a written statement of
the chief financial officer of the Borrower describing such Termination
Event and the action, if any, which the Borrower has taken, is taking or
proposes to take with respect thereto, and when known, any action taken
or threatened by the IRS, DOL or PBGC with respect thereto and (b)
within ten (10) Business Days after any member of the Controlled Group
obtains knowledge that a Termination Event has occurred which could
reasonably be expected to subject the Borrower or any member of the
Controlled Group to liability individually or in the aggregate in excess
of $2,500,000, a written statement of the chief financial officer of the
Borrower describing such Termination Event and the action, if any, which
the member of the Controlled Group has taken, is taking or proposes to
take with respect thereto, and when known, any action taken or
threatened by the IRS, DOL or PBGC with respect thereto;
(ii) within ten (10) Business Days after the Borrower or any of
its Subsidiaries obtains knowledge that a prohibited transaction
(defined in Sections 406 of ERISA and Section 4975 of the Code) has
occurred which could result in material liability, a statement of the
chief financial officer of the Borrower describing such transaction and
the action which the Borrower or such Subsidiary has taken, is taking or
proposes to take with respect thereto;
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(iii) within ten (10) Business Days after the Borrower or any of
its Subsidiaries receives notice of any unfavorable determination letter
from the IRS regarding the qualification of a Plan under Section 401(a)
of the Code, copies of each such letter;
(iv) within ten (10) Business Days after the filing thereof with
the IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by the Borrower or a member
of the Controlled Group with respect to such request;
(v) within ten (10) Business Days after receipt by the Borrower
or any member of the Controlled Group of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to administer a
Benefit Plan, copies of each such notice;
(vi) within ten (10) Business Days after receipt by the Borrower
or any member of the Controlled Group of a notice from a Multiemployer
Plan regarding the imposition of withdrawal liability, copies of each
such notice;
(vii) within ten (10) Business Days after the Borrower or any
member of the Controlled Group fails to make a required installment or
any other required payment under Section 412 of the Code on or before
the due date for such installment or payment, a notification of such
failure; and
(viii) within ten (10) Business Days after the Borrower or any
member of the Controlled Group knows or has reason to know that (a) a
Multiemployer Plan has been terminated, (b) the administrator or plan
sponsor of a Multiemployer Plan intends to terminate a Multiemployer
Plan, or (c) the PBGC has instituted or will institute proceedings under
Section 4042 of ERISA to terminate a Multiemployer Plan.
For purposes of this SECTION 7.1(D), the Borrower, any of its Subsidiaries and
any member of the Controlled Group shall be deemed to know all facts known by
the Administrator of any Plan of which the Borrower or any member of the
Controlled Group or such Subsidiary is the plan sponsor.
(E) LABOR MATTERS. Notify the Agent and the Lenders in writing, promptly
upon the Borrower's learning thereof, of (i) any material labor dispute to which
the Borrower or any of its Subsidiaries may become a party, including, without
limitation, any strikes, lockouts or other disputes relating to such Persons'
plants and other facilities and (ii) any material liability incurred under the
Worker Adjustment and Retraining Notification Act with respect to the closing of
any plant or other facility of the Borrower or any of its Subsidiaries.
(F) OTHER INDEBTEDNESS. Deliver to the Agent (i) a copy of each notice
or communication regarding potential or actual defaults (including any
accompanying officer's certificate) delivered by or on behalf of the Borrower or
any of its Subsidiaries to the holders of funded Indebtedness pursuant to the
terms of the agreements governing such Indebtedness,
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such delivery to be made at the same time and by the same means as such notice
or other communication is delivered to such holders, and (ii) a copy of each
notice or other communication regarding potential or actual defaults received by
the Borrower or any of its Subsidiaries from the holders of funded Indebtedness
pursuant to the terms of such Indebtedness, such delivery to be made promptly
after such notice or other communication is received by the Borrower or any such
Subsidiary.
(G) OTHER REPORTS. Deliver or cause to be delivered to the Agent and the
Lenders copies of all financial statements, reports and notices, if any, sent or
made available generally by the Borrower to its securities holders or filed with
the Commission by the Borrower, all press releases made available generally by
the Borrower or any of the Borrower's Subsidiaries to the public concerning
material developments in the business of the Borrower or any such Subsidiary and
all notifications received from the Commission by the Borrower or its
Subsidiaries pursuant to the Securities Exchange Act of 1934 and the rules
promulgated thereunder (other than customary comment letters received in
connection with registration statements or other communications between the
Commission and the Borrower).
(H) ENVIRONMENTAL NOTICES. As soon as possible and in any event within
ten (10) days after receipt by the Borrower or any of its Subsidiaries, a copy
of (i) any notice or claim to the effect that the Borrower or any of its
Subsidiaries is or may be liable to any Person as a result of the Release by the
Borrower, any of its Subsidiaries, or any other Person of any Contaminant into
the environment, and (ii) any notice alleging any violation of any
Environmental, Health or Safety Requirements of Law by the Borrower or any of
its Subsidiaries if, in either case, such notice or claim relates to an event
which could reasonably be expected to have a Material Adverse Effect.
(I) OTHER INFORMATION. Promptly upon receiving a request therefor from
the Agent or any Lender, prepare and deliver to the Agent and the Lenders such
other information with respect to the Borrower, any of its Subsidiaries or the
Collateral as from time to time may be reasonably requested by the Agent or any
Lender.
7.2 AFFIRMATIVE COVENANTS.
(A) CORPORATE EXISTENCE, ETC. Except for mergers permitted pursuant to
Section 7.3(H), the Borrower shall, and shall cause each of its Subsidiaries to,
at all times maintain its corporate existence (as, in the case of a limited
liability company, its existence as such) and preserve and keep, or cause to be
preserved and kept, in full force and effect its rights and franchises material
to its businesses.
(B) CORPORATE POWERS; CONDUCT OF BUSINESS. The Borrower shall, and shall
cause each of its Subsidiaries to, qualify and remain qualified to do business
in each jurisdiction in which the nature of its business requires it to be so
qualified and where the failure to be so qualified will have or could reasonably
be expected to have a Material Adverse Effect. The Borrower
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will, and will cause each Subsidiary to, carry on and conduct its business in
substantially the same manner and in substantially the same fields of enterprise
as it is presently conducted.
(C) COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall cause its
Subsidiaries to, (a) comply with all Requirements of Law and all restrictive
covenants affecting such Person or the business, properties, assets or
operations of such Person, and (b) obtain as needed all Permits necessary for
its operations and maintain such Permits in good standing unless failure to
comply or obtain could not reasonably be expected to have a Material Adverse
Effect.
(D) PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. The Borrower shall
pay, and cause each of its Subsidiaries to pay, (i) all taxes, assessments and
other governmental charges imposed upon it or on any of its properties or assets
or in respect of any of its franchises, business, income or property before any
penalty or interest accrues thereon, and (ii) all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a Lien (other
than a Lien permitted by SECTION 7.3(C)) upon any of the Borrower's or such
Subsidiary's property or assets, prior to the time when any penalty or fine
shall be incurred with respect thereto; PROVIDED, HOWEVER, that no such taxes,
assessments and governmental charges referred to in CLAUSE (I) above or claims
referred to in CLAUSE (II) above (and interest, penalties or fines relating
thereto) need be paid if being contested in good faith by appropriate
proceedings diligently instituted and conducted and if such reserve or other
appropriate provision, if any, as shall be required in conformity with Agreement
Accounting Principles shall have been made therefor. The Borrower will not, nor
will it permit any of its Subsidiaries to, file or consent to the filing of any
consolidated income tax return with any other Person other than the consolidated
return of the Borrower.
(E) INSURANCE. The Borrower shall maintain for itself and its
Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force
and effect, insurance policies and programs reflecting coverage that is
reasonably consistent with prudent industry practice.
(F) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The Borrower
shall permit and cause each of the Borrower's Subsidiaries to permit, any
authorized representative(s) designated by either the Agent or any Lender to
visit and inspect any of the properties of the Borrower or any of its
Subsidiaries, to examine, audit, check and make copies of their respective
financial and accounting records, books, journals, orders, receipts and any
correspondence and other data relating to their respective businesses or the
transactions contemplated hereby or by the Initial Acquisitions (including,
without limitation, in connection with environmental compliance, hazard or
liability), and to discuss their affairs, finances and accounts with their
officers and independent certified public accountants, all upon reasonable
notice and at such reasonable times during normal business hours, as often as
may be reasonably requested; PROVIDED, that while no Default or Unmatured
Default exists, all of the foregoing shall be at the expense of the Agent or the
Lenders, as applicable. The Borrower shall keep and maintain, and cause each of
the Borrower's Subsidiaries to keep and maintain, in all material respects,
proper books of record and account in which entries in
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conformity with Agreement Accounting Principles shall be made of all dealings
and transactions in relation to their respective businesses and activities. If a
Default has occurred and is continuing, the Borrower, upon the Agent's request,
shall turn over any such records to the Agent or its representatives.
(G) ERISA COMPLIANCE. The Borrower shall, and shall cause each of the
Borrower's Subsidiaries to, establish, maintain and operate all Plans to comply
in all material respects with the provisions of ERISA, the Code, all other
applicable laws, and the regulations and interpretations thereunder and the
respective requirements of the governing documents for such Plans, except where
the failure to comply will not or could not reasonably be expected to subject
the Borrower and its Subsidiaries to liability individually or in the aggregate
in excess of $2,500,000.
(H) MAINTENANCE OF PROPERTY. The Borrower shall cause all property used
or useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Borrower may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this SECTION 7.2(H) shall prevent the
Borrower from discontinuing the operation or maintenance of any of such property
if such discontinuance is, in the judgment of the Borrower, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Agent or the Lenders.
(I) ENVIRONMENTAL COMPLIANCE. The Borrower and its Subsidiaries shall
comply with all Environmental, Health or Safety Requirements of Law, except
where noncompliance could not reasonably be expected to have a Material Adverse
Effect.
(J) USE OF PROCEEDS. The Borrower shall use the proceeds of the
Revolving Loans to (i) repay certain existing Indebtedness of the Founding
Companies, (ii) provide funds for the additional working capital needs and other
general corporate purposes of the Borrower and its Subsidiaries and (iii) fund
Permitted Acquisitions. The Borrower will not, nor will it permit any Subsidiary
to, use any of the proceeds of the Revolving Loans to purchase or carry any
"Margin Stock" or to make any Acquisition, other than any Permitted Acquisition
pursuant to SECTION 7.3(F).
(K) ADDITION OF GUARANTORS. The Borrower shall cause (i) each Subsidiary
that is, at any time, a Material Subsidiary, and (ii) each other Subsidiary
necessary for the Borrower to comply with the requirements set forth in SECTIONS
7.3(F)(II) and 7.3(S), to deliver to the Agent an executed Guaranty Supplement
to become a Guarantor under the Guaranty in the form of EXHIBIT J attached
hereto, and the Borrower shall deliver, or cause to be delivered, an executed
Pledge Supplement in order to pledge the Capital Stock of such Subsidiary
pursuant to a Pledge Agreement in the form of EXHIBIT K attached hereto and, in
each such case for the
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Borrower and such Subsidiary, appropriate corporate resolutions, opinions and
other documentation in form and substance reasonably satisfactory to the Agent.
7.3 NEGATIVE COVENANTS.
(A) INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except:
(i) the Obligations;
(ii) Permitted Existing Indebtedness and Permitted Refinancing
Indebtedness;
(iii) unsecured subordinated indebtedness incurred by the
Borrower (including in connection with any Permitted Acquisition) that
(a) does not have a stated maturity before the Termination Date in
effect as of the date such indebtedness is incurred, (b) has terms that
are no more restrictive than the terms of this Agreement and the other
Loan Documents, and (c) is subordinated to the Obligations on terms at
least as favorable to the Lenders as the terms set forth on SCHEDULE 7.3
attached hereto, with such changes thereto as may be agreed to by the
Agent (such Indebtedness being referred to herein as "PERMITTED
SUBORDINATED INDEBTEDNESS");
(iv) Indebtedness in respect of obligations secured by Customary
Permitted Liens;
(v) Indebtedness constituting Contingent Obligations in respect
of Indebtedness otherwise permitted hereunder;
(vi) Indebtedness arising from intercompany loans from the
Borrower to any Controlled Subsidiary or from any Subsidiary to the
Borrower or any Controlled Subsidiary; PROVIDED that in each case such
Indebtedness is subordinated upon terms satisfactory to the Agent to the
obligations of the Borrower and its Subsidiaries with respect to the
Obligations;
(vii) guaranties by the Borrower of Indebtedness permitted to be
incurred by any Subsidiary;
(viii) Indebtedness in respect of Hedging Obligations permitted
under SECTION 7.3(Q);
(ix) secured or unsecured purchase money Indebtedness (including
Capitalized Leases) incurred by the Borrower or any of its Subsidiaries
after the Closing Date (including, as a result of the assumption of any
such Indebtedness in connection with a Permitted Acquisition) to finance
the acquisition of fixed assets, if (1) at the time of
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such incurrence, no Default or Unmatured Default has occurred and is
continuing or would result from such incurrence, (2) such Indebtedness
has a scheduled maturity and is not due on demand, (3) such Indebtedness
does not exceed the lower of the fair market value or the cost of the
applicable fixed assets on the date acquired, (4) such Indebtedness does
not exceed $5,000,000 in the aggregate outstanding at any time, and (5)
any Lien securing such Indebtedness is permitted under SECTION 7.3(C)
(such Indebtedness being referred to herein as "PERMITTED PURCHASE MONEY
INDEBTEDNESS");
(x) Indebtedness with respect to surety, appeal and performance
bonds obtained by the Borrower or any of its Subsidiaries in the
ordinary course of business;
(xi) Indebtedness arising under the Guaranty;
(xii) Indebtedness of a Subsidiary consisting of tax-advantaged
industrial revenue bond, industrial development bond or other similar
financings assumed in connection with (but not incurred in connection
with or in anticipation of) a Permitted Acquisition;
(xiii) other Indebtedness (other than working capital financing
including, without limitation, Permitted Floor Plan Financing) existing
at a New Subsidiary at the time of the Permitted Acquisition thereof
(but not incurred in connection or in anticipation of such Permitted
Acquisition) the outstanding principal balance of which does not exceed
ten percent (10%) of the book value of the assets acquired as a result
of such Permitted Acquisition; and
(xiv) Indebtedness relating to the purchase of manufactured homes
for inventory through "floor plan" credit facilities in an amount as of
the end of any fiscal quarter not to exceed twenty-five percent (25%) of
Adjusted Revenues for the four quarter period then ended ("PERMITTED
FLOOR PLAN FINANCING"); and
(xv) other Indebtedness in addition to that referred to elsewhere
in this SECTION 7.3(A) incurred by the Borrower in an amount not to
exceed $5,000,000 in the aggregate at any time outstanding.
