<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-49775
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FLEETWOOD ENTERPRISES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3716 95-1948322
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) No.)
</TABLE>
3125 MYERS STREET
RIVERSIDE, CALIFORNIA 92503-5527
(909) 351-3500
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
--------------------------
WILLIAM H. LEAR, ESQ.
SENIOR VICE PRESIDENT-GENERAL COUNSEL AND SECRETARY
FLEETWOOD ENTERPRISES, INC.
3125 MYERS STREET, RIVERSIDE, CALIFORNIA 92503-5527
(909) 351-3500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
--------------------------
COPIES TO:
ROBERT E. DEAN, ESQ. THOMAS W. ADKINS, JR., ESQ.
GIBSON, DUNN & CRUTCHER LLP BRACEWELL & PATTERSON, L.L.P.
4 PARK PLAZA, SUITE 1700 711 LOUISIANA STREET, SUITE 2900
IRVINE, CALIFORNIA 92614-8557 HOUSTON, TEXAS 77002-2781
(949) 451-3800 (713) 223-2900
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the Merger have been satisfied, as described in the Agreement and
Plan of Merger dated as of February 17, 1998, attached as Appendix A to the
Proxy Statement/Prospectus forming a part of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRELIMINARY COPY
JUNE 9, 1998
HOMEUSA, INC.
THREE RIVERWAY, SUITE 555
HOUSTON, TEXAS 77056
June 16, 1998
Dear Stockholder:
A Special Meeting of Stockholders of HomeUSA, Inc. (the "HomeUSA Special
Meeting") will be held on Wednesday, July 15, 1998, at 10:00 a.m., local time,
at the Omni Houston Hotel, Four Riverway, Houston, Texas 77056.
At the HomeUSA Special Meeting, you will be asked to consider and vote upon
the approval and adoption of an Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger (the "Merger") of HomeUSA with and into
HUSA Acquisition Company ("Acquisition Sub"), a wholly owned subsidiary of
Fleetwood Enterprises, Inc. ("Fleetwood"), as described in the accompanying
Proxy Statement/Prospectus. As a result of the Merger, the separate corporate
existence of HomeUSA will cease, Acquisition Sub will continue as the surviving
corporation and succeed to and assume all the rights and obligations of HomeUSA,
and (subject to the election and allocation provisions contained in the Merger
Agreement) all outstanding shares of HomeUSA common stock will be converted into
the right to receive (i) a number of shares of Fleetwood common stock determined
by dividing $10.25 (the "Per Share Cash Amount") by the average (the "Valuation
Period Stock Price") of the closing sale prices for a share of Fleetwood common
stock for the ten trading day period ending on July 6, 1998 (I.E., the tenth day
prior to the anticipated closing date of the Merger, July 16, 1998) (the
"Exchange Ratio"); (ii) in cash, without interest, the Per Share Cash Amount; or
(iii) a combination of shares of Fleetwood common stock and cash equal to the
Per Share Cash Amount. ON OR ABOUT JULY 7, 1998, HOMEUSA WILL ISSUE A PRESS
RELEASE ADVISING ITS STOCKHOLDERS OF THE VALUATION PERIOD STOCK PRICE AND THE
EXCHANGE RATIO RESULTING THEREFROM. AN ELECTION FORM IS ENCLOSED AND MUST BE
RETURNED TO THE EXCHANGE AGENT FOR THE MERGER CONSIDERATION ON OR BEFORE JULY
13, 1998.
A more detailed description of the Merger Agreement and the Merger is set
forth in the enclosed Proxy Statement/Prospectus, which you should read
carefully. A Notice of Special Meeting of Stockholders is also enclosed
herewith. Holders of record of HomeUSA common stock at the close of business on
May 19, 1998, the record date for the HomeUSA Special Meeting, are entitled to
notice of, and to attend and vote at, the HomeUSA Special Meeting and at any
adjournments or postponements thereof.
HOMEUSA'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
DESCRIBED IN THE ATTACHED MATERIALS AND THE TRANSACTIONS CONTEMPLATED THEREBY,
AND HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF HOMEUSA AND ITS
STOCKHOLDERS. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE MERGER
AGREEMENT AND THE MERGER.
All stockholders are cordially invited to attend the HomeUSA Special Meeting
in person. However, it is important that your shares be represented at the
HomeUSA Special Meeting, whether or not you plan to attend. An abstention will
have the same effect as a vote against the Merger Agreement and the Merger.
Accordingly, please complete, sign, date and return your proxy or proxies in the
enclosed postage paid envelope. A stockholder who attends the HomeUSA Special
Meeting will be able to vote his or her shares whether or not he or she has
granted a proxy and will be able to revoke such proxy at any time before the
shares covered thereby are voted at the HomeUSA Special Meeting, by filing with
the Secretary of HomeUSA an instrument revoking it or a duly executed proxy
bearing a later date, or by attending the HomeUSA Special Meeting and voting in
person.
Sincerely,
Cary N. Vollintine
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER
AND PRESIDENT
<PAGE>
HOMEUSA, INC.
THREE RIVERWAY, SUITE 555
HOUSTON, TEXAS 77056
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 15, 1998
------------------------
A Special Meeting of Stockholders (the "HomeUSA Special Meeting") of
HomeUSA, Inc., a Delaware corporation ("HomeUSA"), will be held on Wednesday,
July 15, 1998, at 10:00 a.m., local time, at the Omni Houston Hotel, Four
Riverway, Houston, Texas 77056, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of February 17, 1998 (the "Merger
Agreement"), by and among Fleetwood Enterprises, Inc., a Delaware
corporation ("Fleetwood"), HUSA Acquisition Company, a Delaware corporation
and wholly owned subsidiary of Fleetwood ("Acquisition Sub"), and HomeUSA.
The Merger Agreement provides for the merger (the "Merger") of HomeUSA with
and into Acquisition Sub, with Acquisition Sub continuing as the surviving
corporation and wholly owned subsidiary of Fleetwood. In the Merger, and
subject to the election and allocation provisions contained in the Merger
Agreement, all outstanding shares of HomeUSA common stock will be converted
into the right to receive (i) a number of shares of Fleetwood common stock
determined by dividing $10.25 (the "Per Share Cash Amount") by the average
of the closing sale prices for a share of Fleetwood common stock for the ten
trading day period ending on July 6, 1998 (I.E., the tenth day prior to the
anticipated closing date of the Merger, July 16, 1998); (ii) in cash,
without interest, the Per Share Cash Amount; or (iii) a combination of
Shares of Fleetwood common stock and cash equal to the Per Share Cash
Amount. For more information regarding the consideration to be received by
HomeUSA stockholders in the Merger, please refer to the accompanying Proxy
Statement/Prospectus, under "THE MERGER--Merger Consideration."
2. To transact such other business as may properly come before the
HomeUSA Special Meeting and any adjournments or postponements thereof.
Attendance at the HomeUSA Special Meeting and any adjournments or
postponements thereof will be limited to stockholders of record of HomeUSA
common stock on May 19, 1998 (the "Record Date") or their proxies, beneficial
owners having evidence of ownership on that date, and invited guests of HomeUSA.
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER REQUIRES THE
AFFIRMATIVE VOTE OF THE HOLDERS OF SHARES REPRESENTING A MAJORITY OF THE NUMBER
OF SHARES OF HOMEUSA COMMON STOCK OUTSTANDING. Stockholders of HomeUSA owning an
aggregate of approximately 10,378,998 shares of HomeUSA common stock,
representing approximately 67.2% of the outstanding shares of HomeUSA common
stock as of the Record Date, have informed HomeUSA that they intend to vote all
of their shares of HomeUSA common stock for approval of the Merger Agreement and
the Merger. If such stockholders vote in accordance with their expressed
intentions, approval of the Merger Agreement and the Merger is assured. A list
of holders of record of shares of HomeUSA Common Stock at the close of business
on the Record Date will be available for inspection at HomeUSA's headquarters
during ordinary business hours for the ten-day period prior to the HomeUSA
Special Meeting. HomeUSA's transfer books will not be closed.
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
By Order of the Board of Directors,
Cary N. Vollintine
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER
AND PRESIDENT
Houston, Texas
June 16, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE HOMEUSA SPECIAL MEETING IN PERSON, YOU
ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IN THE ALTERNATIVE, YOU MAY ALSO VOTE OR CHANGE YOUR VOTE VIA TELEPHONE
BY CALLING 800-840-1208. IF YOU ATTEND THE HOMEUSA SPECIAL MEETING, YOU MAY
REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AND VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD OR VOTED BY TELEPHONE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 9, 1998.
HOMEUSA, INC.
PROXY STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
JULY 15, 1998
---------------------
FLEETWOOD ENTERPRISES, INC.
PROSPECTUS
---------------------
This Proxy Statement/Prospectus is being furnished to stockholders of
HomeUSA, Inc., a Delaware corporation ("HomeUSA"), in connection with the
solicitation of proxies by HomeUSA's Board of Directors for use at the Special
Meeting of Stockholders of HomeUSA to be held on July 15, 1998, at the Omni
Houston Hotel, Four Riverway, Houston, Texas 77056, commencing at 10:00 a.m.,
local time, and at any adjournments or postponements thereof.
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of HomeUSA with and into HUSA Acquisition Company ("Acquisition Sub"),
a Delaware corporation and wholly owned subsidiary of Fleetwood Enterprises,
Inc. ("Fleetwood"), a Delaware corporation. As a result of the Merger, the
separate corporate existence of HomeUSA will cease and Acquisition Sub will
change its name to HomeUSA, Inc., continue as the surviving corporation, and
succeed to and assume all the rights and obligations of HomeUSA. In the Merger,
and subject to the election and allocation provisions contained in the Merger
Agreement (as defined herein), all outstanding shares of HomeUSA common stock,
par value $0.01 per share ("HomeUSA Common Stock"), (excluding any treasury
shares and shares held directly or indirectly by Fleetwood) will be converted
into the right to receive (i) a number of shares of Fleetwood common stock, par
value $1.00 per share (including the associated Series A Junior Participating
Preferred Stock Purchase Rights (the "Rights") issued pursuant to the Rights
Agreement dated as of November 10, 1988 (the "Fleetwood Rights Agreement") by
and between Fleetwood and BankBoston, N.A., as Rights Agent) ("Fleetwood Common
Stock") determined by dividing $10.25 (the "Per Share Cash Amount") by the
average (the "Valuation Period Stock Price") of the closing sale prices for a
share of Fleetwood Common Stock on the New York Stock Exchange, Inc. (the
"NYSE") for the ten trading day period ending on July 6, 1998 (I.E., the tenth
day prior to the anticipated closing date of the Merger, July 16, 1998) (a
"Stock Election"); (ii) in cash, without interest, the Per Share Cash Amount (a
"Cash Election"); or (iii) a combination of shares of Fleetwood Common Stock and
cash equal to the Per Share Cash Amount (a "Mixed Election"). The Merger
Agreement provides, however, that no HomeUSA director or former principal
stockholder of the Founding Companies (as defined herein) may receive more than
25% of his Merger Consideration in cash. Further, in order for the Merger to be
treated for federal income tax purposes as a "reorganization," the Merger
Agreement requires that at least 51% of the aggregate Merger Consideration
consist of shares of Fleetwood Common Stock. Therefore, the aggregate number of
shares of HomeUSA Common Stock covered by Cash Elections ("Cash Election
Shares") and the aggregate number of such shares covered by Mixed Elections
("Mixed Election Cash Shares") times the Per Share Cash Amount may not exceed
49% of the aggregate Merger Consideration. If cash is oversubscribed, then all
shares of HomeUSA Common Stock for which no election is made will be converted
into the right to receive shares of Fleetwood Common Stock; thereafter, each
Cash Election Share and each Mixed Election Cash Share will be converted, on a
pro rata basis, into the right to receive a combination of cash and Fleetwood
Common Stock, to the extent necessary to ensure that not more than 49% of the
aggregate Merger Consideration consists of cash.