(B) SALES OF ASSETS. Neither the Borrower nor any of its Subsidiaries
shall sell, assign, transfer, lease, convey or otherwise dispose of any property
(including the stock of any Subsidiary), whether now owned or hereafter
acquired, or any income or profits therefrom, or enter into any agreement to do
so, except:
(i) sales of inventory in the ordinary course of business;
(ii) the disposition in the ordinary course of business of
equipment that is obsolete, excess or no longer useful in the Borrower's
or its Subsidiaries' business; and
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(iii) sales, assignments, transfers, leases, conveyances or other
dispositions of other assets (including sales of stock of a Subsidiary)
if such transaction (a) is for consideration consisting of at least 80%
of cash, (b) is for not less than Fair Value, and (c) when combined with
all such other transactions (each such transaction being valued at book
value) (i) during the immediately preceding twelve-month period,
represents the disposition of not greater than TEN percent (10)% of the
Borrower's Consolidated Tangible Assets at the end of the fiscal year
immediately preceding that in which such transaction is proposed to be
entered into, and (ii) during the period from the Closing Date to the
date of such proposed transaction, represents the disposition of not
greater than TWENTY percent (20)% of the Borrower's Consolidated
Tangible Assets at the end of the fiscal year immediately preceding that
in which such transaction is proposed to be entered into.
(C) LIENS. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or permit to exist any Lien on or
with respect to any of their respective property or assets except:
(i) Permitted Existing Liens;
(ii) Customary Permitted Liens;
(iii) purchase money Liens (including the interest of a lessor
under a Capitalized Lease and Liens to which any property is subject at
the time of the Borrower's acquisition thereof) securing Permitted
Purchase Money Indebtedness; PROVIDED that such Liens shall not apply to
any property of the Borrower or its Subsidiaries other than that
purchased or subject to such Capitalized Lease;
(iv) Liens securing Permitted Floor Plan Financing provided the
subject of any such Lien is limited to inventory of the applicable
obligor of such Permitted Floor Plan Financing.
(v) Liens securing the Obligations or Secured Obligations;
(vi) Liens (other than on the stock of any Subsidiaries) securing
Indebtedness assumed in connection with a Permitted Acquisition and
permitted pursuant to CLAUSE (XII) or CLAUSE (XIII) of SECTION 7.3(A);
PROVIDED that such Liens shall not apply to any property of the Borrower
or its Subsidiaries other than that purchased or directly financed in
connection with such Indebtedness; and
(vii) Liens securing other obligations not exceeding $2,500,000
in the aggregate at any time outstanding.
In addition, neither the Borrower nor any of its Subsidiaries shall become a
party to any agreement, note, indenture or other instrument, or take any other
action, which would prohibit
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the creation of a Lien on any of its properties or other assets in favor of the
Agent for the benefit of itself and Lenders, as collateral for the Obligations;
PROVIDED that any agreement, note, indenture or other instrument in connection
with Liens permitted pursuant to clauses (i), (iii), (iv) and (vi) may prohibit
the creation of a Lien in favor of the Agent for the benefit of itself and the
Lenders on the items of property obtained with the proceeds of the related
Indebtedness secured by such Liens.
(D) INVESTMENTS. Except to the extent permitted pursuant to PARAGRAPH
(G) below, neither the Borrower nor any of its Subsidiaries shall directly or
indirectly make or own any Investment except:
(i) Investments in Cash Equivalents;
(ii) Permitted Existing Investments in an amount not greater than
the amount thereof on the Closing Date;
(iii) Investments in trade receivables or received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(iv) Investments consisting of deposit accounts maintained by the
Borrower or its Subsidiaries in the ordinary course of business in
connection with its cash management system;
(v) Investments consisting of non-cash consideration from a sale,
assignment, transfer, lease, conveyance or other disposition of property
permitted by SECTION 7.3(B);
(vi) Investments consisting of intercompany loans from any
Subsidiary to the Borrower or any other Subsidiary permitted by SECTION
7.3(A)(VI);
(vii) Investments in any Controlled Subsidiary of the Borrower;
(viii) Investments constituting Permitted Acquisitions; and
(ix) Investments in direct obligations of any commercial lender
which is providing Permitted Floor Plan Financing to the Borrower and
which is acceptable to the Lender; PROVIDED that: (1) the aggregate
amount of such Investments, at any time, with respect to any such
commercial lender, will not exceed the aggregate amount of Permitted
Floor Plan Financing outstanding with such commercial lender at such
time, (2) Borrower has the legal right to offset such investments
against any outstanding Permitted Floor Plan Financing with such
commercial lender and ; (3) such investments have a maturity not to
exceed ninety days. and
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(x) Investments in addition to those referred to elsewhere in
this SECTION 7.3(D) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding;
PROVIDED, HOWEVER, that the Investments described in CLAUSES (V), (VIII) and
(IX) above shall not be permitted if either a Default or an Unmatured Default
shall have occurred and be continuing on the date thereof or would result
therefrom.
(E) RESTRICTED PAYMENTS. Neither the Borrower nor any of its
Subsidiaries shall declare or make any Restricted Payment, except:
(i) the defeasance, redemption or repurchase or prepayment of any
Permitted Subordinated Indebtedness with the net cash proceeds of
Permitted Refinancing Indebtedness;
(ii) the defeasance, redemption or repurchase or prepayment of
any Permitted Subordinated Indebtedness in an amount not to exceed at
any time 10% of the Aggregate Commitment at such time;
(iii) in connection with the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests held by
departing officers, directors and employees or in connection with the
Borrower's "1997 Long-Term Incentive Plan" and "1997 Non-Employee
Directors' Stock Plan"; PROVIDED, that the aggregate purchase price of
all such repurchased, redeemed, acquired or retired Equity Interests or
other Restricted Payments shall not exceed $1,000,000 in the aggregate
since the Closing Date; and
(iii) where the consideration therefor consists solely of Equity
Interests (but excluding Disqualified Stock) of the Borrower or its
Subsidiaries, provided no Change of Control would occur as a result
thereof;
PROVIDED, HOWEVER, that the Restricted Payments described in CLAUSES (I), (II)
and (III) above shall not be permitted if either a Default or an Unmatured
Default shall have occurred and be continuing at the date of declaration or
payment thereof or would result therefrom.
(F) CONDUCT OF BUSINESS; SUBSIDIARIES; ACQUISITIONS. (i) Neither the
Borrower nor any of its Subsidiaries shall engage in any business other than the
businesses engaged in by the Borrower on the date hereof and any business or
activities which are substantially similar, related or incidental thereto.
(ii) The Borrower may create, acquire and/or capitalize any
Subsidiary (a "NEW SUBSIDIARY") after the date hereof pursuant to any
transaction that is permitted by or not otherwise prohibited by this Agreement;
PROVIDED that upon the formation or acquisition of each New Subsidiary, the
Borrower shall cause each New Subsidiary that is a Material Subsidiary to
promptly deliver to the Agent an executed counterpart of a Guaranty Supplement
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to become a Guarantor under the Guaranty in the form of EXHIBIT J attached
hereto and the Borrower shall deliver an executed Pledge Supplement in order to
pledge the Capital Stock of such Subsidiary pursuant to a Pledge Agreement in
the form of EXHIBIT K attached hereto and in each such case the Borrower, the
applicable pledgor thereof if not the Borrower, and such Subsidiary shall
deliver appropriate corporate resolutions, opinions and other documentation in
form and substance satisfactory to the Agent, and all New Subsidiaries that are
Material Subsidiaries shall be Controlled Subsidiaries.
(iii) The Borrower shall not make any Acquisitions, other than
the Initial Acquisitions and other Acquisitions meeting the following
requirements (each such Acquisition constituting a "PERMITTED ACQUISITION"):
(a) no Default or Unmatured Default shall have occurred and be
continuing or would result from such Acquisition or the incurrence of
any Indebtedness in connection therewith;
(b) in the case of an Acquisition of Equity Interests of an
entity, such Acquisition shall be of at least eighty percent (80%) of
the Equity Interests of such entity;
(c) the businesses being acquired shall be substantially similar,
related or incidental to the businesses or activities engaged in by the
Borrower and its Subsidiaries on the Closing Date;
(d) the Indebtedness incurred by the Borrower to the seller as
part of the consideration therefor (other than Indebtedness assumed in
connection therewith and permitted pursuant to CLAUSES (IX), (XII) or
(XIII) of SECTION 7.3(A)) shall be Permitted Subordinated Indebtedness
under SECTION 7.3(A);
(e) prior to each such Acquisition, the Borrower shall deliver to
the Agent and the Lenders a certificate from one of the Authorized
Officers, (1) calculating the purchase price and Adjusted EBITDA for
purposes of CLAUSE (H) below; and (2) certifying that after giving
effect to such Acquisition and the incurrence of any Indebtedness
hereunder and permitted by SECTION 7.3(A) in connection therewith, on a
PRO FORMA basis, as if the Acquisition and such incurrence of
Indebtedness had occurred on the first day of the twelve-month period
ending on the last day of the Borrower's most recently completed fiscal
quarter, the Borrower would have been in compliance with all of the
covenants contained in this Agreement as of the end of such period,
including, without limitation, the financial covenants set forth in
SECTION 7.4;
(f) the purchase is consummated pursuant to a negotiated
acquisition agreement on a non-hostile basis;
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(g) after giving effect to such Acquisition, the representations
and warranties set forth in ARTICLE VI hereof shall be true and correct
in all material respects on and as of the date of such Acquisition with
the same effect as though made on and as of such date; and
(h) the written consent of the Required Lenders shall have been
obtained in connection with any Acquisition if (1) the aggregate of the
cash portion of the purchase price is greater than $10,000,000 or (2)
the aggregate purchase price (including, without limitation, cash,
stock, indebtedness, other than Permitted Floor Plan Financing, assumed
liabilities, and transaction related contractual payments, including
amounts payable under non-compete, consulting or similar
agreements)(valuing all non-cash consideration at Fair Value) is equal
to or greater than both (i) $5,000,000 and (ii) seven (7) times the
Adjusted EBITDA of the target entity for the last 12-month period
preceding such Acquisition for which financial statements are available.
With respect to any Acquisition where the target entity's assets are equal to or
greater than ten percent (10.0%) of the Borrower's and its Subsidiaries'
Consolidated Tangible Assets, the Borrower shall (a) have obtained (and shall
have based the calculations set forth above on) historical audited financial
statements for the target and/or unaudited financial statements for the target
for a period of not less than two years, obtained from the seller or provided by
any independent consultant or agent retained for the purposes of such
Acquisition and acceptable to the Agent in its reasonable discretion, broken
down by fiscal quarter in the Borrower's reasonable judgment, copies of which
shall be provided to the Agent and the Lenders and (b) at the request of the
Required Lenders (such request not to be made more frequently than once in any
fiscal quarter) provide such financial information as shall be reasonably
acceptable to the Agent and the Required Lenders demonstrating the Borrower's
PRO FORMA compliance with the covenants after taking into account such
Acquisition and the incurrence of any Indebtedness in connection therewith.
(G) TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Neither the Borrower
nor any of its Subsidiaries shall directly or indirectly enter into or permit to
exist any transaction (including, without limitation, the purchase, sale, lease
or exchange of any property or the rendering of any service) with any holder or
holders of any of the Equity Interests of the Borrower, or with any Affiliate of
the Borrower which is not its Subsidiary, on terms that are less favorable to
the Borrower or any of its Subsidiaries, as applicable, than those that might be
obtained in an arm's length transaction at the time from Persons who are not
such a holder or Affiliate, except for Restricted Payments permitted by SECTION
7.3(E).