AN ELECTION FORM IS ENCLOSED WITH THIS PROXY STATEMENT/PROSPECTUS AND MUST
BE FILED WITH THE EXCHANGE AGENT ON OR BEFORE JULY 13, 1998. On or about July 7,
1998, HomeUSA will issue a press release advising its stockholders of the
Valuation Period Stock Price and the Exchange Ratio resulting therefrom. On June
8, 1998, the latest practicable date prior to the printing of this Proxy
Statement/Prospectus, the closing sale price for a share of Fleetwood Common
Stock on the NYSE was $39.375. If the Valuation Period Stock Price were $39.375
per share, each share of HomeUSA Common Stock subject to a Stock Election would
be converted into the right to receive 0.2603 shares of Fleetwood Common Stock,
and immediately following the Merger, former HomeUSA stockholders would hold a
minimum of approximately 6.3% and a maximum of approximately 11.6% of all
outstanding shares of Fleetwood Common Stock.
Fleetwood has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to up to
3,620,300 shares of Fleetwood Common Stock, issuable in connection with the
Merger. The total number and the aggregate value of shares of Fleetwood Common
Stock to be issued in the Merger is subject to adjustment for fractional shares
and as the price of Fleetwood Common Stock fluctuates, as described herein. This
Proxy Statement/Prospectus constitutes the Prospectus of Fleetwood with respect
to the shares of Fleetwood Common Stock to be issued in the Merger. All
information contained in this Proxy Statement/Prospectus relating to Fleetwood
has been supplied by Fleetwood, and all information contained herein relating to
HomeUSA has been supplied by HomeUSA.
This Proxy Statement/Prospectus is being mailed to HomeUSA stockholders on
or about June 16, 1998.
<PAGE>
THE SHARES OF FLEETWOOD COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------------
FOR A DESCRIPTION OF CERTAIN IMPORTANT ISSUES THAT HOMEUSA STOCKHOLDERS
SHOULD CONSIDER IN EVALUATING THE MERGER AND THE ACQUISITION OF FLEETWOOD COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" BEGINNING AT PAGE 18.
---------------------
The date of this Proxy Statement/Prospectus is June , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... 2
SUMMARY............................................................................... 3
Introduction.......................................................................... 3
The Companies......................................................................... 3
HomeUSA Special Meeting............................................................... 4
The Merger............................................................................ 4
Risk Factors.......................................................................... 10
Selected Historical and Pro Forma Financial Data...................................... 11
Comparative Per Share Data............................................................ 14
Comparative Market Prices and Dividends............................................... 16
RISK FACTORS.......................................................................... 18
Risks Relating to the Merger.......................................................... 18
Risks Relating to the Companies' Businesses........................................... 19
Other Risks Related to an Investment in Fleetwood Common Stock........................ 23
SPECIAL MEETING OF HOMEUSA STOCKHOLDERS............................................... 24
General............................................................................... 24
Matters to be Considered at the Meeting............................................... 24
Record Date; Shares Entitled to Vote; Vote Required................................... 24
Proxies; Proxy Solicitation........................................................... 25
BACKGROUND OF AND REASONS FOR THE MERGER.............................................. 27
Background of the Merger.............................................................. 27
Fleetwood's Reasons for the Merger.................................................... 31
Recommendation of the HomeUSA Board; HomeUSA's Reasons for the Merger................. 32
Opinion of BT Alex. Brown, Financial Advisor to HomeUSA............................... 35
Interests of Certain Persons in the Merger............................................ 42
THE MERGER............................................................................ 45
General............................................................................... 45
Merger Consideration.................................................................. 45
Exchange of HomeUSA Common Stock and HomeUSA Options.................................. 48
Stock Exchange Listing................................................................ 48
Certain Representations and Warranties................................................ 48
Certain Covenants and Agreements...................................................... 49
Conditions to the Merger.............................................................. 54
Termination, Amendment and Waiver..................................................... 55
Fees and Expenses..................................................................... 55
Management and Operations After the Merger............................................ 56
Certain Federal Income Tax Considerations............................................. 57
Certain Federal Securities Laws Consequences.......................................... 60
Accounting Treatment.................................................................. 61
Regulatory Approvals.................................................................. 61
Financing the Merger.................................................................. 61
No Appraisal Rights................................................................... 61
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
BUSINESS OF FLEETWOOD................................................................. 62
General............................................................................... 62
Industry Overview..................................................................... 63
Competitive Advantages................................................................ 65
Business Strategy..................................................................... 66
Sales and Distribution................................................................ 67
Engineering and Product Development................................................... 68
Component Suppliers and Sources....................................................... 68
Product Financing..................................................................... 68
BUSINESS OF ACQUISITION SUB........................................................... 69
EXECUTIVE OFFICERS OF THE COMPANY..................................................... 70
BUSINESS OF HOMEUSA................................................................... 71
Introduction.......................................................................... 71
Product Overview...................................................................... 71
Industry Overview..................................................................... 71
Seasonality and Cyclicality........................................................... 71
HomeUSA's Retail Operations........................................................... 71
Value-Added Services Provided......................................................... 72
Products and Product Sourcing......................................................... 73
Management Information Systems........................................................ 73
Competition........................................................................... 74
Regulation............................................................................ 74
Employees............................................................................. 75
Properties............................................................................ 75
Legal Proceedings..................................................................... 75
Certain Relationships and Related Transactions........................................ 76
SELECTED FINANCIAL DATA OF HOMEUSA.................................................... 80
HOMEUSA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 81
Overview.............................................................................. 81
Selected Consolidated Financial Data.................................................. 81
Historical Results for the Three Months Ended March 31, 1998 Compared to the Three
Months Ended March 31, 1997......................................................... 82
Historical Results for 1997 Compared to 1996.......................................... 83
Historical Results for 1996 Compared to 1995.......................................... 83
Liquidity and Capital Resources....................................................... 84
Year 2000 Issue....................................................................... 85
PRINCIPAL STOCKHOLDERS OF HOMEUSA..................................................... 86
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION........................... 87
Fleetwood............................................................................. 87
HomeUSA............................................................................... 88
CAPITALIZATION........................................................................ 89
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................... 90
DESCRIPTION OF FLEETWOOD CAPITAL STOCK................................................ 98
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Fleetwood Common Stock and Preferred Stock............................................ 98
Rights................................................................................ 98
Fleetwood Trust Preferred Securities.................................................. 99
COMPARATIVE RIGHTS OF HOMEUSA AND FLEETWOOD STOCKHOLDERS.............................. 101
LEGAL MATTERS......................................................................... 106
EXPERTS............................................................................... 106
STOCKHOLDER PROPOSALS................................................................. 107
INDEX OF DEFINED TERMS................................................................ 108
INDEX TO HOMEUSA FINANCIAL STATEMENTS................................................. F-1
APPENDIX A--AGREEMENT AND PLAN OF MERGER.............................................. A-1
APPENDIX B--FAIRNESS OPINION OF BT ALEX. BROWN INCORPORATED........................... B-1
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
Each of Fleetwood and HomeUSA is subject to the informational and reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at certain offices of the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington
D.C. 20549. The Commission also maintains a web site that contains reports,
proxy and other information filed electronically with the Commission, the
address of which is http:// www.sec.gov. Shares of Fleetwood Common Stock and
shares of HomeUSA Common Stock are traded on the NYSE. Materials filed by
Fleetwood and HomeUSA with the NYSE may be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005, and copies thereof may be obtained at
prescribed rates. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement filed by Fleetwood with the
Commission under the Securities Act, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. The Registration
Statement and any amendments thereto, including exhibits as a part thereof, are
available for inspection and copying as set forth above.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATION WITH RESPECT
TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY FLEETWOOD OR HOMEUSA. THIS PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE,
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF
AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION.
Certain statements contained in this Proxy Statement/Prospectus that are not
related to historical results are "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act
and involve risks and uncertainties. Although each of Fleetwood and HomeUSA
believes that the assumptions on which their respective forward-looking
statements are based are reasonable, there can be no assurance that such
assumptions will prove to be accurate and actual results could differ materially
from those discussed in the forward-looking statements. Factors that could cause
or contribute to such differences include, without limitation, those discussed
under "RISK FACTORS" and "HOMEUSA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," as well as those discussed
elsewhere in this Proxy Statement/Prospectus. All forward-looking statements
contained in this Proxy Statement/Prospectus or incorporated herein by reference
are qualified in their entirety by this cautionary statement. Neither Fleetwood
nor HomeUSA intends to update or otherwise revise the forward-looking statements
contained herein to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
FLEETWOOD, FLEETWOOD HOMES, BOUNDER, SOUTHWIND, SOUTHWIND STORM, PACE ARROW,
FLAIR, AMERICAN EAGLE, AMERICAN DREAM, AMERICAN TRADITION, TIOGA, JAMBOREE,
PROWLER, TERRY, WILDERNESS, MALLARD, SAVANNA, AVION, and WESTPORT are brands and
trademarks of Fleetwood.
1
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by Fleetwood
(collectively, the "Fleetwood Reports") are incorporated in this Proxy
Statement/Prospectus by reference:
1. Annual Report on Form 10-K for the fiscal year ended April 27, 1997,
filed with the Commission on July 7, 1997 (File No. 001-07699);
2. Proxy Statement on Schedule 14A for the fiscal year ended April 27,
1997, filed with the Commission on July 22, 1997 (File No. 001-07699);
3. Quarterly Reports on Form 10-Q for the fiscal quarters ended July
27, 1997, filed with the Commission on August 28, 1997 (File No. 001-07699);
October 26, 1997, filed with the Commission on November 25, 1997 (File No.
001-07699); and January 25, 1998, filed with the Commission on March 2, 1998
(File No. 001-07699); and
4. Current Reports on Form 8-K dated October 8, 1997, filed with the
Commission on October 14, 1997 (File No. 001-07699); January 13, 1998, filed
with the Commission on January 14, 1998 (File No. 001-07699); January 21,
1998, filed with the Commission on January 23, 1998 (File No. 001-07699);
February 10, 1998, filed with the Commission on February 19, 1998 (File No.
001-07699); and May 7, 1998, filed with the Commission on June 4, 1998 (File
No. 001-07699).
All documents and reports filed by Fleetwood pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the effective time of the Merger shall be
deemed to be incorporated by reference herein and to be a part hereof from the
respective dates of filing of such documents or reports. All information
appearing in this Proxy Statement/Prospectus or in any document incorporated
herein by reference is not necessarily complete and is qualified in its entirety
by the information and financial statements (including notes thereto) appearing
in the documents incorporated herein by reference and should be read together
with such information and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein (or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein) modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Proxy Statement/Prospectus except as
so modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR TELEPHONIC
REQUEST TO FLEETWOOD ENTERPRISES, INC., OFFICE OF THE CORPORATE SECRETARY, AT
3125 MYERS STREET, P.O. BOX 7638, RIVERSIDE, CALIFORNIA 92513-7638 (TELEPHONE
(909) 351-3500). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY JULY 2, 1998.
ALL REPORTS AND OTHER DOCUMENTS FILED BY HOMEUSA WITH THE COMMISSION
PURSUANT TO SECTION 13(A), 13(C), 14 OR 15(D) OF THE EXCHANGE ACT ARE AVAILABLE,
WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST FROM ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, TO
HOMEUSA, INC., OFFICE OF THE CORPORATE SECRETARY, AT THREE RIVERWAY, SUITE 555,
HOUSTON, TEXAS 77056 (TELEPHONE (713) 331-2200). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 2, 1998.