(H) RESTRICTION ON FUNDAMENTAL CHANGES. Neither the Borrower nor any of
its Subsidiaries shall enter into any merger or consolidation, or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution), or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or series of
transactions, all or substantially all of the Borrower's or any such
Subsidiary's business or property, whether now or hereafter acquired, except (i)
transactions permitted under SECTIONS 7.3(B) or 7.3(F); (ii) the merger of a
Subsidiary of the
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Borrower into a Person acquired in connection with a Permitted Acquisition;
(iii) the merger of a wholly-owned Subsidiary of the Borrower with and into the
Borrower; and (iv) the merger of a Subsidiary of the Borrower with another
Subsidiary of the Borrower; PROVIDED, HOWEVER, (i) with respect to any such
permitted mergers involving any Guarantor or Pledged Subsidiary, the surviving
corporation in the merger shall also be or become a Guarantor and a Pledged
Subsidiary; and (ii) after the consummation of any such transaction, the
Borrower shall be in compliance with the provisions of SECTION 7.2(K) and
7.3(S).
(I) SALES AND LEASEBACKS. Neither the Borrower nor any of its
Subsidiaries shall become liable, directly, by assumption or by Contingent
Obligation, with respect to any lease, whether an operating lease or a
Capitalized Lease, of any property (whether real or personal or mixed) (i) which
it or one of its Subsidiaries sold or transferred or is to sell or transfer to
any other Person, or (ii) which it or one of its Subsidiaries intends to use for
substantially the same purposes as any other property which has been or is to be
sold or transferred by it or one of its Subsidiaries to any other Person in
connection with such lease, unless in either case the sale involved is not
prohibited under SECTION 7.3(B) and the lease involved is not prohibited under
SECTION 7.3(A).
(J) MARGIN REGULATIONS. Neither the Borrower nor any of its
Subsidiaries, shall use all or any portion of the proceeds of any credit
extended under this Agreement to purchase or carry Margin Stock.
(K) ERISA. The Borrower shall not
(i) engage, or permit any of its Subsidiaries to engage, in any
prohibited transaction described in Sections 406 of ERISA or 4975 of the
Code for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the DOL;
(ii) permit to exist any accumulated funding deficiency (as
defined in Sections 302 of ERISA and 412 of the Code), with respect to
any Benefit Plan, whether or not waived;
(iii) fail, or permit any Controlled Group member to fail, to pay
timely required contributions or annual installments due with respect to
any waived funding deficiency to any Benefit Plan;
(iv) terminate, or permit any Controlled Group member to
terminate, any Benefit Plan which would result in any liability of the
Borrower or any Controlled Group member under Title IV of ERISA;
(v) fail to make any contribution or payment to any Multiemployer
Plan which the Borrower or any Controlled Group member may be required
to make under any agreement relating to such Multiemployer Plan, or any
law pertaining thereto;
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(vi) fail, or permit any Controlled Group member to fail, to pay
any required installment or any other payment required under Section 412
of the Code on or before the due date for such installment or other
payment; or
(vii) amend, or permit any Controlled Group member to amend, a
Plan resulting in an increase in current liability for the plan year
such that the Borrower or any Controlled Group member is required to
provide security to such Plan under Section 401(a)(29) of the Code;
except where such transactions, events, circumstances, or failures will not have
or is not reasonably likely to subject the Borrower and its Subsidiaries to
liability individually or in the aggregate in excess of $5,000,000.
(L) ISSUANCE OF EQUITY INTERESTS. The Borrower shall not issue any
Equity Interests if as a result of such issuance a Change of Control shall
occur. None of the Borrower's Subsidiaries shall issue any Equity Interests
other than to the Borrower.
(M) CORPORATE DOCUMENTS. Neither the Borrower nor any of its
Subsidiaries shall amend, modify or otherwise change any of the terms or
provisions in any of their respective constituent documents as in effect on the
date hereof in any manner adverse to the interests of the Lenders, without the
prior written consent of the Required Lenders.
(N) OTHER INDEBTEDNESS. Except as permitted in SECTION 7.3(R), the
Borrower shall not amend, supplement or otherwise modify the terms of any
Indebtedness (other than the Obligations) permitted under SECTION 7.3(A) other
than with respect to Permitted Purchase Money Indebtedness and Permitted Floor
Plan Financing in any way that would be materially less advantageous to the
Borrower or materially adverse to the Lenders, including, without limitation,
with respect to amount, maturity, amortization, interest rate, premiums, fees,
covenants, events of default, remedies, dividends and subordination provisions.
(O) FISCAL YEAR. Neither the Borrower nor any of its consolidated
Subsidiaries shall change its fiscal year for accounting or tax purposes from a
period consisting of the 12-month period ending on December 31 of each calendar
year.
(P) SUBSIDIARY COVENANTS. The Borrower will not, and will not permit any
Subsidiary to, create or otherwise cause to become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary to pay
dividends or make any other distribution on its stock, or make any other
Restricted Payment, pay any Indebtedness or other Obligation owed to the
Borrower or any other Subsidiary, make loans or advances or other Investments in
the Borrower or any other Subsidiary, or sell, transfer or otherwise convey any
of its property to the Borrower or any other Subsidiary.
(Q) HEDGING OBLIGATIONS. The Borrower shall not and shall not permit any
of its Subsidiaries to enter into any interest rate, commodity or foreign
currency exchange, swap,
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collar, cap or similar agreements evidencing Hedging Obligations, other than
interest rate, foreign currency or commodity exchange, swap, collar, cap or
similar agreements entered into by the Borrower or a Subsidiary pursuant to
which the Borrower or such Subsidiary has hedged its actual interest rate,
foreign currency or commodity exposure.
(R) SUBORDINATED INDEBTEDNESS. The Borrower shall not and shall not
permit any Subsidiary to, amend, supplement or modify the terms of any Permitted
Subordinated Indebtedness, or make any payment required as a result of an
amendment or change thereto other than amendments, supplements or modifications
which (i) decrease the rate of interest payable on the Permitted Subordinated
Indebtedness, (ii) provide for the payment in kind in lieu of cash of any
portion of the interest on the Permitted Subordinated Indebtedness, (iii)
provide for the extension of the maturity date with respect to any principal or
interest payment to be made under the instruments evidencing Permitted
Subordinated Indebtedness, (iv) provide more flexibility to the Borrower or its
Subsidiaries in connection with any financial covenants, (v) waive any defaults
existing in connection with the Permitted Subordinated Indebtedness, and (vi) do
not adversely affect in any respect the interests of the Agent or the Lenders.
(S) NON-GUARANTOR SUBSIDIARIES. The Borrower shall not permit, at any
time, the Adjusted Revenues of the Subsidiaries which are not Guarantors or
Pledged Subsidiaries (calculated as of the end of each fiscal quarter for the
four-quarter period then ended) to be equal to or greater in the aggregate than
ten percent (10%) of the Adjusted Revenues of the Borrower and its Subsidiaries
(calculated as of the end of each fiscal quarter for the four-quarter period
then ended).
7.4 FINANCIAL COVENANTS. The Borrower shall comply with the following:
(A) FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain a ratio
("FIXED CHARGE COVERAGE RATIO") of (i) the sum of (a) ADJUSTED EBITDA, PLUS (b)
Rentals, MINUS (c) Capital Expenditures, in each case for Borrower and its
consolidated Subsidiaries to (ii) Interest Expense PLUS Rentals of the Borrower
and its consolidated Subsidiaries of at least 2.25 to 1.00 for each fiscal
quarter ending from and after the Closing Date. In each case the Fixed Charge
Coverage Ratio shall be determined as of the last day of each fiscal quarter for
the four-quarter period ending on such day. The Fixed Charge Coverage Ratio
shall be calculated for any period by including any applicable PRO FORMA
adjustments to Rentals and Interest Expense for the Founding Companies and other
acquired entities (other than the Founding Companies) which are the result of a
Permitted Acquisition to account for differences, if any, during such period
between (i) the Rentals and/or Interest Expense of such Founding Company or
other acquired entity, as applicable, prior to becoming a Subsidiary of the
Borrower and (ii) the Rentals or Interest Expense of such Founding Company or
other acquired entity, as applicable, subsequent to its becoming a Subsidiary of
the Borrower.
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(B) TOTAL DEBT TO EBITDA RATIO. The Borrower shall not at any time
permit the ratio (the "LEVERAGE RATIO") of (i) Total Debt of the Borrower and
its consolidated Subsidiaries to (ii) Adjusted EBITDA of the Borrower and its
consolidated Subsidiaries to be greater than 4.00 to 1.00. The Leverage Ratio
shall be calculated, in each case, determined as of the last day of each fiscal
quarter based upon (a) for Total Debt, Total Debt as of the last day of each
such fiscal quarter; and (b) for Adjusted EBITDA, Adjusted EBITDA for the
twelve-month period ending on such day calculated as set forth in the definition
thereof.
(C) MINIMUM CONSOLIDATED NET WORTH. The Borrower shall not permit its
Consolidated Net Worth at any time to be less than the sum of (a) $70,000,000,
PLUS (b) fifty percent (50%) of Net Income (if positive) calculated separately
for each fiscal quarter ending after December 31, 1997, PLUS (c) seventy-five
percent (75%) of the net cash proceeds resulting from the issuance by the
Borrower or any of its Subsidiaries of any Capital Stock.
ARTICLE VIII: DEFAULTS
8.1 DEFAULTS. Each of the following occurrences shall constitute a
Default under this Agreement:
(a) FAILURE TO MAKE PAYMENTS WHEN DUE. The Borrower shall (i) fail to
pay when due any of the Obligations consisting of principal with respect to the
Revolving Loans or (ii) shall fail to pay within three (3) Business Days of the
date when due any of the other Obligations under this Agreement or the other
Loan Documents.
(b) BREACH OF CERTAIN COVENANTS. The Borrower shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under:
(i) SECTION 7.1(D) through and including 7.1(I), or 7.2(B) and
such failure shall continue unremedied for fifteen (15) days;
(ii) SECTIONS 7.1(A), 7.1(C), 7.2(C), 7.2(D), 7.2(E), 7.2(G),
7.2(H) and 7.2(I) and such failure shall continue unremedied for five
(5) Business Days; or
(iii) SECTIONS 7.1(B), 7.2(A), 7.2(F), 7.2(J), 7.2(K), 7.2(L),
7.3 or 7.4.
(c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty
made or deemed made by the Borrower to the Agent or any Lender herein or by the
Borrower or any of its Subsidiaries in any of the other Loan Documents or in any
statement or certificate at any time given by any such Person pursuant to any of
the Loan Documents shall be false or misleading in any material respect on the
date as of which made (or deemed made).
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(d) OTHER DEFAULTS. The Borrower shall default in the performance of or
compliance with any term contained in this Agreement (other than as covered by
PARAGRAPHS (A), (B) or (C) of this SECTION 8.1), or the Borrower or any of its
Subsidiaries shall default in the performance of or compliance with any term
contained in any of the other Loan Documents, and such default shall continue
for thirty (30) days after the occurrence thereof.
(e) DEFAULT AS TO OTHER INDEBTEDNESS. The Borrower or any of its
Subsidiaries shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) with respect
to any Indebtedness the outstanding principal amount of which Indebtedness is in
excess of $5,000,000 or any breach, default or event of default shall occur, or
any other condition shall exist under any instrument, agreement or indenture
pertaining to any such Indebtedness, if the effect thereof is to cause an
acceleration, mandatory redemption, a requirement that the Borrower offer to
purchase such Indebtedness or other required repurchase of such Indebtedness, or
permit the holder(s) of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any such Indebtedness shall be otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or otherwise
repurchased by the Borrower or any of its Subsidiaries (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof.
(f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) An involuntary case shall be commenced against the Borrower
or any of the Borrower's Subsidiaries and the petition shall not be
dismissed, stayed, bonded or discharged within sixty (60) days after
commencement of the case; or a court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the Borrower or
any of the Borrower's Subsidiaries in an involuntary case, under any
applicable bankruptcy, insolvency or other similar law now or
hereinafter in effect; or any other similar relief shall be granted
under any applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the
Borrower or any of the Borrower's Subsidiaries or over all or a
substantial part of the property of the Borrower or any of the
Borrower's Subsidiaries shall be entered; or an interim receiver,
trustee or other custodian of the Borrower or any of the Borrower's
Subsidiaries or of all or a substantial part of the property of the
Borrower or any of the Borrower's Subsidiaries shall be appointed or a
warrant of attachment, execution or similar process against any
substantial part of the property of the Borrower or any of the
Borrower's Subsidiaries shall be issued and any such event shall not be
stayed, dismissed, bonded or discharged within sixty (60) days after
entry, appointment or issuance.
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(g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Borrower or
any of the Borrower's Subsidiaries shall (i) commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) consent to the entry of an order for relief in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, under any such
law, (iii) consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its property, (iv)
make any assignment for the benefit of creditors or (v) take any corporate
action to authorize any of the foregoing.
(h) JUDGMENTS AND ATTACHMENTS. Any money judgment(s), writ or warrant of
attachment, or similar process against the Borrower or any of its Subsidiaries
or any of their respective assets involving in any single case or in the
aggregate an amount in excess of $2,500,000 is or are entered and shall remain
undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days or
in any event later than fifteen (15) days prior to the date of any proposed sale
thereunder.
(i) DISSOLUTION. Any order, judgment or decree shall be entered against
the Borrower or any of its Subsidiaries decreeing its involuntary dissolution or
split up and such order shall remain undischarged and unstayed for a period in
excess of sixty (60) days; or the Borrower or any of its Subsidiaries shall
otherwise dissolve or cease to exist except as specifically permitted by this
Agreement.
(j) LOAN DOCUMENTS; FAILURE OF SECURITY. At any time, for any reason,
(i) any Loan Document as a whole that materially affects the ability of the
Agent, or any of the Lenders to enforce the Obligations or enforce their rights
against the Collateral ceases to be in full force and effect or the Borrower or
any of the Borrower's Subsidiaries party thereto seeks to repudiate its
obligations thereunder or the Liens intended to be created thereby are, or the
Borrower or any such Subsidiary seeks to render such Liens, invalid or
unperfected, or (ii) any Lien on the Capital Stock of any Material Subsidiary
shall, at any time, for any reason, be invalidated or otherwise cease to be in
full force and effect, or such Lien shall not have the priority contemplated by
this Agreement or the Loan Documents.
(k) TERMINATION EVENT. Any Termination Event occurs which is reasonably
likely to subject the Borrower or any of its Subsidiaries to liability
individually or in the aggregate in excess of $2,500,000.
(l) WAIVER OF MINIMUM FUNDING STANDARD. If the plan administrator of any
Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and any Lender believes the
substantial business hardship upon which the application for the waiver is based
could reasonably be expected to subject either the Borrower or any Controlled
Group member to liability individually or in the aggregate in excess of
$1,000,000.
(m) CHANGE OF CONTROL. A Change of Control shall occur.
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(n) HEDGING AGREEMENTS. Nonpayment by the Borrower or any Subsidiary of
any obligation under any contract with respect to Hedging Obligations entered
into by the Borrower or such Subsidiary with any Lender (or Affiliate thereof)
or the breach by the Borrower or Subsidiary of any other term, provision or
condition contained in any agreement and such non- payment shall continue for
ten (10) days after the occurrence thereof.
(o) GUARANTOR DEFAULT OR REVOCATION. Any Guaranty shall fail to remain
in full force or effect or any action shall be taken by the Borrower or any
Subsidiary to discontinue or to assert the invalidity or unenforceability of any
Guaranty, or any Guarantor shall fail to comply with any of the terms or
provisions of any Guaranty to which it is a party, or any Guarantor denies that
it has any further liability under any Guaranty to which it is a party, or gives
notice to such effect.
(p) FAILURE OF SUBORDINATION. The subordination provisions of the
documents and instruments evidencing any Permitted Subordinated Indebtedness
shall, at any time, be invalidated or otherwise cease to be in full force and
effect.
A Default shall be deemed "continuing" until cured or until waived in
writing in accordance with SECTION 9.3.
ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS,
AMENDMENTS AND REMEDIES
9.1 TERMINATION OF COMMITMENTS; ACCELERATION. If any Default described
in SECTION 8.1(F) or 8.1(G) occurs with respect to the Borrower, the obligations
of the Lenders to make Loans hereunder and the obligation of the Issuing Banks
to issue Letters of Credit hereunder shall automatically terminate and the
Obligations shall immediately become due and payable without any election or
action on the part of the Agent or any Lender. If any other Default occurs, the
Required Lenders may terminate or suspend the obligations of the Lenders to make
Loans hereunder and the obligation of the Issuing Banks to issue Letters of
Credit hereunder, or declare the Obligations to be due and payable, or both,
whereupon, after written notice to the Borrower, the Obligations shall become
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which the Borrower expressly waives.
9.2 DEFAULTING LENDER. In the event that any Lender fails to fund its
Pro Rata Share of any Advance requested or deemed requested by the Borrower,
which such Lender is obligated to fund under the terms of this Agreement (the
funded portion of such Advance being hereinafter referred to as a "NON PRO RATA
LOAN"), until the earlier of such Lender's cure of such failure and the
termination of the Commitments, the proceeds of all amounts thereafter repaid to
the Agent by the Borrower and otherwise required to be applied to such Lender's
share of all other Obligations pursuant to the terms of this Agreement shall be
advanced to the Borrower by the Agent on behalf of such Lender to cure, in full
or in part, such failure by
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such Lender, but shall nevertheless be deemed to have been paid to such Lender
in satisfaction of such other Obligations. Notwithstanding anything in this
Agreement to the contrary:
(i) the foregoing provisions of this SECTION 9.2 shall apply only
with respect to the proceeds of payments of Obligations and shall not
affect the conversion or continuation of Loans pursuant to SECTION 2.8;
(ii) any such Lender shall be deemed to have cured its failure to
fund its Pro Rata Share of any Advance at such time as an amount equal
to such Lender's original Pro Rata Share of the requested principal
portion of such Advance is fully funded to the Borrower, whether made by
such Lender itself or by operation of the terms of this SECTION 9.2, and
whether or not the Non Pro Rata Loan with respect thereto has been
repaid, converted or continued;
(iii) amounts advanced to the Borrower to cure, in full or in
part, any such Lender's failure to fund its Pro Rata Share of any
Advance ("CURE LOANS") shall bear interest at the rate applicable to
Floating Rate Loans in effect from time to time, and for all other
purposes of this Agreement shall be treated as if they were Floating
Rate Loans;
(iv) regardless of whether or not a Default has occurred or is
continuing, and notwithstanding the instructions of the Borrower as to
its desired application, all repayments of principal which, in
accordance with the other terms of this Agreement, would be applied to
the outstanding Floating Rate Loans shall be applied FIRST, ratably to
all Floating Rate Loans constituting Non Pro Rata Loans, SECOND, ratably
to Floating Rate Loans other than those constituting Non Pro Rata Loans
or Cure Loans and, THIRD, ratably to Floating Rate Loans constituting
Cure Loans;
(v) for so long as and until the earlier of any such Lender's
cure of the failure to fund its Pro Rata Share of any Advance and the
termination of the Commitments, the term "Required Lenders" for purposes
of this Agreement shall mean Lenders (excluding all Lenders whose
failure to fund their respective Pro Rata Shares of such Advance have
not been so cured) whose Pro Rata Shares represent at least FIFTY-ONE
percent (51%) of the aggregate Pro Rata Shares of such Lenders; and
(vi) for so long as and until any such Lender's failure to fund
its Pro Rata Share of any Advance is cured in accordance with SECTION
9.2(II), (A) such Lender shall not be entitled to any commitment fees
with respect to its Commitment and (B) such Lender shall not be entitled
to any letter of credit fees, which commitment fees and letter of credit
fees shall accrue in favor of the Lenders which have funded their
respective Pro Rata Share of such requested Advance, shall be allocated
among such performing Lenders ratably based upon
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their relative Commitments, and shall be calculated based upon the
average amount by which the aggregate Commitments of such performing
Lenders exceeds the sum of (I) the outstanding principal amount of the
Loans owing to such performing Lenders, PLUS (II) the outstanding
Reimbursement Obligations owing to such performing Lenders, PLUS (III)
the aggregate participation interests of such performing Lenders arising
pursuant to SECTION 3.5 with respect to undrawn and outstanding Letters
of Credit.
9.3 AMENDMENTS. Subject to the provisions of this ARTICLE IX, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; PROVIDED, HOWEVER, that no such supplemental agreement shall,
without the consent of each Lender affected thereby:
(i) Postpone or extend the Termination Date or any other date
fixed for any payment of principal of, or interest on, the Loans, the
Reimbursement Obligations or any fees or other amounts payable to such
Lender (except with respect to (a) any modifications of the provisions
relating to prepayments of Loans and other Obligations and (b) a waiver
of the application of the default rate of interest pursuant to SECTION
2.9 hereof);
(ii) Reduce the principal amount of any Loans or L/C Obligations,
or reduce the rate or extend the time of payment of interest or fees
thereon;
(iii) Reduce the percentage specified in the definition of
Required Lenders or any other percentage of Lenders specified to be the
applicable percentage in this Agreement to act on specified matters;
(iv) Increase the amount of the Commitment of any Lender
hereunder;
(v) Permit the Borrower to assign its rights under this
Agreement;
(vi) Amend this SECTION 9.3;
(vii) Other than in connection with a transaction permitted under
the terms of this Agreement, release any guarantor of the Obligations;
(viii) Other than in connection with a transaction permitted
under the terms of this Agreement, release all or substantially all of
the Collateral; or
(ix) Amend the terms of SECTION 12.2.
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No amendment of any provision of this Agreement relating to (a) the Agent shall
be effective without the written consent of the Agent, (b) Swing Line Loans
shall be effective without the written consent of the Swing Line Bank and (c)
Letters of Credit shall be effective without the written consent of the Issuing
Banks. The Agent may waive payment of the fee required under SECTION 13.3(B)
without obtaining the consent of any of the Lenders.
9.4 PRESERVATION OF RIGHTS. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan or the issuance of a Letter of Credit notwithstanding the
existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to such Loan or issuance of such Letter of Credit shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to SECTION 9.3, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full.
ARTICLE X: GENERAL PROVISIONS
10.1 SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Notes and
the making of the Loans herein contemplated.
10.2 GOVERNMENTAL REGULATION. Anything contained in this Agreement to
the contrary notwithstanding, no Lender shall be obligated to extend credit to
the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
10.3 PERFORMANCE OF OBLIGATIONS. The Borrower agrees that the Agent may,
but shall have no obligation to (i) at any time, pay or discharge taxes, Liens,
security interests or other encumbrances levied or placed on or threatened
against any Collateral and (ii) after the occurrence and during the continuance
of a Default make any other payment or perform any act required of the Borrower
under any Loan Document or take any other action which the Agent in its
discretion deems necessary or desirable to protect or preserve the Collateral or
enhance the likelihood of repayment of the Obligations. The Agent shall use its
reasonable efforts to give the Borrower and the Lenders notice of any action
taken under this SECTION 10.3 prior to the taking of such action or promptly
thereafter provided the failure to give such notice shall not affect the
Borrower's or Lenders' obligations in respect thereof. The Borrower agrees to
pay the Agent, upon demand, the principal amount of all funds advanced by the
Agent under this SECTION 10.3, together with interest thereon at the rate from
time to time applicable to Floating Rate Loans from the date of such advance
until the outstanding principal balance thereof is paid in full. If the Borrower
fails to make payment in respect of any such
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advance under this SECTION 10.3 within one (1) Business Day after the date the
Borrower receives written demand therefor from the Agent, the Agent shall
promptly notify each Lender and each Lender agrees that it shall thereupon make
available to the Agent, in Dollars in immediately available funds, the amount
equal to such Lender's Pro Rata Share of such advance. If such funds are not
made available to the Agent by such Lender within one (1) Business Day after the
Agent's demand therefor, the Agent will be entitled to recover any such amount
from such Lender together with interest thereon at the Federal Funds Effective
Rate for each day during the period commencing on the date of such demand and
ending on the date such amount is received. The failure of any Lender to make
available to the Agent its Pro Rata Share of any such unreimbursed advance under
this SECTION 10.3 shall neither relieve any other Lender of its obligation
hereunder to make available to the Agent such other Lender's Pro Rata Share of
such advance on the date such payment is to be made nor increase the obligation
of any other Lender to make such payment to the Agent. All outstanding principal
of, and interest on, advances made under this SECTION 10.3 shall constitute
Obligations for purposes hereof.
10.4 HEADINGS. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
10.5 ENTIRE AGREEMENT. The Loan Documents embody the entire agreement
and understanding among the Borrower, the Agent and the Lenders and supersede
all prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof.
10.6 SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other Lender (except to the extent to which
the Agent is authorized to act as such). The failure of any Lender to perform
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns.
10.7 EXPENSES; INDEMNIFICATION.
(A) EXPENSES. The Borrower shall reimburse the Agent for any reasonable
costs, internal charges and out-of-pocket expenses (including reasonable
attorneys' and paralegals' fees and time charges of attorneys and paralegals for
the Agent, which attorneys and paralegals may be employees of the Agent) paid or
incurred by the Agent in connection with the preparation, negotiation,
execution, delivery, syndication, review, amendment, modification, and
administration of the Loan Documents. The Borrower also agrees to reimburse the
Agent and the Lenders for any reasonable costs, internal charges and
out-of-pocket expenses (including attorneys' and paralegals' fees and time
charges of attorneys and paralegals for the Agent and the Lenders, which
attorneys and paralegals may be employees of the Agent or the
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Lenders) paid or incurred by the Agent or any Lender in connection with the
collection of the Obligations and enforcement of the Loan Documents. In addition
to expenses set forth above, the Borrower agrees to reimburse the Agent,
promptly after the Agent's request therefor, for each audit or other business
analysis performed by or for the benefit of the Lenders in connection with this
Agreement or the other Loan Documents at a time when a Default exists in an
amount equal to the Agent's then reasonable and customary charges for each
person employed to perform such audit or analysis, plus all reasonable costs and
expenses (including without limitation, travel expenses) incurred by the Agent
in the performance of such audit or analysis. Agent shall provide the Borrower
with a detailed statement of all reimbursements requested under this SECTION
10.7(A).