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SUMMARY
THE FOLLOWING SUMMARY IS INTENDED ONLY TO HIGHLIGHT CERTAIN INFORMATION
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS OR INCORPORATED BY
REFERENCE HEREIN. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO
"FLEETWOOD" ARE TO FLEETWOOD ENTERPRISES, INC., A DELAWARE CORPORATION, AND ITS
SUBSIDIARIES (INCLUDING ACQUISITION SUB), AND ALL REFERENCES TO "HOMEUSA" ARE TO
HOMEUSA, INC., A DELAWARE CORPORATION, AND ITS SUBSIDIARIES. THIS SUMMARY IS NOT
INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, THE
APPENDICES HERETO AND THE DOCUMENTS INCORPORATED BY REFERENCE OR OTHERWISE
REFERRED TO HEREIN. STOCKHOLDERS OF HOMEUSA ARE URGED TO REVIEW THE ENTIRE PROXY
STATEMENT/PROSPECTUS CAREFULLY, INCLUDING THE APPENDICES HERETO AND SUCH OTHER
DOCUMENTS INCORPORATED BY REFERENCE OR OTHERWISE REFERRED TO HEREIN.
INTRODUCTION
This Proxy Statement/Prospectus relates to the Merger of HomeUSA with and
into Acquisition Sub. As a result of the Merger, the separate corporate
existence of HomeUSA will cease and Acquisition Sub will change its name to
HomeUSA, Inc., continue as the surviving corporation, and succeed to and assume
all of the rights and obligations of HomeUSA. Subject to the approval of the
Merger Agreement and the Merger by the stockholders of HomeUSA ("HomeUSA
Stockholder Approval") at a Special Meeting of HomeUSA Stockholders scheduled to
be held on July 15, 1998 (the "HomeUSA Special Meeting") and the satisfaction of
certain other conditions, the Merger will be effected pursuant to the terms of
an Agreement and Plan of Merger dated as of February 17, 1998 (the "Merger
Agreement"), by and among Fleetwood, HomeUSA and Acquisition Sub, a copy of
which is attached hereto as APPENDIX A. For a description of the conditions to
Fleetwood's and HomeUSA's obligations to effect the Merger, see "THE
MERGER--Conditions to the Merger."
THE COMPANIES
FLEETWOOD ENTERPRISES, INC. Fleetwood is the nation's largest producer of
manufactured homes and recreational vehicles ("RVs"). In 1997, Fleetwood had an
18.1% share of the manufactured housing market. In its fiscal year ended April
1997, Fleetwood sold 65,354 manufactured homes and was the largest home builder
in the United States in terms of units sold (a distinction Fleetwood has held
since 1981). In 1997, Fleetwood had a 26.6% share of the overall RV market, a
29.1% share of the motor home market, a 21.7% share of the travel trailer
market, and a 35.4% share of the folding trailer market. In its fiscal year
ended April 1997, Fleetwood sold 65,243 RVs and held the leading market share in
each of these three product categories. From its fiscal year ended April 1993
through its fiscal year ended April 1997, Fleetwood's sales increased from
approximately $1.9 billion to approximately $2.9 billion, a 10.8% compound
annual growth rate ("CAGR"); operating income increased from $73.1 million to
$139.6 million, a 17.5% CAGR; and earnings from continuing operations increased
from $1.10 per share to $2.30 per share, a 20.2% CAGR. In its fiscal year ended
April 1997, Fleetwood's manufactured housing and RV groups represented 49.6% and
48.5% of sales, respectively. See "BUSINESS OF FLEETWOOD."
The principal executive offices of Fleetwood are located at 3125 Myers
Street, Riverside, California 92503-5527 and its telephone number is (909)
351-3500.
HOMEUSA, INC. Upon consummation of HomeUSA's initial public offering in
November 1997, HomeUSA acquired the following nine companies (collectively, the
"Founding Companies"), which had been in the retail manufactured home business
an average of 16 years and had pro forma combined total revenue of $202.3
million in 1996 and $205.1 million in 1997: Universal Housing, Inc.
("Universal"), AAA Homes ("AAA Homes"), McDonald Mobile Homes, Inc. ("McDonald
Mobile"), Patrick Home Center, Inc. ("Patrick Home"), Mobile World, Inc.
("Mobile World"), First American Homes, Inc. ("First American"), Cooper's Mobile
Homes, Inc. ("Cooper's"), Home Folks Housing Center ("Home Folks"), and WillMax
Homes of Colorado LLC ("WillMax"). HomeUSA was conceived to become the leading
independent national retailer of manufactured homes by consolidating the highly
fragmented manufactured housing retail industry. See "BUSINESS OF HOMEUSA."
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The principal executive offices of HomeUSA are located at Three Riverway,
Suite 555, Houston, Texas 77056 and its telephone number is (713) 331-2200.
HUSA ACQUISITION COMPANY. Acquisition Sub, a wholly owned subsidiary of
Fleetwood, was formed by Fleetwood solely for the purpose of effecting the
Merger. The mailing address of Acquisition Sub's principal executive offices is
c/o Fleetwood Enterprises, Inc., 3125 Myers Street, Riverside, California
92503-5527 and its telephone number is (909) 351-3500. See "BUSINESS OF
ACQUISITION SUB."
HOMEUSA SPECIAL MEETING
The HomeUSA Special Meeting is scheduled to be held on Wednesday, July 15,
1998 at 10:00 a.m., local time, at the Omni Houston Hotel, Four Riverway,
Houston, Texas 77056. At the HomeUSA Special Meeting, stockholders of HomeUSA
will consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement and the Merger; and (ii) such other business as may properly be
brought before the HomeUSA Special Meeting.
Only holders of record of HomeUSA Common Stock at the close of business on
May 19, 1998 (the "Record Date") are entitled to notice of, and to vote at, the
HomeUSA Special Meeting. Under the Delaware General Corporation Law (the "DGCL")
and HomeUSA's Bylaws, as amended (the "HomeUSA Bylaws"), the affirmative vote of
the holders of shares representing a majority of the number of shares of HomeUSA
Common Stock outstanding is necessary to approve and adopt the Merger Agreement
and the Merger. At the close of business on the Record Date, 15,441,887 shares
of HomeUSA Common Stock were outstanding and entitled to vote, of which
7,806,971 shares (50.6%) were beneficially owned by members of HomeUSA's Board
of Directors (the "HomeUSA Board"), HomeUSA's executive officers and their
affiliates. Stockholders of HomeUSA owning an aggregate of approximately
10,378,998 shares of HomeUSA Common Stock, and representing approximately 67.2%
of the outstanding shares of HomeUSA Common Stock as of the Record Date, have
informed HomeUSA that they intend to vote all of their shares of HomeUSA Common
Stock for approval of the Merger Agreement and the Merger. If such stockholders
vote in accordance with their expressed intentions, approval of the Merger
Agreement and the Merger is assured. See "SPECIAL MEETING OF HOMEUSA
STOCKHOLDERS."
THE MERGER
GENERAL. Upon consummation of the Merger, the separate corporate existence
of HomeUSA will cease and Acquisition Sub will change its name to HomeUSA, Inc.,
continue as the surviving corporation, and succeed to and assume all the rights
and obligations of HomeUSA. All shares of HomeUSA Common Stock then outstanding,
and all options then outstanding to acquire shares of HomeUSA Common Stock, will
be converted as described below.
EFFECTIVE TIME OF THE MERGER. Within two business days following receipt of
all required approvals and satisfaction or waiver of the other conditions to the
Merger, including HomeUSA Stockholder Approval, the Merger will be consummated
and become effective at the time (the "Effective Time") that the certificate of
merger or other appropriate documents to be filed pursuant to the DGCL are
accepted for filing by the Delaware Secretary of State, or such other time as
the parties to the Merger may agree. See "THE MERGER--General," "--Conditions to
the Merger" and "--Termination, Amendment and Waiver."
CONVERSION OF HOMEUSA COMMON STOCK. At the Effective Time, and subject to
certain election and allocation provisions described below, all outstanding
shares of HomeUSA Common Stock (excluding any treasury shares and shares held
directly or indirectly by Fleetwood) will be converted into the right to receive
(i) a number of shares of Fleetwood Common Stock equal to the quotient
(calculated to the nearest 0.0001) of $10.25 (the "Per Share Cash Amount")
divided by the average (the "Valuation Period Stock Price") of the NYSE closing
sale prices for a share of Fleetwood Common Stock for the ten trading day period
(the "Valuation Period") ending on July 6, 1998 (I.E., the tenth day immediately
prior to the anticipated closing date of the Merger, July 16, 1998) (the
"Exchange Ratio"); (ii) in cash, without interest, the Per Share Cash Amount; or
(iii) a combination of shares of Fleetwood Common Stock and cash equal
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to the Per Share Cash Amount (the "Merger Consideration"). On or about July 7,
1998, HomeUSA will issue a press release advising its stockholders of the
Valuation Period Stock Price and the Exchange Ratio resulting therefrom. See
"THE MERGER--Merger Consideration--CONVERSION OF HOMEUSA COMMON STOCK."
AT THE EFFECTIVE TIME, EACH STOCK CERTIFICATE REPRESENTING SHARES OF HOMEUSA
COMMON STOCK WILL, WITHOUT ANY ACTION ON THE PART OF THE HOLDER THEREOF, BE
CONVERTED INTO A RIGHT TO RECEIVE THE MERGER CONSIDERATION. THE MERGER
CONSIDERATION WILL ONLY BE PAID TO HOLDERS OF RECORD OF HOMEUSA COMMON STOCK AT
THE EFFECTIVE TIME AND WILL BE PAID ONLY UPON SURRENDER TO THE EXCHANGE AGENT
(DEFINED BELOW) BY A HOMEUSA STOCKHOLDER OF THE STOCK CERTIFICATES REPRESENTING
SHARES OF HOMEUSA COMMON STOCK, TOGETHER WITH A PROPERLY COMPLETED LETTER OF
TRANSMITTAL (DEFINED BELOW). FLEETWOOD ANTICIPATES THAT THE EXCHANGE AGENT WILL
MAIL THE MERGER CONSIDERATION TO EACH HOMEUSA STOCKHOLDER WHO HAS COMPLIED WITH
THE PRECEDING SENTENCE ON THE FIRST BUSINESS DAY AFTER THE EFFECTIVE TIME IF
SUCH COMPLIANCE OCCURS BEFORE THE CLOSING DATE OF THE MERGER AND WITHIN SEVEN
BUSINESS DAYS AFTER COMPLIANCE IF SUCH COMPLIANCE OCCURS AFTER THE CLOSING DATE.
SEE "--ELECTION PROCEDURE" AND "THE MERGER--EXCHANGE OF HOMEUSA COMMON STOCK AND
HOMEUSA OPTIONS."
BECAUSE THE FEDERAL INCOME TAX CONSIDERATIONS OF RECEIVING DIFFERENT FORMS
OF MERGER CONSIDERATION WILL DIFFER, HOMEUSA STOCKHOLDERS ARE URGED TO READ
CAREFULLY THE INFORMATION SET FORTH UNDER "THE MERGER--CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS."
ELECTION PROCEDURE. Election forms in such form as Fleetwood and HomeUSA
have agreed (each an "Election Form") and a letter of transmittal (together with
instructions as to effecting the exchange of stock certificates for the Merger
Consideration, a "Letter of Transmittal"), are enclosed with this Proxy
Statement/Prospectus, which is being mailed on June 16, 1998 (the "Mailing
Date"), for delivery to each holder of record of HomeUSA Common Stock as of five
business days prior to the Mailing Date (the "Election Form Record Date"). Each
Election Form permits the holder (or the beneficial owner through appropriate
and customary documentation and instructions) to choose to receive (subject to
the allocation and proration procedures described below) one of the following in
exchange for such holder's shares of HomeUSA Common Stock: (i) only cash (a
"Cash Election"), (ii) only Fleetwood Common Stock (a "Stock Election"), or
(iii) a combination of cash and Fleetwood Common Stock (a "Mixed Election").