(B) INDEMNITY. The Borrower further agrees to defend, protect,
indemnify, and hold harmless the Agent and each and all of the Lenders and each
of their respective Affiliates, and each of such Agent's, Lender's, or
Affiliate's respective officers, directors, employees, attorneys and agents
(including, without limitation, those retained in connection with the
satisfaction or attempted satisfaction of any of the conditions set forth in
ARTICLE V) (collectively, the "INDEMNITEES") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses of any kind or nature whatsoever (including, without
limitation, the fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitees shall be designated a party thereto), imposed
on, incurred by, or asserted against such Indemnitees in any manner relating to
or arising out of:
(i) this Agreement, the other Loan Documents or any of the
Transaction Documents, or any act, event or transaction related or
attendant thereto or to the Initial Acquisitions, any Permitted
Acquisition, the Mergers, the Public Offering or the Related
Transactions, the making of the Loans, and the issuance of and
participation in Letters of Credit hereunder, the management of such
Loans or Letters of Credit, the use or intended use of the proceeds of
the Loans or Letters of Credit hereunder, or any of the other
transactions contemplated by the Transaction Documents; or
(ii) any liabilities, obligations, responsibilities, losses,
damages, personal injury, death, punitive damages, economic damages,
consequential damages, treble damages, intentional, willful or wanton
injury, damage or threat to the environment, natural resources or public
health or welfare, costs and expenses (including, without limitation,
attorney, expert and consulting fees and costs of investigation,
feasibility or remedial action studies), fines, penalties and monetary
sanctions, interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future relating to violation of any
Environmental, Health or Safety Requirements of Law arising from or in
connection with the past, present or future operations of the Borrower,
its Subsidiaries or any of their respective predecessors in interest,
or, the past, present or future environmental, health or safety
condition of any respective property of the Borrower or its
Subsidiaries, the presence of asbestos-containing materials at any
respective property
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of the Borrower or its Subsidiaries or the Release or threatened Release
of any Contaminant into the environment (collectively, the "INDEMNIFIED
MATTERS");
PROVIDED, HOWEVER, the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Matters caused by or resulting from (y) a
dispute among the Lenders or a dispute between any Lender and the Agent, or (z)
the willful misconduct or Gross Negligence of such Indemnitee or breach of
contract by such Indemnitee with respect to the Loan Documents, in each case, as
determined by the final non-appealed judgment of a court of competent
jurisdiction. If the undertaking to indemnify, pay and hold harmless set forth
in the preceding sentence may be unenforceable because it is violative of any
law or public policy, the Borrower shall contribute the maximum portion which it
is permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Matters incurred by the Indemnitees.
(C) WAIVER OF CERTAIN CLAIMS; SETTLEMENT OF CLAIMS. The Borrower further
agrees to assert no claim against any of the Indemnitees on any theory of
liability for consequential, special, indirect, exemplary or punitive damages.
No settlement shall be entered into by the Borrower or any if its Subsidiaries
with respect to any claim, litigation, arbitration or other proceeding relating
to or arising out of the transactions evidenced by this Agreement, the other
Loan Documents or in connection with the Initial Acquisitions, any Permitted
Acquisition, the Mergers, the Public Offering or Related Transactions (whether
or not the Agent or any Lender or any Indemnitee is a party thereto) unless such
settlement releases all Indemnitees from any and all liability with respect
thereto.
(D) SURVIVAL OF AGREEMENTS. The obligations and agreements of the
Borrower under this SECTION 10.7 shall survive the termination of this
Agreement.
10.8 NUMBERS OF DOCUMENTS. All statements, notices, closing documents,
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
10.9 ACCOUNTING. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
10.10 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
10.11 NONLIABILITY OF LENDERS. The relationship between the Borrower and
the Lenders and the Agent shall be solely that of borrower and lender. Neither
the Agent nor any Lender shall have any fiduciary responsibilities to the
Borrower. Neither the Agent nor any
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Lender undertakes any responsibility to the Borrower to review or inform the
Borrower of any matter in connection with any phase of the Borrower's business
or operations.
10.12 GOVERNING LAW. ANY DISPUTE BETWEEN THE BORROWER AND THE AGENT, ANY
LENDER, OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL
LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE
STATE OF ILLINOIS.
10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH
OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE
PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE OF CHICAGO, ILLINOIS. EACH OF THE PARTIES
HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE AGENT, ANY LENDER
OR ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS
PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL
JURISDICTION OVER THE BORROWER OR (2) ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS
COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B).
(C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE
OF ANY PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF
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PROCESS OF ANY WRITS, PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY
THE MAILING THEREOF BY THE AGENT OR THE LENDERS BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE BORROWER ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN
SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF THE AGENT OR THE LENDERS TO
SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY
APPLICABLE LAW THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
IN ANY JURISDICTION SET FORTH ABOVE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(E) WAIVER OF BOND. THE BORROWER WAIVES THE POSTING OF ANY BOND
OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS
OR PROCEEDING TO REALIZE ON THE COLLATERAL OR ENFORCE ANY JUDGMENT OR OTHER
COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION,
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER
PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE
PROVISIONS OF THIS SECTION 10.13, WITH ITS COUNSEL.
10.14 NO STRICT CONSTRUCTION. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties
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hereto and no presumption or burden of proof shall arise favoring or disfavoring
any party by virtue of the authorship of any provisions of this Agreement.
10.15 SUBORDINATION OF INTERCOMPANY INDEBTEDNESS. The Borrower agrees
that any and all claims of the Borrower against any Guarantor, any endorser or
any other guarantor of all or any part of the Obligations, or against any of its
properties, including, without limitation, pursuant to any intercompany
Indebtedness permitted under SECTION 7.3(A)(VI), shall be subordinate and
subject in right of payment to the prior payment, in full and in cash, of all
Obligations. Notwithstanding any right of the Borrower to ask, demand, sue for,
take or receive any payment from any Guarantor, all rights, liens and security
interests of the Borrower, whether now or hereafter arising and howsoever
existing, in any assets of any Guarantor shall be and are subordinated to the
rights, if any, of the Lenders and the Agent in those assets. The Borrower shall
have no right to possession of any such asset or to foreclose upon any such
asset, whether by judicial action or otherwise, unless and until all of the
Obligations shall have been paid in full in cash and satisfied and all financing
arrangements under this Agreement and the other Loan Documents between the
Borrower and the Agent and the Lenders have been terminated. If, during the
continuance of a Default, all or any part of the assets of any Guarantor, or the
proceeds thereof, are subject to any distribution, division or application to
the creditors of any Guarantor, whether partial or complete, voluntary or
involuntary, and whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding, then, and in any such event, any payment or distribution of any kind
or character, either in cash, securities or other property, which shall be
payable or deliverable upon or with respect to any indebtedness of any Guarantor
to the Borrower, including, without limitation, pursuant to any intercompany
Indebtedness permitted under SECTION 7.3(A)(VI) ("INTERCOMPANY INDEBTEDNESS")
shall be paid or delivered directly to the Agent for application on any of the
Obligations, due or to become due, until such Obligations shall have first been
paid in full in cash and satisfied; PROVIDED, HOWEVER, ordinary course payments
or distributions made by any Guarantor to the Borrower shall be required to be
paid or delivered to the Agent only upon the Agent's request. The Borrower
irrevocably authorizes and empowers the Agent to demand, sue for, collect and
receive every such payment or distribution and give acquittance therefor and to
make and present for and on behalf of the Borrower such proofs of claim and take
such other action, in the Agent's own name or in the name of the Borrower or
otherwise, as the Agent may deem necessary or advisable for the enforcement of
this SECTION 10.15. The Agent may vote such proofs of claim in any such
proceeding, receive and collect any and all dividends or other payments or
disbursements made thereon in whatever form the same may be paid or issued and
apply the same on account of any of the Obligations. Should any payment,
distribution, security or instrument or proceeds thereof be received by the
Borrower upon or with respect to the Intercompany Indebtedness during the
continuance of a Default and prior to the satisfaction of all of the Obligations
and the termination of all financing arrangements under this Agreement and the
other Loan Documents between the Borrower and the Agent and the Lenders, the
Borrower shall receive and hold the same in trust, as trustee, for the benefit
of the Agent and the Lenders and shall forthwith deliver the same to the Agent,
for the benefit of the Agent and the Lenders, in precisely the form received
(except for the endorsement or
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assignment of the Borrower where necessary), for application to any of the
Obligations, due or not due, and, until so delivered, the same shall be held in
trust by the Borrower as the property of the Agent and the Lenders; PROVIDED,
HOWEVER, ordinary course payments or distributions made by any Guarantor to the
Borrower shall be required to be paid or delivered to the Agent only upon the
Agent's request. If the Borrower fails to make any such endorsement or
assignment to the Agent, the Agent or any of its officers or employees are
irrevocably authorized to make the same. The Borrower agrees that until the
Obligations have been paid in full in cash and satisfied and all financing
arrangements under this Agreement and the other Loan Documents between the
Borrower and the Agent and the Lenders have been terminated, the Borrower will
not assign or transfer to any Person (other than the Agent) any claim the
Borrower has or may have against any Guarantor.
10.16. USURY NOT INTENDED. It is the intent of the Borrower and each
Lender in the execution and performance of this Agreement and the other Loan
Documents to contract in strict compliance with applicable usury laws, including
conflicts of law concepts, governing the Advances of each Lender including such
applicable laws of the State of Texas and the United States of America from
time-to-time in effect. In furtherance thereof, the Lenders and the Borrower
stipulate and agree that none of the terms and provisions contained in this
Agreement or the other Loan Documents shall ever be construed to create a
contract to pay, as consideration for the use, forbearance or detention of
money, interest at a rate in excess of the Maximum Rate and that for purposes
hereof "interest" shall include the aggregate of all charges which constitute
interest under such laws that are contracted for, charged or received under this
Agreement; and in the event that, notwithstanding the foregoing, under any
circumstances the aggregate amounts taken, reserved, charged, received or paid
on the Advances, include amounts which by applicable law are deemed interest
which would exceed the Maximum Rate, then such excess shall be deemed to be a
mistake and each Lender receiving same shall credit the same on the principal of
its Notes (or if such Notes shall have been paid in full, refund said excess to
the Borrower). In the event that the maturity of the Notes are accelerated by
reason of any election of the holder thereof resulting from any Default under
this Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the Maximum Rate and excess interest, if any, provided for in this
Agreement or otherwise shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore paid, shall be credited on the
applicable Notes (or, if the applicable Notes shall have been paid in full,
refunded to the Borrower of such interest). In determining whether or not the
interest paid or payable under any specific contingencies exceeds the Maximum
Rate, the Borrower and the Lenders shall to the maximum extent permitted under
applicable law amortize, prorate, allocate and spread in equal parts during the
period of the full stated term of the Notes all amounts considered to be
interest under applicable law at any time contracted for, charged, received or
reserved in connection with the Obligations. The provisions of this Section
shall control over all other provisions of this Agreement or the other Loan
Documents which may be in apparent conflict herewith.
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10.17. BUSINESS LOANS. The Borrower warrants and represents that the
Loans evidenced by the Notes are and shall be for business, commercial,
investment or other similar purposes and not primarily for personal, family,
household or agricultural use, as such terms are used in Chapter One ("Chapter
One") of the Texas Credit Code. At all such times, if any, as Chapter One shall
establish a Maximum Rate, the Maximum Rate shall be the "indicated rate ceiling"
(as such term is defined in Chapter One) from time to time in effect.
ARTICLE XI: THE AGENT
11.1 APPOINTMENT; NATURE OF RELATIONSHIP. The First National Bank of
Chicago is appointed by the Lenders as the Agent hereunder and under each other
Loan Document, and each of the Lenders irrevocably authorizes the Agent (for so
long as the Agent remains in such capacity under this Agreement) to act as the
contractual representative of such Lender with only the rights and duties
expressly set forth herein and in the other Loan Documents. The Agent agrees to
act as such contractual representative upon the express conditions contained in
this ARTICLE XI. Notwithstanding the use of the defined term "Agent," it is
expressly understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement and that the Agent is
merely acting as the representative of the Lenders with only those duties as are
expressly set forth in this Agreement and the other Loan Documents. In its
capacity as the Lenders' contractual representative, the Agent (i) does not
assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of
the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code
and (iii) is acting as an independent contractor, the rights and duties of which
are limited to those expressly set forth in this Agreement and the other Loan
Documents. Each of the Lenders agrees to assert no claim against the Agent on
any agency theory or any other theory of liability for breach of fiduciary duty,
all of which claims each Lender waives.
11.2 POWERS. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties or fiduciary duties to the Lenders, or any
obligation to the Lenders to take any action hereunder or under any of the other
Loan Documents except any action specifically provided by the Loan Documents
required to be taken by the Agent.
11.3 GENERAL IMMUNITY. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is found in a final judgment by a court of
competent jurisdiction to have arisen solely from (i) the Gross Negligence or
willful misconduct of such Person or (ii) breach of contract by such Person with
respect to the Loan Documents.
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11.4 NO RESPONSIBILITY FOR LOANS, CREDITWORTHINESS, COLLATERAL,
RECITALS, ETC. Neither the Agent nor any of its directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into,
or verify (i) any statement, warranty or representation made in connection with
any Loan Document or any borrowing hereunder; (ii) the performance or observance
of any of the covenants or agreements of any obligor under any Loan Document;
(iii) the satisfaction of any condition specified in ARTICLE V, except receipt
of items required to be delivered solely to the Agent; (iv) the existence or
possible existence of any Default or (v) the validity, effectiveness or
genuineness of any Loan Document or any other instrument or writing furnished in
connection therewith. The Agent shall not be responsible to any Lender for any
recitals, statements, representations or warranties herein or in any of the
other Loan Documents for the perfection or priority of any of the Liens on any
of the Collateral, or for the execution, effectiveness, genuineness, validity,
legality, enforceability, collectibility, or sufficiency of this Agreement or
any of the other Loan Documents or the transactions contemplated thereby, or for
the financial condition of any guarantor of any or all of the Obligations, the
Borrower or any of its Subsidiaries.
11.5 ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders (or any other percentage of Lenders specified to be the
applicable percentage in this Agreement or any other Loan Document to act on
specified matters), and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on all holders of
Notes. The Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
11.6 EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of its
duties as the Agent hereunder and under any other Loan Document by or through
employees, agents, and attorney-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Loan Document.
11.7 RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled to rely
upon any Revolving Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and correct
and to have been signed or sent by the proper person or persons, and, in respect
to legal matters, upon the opinion of counsel selected by the Agent, which
counsel may be employees of the Agent.
11.8 THE AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (i)
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for any amounts not reimbursed by the Borrower for which the Agent is entitled
to reimbursement by the Borrower under the Loan Documents, (ii) for any other
expenses incurred by the Agent on behalf of the Lenders, in connection with the
preparation, execution, delivery, administration and enforcement of the Loan
Documents and (iii) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of the Loan Documents or
any other document delivered in connection therewith or the transactions
contemplated thereby, or the enforcement of any of the terms thereof or of any
such other documents, provided that no Lender shall be liable for any of the
foregoing to the extent any of the foregoing is found in a final non-appealable
judgment by a court of competent jurisdiction to have arisen solely from the
Gross Negligence or willful misconduct of the Agent.
11.9 RIGHTS AS A LENDER. With respect to its Commitment, Loans made by
it and the Notes issued to it, the Agent shall have the same rights and powers
hereunder and under any other Loan Document as any Lender and may exercise the
same as through it were not the Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. The Agent may accept deposits from, lend money to, and generally
engage in any kind of trust, debt, equity or other transaction, in addition to
those contemplated by this Agreement or any other Loan Document, with the
Borrower or any of its Subsidiaries in which such Person is not prohibited
hereby from engaging with any other Person.
11.10 LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
11.11 SUCCESSOR AGENT. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, and the Agent may be
removed at any time with or without cause by written notice received by the
Agent from the Required Lenders. Upon any such resignation or removal, the
Required Lenders shall have the right to appoint, on behalf of the Borrower and
the Lenders, a successor Agent. If no successor Agent shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within thirty days after the retiring Agent's giving notice of resignation, then
the retiring Agent may appoint, on behalf of the Borrower and the Lenders, a
successor Agent. Notwithstanding anything herein to the contrary, so long as no
Default has occurred and is continuing, each such successor Agent shall be
subject to approval by the Borrower, which approval shall not be unreasonably
withheld. Such successor Agent shall be a commercial bank having capital and
retained earnings of at least $50,000,000. Upon the acceptance of any
appointment as the
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Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder and under the other Loan Documents. After any
retiring Agent's resignation hereunder as Agent, the provisions of this ARTICLE
XI shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder and under
the other Loan Documents.
11.12 COLLATERAL DOCUMENTS. (a) Each Lender authorizes the Agent to
enter into the Pledge Agreements and each of the other Collateral documents
contemplated thereby (collectively, the "Collateral Documents") to which it is a
party and to take all action contemplated by such documents. Each Lender agrees
that no holder of Secured Obligations (other than the Agent) shall have the
right individually to seek to realize upon the security granted by any
Collateral Document, it being understood and agreed that such rights and
remedies may be exercised solely by the Agent for the benefit of the holders of
Secured Obligations upon the terms of the Collateral Documents.
(b) In the event that any Collateral is hereafter pledged by any Person
as collateral security for the Obligations, the Agent is hereby authorized to
execute and deliver on behalf of the Holders of Secured Obligations any Loan
Documents necessary or appropriate to grant and perfect a Lien on such
Collateral in favor of the Agent on behalf of the Holders of Secured
Obligations.
(c) The Lenders hereby authorize the Agent, at its option and in its
discretion, to (y) release any Lien granted to or held by the Agent upon any
Collateral and/or (z) release any Guarantor from its obligations under the
Guaranty (i) upon termination of the Commitments and payment and satisfaction of
all of the Obligations at any time arising under or in respect of this Agreement
or the Loan Documents or the transactions contemplated hereby or thereby; (ii)
in connection with any transaction permitted by, but only in accordance with,
the terms of the applicable Loan Document; or (iii) in connection with any
transaction approved, authorized or ratified in writing by the Required Lenders,
unless such release is required to be approved by all of the Lenders hereunder.
Upon request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release particular types or items of Collateral pursuant to
this SECTION 11.12(C).
(d) Upon any sale or transfer of assets constituting Collateral which is
permitted pursuant to the terms of any Loan Document, or consented to in writing
by the Required Lenders or all of the Lenders, as applicable, or consummation of
any transaction involving the sale of all or substantially all of the assets of
a Guarantor and upon at least five Business Days' prior written request by the
Borrower, the Agent shall (and is hereby irrevocably authorized by the Lenders
to) execute such documents as may be necessary to evidence the release of the
Liens granted to the Agent for the benefit of the Holders of Secured Obligations
herein or pursuant hereto upon the Collateral that was sold or transferred or
evidence the release of the applicable Guarantor from its obligations under the
Guaranty; PROVIDED, HOWEVER, that (i) the
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Agent shall not be required to execute any such document on terms which, in the
Agent's opinion, would expose the Agent to liability or create any obligation or
entail any consequence other than the release of such Liens without recourse or
warranty, and (ii) such release shall not in any manner discharge, affect or
impair the Secured Obligations, any other Guarantor's obligations under the
Guaranty or any Liens upon (or obligations of the Borrower or any Subsidiary in
respect of) all interests retained by the Borrower or any Subsidiary, including
(without limitation) the proceeds of the sale, all of which shall continue to
constitute part of the Collateral.
ARTICLE XII: SETOFF; RATABLE PAYMENTS
12.1 SETOFF. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if any Default occurs and is continuing, any
indebtedness from any Lender to the Borrower (including all account balances,
whether provisional or final and whether or not collected or available) may be
offset and applied toward the payment of the Obligations owing to such Lender,
whether or not the Obligations, or any part hereof, shall then be due.
12.2 RATABLE PAYMENTS. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant to
SECTIONS 4.1, 4.2 or 4.4) in a greater proportion than that received by any
other Lender, such Lender agrees, promptly upon demand, to purchase a portion of
the Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligation or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to the obligations owing to them. In case any such payment is
disturbed by legal process, or otherwise, appropriate further adjustments shall
be made.
12.3 APPLICATION OF PAYMENTS. Subject to the provisions of SECTION 9.2,
(i) prior to the occurrence of a Default, the Agent shall apply all payments and
prepayments in respect of the Obligations in such order as shall be specified by
the Borrower, and (ii) after the occurrence of a Default, the Agent shall,
unless otherwise specified at the direction of the Required Lenders which
direction shall be consistent with the last sentence of this SECTION 12.3, apply
all payments and prepayments in respect of any Obligations and all proceeds of
Collateral in the following order:
(A) first, to pay interest on and then principal of any portion
of the Loans which the Agent may have advanced on behalf of any Lender
for which the Agent has not then been reimbursed by such Lender or the
Borrower;
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(B) second, to pay interest on and then principal of any advance
made under SECTION 10.3 for which the Agent has not then been paid by
the Borrower or reimbursed by the Lenders;
(C) third, to pay Obligations in respect of any fees, expense
reimbursements or indemnities then due to the Agent;
(D) fourth, to pay Obligations in respect of any fees, expenses,
reimbursements or indemnities then due to the Lenders and the Issuing
Banks;
(E) fifth, to pay interest due in respect of Swing Line Loans;
(F) sixth, to pay interest due in respect of Revolving Loans and
L/C Obligations;
(G) seventh, to the ratable payment or prepayment of principal
outstanding on the Swing Line Loans;
(H) eighth, to the ratable payment or prepayment of principal
outstanding on Revolving Loans and Reimbursement Obligations in such
order as the Agent may determine in its sole discretion;
(I) ninth, to provide required cash collateral, if required
pursuant to SECTION 3.10 and
(J) tenth, to the ratable payment of all other Obligations.
Unless otherwise designated (which designation shall only be applicable prior to
the occurrence of a Default) by the Borrower, all principal payments in respect
of Revolving Loans shall be applied FIRST, to repay outstanding Floating Rate
Loans, and THEN to repay outstanding Eurodollar Rate Loans with those Eurodollar
Rate Loans which have earlier expiring Interest Periods being repaid prior to
those which have later expiring Interest Periods. The order of priority set
forth in clause (ii) of this SECTION 12.3 and the related provisions of this
Agreement are set forth solely to determine the rights and priorities of the
Agent, the Swing Line Bank and the Issuing Banks as among themselves. The order
of priority set forth in CLAUSES (D) through (J) of this SECTION 12.3 may at any
time and from time to time be changed by the Required Lenders without necessity
of notice to or consent of or approval by the Borrower, or any other Person;
PROVIDED, that the order of priority of payments in respect of Swing Line Loans
may be changed only with the prior written consent of the Swing Line Bank. The
order of priority set forth in CLAUSES (A) through (C) of this SECTION 12.3 may
be changed only with the prior written consent of the Agent.
12.4 RELATIONS AMONG LENDERS.
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(a) Except with respect to the exercise of set-off rights of any Lender
in accordance with SECTION 12.1, the proceeds of which are applied in accordance
with this Agreement, and except as set forth in the following sentence, each
Lender agrees that it will not take any action, nor institute any actions or
proceedings, against the Borrower or any other obligor hereunder or with respect
to any Collateral or any Loan Document, without the prior written consent of the
Required Lenders or, as may be provided in this Agreement or the other Loan
Documents, at the direction of the Agent.
(b) The Lenders are not partners or co-venturers, and no Lender shall be
liable for the acts or omissions of, or (except as otherwise set forth herein in
case of the Agent) authorized to act for, any other Lender. Notwithstanding the
foregoing, and subject to SECTION 12.2, any Lender shall have the right to
enforce on an unsecured basis the payment of the principal of and interest on
any Loan made by it after the date such principal or interest has become due and
payable pursuant to the terms of this Agreement.
ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
13.1 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with SECTION 13.3 hereof. Notwithstanding clause (ii) of this SECTION 13.1, any
Lender may at any time, without the consent of the Borrower or the Agent, assign
all or any portion of its rights under this Agreement and its Notes to a Federal
Reserve Bank; PROVIDED, HOWEVER, that no such assignment shall release the
transferor Lender from its obligations hereunder. The Agent may treat the payee
of any Note as the owner thereof for all purposes hereof unless and until such
payee complies with SECTION 13.3 hereof in the case of an assignment thereof or,
in the case of any other transfer, a written notice of the transfer is filed
with the Agent. Any assignee or transferee of a Note agrees by acceptance
thereof to be bound by all the terms and provisions of the Loan Documents. Any
request, authority or consent of any Person, who at the time of making such
request or giving such authority or consent is the holder of any Note, shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Revolving Notes issued in exchange therefor.
13.2 PARTICIPATIONS.
(A) PERMITTED PARTICIPANTS; EFFECT. Subject to the terms set forth in
this SECTION 13.2, any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities ("PARTICIPANTS") participating interests in any Loan owing to such
Lender, any Note held by such Lender, any Commitment of such Lender, any L/C
Interest of such Lender or any other interest of such Lender under the Loan
91
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Documents on a pro rata or non-pro rata basis; PROVIDED that without the prior
written consent of the Agent, the amount of such participation shall not be for
less than $5,000,000. Notice of such participation to the Agent shall be
required prior to any participation becoming effective with respect to a
Participant which is not a Lender. In the event of any such sale by a Lender of
participating interests to a Participant, such Lender's obligations under the
Loan Documents shall remain unchanged, such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
such Lender shall remain the holder of any such Note for all purposes under the
Loan Documents, all amounts payable by the Borrower under this Agreement shall
be determined as if such Lender had not sold such participating interests, and
the Borrower and the Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under the Loan
Documents except that, for purposes of ARTICLE IV hereof, the Participants shall
be entitled to the same rights as if they were Lenders.