Alternatively, each Election Form permits the holder to indicate that such
holder has no preference as to the receipt of cash or Fleetwood Common Stock for
such holder's shares of HomeUSA Common Stock (a "Non-Election"). No HomeUSA
director or former principal stockholder of the Founding Companies will be
entitled to receive more than 25% of his Merger Consideration in cash. The
election deadline, as set forth in the Election Form, will be 5:00 p.m., New
York City time, on July 13, 1998 (I.E., the 25th calendar day following the
Mailing Date) or such other date upon which Fleetwood and HomeUSA mutually agree
(the "Election Deadline"). ANY SHARES OF HOMEUSA COMMON STOCK WITH RESPECT TO
WHICH THE HOLDER (OR BENEFICIAL OWNER, AS THE CASE MAY BE) HAS NOT SUBMITTED TO
THE EXCHANGE AGENT AN EFFECTIVE, PROPERLY COMPLETED ELECTION FORM ON OR BEFORE
THE ELECTION DEADLINE WILL BE DEEMED TO BE SHARES AS TO WHICH A NON-ELECTION HAS
BEEN MADE. The "Exchange Agent" is BankBoston, N.A. See "THE MERGER--Merger
Consideration--ELECTION PROCEDURE."
TO MAKE AN EFFECTIVE ELECTION, A HOMEUSA STOCKHOLDER MUST SUBMIT A PROPERLY
COMPLETED ELECTION FORM SO THAT IT IS ACTUALLY RECEIVED BY THE EXCHANGE AGENT AT
OR PRIOR TO THE ELECTION DEADLINE IN ACCORDANCE WITH THE INSTRUCTIONS ON THE
ELECTION FORM. AN ELECTION FORM WILL BE PROPERLY COMPLETED ONLY IF ACCOMPANIED
BY STOCK CERTIFICATES REPRESENTING ALL SHARES OF HOMEUSA COMMON STOCK COVERED
THEREBY. THE ELECTION DEADLINE IS 5:00 P.M. ON JULY 13, 1998 (I.E., THE 25TH
CALENDAR DAY FOLLOWING THE MAILING DATE) OR SUCH OTHER DATE UPON WHICH FLEETWOOD
AND HOMEUSA MUTUALLY AGREE.
HOMEUSA STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES REPRESENTING
HOMEUSA COMMON STOCK WITH THE ENCLOSED PROXY CARD. A LETTER OF TRANSMITTAL AND
ELECTION FORM IS ALSO ENCLOSED WITH THIS PROXY STATEMENT/PROSPECTUS AND, UPON
REQUEST TO THE EXCHANGE AGENT, WILL BE MAILED TO EACH PERSON WHO BECOMES A
HOLDER OR BENEFICIAL OWNER OF HOMEUSA COMMON STOCK BETWEEN THE ELECTION FORM
RECORD DATE AND THE
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BUSINESS DAY PRIOR TO THE ELECTION DEADLINE. HOMEUSA STOCKHOLDERS SHOULD SEND
STOCK CERTIFICATES REPRESENTING HOMEUSA COMMON STOCK TO THE EXCHANGE AGENT ONLY
AFTER THEY RECEIVE, AND ONLY IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN
THE LETTER OF TRANSMITTAL.
ALLOCATION AND PRORATION. In order for the Merger to be treated for federal
income tax purposes as a "reorganization" (see "THE MERGER--Certain Federal
Income Tax Considerations"), the Merger Agreement requires that at least 51% of
the aggregate Merger Consideration consist of shares of Fleetwood Common Stock.
Therefore, the aggregate number of shares covered by Cash Elections ("Cash
Election Shares") and the aggregate number of shares covered by Mixed Elections
to be acquired for cash ("Mixed Election Cash Shares") times the Per Share Cash
Amount may not exceed 49% of the aggregate Merger Consideration (the "Maximum
Cash Merger Consideration"). Accordingly, the aggregate cash component of the
Merger Consideration is limited, and a HomeUSA stockholder may not receive
exactly the consideration elected on the Election Form.
If cash is oversubscribed, then all shares of HomeUSA Common Stock for which
no election is made will be converted into the right to receive shares of
Fleetwood Common Stock; thereafter, each Cash Election Share and each Mixed
Election Cash Share will be converted, on a pro rata basis, into the right to
receive a combination of cash and Fleetwood Common Stock, to the extent
necessary to ensure that not more than 49% of the aggregate Merger Consideration
consists of cash.
The determination of whether cash has been oversubscribed and the exact
composition of the Merger Consideration to be received by each HomeUSA
stockholder will be made on a date that is within five days before the
anticipated closing date of the Merger, July 16, 1998. The amount of cash and/or
the number of shares of Fleetwood Common Stock that a HomeUSA stockholder will
receive will depend on (i) the stated preferences of all HomeUSA stockholders on
the Election Forms and (ii) the allocation and proration procedures to be
applied if the Cash Election Shares and Mixed Election Cash Shares exceed the
Maximum Cash Merger Consideration. HomeUSA stockholders who make Cash Elections
or Mixed Elections as to all or a portion of their shares will know the exact
composition of Merger Consideration paid for their shares of HomeUSA Common
Stock only upon receipt of the Merger Consideration payable to them, which
payment will be accompanied by a brief explanation of the application and
proration mechanisms provided in the Merger Agreement. Regardless of whether
HomeUSA stockholders elect to receive all Fleetwood Common Stock, all cash or a
combination of Fleetwood Common Stock and cash, the election mechanism is
designed to provide that, as of the date of determination thereof, each HomeUSA
stockholder will receive the same value per share of HomeUSA Common Stock based
on the Valuation Period Stock Price for the Fleetwood Common Stock. However, the
ultimate value received by each stockholder who receives Fleetwood Common Stock
in the Merger may be more or less than the value calculated based on the
Valuation Period Stock Price because of fluctuations in the market value of
Fleetwood Common Stock after the Valuation Period. See "THE MERGER--Merger
Consideration-- ALLOCATION AND PRORATION."
BECAUSE THE MAXIMUM AGGREGATE CASH COMPONENT OF THE MERGER CONSIDERATION IS
LIMITED, NO ASSURANCE CAN BE GIVEN THAT AN ELECTION BY ANY GIVEN HOMEUSA
STOCKHOLDER OTHER THAN A STOCK ELECTION WILL BE HONORED. THEREFORE, HOMEUSA
STOCKHOLDERS ELECTING CASH MAY NEVERTHELESS RECEIVE A PORTION OF THEIR MERGER
CONSIDERATION IN THE FORM OF FLEETWOOD COMMON STOCK. FOR A DISCUSSION OF THE
FEDERAL INCOME TAX CONSIDERATIONS OF THE RECEIPT OF THE MERGER CONSIDERATION,
SEE "THE MERGER--CERTAIN FEDERAL INCOME TAX CONSIDERATIONS."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT MARKET VALUE OF FLEETWOOD COMMON
STOCK OR THE VALUATION PERIOD STOCK PRICE USED IN THE PRORATION AND ALLOCATION
PROCEDURES DESCRIBED HEREIN WILL BE EQUIVALENT TO THE MARKET VALUE OF FLEETWOOD
COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A HOMEUSA STOCKHOLDER OR AT
ANY OTHER TIME. SUCH MARKET VALUE MAY BE MORE OR LESS THAN THE CURRENT MARKET
VALUE OR THE VALUATION PERIOD STOCK PRICE OF FLEETWOOD COMMON STOCK DUE TO
NUMEROUS FACTORS. AS OF JUNE 8, 1998, THE CLOSING SALES PRICE OF FLEETWOOD
COMMON STOCK ON THE NYSE WAS $39.375 PER SHARE, WHICH, IF THE MERGER
CONSIDERATION WERE DETERMINED AS OF SUCH DATE, WOULD RESULT IN EACH SHARE OF
HOMEUSA COMMON STOCK SUBJECT TO A STOCK ELECTION BEING CONVERTED INTO THE RIGHT
TO RECEIVE 0.2603 SHARES OF FLEETWOOD COMMON STOCK
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($10.25/$39.375). ON OR ABOUT JULY 7, 1998, HOMEUSA WILL ISSUE A PRESS RELEASE
ADVISING ITS STOCKHOLDERS OF THE SAME. HOMEUSA STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE FLEETWOOD COMMON STOCK PRIOR TO MAKING AN
ELECTION.
CONVERSION OF HOMEUSA OPTIONS. At the Effective Time, each outstanding
option granted by HomeUSA to purchase shares of HomeUSA Common Stock (each a
"HomeUSA Option") will be converted into an option (the "Exchanged Option") to
purchase that number of shares of Fleetwood Common Stock that is equal to the
product of the number of shares of HomeUSA Common Stock subject to the original
HomeUSA Option and the Exchange Ratio, provided that any fractional shares of
Fleetwood Common Stock resulting from such multiplication will be rounded down
to the nearest share of Fleetwood Common Stock. Subject to the terms of
HomeUSA's existing stock incentive plans and the agreements evidencing the
HomeUSA Options, each Exchanged Option will be exercisable until the current
termination of the HomeUSA Option from which it was converted, at an exercise
price that is equal to the exercise price per share of HomeUSA Common Stock
under the original HomeUSA Option divided by the Exchange Ratio, provided that
such exercise price will be rounded to the nearest cent. See "THE MERGER--Merger
Consideration--CONVERSION OF HOMEUSA OPTIONS."
FRACTIONAL SHARES. No fractional shares of Fleetwood Common Stock will be
issued in the Merger. Instead, Fleetwood will pay to each holder of HomeUSA
Common Stock an amount in cash (rounded to the nearest cent) determined by
multiplying (i) the closing sales price of one share of Fleetwood Common Stock
on the trading day immediately preceding the closing date of the Merger by (ii)
the fraction of a share of Fleetwood Common Stock that such holder would
otherwise be entitled to receive in connection with the Merger. See "THE
MERGER--Merger Consideration--FRACTIONAL SHARES."
TREASURY STOCK AND STOCK OWNED BY FLEETWOOD. Each share of HomeUSA Common
Stock held in the treasury of HomeUSA and each share of HomeUSA Common Stock
owned by Fleetwood or any direct or indirect wholly owned subsidiary of
Fleetwood or of HomeUSA immediately prior to the Effective Time will be canceled
and extinguished without any conversion thereof and no payment will be made with
respect thereto. See "THE MERGER--Merger Consideration--TREASURY STOCK AND STOCK
OWNED BY FLEETWOOD."
STOCK EXCHANGE LISTING. Fleetwood has agreed to use all reasonable efforts
to cause the Fleetwood Common Stock to be issued pursuant to the Merger
Agreement to be listed for trading on the NYSE. See "THE MERGER--Stock Exchange
Listing."
CONDUCT OF BUSINESS PENDING THE MERGER. HomeUSA has agreed that, prior to
the Effective Time, except as contemplated by the Merger Agreement, it will
operate its business in the usual, regular and ordinary manner. In addition,
unless the other party agrees in writing or except as otherwise permitted
pursuant to the Merger Agreement, prior to the Effective Time, neither Fleetwood
nor HomeUSA will engage in certain actions specified in the Merger Agreement.
See "THE MERGER--Certain Covenants and Agreements--CONDUCT OF BUSINESS PENDING
THE MERGER."
NO SOLICITATION. HomeUSA has agreed that neither it nor any of its
subsidiaries will, directly or indirectly, solicit, initiate or knowingly
encourage the submission of any takeover proposal, enter into any agreement
providing for any takeover proposal or 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 the HomeUSA Board determines in good faith
that it is necessary to do so in order to comply with its fiduciary duties to
HomeUSA's stockholders under applicable law, as advised by outside counsel,
HomeUSA may, with respect to an actual or potential unsolicited takeover
proposal, and subject to certain conditions set forth in the Merger Agreement,
(i) furnish non-public information with respect to HomeUSA to such person making
such actual or potential unsolicited takeover proposal and (ii) participate in
negotiations regarding such proposal.