(B) VOTING RIGHTS. Each Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Loan or Commitment in which such Participant has an
interest which requires the consent of all of the affected Lenders pursuant to
the terms of SECTION 9.3.
(C) BENEFIT OF SETOFF. The Borrower agrees that each Participant shall
be deemed to have the right of setoff provided in SECTION 12.1 hereof in respect
to its participating interest in amounts owing under the Loan Documents to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under the Loan Documents, PROVIDED that each Lender shall
retain the right of setoff provided in SECTION 12.1 hereof with respect to the
amount of participating interests sold to each Participant except to the extent
such Participant exercises its right of setoff. The Lenders agree to share with
each Participant, and each Participant, by exercising the right of setoff
provided in SECTION 12.1 hereof, agrees to share with each Lender, any amount
received pursuant to the exercise of its right of setoff, such amounts to be
shared in accordance with SECTION 12.2 as if each Participant were a Lender.
13.3 ASSIGNMENTS.
(A) PERMITTED ASSIGNMENTS. Any Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time assign to one or
more banks or other entities ("PURCHASERS") all or a portion of its rights and
obligations under this Agreement (including, without limitation, its Commitment,
all Loans owing to it, all of its participation interests in existing Letters of
Credit, and its obligation to participate in additional Letters of Credit
hereunder) in accordance with the provisions of this SECTION 13.3. Each
assignment shall be of a constant, and not a varying, ratable percentage of all
of the assigning Lender's rights and obligations under this Agreement. Such
assignment shall be effected through an Assignment Agreement substantially in
the form of EXHIBIT A hereto and shall not be permitted hereunder unless such
assignment is either for all of such Lender's rights and obligations under
92
<PAGE>
the Loan Documents or, without the prior written consent of the Agent, involves
Loans and Commitments in an aggregate amount of at least $5,000,000. The consent
of the Agent and, prior to the occurrence of a Default or Unmatured Default, the
Borrower (which consent, in each such case, shall not be unreasonably withheld),
shall be required prior to an assignment becoming effective with respect to a
Purchaser which is not a Lender or an Affiliate thereof. Notwithstanding the
foregoing, any Lender may at any time, without the consent of the Borrower or
the Agent, assign all or any portion of its rights under this Agreement and its
Notes to a Federal Reserve Bank; PROVIDED, HOWEVER, that no such assignment
shall release the transferor Lender from its obligations hereunder.
(B) EFFECT; EFFECTIVE DATE. Upon (i) delivery to the Agent of a notice
of assignment, substantially in the form attached as APPENDIX I to EXHIBIT A
hereto (a "NOTICE OF ASSIGNMENT"), together with any consent required by SECTION
13.3(A) hereof, and (ii) payment of a $3,500 fee to the Agent for processing
such assignment, such assignment shall become effective on the effective date
specified in such Notice of Assignment. The Notice of Assignment shall contain a
representation by the Purchaser to the effect that none of the consideration
used to make the purchase of the Commitment, Loans and L/C Obligations under the
applicable assignment agreement are "plan assets" as defined under ERISA and
that the rights and interests of the Purchaser in and under the Loan Documents
will not be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser, if not already a Lender, shall for all purposes be a
Lender party to this Agreement and any other Loan Documents executed by the
Lenders and shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, and no
further consent or action by the Borrower, the Lenders or the Agent shall be
required to release the transferor Lender with respect to the percentage of the
Aggregate Commitment, Loans and Letter of Credit participations assigned to such
Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to
this SECTION 13.3(B), the transferor Lender, the Agent and the Borrower shall
make appropriate arrangements so that replacement Notes are issued to such
transferor Lender and new Notes or, as appropriate, replacement Notes, are
issued to such Purchaser, in each case in principal amounts reflecting their
Commitments, as adjusted pursuant to such assignment.
(C) THE REGISTER. The Agent shall maintain at its address referred to in
SECTION 14.1 a copy of each Assignment Agreement delivered to and accepted by it
pursuant to this SECTION 13.3 and a register (the "REGISTER") for the
recordation of the names and addresses of the Lenders and the Commitment of and
principal amount of the Loans owing to each Lender from time to time and whether
such Lender is an original Lender or the assignee of another Lender pursuant to
an assignment under this SECTION 13.3. The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the Borrower
and each of its Subsidiaries, the Agent and the Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Borrower
or any Lender at any reasonable time and from time to time upon reasonable prior
notice.
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13.4 CONFIDENTIALITY. Subject to SECTION 13.5, the Agent and the Lenders
shall hold all nonpublic information obtained pursuant to the requirements of
this Agreement and identified as such by the Borrower in accordance with such
Person's customary procedures for handling confidential information of this
nature and in accordance with safe and sound banking practices and in any event
may make disclosure reasonably required by a prospective Transferee in
connection with the contemplated participation or assignment or as required or
requested by any Governmental Authority or representative thereof or pursuant to
legal process and shall require any such Transferee to agree (and require any of
its Transferees to agree) to comply with this SECTION 13.4. In no event shall
the Agent or any Lender be obligated or required to return any materials
furnished by the Borrower; PROVIDED, HOWEVER, each prospective Transferee shall
be required to agree that if it does not become a participant or assignee it
shall return all materials furnished to it by or on behalf of the Borrower in
connection with this Agreement.
13.5 DISSEMINATION OF INFORMATION. The Borrower authorizes each Lender
to disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any
prospective Transferee any and all information in such Lender's possession
concerning the Borrower and its Subsidiaries and the Collateral; PROVIDED that
prior to any such disclosure, such prospective Transferee shall agree to
preserve in accordance with SECTION 13.4 the confidentiality of any confidential
information described therein.
ARTICLE XIV: NOTICES
14.1 GIVING NOTICE. Except as otherwise permitted by SECTION 2.11 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Documents shall be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below its signature hereto or at such other address as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid, shall be deemed given when
received; any notice, if transmitted by telex or facsimile, shall be deemed
given when transmitted (answerback confirmed in the case of telexes).
14.2 CHANGE OF ADDRESS. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
ARTICLE XV: COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has
94
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been executed by the Borrower, the Agent and the Lenders and each party has
notified the Agent by telex or telephone, that it has taken such action.
[Remainder of This Page Intentionally Blank]
95
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Agreement as of the date first above written.
HOMEUSA, INC., as the Borrower
By:___________________________
Name: Michael F. Loy
Title: Senior Vice President
Address:
Three Riverway, Suite 630
Houston, Texas 77056
Attention: Mr. Michael F. Loy,
Chief Financial Officer
Telephone No.:(713) 965-0520
Facsimile No.: (713) 965- 0109
FIRST CHICAGO CAPITAL
CORPORATION, as Agent and as a
Lender
By:___________________________
Name:
Title:
Address:
One First National Plaza
Suite 0324
Chicago, Illinois 60670
Attention: Cory M. Olson
Telephone No.: (312) 732-1706
Facsimile No.: (312) 732-2991
96
EXHIBIT 21.1
SUBSIDARY NAME STATE OF INCORPORATION ASSUMED NAME
AAA Homes, L.L.C. Louisiana N/A
Cooper's Mobile Homes, Inc. Washington N/A
Concept Homes, Inc. Washington N/A
Contemporary Home Center Washington N/A
Cooper Homes, Inc. Washington N/A
CSF&T, Inc. Mississippi N/A
D&S, Inc. Alabama N/A
First American Homes, Inc. Alabama N/A
Hall's Mobile Homes, Inc. Florida N/A
Fordham Insurance Agency, Inc. Mississippi N/A
Home Folks Housing Center, Inc. Kentucky N/A
HomeUSA, Inc. Delaware N/A
HomeUSA Management Co., L.P. Delaware N/A
HUSA GP, Inc. Delaware N/A
HUSA LP, Inc. Delaware N/A
McDonald Homes, Inc. Oklahoma N/A
Mobile World, Inc. Texas N/A
Pac West Mgmt., Inc. Washington N/A
Patrick Home Center, Inc. Mississippi N/A
Shaffer & Webb Insurance Agency, Inc. Tennesee N/A
Showcase of Homes, Inc. Texas N/A
Universal Housing, Inc. Tennesee N/A
WillMax Homes of Colorado, L.L.C. Colorado N/A
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Annual Report on Form 10-K, into the Company's
previously filed registration statement on Form S-8 (File No. 333-44995).
ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this annual report on Form 10-K to be filed
on or about March 30, 1998 and the incorporation of such report in previously
filed registration statements of HomeUSA, Inc. on Form S-8 (File No. 333-44995),
of our report dated October 24, 1997, on our audits of the financial statements
of McDonald Mobile Homes, Inc.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM HOMEUSA'S 1997 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,758
<SECURITIES> 0
<RECEIVABLES> 8,561
<ALLOWANCES> 0
<INVENTORY> 45,481
<CURRENT-ASSETS> 72,068
<PP&E> 9,217
<DEPRECIATION> 2,593
<TOTAL-ASSETS> 139,844
<CURRENT-LIABILITIES> 60,919
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 77,352
<TOTAL-LIABILITY-AND-EQUITY> 139,844
<SALES> 62,636
<TOTAL-REVENUES> 63,952
<CGS> 50,012
<TOTAL-COSTS> 9,565
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,098
<INCOME-PRETAX> 3,673
<INCOME-TAX> 276
<INCOME-CONTINUING> 3,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,397
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
</TABLE>
EXHIBIT 99.1
INDEX TO HISTORICAL FINANCIAL STATEMENTS
PAGE
------
AAA HOMES GROUP
Report of Independent Public Accountants.................... F-2
Combined Balance Sheets..................................... F-3
Combined Statements of Operations........................... F-4
Combined Statements of Shareholders' Equity................. F-5
Combined Statements of Cash Flows........................... F-6
Notes to Combined Financial Statements...................... F-7
MCDONALD MOBILE HOMES, INC.
Report of Independent Public Accountants.................... F-15
Balance Sheets.............................................. F-16
Statements of Operations.................................... F-17
Statements of Shareholders' Equity.......................... F-18
Statements of Cash Flows.................................... F-19
Notes to Financial Statements............................... F-20
PATRICK HOME CENTER, INC.
Report of Independent Public Accountants.................... F-26
Balance Sheets.............................................. F-27
Statements of Operations.................................... F-28
Statements of Shareholders' Equity.......................... F-29
Statements of Cash Flows.................................... F-30
Notes to Financial Statements............................... F-31
MOBILE WORLD GROUP
Report of Independent Public Accountants.................... F-38
Combined Balance Sheets..................................... F-39
Combined Statements of Operations........................... F-40
Combined Statements of Shareholder's Equity................. F-41
Combined Statements of Cash Flows........................... F-42
Notes to Combined Financial Statements...................... F-43
FIRST AMERICAN HOMES GROUP
Report of Independent Public Accountants.................... F-49
Combined Balance Sheets..................................... F-50
Combined Statements of Operations........................... F-51
Combined Statements of Shareholders' Equity................. F-52
Combined Statements of Cash Flows........................... F-53
Notes to Combined Financial Statements...................... F-54
COOPER'S MOBILE HOMES GROUP
Report of Independent Public Accountants.................... F-61
Combined Balance Sheets..................................... F-62
Combined Statements of Operations........................... F-63
Combined Statements of Shareholders' Equity................. F-64
Combined Statements of Cash Flows........................... F-65
Notes to Combined Financial Statements...................... F-66
F-1
<PAGE>
HOME FOLKS HOUSING CENTER, INC. PAGE
------
Report of Independent Public Accountants.................... F-74
Balance Sheets.............................................. F-75
Statements of Operations.................................... F-76
Statements of Shareholder's Equity.......................... F-77
Statements of Cash Flows.................................... F-78
Notes to Financial Statements............................... F-79
WILLMAX HOMES OF COLORADO LLC
Report of Independent Public Accountants.................... F-84
Balance Sheets.............................................. F-85
Statements of Operations.................................... F-86
Statements of Members' Equity............................... F-87
Statements of Cash Flows.................................... F-88
Notes to Financial Statements............................... F-89
F-1(a)
<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 September 30, 1997, 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 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 each of the three
years in the period ended December 31, 1996 and for the nine month period ended
September 30, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 28, 1997
F-2
<PAGE>
AAA HOMES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- --------------
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-3
<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-4
<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......................... -- 763 -- -- 763
Capital contributions.............. -- -- 50 -- 50
------ --------- --------- -------- ---------
BALANCE, September 30, 1997............. $ 68 $ 2,786 $ 50 $ (80) $ 2,824
====== ========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<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)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
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-6
<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 entered 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 IPO) 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 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 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-7
<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, $34,000 and $47,000 for the years ended December 31, 1994, 1995 and
1996 and for the nine months ended September 30, 1997, 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-8
<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: 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-9
<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
------------ --------- --------- -------------
<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):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Due from manufacturer.................................. $ 280 $ 452 $ 715
Due from finance companies............................. 484 684 912
Other.................................................. 103 262 275
--------- --------- -------------
$ 867 $ 1,398 $ 1,902
========= ========= =============
</TABLE>
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
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
========= ========= =============
</TABLE>
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Note receivable........................................ $ 133 $ 109 $ 76
Goodwill, net.......................................... 115 220 274
Other.................................................. 41 67 71
--------- --------- -------------
$ 289 $ 396 $ 421
========= ========= =============
</TABLE>
F-10
<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
--------- --------- -------------
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). 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 nine months ended September 30, 1997, was
approximately $10.9 million. The average balance outstanding during the nine
months ended September 30, 1997, was approximately $9.0 million with a weighted
average interest rate paid of 9.3 percent.