Further, HomeUSA has agreed that it will promptly advise Fleetwood orally
and in writing of certain requests for information, takeover proposals and
inquiries related thereto, including the identity of the
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persons making such requests (to the extent practicable), takeover proposals and
inquiries and all the material terms and conditions thereof. HomeUSA has also
agreed to keep Fleetwood fully informed of the status and details (including
amendments or proposed amendments) of such requests, takeover proposals and
inquiries. See "THE MERGER--Certain Covenants and Agreements--NO SOLICITATION."
TERMINATION FEE. The Merger Agreement provides that HomeUSA will pay to
Fleetwood $6 million (the "Termination Fee") upon demand if (i) HomeUSA or
Fleetwood terminates the Merger Agreement because the HomeUSA Board approved or
recommended a superior proposal; or (ii) HomeUSA or Fleetwood terminates the
Merger Agreement because HomeUSA Stockholder Approval was not obtained and
(subject to certain conditions) (a) any person (other than Fleetwood) (an
"Acquiring Party"), within 12 months after such termination, acquires a majority
of the voting power of the outstanding securities of HomeUSA or all or
substantially all of the assets of HomeUSA or (b) there has been consummated
within 12 months after such termination a consolidation, merger or similar
business combination between HomeUSA and an Acquiring Party in which
stockholders of HomeUSA 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. See "THE
MERGER--Fees and Expenses."
CONDITIONS TO THE MERGER; TERMINATION. Consummation of the Merger is
conditioned upon the fulfillment or waiver of certain conditions set forth in
the Merger Agreement. See "THE MERGER-- Conditions to the Merger." The Merger
Agreement may be terminated (i) by the mutual consent of Fleetwood, Acquisition
Sub and HomeUSA, (ii) by either Fleetwood or HomeUSA if the Merger has not been
consummated by August 30, 1998, and (iii) under certain other circumstances. See
"THE MERGER--Termination, Amendment and Waiver."
MANAGEMENT AND OPERATIONS AFTER THE MERGER. After the Merger, the separate
corporate existence of HomeUSA will cease and Acquisition Sub will change its
name to HomeUSA, Inc., continue as the surviving corporation, and succeed to and
assume all the rights and obligations of HomeUSA. Acquisition Sub will operate
as one of Fleetwood's business units and Fleetwood currently intends to maintain
the headquarters of Acquisition Sub in Texas. After the Merger, Acquisition Sub
will have access to resources generally available to Fleetwood's other business
units, will participate in appropriate activities with other Fleetwood business
units and will operate under the direction and guidance of Fleetwood's senior
management and Board of Directors. See "THE MERGER-- Management and Operations
After the Merger."
APPROVAL BY AND RECOMMENDATION OF HOMEUSA BOARD OF DIRECTORS. The HomeUSA
Board has determined the Merger to be fair and in the best interests of HomeUSA
and its stockholders and has unanimously approved the Merger Agreement and the
Merger. The HomeUSA Board recommends that HomeUSA stockholders vote "FOR" the
Merger Agreement and the Merger. The HomeUSA Board's recommendation is based
upon a number of factors discussed in this Proxy Statement/Prospectus. See
"BACKGROUND OF AND REASONS FOR THE MERGER."
OPINION OF FINANCIAL ADVISOR TO HOMEUSA. HomeUSA retained BT Alex. Brown
Incorporated ("BT Alex. Brown") on February 14, 1998 to act as HomeUSA's
financial advisor in connection with the Merger, including rendering an opinion
to the HomeUSA Board as to the fairness, from a financial point of view, of the
Merger Consideration to HomeUSA's stockholders. On February 17, 1998,
representatives of BT Alex. Brown made a presentation to the HomeUSA Board with
respect to the Merger and rendered to the HomeUSA Board its oral opinion,
subsequently confirmed in writing as of the same date, that, as of such date and
subject to the assumptions made, matters considered and limitations set forth in
such opinion, the Merger Consideration was fair, from a financial point of view,
to HomeUSA's stockholders. The full text of BT Alex. Brown's written opinion
dated February 17, 1998 (the "BT Alex. Brown Opinion") is attached hereto as
APPENDIX B and is incorporated herein by reference. HomeUSA stockholders are
urged to read the BT Alex. Brown Opinion in its entirety. The BT Alex. Brown
Opinion is directed only to the matters
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set forth therein and does not constitute a recommendation to any HomeUSA
stockholder as to how such stockholder should vote at the HomeUSA Special
Meeting. See "BACKGROUND OF AND REASONS FOR THE MERGER--Opinion of BT Alex.
Brown, Financial Advisor to HomeUSA."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members of HomeUSA's
management and the HomeUSA Board may be deemed to have certain interests in the
Merger that are in addition to their interests as stockholders of HomeUSA
generally. Certain executive officers of HomeUSA may be officers of Acquisition
Sub or its subsidiaries following the Merger. Fleetwood has also agreed to honor
the existing employment agreements of certain officers of HomeUSA and to
indemnify and maintain directors and officers insurance covering HomeUSA's
directors and officers following the Merger. See "THE MERGER--Management and
Operations After the Merger," "--Certain Covenants and Agreements--
INDEMNIFICATIONS AND INSURANCE" and "--STOCK OPTIONS; BENEFIT PLANS."
In addition, as of the Record Date, executive officers and directors of
HomeUSA beneficially owned an aggregate of 7,806,971 shares of HomeUSA Common
Stock and held HomeUSA Options to acquire an aggregate of 690,000 shares of
HomeUSA Common Stock (including currently exercisable HomeUSA Options to acquire
40,000 shares of HomeUSA Common Stock, which the holders thereof are deemed to
beneficially own), exercisable at $8.00 per share. Based on the Per Share Cash
Amount of $10.25, the aggregate dollar value of the Merger Consideration to be
received by these executive officers and directors in respect of outstanding
shares of HomeUSA Common Stock would be approximately $80,021,452, representing
approximately 50.6% of the aggregate consideration to be received by all holders
of HomeUSA Common Stock. The HomeUSA Board was aware of these interests and
considered them, among other matters, in approving the Merger Agreement and the
Merger. See "BACKGROUND OF AND REASONS FOR THE MERGER--Interests of Certain
Persons in the Merger" and "PRINCIPAL STOCKHOLDERS OF HOMEUSA."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. Fleetwood and HomeUSA have each
received opinions, and consummation of the Merger is conditioned upon Fleetwood
and HomeUSA each receiving opinions dated as of the closing date of the Merger,
from their respective tax advisors to the effect that the Merger will be treated
for federal income tax purposes as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and that Fleetwood, Acquisition Sub and HomeUSA will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. Accordingly, a
HomeUSA stockholder who exchanges HomeUSA Common Stock solely for shares of
Fleetwood Common Stock will recognize neither gain nor loss on such exchange. In
contrast, a HomeUSA stockholder who exchanges HomeUSA Common Stock for a
combination of cash and Fleetwood Common Stock and realizes gain will recognize
such gain in an amount equal to the lesser of (i) the amount of gain realized by
such stockholder (I.E., the excess of the sum of cash and fair market value of
Fleetwood Common Stock received by the stockholder over the stockholder's tax
basis in the HomeUSA Common Stock surrendered) and (ii) the amount of cash
received by the stockholder. If, however, a HomeUSA stockholder realizes a loss
upon the exchange of HomeUSA Common Stock for a combination of cash and
Fleetwood Common Stock, such loss cannot be recognized by the stockholder.
Finally, a HomeUSA stockholder who exchanges HomeUSA Common Stock solely for
cash in the Merger will recognize any gain realized and, depending on the
particular circumstances of such holder, should recognize any realized loss.
Gain recognized by a HomeUSA stockholder will generally be capital gain, except
that under certain circumstances such gain may be treated as ordinary dividend
income. No gain or loss will be recognized by Fleetwood, Acquisition Sub or
HomeUSA in connection with the Merger. See "THE MERGER--Certain Federal Income
Tax Considerations."
BECAUSE THE FEDERAL INCOME TAX CONSEQUENCES OF RECEIVING DIFFERENT FORMS OF
MERGER CONSIDERATION WILL VARY, HOMEUSA STOCKHOLDERS ARE URGED TO CAREFULLY READ
THE INFORMATION SET FORTH UNDER "THE MERGER-- CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" AND TO CONSULT THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES
OF THE MERGER.
9
<PAGE>
ACCOUNTING TREATMENT. The Merger will be accounted for under the purchase
method of accounting, in accordance with generally accepted accounting
principles. See "THE MERGER--Accounting Treatment."
REGULATORY APPROVALS. Fleetwood and HomeUSA each filed a notification and
report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division"), on
March 27, 1998 and March 30, 1998, respectively. Requests for early termination
of the HSR waiting periods were granted on April 3, 1998. See "THE
MERGER--Regulatory Approvals." Neither Fleetwood nor HomeUSA is aware of any
other governmental or regulatory approval required for consummation of the
Merger, other than compliance with applicable securities laws.
NO APPRAISAL RIGHTS. Under the DGCL, HomeUSA stockholders will not be
entitled to any appraisal or dissenter's rights in connection with the Merger.
See "THE MERGER--No Appraisal Rights."
RISK FACTORS
The stockholders of HomeUSA should consider carefully the information set
forth herein under the heading "RISK FACTORS," which discusses the risks
associated with the integration of the businesses of Fleetwood and HomeUSA
following the Merger; future sales of Fleetwood Common Stock issued in the
Merger; interests of certain persons in the Merger; a failure to consummate the
Merger; the cyclicality of the companies' businesses and fluctuations in
operating results; competition in the companies' businesses; the decline in
Fleetwood's manufactured housing market share; risks related to entry into the
retail distribution of manufactured housing; the manufactured housing geographic
market concentration; the seasonality of the companies' businesses; warranty
claims and products liability; Fleetwood's contingent repurchase obligations;
the availability of wholesale and retail financing; the availability and pricing
of manufacturing components and labor; zoning, placement and availability of
manufactured housing sites; the retention of sales personnel; the availability
and price of gasoline and diesel fuel; certain anti-takeover protective measures
adopted by Fleetwood; and the possible volatility of the Fleetwood Common Stock
price.
10
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical financial data of Fleetwood and HomeUSA
has been derived from their respective historical consolidated financial
statements, and should be read in conjunction with such financial statements and
the notes thereto, which are included elsewhere in this Proxy Statement/
Prospectus or incorporated herein by reference. The selected unaudited Fleetwood
and HomeUSA pro forma combined condensed financial data, which gives effect to
the Merger on a purchase accounting basis as if it had been consummated at the
beginning of the periods presented for Statement of Income Data and at the
balance sheet date of January 25, 1998 for Balance Sheet Data, is derived from
the unaudited pro forma combined condensed financial statements included
elsewhere in this Proxy Statement/Prospectus or incorporated herein by reference
and should be read in conjunction with such statements and the notes thereto.
In addition, with respect to the selected historical financial data of
HomeUSA, for financial statement presentation purposes, 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, "HomeUSA" means (i) Universal prior to November 30, 1997 and
(ii) HomeUSA and the Founding Companies on that date and thereafter.
The Fleetwood and HomeUSA unaudited pro forma combined financial data is not
necessarily indicative of the actual results or financial position that would
have been achieved had the Merger been consummated at the beginning of the
periods presented or at the balance sheet date of January 25, 1998, and should
not be construed as representative of future operations. See "UNAUDITED PRO
FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
FLEETWOOD HISTORICAL FINANCIAL DATA
(in millions, except per share data)
<TABLE>
<CAPTION>
AT OR FOR
NINE MONTHS
ENDED JANUARY AT OR FOR FISCAL YEARS ENDED APRIL(1)
-------------------- -----------------------------------------------------
1998 1997 1997(2) 1996(3) 1995 1994(4) 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales............................................ $ 2,208.2 $ 2,128.0 $ 2,874.4 $ 2,809.3 $ 2,807.9 $ 2,332.2 $ 1,907.9
Income from continuing operations................ 80.2 68.9 90.1 69.9 76.0 58.6 50.4
Net income....................................... 80.2 103.7 124.8 79.6 84.6 65.9 56.6
Common shares outstanding:
Basic.......................................... 36.0 39.1 38.2 45.9 46.0 45.7 45.6
Diluted........................................ 36.6 40.1 39.2 46.5 46.5 46.2 46.0
Income from continuing operations per common
share:
Basic.......................................... 2.23 1.76 2.36 1.52 1.65 1.28 1.10
Diluted........................................ 2.19 1.72 2.30 1.50 1.63 1.27 1.10
BALANCE SHEET DATA:
Total assets..................................... $ 956.3 $ 863.4 $ 871.5 $ 1,108.9 $ 940.4 $ 845.2 $ 745.2
Long-term debt................................... 55.0 55.0 55.0 80.0 -- -- --
Shareholders' equity............................. 524.7(5) 427.0 443.1 649.1 608.1 546.5 502.6
</TABLE>
- ------------------------------
(1) The summary financial data for each period presented prior to Fleetwood's
fiscal year ended April 1997 have been restated to show the operations of
Fleetwood Credit Corp. ("FCC"), Fleetwood's wholly owned RV finance
subsidiary, as a discontinued operation.
(2) During the first quarter of Fleetwood's fiscal year ended April 1997,
Fleetwood completed a Dutch Auction tender offer that resulted in the
purchase of 7.7 million shares of Fleetwood Common Stock at a cost of $240.5
million. In the second quarter, Fleetwood acquired an additional 2.6 million
shares at a cost of $71.2 million.
(3) In the first quarter of Fleetwood's fiscal year ended April 1997, Fleetwood
sold its German RV operation. A $28.0 million writedown (before income
taxes) on the German investment was recorded in the fourth quarter of
Fleetwood's fiscal year ended
11
<PAGE>
April 1996. Fleetwood also recorded, in the fourth quarter of its fiscal
year ended April 1996, a $4.1 million writedown on the carrying value of a
real estate investment located in Southern California. These charges reduced
earnings per share by $0.35 in Fleetwood's fiscal year ended April 1996.
(4) In Fleetwood's fiscal year ended April 1994, Fleetwood adopted Statement of
Financial Accounting Standards No. 109 on Accounting for Income Taxes. The
new standard required a recalculation of deferred tax amounts to reflect
current income tax rates in effect when the taxes are payable. The effect of
this change was a one-time cumulative charge of $1.5 million, which was
applied to earnings in the year of the change.
(5) Subsequent to January 25, 1998, Fleetwood purchased all of the shares of
Fleetwood Common Stock owned by its retiring Chairman of the Board and
founder. The approximate 5.2 million shares were acquired at a cost of
$176.9 million, which had the effect of reducing shareholders' equity by
such amount. On February 10, 1998, $287.5 million of mandatorily redeemable
convertible preferred securities were issued to fund the share repurchase.
HOMEUSA HISTORICAL FINANCIAL DATA
(in millions, except per share data)
<TABLE>
<CAPTION>
AT OR FOR THREE
MONTHS ENDED MARCH
31 AT OR FOR YEAR ENDED DECEMBER 31
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $50.4 $9.6 $ 63.9 $ 51.3 $ 55.8 $ 48.4 $ 39.1
Income from operations............................. 2.2 0.5 4.3 2.6 3.1 2.8 2.0
Net income......................................... 0.7 0.4 3.4 2.4 3.0 2.5 2.1
Weighted average shares outstanding................ 15.5 2.3 3.7 2.3 2.3 2.3 2.3
Earnings per share-basic and diluted............... $0.05 $0.19 $ 0.91 $ 1.04 $ 1.28 $ 1.09 $ 0.90
HOMEUSA PRO FORMA STATEMENT OF OPERATIONS DATA(1):
Net sales.......................................... $ 205.1
Income from operations............................. 12.3
Net income......................................... 5.5
Weighted average shares outstanding................ 14.0
Earnings per share-basic and diluted............... $ 0.39
BALANCE SHEET DATA:
Total assets....................................... $140.5 $ $ 139.9 $ 19.3 $ 14.4 $ 12.8 $ 11.5
Long-term debt, less current maturities............ -- -- -- -- -- --
Shareholders' equity............................... 78.2 77.5 10.1 10.8 8.6 5.7
</TABLE>
- ------------------------------
(1) The Pro Forma Statement of Operations Data assume that the acquisition of
the Founding Companies and the HomeUSA IPO were closed on January 1, 1997,
and are not necessarily indicative of the results HomeUSA would have
achieved had these events actually then occurred or of HomeUSA's future
results.
12
<PAGE>
UNAUDITED FLEETWOOD AND HOMEUSA PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(in millions, except per share data)
<TABLE>
<CAPTION>
AT OR FOR FISCAL
AT OR FOR NINE MONTHS YEAR ENDED APRIL
ENDED JANUARY 25, 1998 27, 1997
---------------------- -------------------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.......................................................... $ 2,300.1 $ 2,991.6
Income from continuing operations.................................. 75.2 83.5
Weighted average common shares outstanding:
Basic............................................................ 32.7 34.9
Diluted.......................................................... 39.2 41.8
Income from continuing operations per common share:
Basic............................................................ 2.30 2.39
Diluted.......................................................... 2.12 2.25
BALANCE SHEET DATA:
Total assets....................................................... $ 1,211.9
Long-term debt..................................................... 55.0
Company-obligated mandatorily redeemable convertible preferred
securities....................................................... 287.5
Shareholders' equity............................................... 430.4(1)
</TABLE>
- ------------------------
(1) Subsequent to January 25, 1998, Fleetwood purchased all of the shares of
Fleetwood Common Stock owned by its retiring Chairman of the Board and
founder. The approximate 5.2 million shares were acquired at a cost of
$176.9 million, which had the effect of reducing shareholders' equity by
such amount. On February 10, 1998, $287.5 million of mandatorily redeemable
convertible preferred securities were issued to fund the share repurchase.
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents comparative per share data for Fleetwood and
HomeUSA on an historical basis and combined per share data on an unaudited pro
forma basis. The combined data gives effect to the Merger on a purchase method
of accounting, assuming 1.8 million shares of Fleetwood Common Stock (subject to
adjustment for fractional shares and for variations in the Fleetwood market
value) and cash of $83.4 million are issued in exchange for all outstanding
shares of HomeUSA Common Stock. See "THE MERGER--Merger
Consideration--CONVERSION OF HOMEUSA COMMON STOCK." This data should be read in
conjunction with the selected historical financial information, the pro forma
combined condensed financial statements and the separate historical financial
statements of Fleetwood and HomeUSA and the notes thereto included elsewhere in
this Proxy Statement/Prospectus or incorporated herein by reference. The
unaudited pro forma combined financial data is not necessarily indicative of the
actual results or financial position that would have been achieved had the
Merger been consummated at the beginning of the periods presented, and should
not be construed as representative of future operations.
<TABLE>
<CAPTION>
AT OR FOR NINE MONTHS AT OR FOR FISCAL YEAR
ENDED JANUARY 25, 1998 ENDED APRIL 27, 1997
------------------------ ---------------------
<S> <C> <C>
HISTORICAL--FLEETWOOD:
Income per share from continuing operations:
Basic............................................................ $ 2.23 $ 2.36
Diluted.......................................................... 2.19 2.30
Cash dividends per share........................................... 0.51 0.64
Book value per share(1)............................................ 14.39(2) 12.40
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THREE MONTHS AT OR FOR THE YEAR
ENDED MARCH 31, 1998 ENDED DECEMBER 31, 1997
----------------------- -------------------------
<S> <C> <C>
HISTORICAL--HOMEUSA:
Earnings per share-basic and diluted........................... $ 0.05 $ 0.91
Cash dividends per share....................................... -- --
Book value per share(1)........................................ 5.06 5.02
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THREE MONTHS AT OR FOR THE YEAR
ENDED MARCH 31, 1998 ENDED DECEMBER 31, 1997
----------------------- -------------------------
<S> <C> <C>
EQUIVALENT PER SHARE DATA--HOMEUSA(3):
Income per share from continuing operations:
Basic........................................................ $ 0.52 $ 0.54
Diluted...................................................... 0.48 0.51
Cash dividends per share....................................... 0.12 0.15
Book value per share........................................... 2.96 N/A
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR NINE MONTHS AT OR FOR FISCAL YEAR
ENDED JANUARY 25, 1998 ENDED APRIL 27, 1997
----------------------- ---------------------
<S> <C> <C>
PRO FORMA COMBINED:
Income per share from continuing operations:
Basic.......................................................... $ 2.30 $ 2.39
Diluted........................................................ 2.12 2.25
Cash dividends per share......................................... 0.51 0.64
Book value per share(4)(5)....................................... 13.00
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PER
SHARE EQUIVALENT PER SHARE
------------------- ---------------------
<S> <C> <C>
HOME USA--
Market value as of February 17, 1998.................................. $ 8.375 $ 10.25
FLEETWOOD--
Market value as of February 17, 1998.................................. $ 44.75 N/A
</TABLE>
- --------------------------
(1) The historical book value per share is computed by dividing total
shareholders' equity by the total number of common shares outstanding at the
end of the period.
(2) Subsequent to January 25, 1998, Fleetwood purchased all of the shares of
Fleetwood Common Stock owned by its retiring Chairman of the Board and
founder. The approximate 5.2 million shares were acquired at a cost of
$176.9 million, which had the
14
<PAGE>
effect of reducing shareholders' equity by such amount. On February 10,
1998, $287.5 million of mandatorily redeemable convertible preferred
securities were issued to fund the share repurchase.
(3) Assumes an exchange ratio of .2278 shares of Fleetwood Common Stock for each
share of HomeUSA Common Stock, assuming a $45 Fleetwood share price.
(4) Fleetwood estimates that they will incur direct and indirect costs of
approximately $4 million in connection with the Merger. This estimate
includes fees and charges of financial advisors, attorneys and accountants,
personnel severance costs, the cancellation and continuation of contractual
obligations and other integration costs. These nonrecurring costs will be
capitalized as a part of the acquisition cost once the Merger is
consummated. The pro forma combined book value per share data reflect these
estimated transaction costs as if such costs were incurred as of January 25,
1998.
(5) The pro forma combined book value per share of Fleetwood Common Stock and
HomeUSA Common Stock is computed by dividing pro forma shareholders' equity
by the pro forma number of common shares outstanding at the end of the
period.
15
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
FLEETWOOD
The Fleetwood Common Stock is quoted on the NYSE and the Pacific Stock
Exchange and traded on various regional exchanges (Ticker Symbol: FLE). Options
are traded on the American Stock Exchange. The following table sets forth for
the periods indicated the high and low sales prices for the Fleetwood Common
Stock as reported on the NYSE Composite Tape, along with information on
dividends paid per share.