F-11
<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
--------- --------- -------------
(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.
The aggregate maturities of long-term debt as of September 30, 1997 are as
follows (in thousands):
Year ending December 31 --
1997............................... $ 102
1998............................... 128
1999............................... 108
2000............................... 43
2001............................... 39
Thereafter......................... 27
---------
$ 447
=========
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
DECEMBER 31 SEPTEMBER 30,
------------------------------- -------------
1994 1995 1996 1997
--------- --------- --------- -------------
Federal --
Current............... $ 199 $ 260 $ 422 $ 248
Deferred.............. 5 31 61 100
--------- --------- --------- -------------
204 291 483 348
--------- --------- --------- -------------
State --
Current............... 31 41 67 39
Deferred.............. 1 5 9 16
--------- --------- --------- -------------
32 46 76 55
--------- --------- --------- -------------
Total provision.. $ 236 $ 337 $ 559 $ 403
========= ========= ========= =============
F-12
<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):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Federal income tax at statutory rates... $ 210 $ 300 $ 501 $ 314
State income taxes...................... 21 30 50 36
Nondeductible expenses.................. 5 7 8 6
Other................................... -- -- -- 47
--------- --------- --------- --------------
$ 236 $ 337 $ 559 $ 403
========= ========= ========= ==============
</TABLE>
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995, 1996 and September 30, 1997 are as follows
(in thousands):
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- --------------
Deferred tax assets --
Accrued expenses................... $ 20 $ 8 $ 13
--------- --------- --------------
Total deferred tax assets..... 20 8 13
--------- --------- --------------
Deferred tax liabilities --
Bases differences in property and
equipment........................ (38) (56) (68)
Other.............................. (70) (110) (218)
--------- --------- --------------
Total deferred tax
liabilities................ (108) (166) (286)
--------- --------- --------------
Net deferred tax liability.... $ (88) $ (158) $ 273)
========= ========= ==============
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, $153,000 and $170,000 for the
years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1997, respectively. The investment balance in the Partnership at
December 31, 1995 and 1996 and September 30, 1997, 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 and the nine months ended
September 30, 1997, were approximately $29,000, $26,000, $30,000, and $4,000
respectively. Amounts due from this affiliate were approximately $27,000 and
$57,000 at December 31, 1995 and 1996, respectively. There were no amounts due
from this affiliate at September 30, 1997.
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 $25,000 at
September 30, 1997.
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-13
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments for operating leases at September 30, 1997
are as follows (in thousands):
Year ending December 31 --
1997............................... $ 116
1998............................... 380
1999............................... 266
2000............................... 47
2001............................... 12
Thereafter......................... --
---------
Total......................... $ 821
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $214,000, $338,000, $404,000 and
$303,000 for the years ended December 31, 1994, 1995 and 1996 and for 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 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, $11,000 and $9,000 for
1994, 1995 and 1996 and the nine months ended September 30, 1997, respectively.
The discretionary profit-sharing contributions were $75,000 and $100,000 for
1994 and 1995, respectively, with no contributions made in 1996 or for the nine
months ended September 30, 1997.
9. SUBSEQUENT EVENTS (UNAUDITED):
On November 21, 1997, HomeUSA purchased all of the issued and outstanding
equity securities of the Group, through the issuance of common stock and cash
pursuant to a definitive merger agreement dated September 1997. Property and
equipment of approximately $170,000, which are included in the combined balance
sheet at September 30, 1997, were distributed to the shareholders of the Group.
Concurrently with the Merger, the Group entered into agreements with the
shareholders to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-14
<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 September 30, 1997, December 31, 1996 and December 31, 1995, and the
related statements of operations, shareholders' equity and cash flows for the
nine months ended September 30, 1997 and 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 September 30, 1997, December 31, 1996 and December 31, 1995, and the
results of its operations and its cash flows for the nine months ended September
30, 1997 and the years ended December 31, 1996, 1995 and 1994, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
October 24, 1997
F-15
<PAGE>
MCDONALD MOBILE HOMES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
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-16
<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-17
<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...................... -- -- -- 483 483
Repurchase of common stock...... -- 10 (152) -- (142)
------ ---------- -------- -------- ---------
BALANCE AT SEPTEMBER 30, 1997........ $ 37 $ 164 $ (152) $2,348 $ 2,397
====== ========== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<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-19
<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 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 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-20
<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
------------ --------- --------- -------------
<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-21
<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
--------- --------- -------------
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
--------- --------- -------------
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
--------- --------- -------------
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). 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 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.
F-22
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
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
========= ========= =============
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
========= =========
F-23
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $116,000 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.
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.
F-24
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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)
On November 21, 1997, HomeUSA purchased all of the issued and outstanding
equity securities of the Company, through the issuance of common stock and cash
pursuant to a definitive merger agreement dated September 1997.
Concurrently with the Merger, the Company entered into agreements with the
shareholders to lease land and buildings used in the Company's operations for
negotiated amounts and terms.
F-25
<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 September 30, 1997, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996 and for the nine month period
ended September 30, 1997. 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 September 30, 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1996
and for the nine month period ended September 30, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
October 28, 1997
F-26
<PAGE>
PATRICK HOME CENTER, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
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-27
<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-28
<PAGE>
PATRICK HOME CENTER, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TREASURY
COMMON RETAINED STOCK
STOCK EARNINGS AT COST TOTAL
------ --------- --------- ---------
<S> <C> <C> <C> <C>
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...................... -- (390) -- (390)
Repurchase of common stock......... -- -- (239) (239)
Net income......................... -- 1,267 -- 1,267
------ --------- --------- ---------
BALANCE, September 30, 1997............. $ 20 $ 2,983 $ (239) $ 2,764
====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<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-30
<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 entered 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 IPO) of
the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim 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 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-31
<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-32
<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.
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
------------ --------- --------- ---------------
<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-33
<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
--------- --------- ---------------
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
--------- --------- ---------------
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
--------- --------- ---------------
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). 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 nine months ended September 30, 1997 was
approximately $7.3 million. The average balance outstanding during the nine
months ended September 30, 1997 was approximately $5.7 million with a weighted
average interest rate paid of 5.59 percent.
F-34
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(IN THOUSANDS)
Letters of credit to Deposit Guaranty
National Bank, face amount $500,000
at prime plus 0.5% to 0.75% (9.0%
to 9.25% at September 30, 1997).... $ 200 $ 164 $ 1
Long-term debt, maturing in varying
amounts through 2001, with interest
ranging from 5.75% to 9.85% at
September 30, 1997................. 760 600 426
--------- --------- -------------
960 764 427
Less -- Current portion.............. (785) (410) (173)
--------- --------- -------------
$ 175 $ 354 $ 254
========= ========= =============
The aggregate maturities of long-term debt as of September 30, 1997, are as
follows (in thousands):
Year ending December 31 --
1997............................... $ 75
1998............................... 125
1999............................... 81
2000............................... 104
2001............................... 42
---------
$ 427
=========
6. INCOME TAXES:
The components of the provision for income taxes are as follows: (in
thousands)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Federal --
Current............................ $ 43 $ 84 $ -- $ --
Deferred........................... 36 9 (57) --
State --
Current............................ 6 12 54 69
Deferred........................... 5 1 5 (2)
--------- --------- --------- -------------
Total provision............... $ 90 $ 106 $ 2 $ 67
========= ========= ========= =============
</TABLE>
F-35
<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)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
--- --------- --------- -------------
<S> <C> <C> <C> <C>
Federal income tax at statutory rates... $ 82 $ 97 $ 411 $ 466
State income tax........................ 8 9 59 67
Effect of S corporation income.......... -- -- (411) (466)
Other................................... -- -- (57) --
--- --------- --------- -------------
$ 90 $ 106 $ 2 $ 67
=== ========= ========= =============
</TABLE>
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995, 1996 and September 30, 1997, are as follows
(in thousands):
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
Deferred tax assets --
Accrued expenses................... $ 37 $ 5 $ 4
Other.............................. 15 2 5
--------- --------- -------------
Total......................... 52 7 9
Deferred tax liabilities --
Bases difference in property and
equipment........................ (105) (15) (18)
Other.............................. (63) (56) (52)
--------- --------- -------------
Total......................... (168) (71) (70)
--------- --------- -------------
Net deferred income tax
assets..................... $ (116) $ (64) $ (61)
========= ========= =============
7. RELATED-PARTY TRANSACTIONS:
The Company purchases office supplies from a related party. Total
expenditures for the nine months ended September 30, 1997, were approximately
$48,000.
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 as of September 30, 1997
are as follows (in thousands):
Year ending December 31 --
1997............................... $ 56
1998............................... 207
1999............................... 152
2000............................... 77
---------
Total......................... $ 492
=========
F-36
<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, $159,000 and
$131,000 for the years ended December 31, 1994, 1995 and 1996, and the nine
months ended September 30, 1997, 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, 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 and $22,058 for the
year ended December 31, 1996, and for the nine months ended September 30, 1997,
respectively.
9. SUBSEQUENT EVENTS (UNAUDITED):
On November 21, 1997, HomeUSA purchased all of the issued and outstanding
equity securities of the Company, through the issuance of common stock and cash
pursuant to a definitive merger agreement dated September 1997. Property and
equipment of approximately $43,243, which are included in the balance sheet at
September 30, 1997, were distributed to the shareholder.
Concurrently with the Merger, the Company entered into an agreement with
the shareholder to lease land, equipment and buildings used in the Company's
operations for negotiated amounts and terms.
F-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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 entered 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 IPO) 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-43
<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-44
<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-45
<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-46
<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-47
<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 as of September 30, 1997
are as follows (in thousands):
Year ending December 31 --
1997............................... $ 8
1998............................... 8
1999............................... 1
---
Total......................... $ 17
===
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.
9. SUBSEQUENT EVENTS (UNAUDITED):
On November 21, 1997, HomeUSA purchased all of the issued and outstanding
equity securities of the Group, through the issuance of common stock and cash
pursuant to a definitive merger agreement dated September 1997.
Concurrently with the Merger, the Group entered into agreements with the
shareholder to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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 IPO) 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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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. SUBSEQUENT EVENTS (UNAUDITED):
On November 21, 1997, HomeUSA purchased all of the issued and outstanding
equity securities of the Group, through the issuance of common stock and cash
pursuant to a definitive merger agreement dated September 1997.
A portion of Son Development Corporation (Son), representing a manufactured
housing development and the related operating assets and liabilities, was not
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, were distributed to the shareholders of the Group. In
addition, shareholders of the Group have assumed liabilities of approximately
$757,000, which are included in the combined balance sheet at September 30,
1997.
Concurrently with the Merger, the Group entered into agreements with the
shareholders to lease land and buildings used in the Group's operations for
negotiated amounts and terms.
F-60
<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-61
<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-62
<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-63
<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-64
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(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>
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-65
<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 IPO) 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-66
<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-67
<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-68
<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):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- SEPTEMBER 30,
IN YEARS 1995 1996 1997
------------ --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
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
========= ========= =============
</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.................. $ 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-69
<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 interest 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-70
<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-71
<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-72
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUBSEQUENT EVENTS (UNAUDITED):
On November 21, 1997, HomeUSA purchased all of the issued and outstanding
equity securities of the Group, through the issuance of common stock and cash
pursuant to a definitive merger agreement dated September 1997. Property and
equipment of approximately $26,000 which are included in the combined balance
sheet at September 30, 1997, were distributed to the shareholders of the Group.
In addition, the shareholders of the Group have assumed liabilities of
approximately $22,000 which are included in the combined balance sheet as of
September 30, 1997.
Concurrently with the Merger, the Group entered into agreements with the
shareholders to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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 IPO) 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-79
<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-80
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31, SEPTEMBER 30,
IN YEARS 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
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
============ =============
</TABLE>
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-81
<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-82
<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. SUBSEQUENT EVENTS (UNAUDITED):
On November 21, 1997, HomeUSA purchased all of the issued and outstanding
equity securities of the Company, through the issuance of common stock and cash
pursuant to a definitive merger agreement dated September 1997.
Concurrently with the Merger, the Company entered into agreements with the
shareholder to lease land, equipment and buildings used in the Company's
operations for negotiated amounts and terms.
F-83
<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-84
<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-85
<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-86
<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-87
<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-88
<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 IPO) 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-89
<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-90
<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-91
<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-92
<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. SUBSEQUENT EVENTS (UNAUDITED):
On November 21, 1997, HomeUSA purchased all of the issued and outstanding
equity securities of the Company, through the issuance of common stock and cash
pursuant to a definitive merger agreement dated September 1997.
F-93