<TABLE>
<CAPTION>
PRICE PER SHARE
OF FLEETWOOD
COMMON STOCK
--------------------- DIVIDENDS
HIGH LOW PAID
---------- --------- -----------
<S> <C> <C> <C>
Fiscal Year Ended April 1996
First Quarter................................................................ $ 22.750 $ 18.125 $ 0.14
Second Quarter............................................................... 21.375 19.125 0.15
Third Quarter................................................................ 27.625 20.500 0.15
Fourth Quarter............................................................... 29.000 23.125 0.15
Fiscal Year Ended April 1997
First Quarter................................................................ $ 31.500 $ 24.125 $ 0.15
Second Quarter............................................................... 34.750 27.125 0.16
Third Quarter................................................................ 37.250 24.750 0.16
Fourth Quarter............................................................... 27.750 24.375 0.16
Fiscal Year Ended April 1998
First Quarter................................................................ $ 31.000 $ 25.125 $ 0.16
Second Quarter............................................................... 35.500 29.375 0.17
Third Quarter................................................................ 42.813 28.125 0.17
Fourth Quarter............................................................... 47.9375 39.375 0.17
Fiscal Year Ended April 1999
First Quarter (through May 19, 1998)......................................... $ 46.438 $ 42.125 $ 0.17
</TABLE>
On February 13, 1998, the last full trading day prior to announcement of the
execution of the Merger Agreement, the reported NYSE closing price per share of
Fleetwood Common Stock was $44.25. On June 8, 1998, the most recent available
date prior to printing this Proxy Statement/Prospectus, the reported NYSE
closing price per share of Fleetwood Common Stock was $39.375. On that date,
there were approximately 1,453 holders of record. HomeUSA stockholders are urged
to obtain current market quotations.
The declaration and payment of dividends on Fleetwood Common Stock is at the
discretion of the Fleetwood Board of Directors (the "Fleetwood Board") and
depends on Fleetwood's results of operations, financial condition and capital
requirements, limitations on dividends arising under the DGCL, and such other
factors as the Fleetwood Board deems relevant. On March 10, 1998, the Fleetwood
Board declared a dividend of $0.17 per share to stockholders of record on April
3, 1998, payable to stockholders on May 13, 1998. See "COMPARATIVE PER SHARE
MARKET PRICE AND DIVIDEND INFORMATION."
16
<PAGE>
HOMEUSA
The HomeUSA Common Stock began trading on the NYSE on November 21, 1997
(Ticker Symbol: HSH). The following table sets forth for the periods indicated
the high and low sales prices for the HomeUSA Common Stock as reported on the
NYSE Composite Tape, along with information on dividends paid per share.
<TABLE>
<CAPTION>
PRICE PER SHARE
OF HOMEUSA
COMMON STOCK
-------------------- DIVIDENDS
HIGH LOW PAID
--------- --------- -------------
<S> <C> <C> <C>
Year Ended December 1997
Fourth Quarter (November 21 to December 31)..................................... $ 8.625 $ 7.125 --
Year Ended December 1998
First Quarter................................................................... $ 10.000 $ 7.625 --
Second Quarter (through May 19, 1998)........................................... 9.938 9.813 --
</TABLE>
On February 13, 1998, the last full trading day prior to announcement of the
execution of the Merger Agreement, the reported NYSE closing price per share of
HomeUSA Common Stock was $8.00. On June 8, 1998, the most recent available date
prior to printing this Proxy Statement/Prospectus, the reported NYSE closing
price per share of HomeUSA Common Stock was $9.938. On that date, there were
approximately 124 holders of record. HomeUSA stockholders are urged to obtain
current market quotations.
HomeUSA has never declared or paid cash dividends on shares of HomeUSA
Common Stock. It is not anticipated that any cash dividends will be paid on
HomeUSA Common Stock in the foreseeable future. See "COMPARATIVE PER SHARE
MARKET PRICE AND DIVIDEND INFORMATION."
17
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY BY THE
STOCKHOLDERS OF HOMEUSA IN EVALUATING WHETHER TO APPROVE THE MERGER AND THE
MERGER AGREEMENT. THESE RISK FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH
THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/ PROSPECTUS.
RISKS RELATING TO THE MERGER
INTEGRATION OF THE BUSINESSES. Fleetwood and HomeUSA have entered into the
Merger Agreement with the expectation that the Merger will be operationally and
financially beneficial to the combined company and its stockholders. See
"BACKGROUND OF AND REASONS FOR THE MERGER." The combination of the two companies
will require integration and coordination of the companies' operations. There
can be no assurance that such integration and coordination will be accomplished
successfully or that the expected benefits of the Merger will be achieved. The
integration of the two organizations also will require the dedication of
management, which will divert their attention from day-to-day business of the
combined company. The difficulties of integration may be increased by
coordinating geographically separated organizations, integrating personnel and
integrating a retail operation with a predominantly manufacturing operation. The
process of combining the companies may cause an interruption of, or a loss of
momentum in, the activities of either or both of the companies and may adversely
affect the operations of the combined company. Furthermore, the process of
combining the companies and consolidating the operations of HomeUSA with the
operations of Expression Homes (described below) could have a material adverse
effect on the ability of the combined company to retain the key managerial
personnel who are critical to the combined company's operations.
SHARES ELIGIBLE FOR FUTURE SALE. In the Merger, Fleetwood will issue to the
stockholders of HomeUSA a minimum of approximately 2,099,637 shares of Fleetwood
Common Stock (assuming a Valuation Period Stock Price of $39.375 (the average of
the NYSE closing sales prices for Fleetwood Common Stock for the ten consecutive
trading day period ending July 6, 1998)). Subject to the next sentence, in
general, these shares will be freely tradable immediately following the Merger.
Shares issued in the Merger to persons who may be deemed affiliates of HomeUSA
could also be publicly sold pursuant to Rule 145 under the Securities Act,
subject to certain volume and other resale limitations. Future sales of a
substantial number of the foregoing shares could lower or cause substantial
fluctuations in the market price of Fleetwood Common Stock. See "THE
MERGER--Certain Federal Securities Laws Consequences."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain directors and executive
officers of HomeUSA have interests in connection with the Merger that are in
addition to those of the stockholders of HomeUSA generally. Certain executive
officers of HomeUSA may become officers of Acquisition Sub or its subsidiaries
following the Merger. Fleetwood has also agreed to honor the existing employment
agreements of certain officers of HomeUSA and to indemnify and maintain
directors and officers insurance covering HomeUSA's directors and officers
following the Merger. See "THE MERGER--Management and Operations After the
Merger", "BACKGROUND OF AND REASONS FOR THE MERGER--Opinion of BT Alex. Brown,
Financial Advisor to HomeUSA" and "--Interests of Certain Persons in the
Merger."
CONDITIONS TO THE MERGER. The Merger Agreement contains certain conditions
that, if not satisfied, would result in the Merger not being consummated.
Consequently, there is a risk that the Merger will not occur even if approved by
HomeUSA's stockholders. There can be no guarantee that all of the closing
conditions will be satisfied, that any unsatisfied conditions will be waived, or
that the Merger will in fact be consummated. If the Merger is not consummated,
substantial expenses associated with the Merger will nonetheless have been
incurred (including expenses to HomeUSA for investment banking, legal,
accounting and tax services of approximately $1.6 million), and will have a
material adverse effect on HomeUSA's independent financial status and results of
operations, with no corresponding benefit from the Merger. See "THE
MERGER--Conditions to the Merger."
18
<PAGE>
AVAILABILITY OF MANUFACTURED HOMES FROM NON-FLEETWOOD SUPPLIERS. In 1997,
approximately 35% of HomeUSA's new home sales were derived from homes
manufactured by suppliers other than Fleetwood. HomeUSA does not have contracts
with these manufacturers that would assure a continuing supply of homes.
HomeUSA's agreements with manufacturers generally have terms of one to three
years and are terminable upon short notice by either party. As a result, there
can be no assurance that HomeUSA will be able to obtain a continuing supply of
homes from these manufacturers after the consummation of the Merger. Further,
even if HomeUSA is able to obtain such supply of homes, there can be no
assurance that HomeUSA will be able to obtain such homes on favorable terms. The
inability of HomeUSA to obtain a continuing supply of homes from non-Fleetwood
suppliers on favorable terms could have a material adverse effect on the
combined company's results of operations.
POSSIBLE VOLATILITY OF FLEETWOOD COMMON STOCK VALUE. The number of shares
of Fleetwood Common Stock that HomeUSA stockholders will receive in the Merger
at the Effective Time will be determined in part by the Valuation Period Stock
Price. The Valuation Period Stock Price refers to the average of the NYSE
closing sale prices of Fleetwood Common Stock for a ten consecutive trading-day
period prior to the Closing Date. Because of possible volatility in the trading
price of Fleetwood Common Stock during and after such Valuation Period, the per
share market price of Fleetwood Common Stock as of the Effective Time could be
substantially higher or lower than the Valuation Period Stock Price. See
"--Other Risks Related to an Investment in Fleetwood Common Stock--POSSIBLE
VOLATILITY OF STOCK PRICE." Therefore, there can be no assurance that, as of the
Effective Time, the Valuation Period Stock Price will not exceed the then
current market price of such Fleetwood Common Stock.
RISKS RELATING TO THE COMPANIES' BUSINESSES
CYCLICALITY OF THE COMPANIES' BUSINESSES; FLUCTUATIONS IN OPERATING
RESULTS. The industries in which Fleetwood and HomeUSA participate are highly
cyclical and are subject to volatility in operating results due to external
factors such as economic, demographic and political changes. Factors affecting
the manufactured housing industry include availability of financing, interest
rates, availability of manufactured home sites, employment trends, consumer
confidence and general economic conditions. Factors affecting the RV industry
include general economic conditions, overall consumer confidence, the level of
discretionary consumer spending, interest rates, employment trends, fuel
availability and fuel prices. Because of these and other factors, there may be
substantial fluctuations in the combined company's operating results and the
results for any prior period may not be indicative of results for any future
period.
COMPETITION IN THE COMPANIES' BUSINESSES. The manufactured housing industry
is highly competitive. As of December 31, 1997, there were approximately 100
manufacturers and over 6,000 retail sales centers. The ten largest manufacturing
retailers accounted for 71% of the manufacturing market in 1996, including
Fleetwood's sales, which accounted for 18.5% of the market. The manufactured
home retail market is much more fragmented, with the four largest companies
accounting for only 10% of the retail market in 1997 and HomeUSA representing
approximately 1% of the market. Manufactured homes compete with new and existing
site-built homes, apartments, townhouses and condominiums. The supply of such
housing has increased in recent years with the increased availability of
construction financing. Competition exists on both the manufacturing and retail
levels and is based primarily on price, product features, reputation for service
and quality, retail inventory, sales promotions, merchandising, and terms and
availability of wholesale and retail customer financing. Recent growth in
manufacturing capacity in the southern United States has increased competition
at both the manufacturing and retail levels and has resulted in both regional
and national competitors increasing their presence in the region. Overproduction
of manufactured housing in this region could lead to higher competition and
result in decreased margins, which could have a material adverse effect on the
companies' results of operations.
The market for RVs is also highly competitive, and Fleetwood has numerous
competitors in this industry. The five largest manufacturers represented
approximately 68% of the market in 1997, including Fleetwood's sales, which
represented 26.6% of the market. There can be no assurance that either existing
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or new competitors will not develop products that are superior to Fleetwood's
RVs or achieve better consumer acceptance.
DECLINE IN FLEETWOOD'S MANUFACTURED HOUSING MARKET SHARE. Fleetwood's
market share in the manufactured housing market, based on unit shipments,
declined from 21.6% in 1994 to 18.1% in 1997, in part because Fleetwood reduced
its retail distribution points from approximately 1,800 to 1,400 during the
period from January 1994 through December 1997, in order to concentrate on
larger retailers that share Fleetwood's approach to merchandising and customer
satisfaction. However, Fleetwood has also, from time to time in the past, lost
certain significant retailers to competitors. In addition, recent acquisitions
of manufactured housing retailers by Fleetwood's competitors may reduce
Fleetwood's retail distribution network and market share, as these retail
outlets may choose not to sell Fleetwood's products. During the first quarter of
calendar year 1998, several competitors announced the acquisitions of some of
Fleetwood's largest retailers, which collectively purchased an aggregate of
approximately $217 million in manufactured housing from Fleetwood in 1997. There
can be no assurance that the combined company will be able to adequately replace
retailers purchased by competitors or that the combined company will be able to
maintain its sales volume or market share in these competitive markets.
RISKS RELATED TO ENTRY INTO THE RETAIL DISTRIBUTION OF MANUFACTURED
HOUSING. Fleetwood has responded to the consolidation in the manufactured
housing sector by agreeing to the Merger with HomeUSA in order to bolster its
retail distribution network. In addition, Fleetwood has purchased a 100%
interest in Expression Homes and commenced building a number of new retail
outlets directly. However, Fleetwood has no prior direct experience with retail
operations and will rely significantly on HomeUSA and Expression Homes personnel
to evaluate retail acquisitions and administer its retail operations. There can
be no assurance that Fleetwood will be able to successfully integrate HomeUSA's
retail distribution network or that such successful integration combined with
Fleetwood's other retail initiatives will enable the combined company to capture
an adequate portion of the retail distribution market.
MANUFACTURED HOUSING GEOGRAPHIC MARKET CONCENTRATION. The market for
Fleetwood's manufactured homes is geographically concentrated, with the top 15
states accounting for approximately 70% of the industry's total shipments in
1997. The southern United States accounts for a significant portion of both
Fleetwood's and HomeUSA's manufactured housing sales. A weakening in this
region's economic performance could have a material adverse effect on the
companies' results of operations. There can be no assurance that the demand for
manufactured homes will not decline in the southern United States or other areas
in which Fleetwood and HomeUSA generate significant product sales. Any such
decline could have a material adverse effect on the combined companies' results
of operations.
SEASONALITY OF THE COMPANIES' BUSINESSES. Both Fleetwood and HomeUSA have
experienced and expect to continue to experience significant variability in
sales, production and net income as a result of seasonality in the companies'
businesses. Demand in both the manufactured housing and RV industries generally
declines during the winter season, while sales and profits are generally highest
during the spring and summer months. In addition, unusually severe weather
conditions in certain markets have in the past, and may in the future, delay the
timing of sales from one quarter to another.
WARRANTY CLAIMS AND PRODUCTS LIABILITY. Fleetwood is subject to warranty
claims in the ordinary course of its business. Although Fleetwood maintains
reserves for such claims, which to date have been adequate, there can be no
assurance that warranty expense levels will remain at current levels or that
such reserves will continue to be adequate. A large number of warranty claims
exceeding Fleetwood's current warranty expense levels could have a material
adverse effect on Fleetwood's results of operations, financial condition and
business prospects.
Fleetwood partially self-insures its products liability claims and purchases
excess products liability insurance in the commercial insurance market. There
can be no assurance that such coverage will be sufficient to cover all future
products liability claims. Successful assertion against Fleetwood of one or a
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series of claims exceeding Fleetwood's insurance could have a material adverse
effect on Fleetwood's results of operations.
HomeUSA partially insures against products liability claims by purchasing
products liability coverage in the commercial insurance market. There can be no
assurance that it will be adequate to cover all future claims. Successful
assertion against HomeUSA of one or a series of claims exceeding HomeUSA's
insurance could have a material adverse effect on HomeUSA.
CONTINGENT REPURCHASE OBLIGATIONS. In accordance with customary practice in
the manufactured housing and RV industries, Fleetwood enters into repurchase
agreements with various financial institutions, pursuant to which Fleetwood
agrees, under certain circumstances, to repurchase manufactured homes and RVs
sold to independent retailers in the event of a default by an independent
retailer in its obligation to such credit sources. Under the terms of such
repurchase agreements, Fleetwood agrees to repurchase manufactured homes and RVs
at declining prices over the period of the agreements (which generally range
from 12 to 15 months). If Fleetwood were obligated to repurchase a substantial
number of manufactured homes or RVs in the future, this could have a material
adverse effect on Fleetwood's results of operations.
AVAILABILITY OF WHOLESALE AND RETAIL FINANCING. Both Fleetwood's and
HomeUSA's retailers, as well as retail buyers of their products, generally
secure financing from third party lenders. Reduced availability of such
financing, or increased interest rates and other costs, could have an adverse
impact on Fleetwood's and HomeUSA's sales. These factors are dependent on the
lending practices of financial institutions, governmental policies and economic
conditions, all of which are beyond the control of Fleetwood and HomeUSA. With
respect to the companies' housing businesses, most states classify manufactured
homes as personal property rather than real property for purposes of taxation
and lien perfection. Interest rates for manufactured homes are generally higher
and the terms of the loans are also significantly shorter than for site-built
homes. At times, financing for the purchase of manufactured homes is more
difficult to obtain than conventional home mortgages. There can be no assurance
that affordable wholesale or retail financing for manufactured homes will
continue to be available on a widespread basis. If such financing were to become
unavailable, such unavailability could have a material adverse effect on the
combined company's results of operations.
AVAILABILITY AND PRICING OF MANUFACTURING COMPONENTS AND LABOR. The
combined company's results of operations may be significantly affected by the
availability and pricing of manufacturing components and labor. There can be no
assurance that it will be able to do so without adversely impacting demand for
its products. Even if Fleetwood were able to offset higher manufacturing costs
by increasing the sales prices of its products, the realization of any such
increases often lags the rise in manufacturing costs--especially in manufactured
housing operations--due in part to Fleetwood's commitment to price-protect its
retailers with respect to previously placed customer orders. The inability of
Fleetwood to successfully offset increases in manufacturing costs could have a
material adverse effect on the combined company's results of operations.
REGULATORY MATTERS. Fleetwood's and HomeUSA's manufactured housing
operations are subject to provisions of the Housing and Community Development
Act of 1974, under which the United States Department of Housing and Urban
Development ("HUD") establishes construction and safety standards for
manufactured homes, and also may require manufactured housing producers to send
notifications to customers of noncompliances with standards or to repair or
replace manufactured homes that contain certain hazards or defects. Fleetwood's
RV manufacturing operations are subject to a variety of federal, state and local
regulations, including the National Traffic and Motor Vehicle Safety Act, under
which the National Highway Traffic Safety Administration may require
manufacturers to recall RVs that contain safety-related defects, and numerous
state consumer protection laws and regulations relating to the operation of
motor vehicles, including so-called "Lemon Laws." Amendments to these
regulations and the implementation of new regulations could significantly
increase the costs of manufacturing, purchasing,
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operating or selling products and could have a material adverse effect on the
combined company's results of operations.
The failure of the combined company to comply with present or future
regulations could result in fines being imposed on the company, potential civil
and criminal liability, suspension of sales or production, or cessation of
operations. In addition, a major product recall could have a material adverse
effect on the combined company's results of operations.
Certain U.S. tax laws currently afford favorable tax treatment for the
purchase and sale of RVs that are financed through mortgage borrowings. These
laws and regulations have historically been amended frequently, and it is likely
that further amendments and additional regulations will be applicable to
Fleetwood and its products in the future. Amendments to these laws and
regulations and the implementation of new regulations could have a material
adverse effect on the combined company's results of operations.
HomeUSA's and Fleetwood's operations are subject to a variety of federal and
state environmental regulations relating to the use, generation, storage,
treatment, emission, and disposal of hazardous materials and wastes and noise
pollution. The failure of the combined company to comply with present or future
regulations could result in fines being imposed on the company, potential civil
and criminal liability, suspension of production or operations, alterations to
the manufacturing process, or costly cleanup or capital expenditures.
ZONING; PLACEMENT AND AVAILABILITY OF MANUFACTURED HOUSING SITES. Any
limitation on the growth of the number of sites for manufactured homes or on the
operation of manufactured housing communities could adversely affect Fleetwood's
and HomeUSA's manufactured housing businesses. Manufactured housing communities
and individual home placements are subject to local zoning ordinances and other
local regulations relating to utility service and construction of roadways. In
the past, property owners often have resisted the adoption of zoning ordinances
permitting the location of manufactured homes in residential areas, which
Fleetwood and HomeUSA believe has adversely affected the growth of the industry.
There can be no assurance that manufactured homes will receive widespread
acceptance or that localities will adopt zoning ordinances permitting the
location of manufactured home areas. The inability of the manufactured home
industry to gain such acceptance and zoning ordinances could have a material
adverse effect on the combined company's results of operations.
IMPORTANCE OF SALES PERSONNEL RETENTION. The process of selling a
manufactured home typically takes several months from the initial contact with a
prospective purchaser to the consummation of the sale. HomeUSA sales people are
trained to develop personal relationships with prospective customers. As a
result, the retention of sales people is important to HomeUSA's ability to sell
homes. As the number of sales centers within HomeUSA's market areas increases,
HomeUSA expects increased competition for experienced sales people. When HomeUSA
is required to replace an experienced sales person, it may take an extended
period of time for a new sales person to reach satisfactory levels of
productivity. To the extent HomeUSA experiences significant turnover of sales
personnel or is otherwise unable to attract and retain a sufficient number of
experienced sales people, HomeUSA may be unable to sustain home sales at
existing sales centers which could have a material adverse effect on the
combined company's results of operations.
AVAILABILITY AND PRICE OF GASOLINE AND DIESEL FUEL. Gasoline or diesel fuel
is required for the operation of Fleetwood motor homes and most vehicles used to
tow Fleetwood travel trailers and folding trailers. There can be no assurance
that the supply of these petroleum products will continue uninterrupted, that
rationing will not be imposed or that the price of or tax on these petroleum
products will not significantly increase in the future. Any such event could
have a material adverse effect on the results of operations.
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OTHER RISKS RELATED TO AN INVESTMENT IN FLEETWOOD COMMON STOCK
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE DGCL AND CERTAIN FLEETWOOD CHARTER
AND BYLAWS PROVISIONS. Certain provisions of the DGCL and Fleetwood's Restated
Certificate of Incorporation, as amended (the "Fleetwood Charter") and
Fleetwood's Bylaws, as amended (the "Fleetwood Bylaws") could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of Fleetwood. Certain provisions
of the Fleetwood Charter and the Fleetwood Bylaws require Fleetwood to have a
board of directors comprised of three classes of directors with staggered terms
of office, provide for the issuance of "blank check" preferred stock by the
Fleetwood Board without stockholder approval, and impose various procedural and
other requirements that could make it more difficult for stockholders to effect
certain corporate actions. Furthermore, Fleetwood is subject to the
anti-takeover provisions of Section 203 of the DGCL, which prohibits Fleetwood
from engaging in a "business combination" with an "interested stockholder"
(defined generally as a person owning more than 15% of a company's outstanding
voting stock) for a period of three years after the date of the transaction in
which the person first becomes an "interested stockholder," unless the business
combination is approved in a prescribed manner. The application of Section 203
could also have the effect of delaying or preventing a change of control of
Fleetwood. Fleetwood has also adopted a stockholders' rights plan that may have
a similar effect. See "COMPARATIVE RIGHTS OF HOMEUSA AND FLEETWOOD
STOCKHOLDERS."
POSSIBLE VOLATILITY OF COMMON STOCK PRICE. The trading price of the
Fleetwood Common Stock is subject to fluctuations in response to a variety of
factors, including quarterly variations in operating results, conditions in the
manufactured housing and RV industries generally, comments or recommendations
issued by analysts who follow Fleetwood and its competitors, and general
economic and market conditions. In addition, the stock market has from time to
time experienced extreme price and volume volatility. These fluctuations may be
unrelated to the operating performance of particular companies. Market
fluctuations may adversely affect the market price of the Fleetwood Common
Stock. Accordingly, there can be no assurance that the market price of the
Fleetwood Common Stock will not decline following the Effective Time of the
Merger, or that the market price of the Fleetwood Common Stock will not be
subject to substantial fluctuations in the future.
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SPECIAL MEETING OF HOMEUSA STOCKHOLDERS
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of HomeUSA
Common Stock in connection with the solicitation of proxies by the HomeUSA Board
for use at the HomeUSA Special Meeting to be held on Wednesday, July 15, 1998,
at the Omni Houston Hotel, Four Riverway, Houston, Texas 77056, commencing at
10:00 a.m., local time, and at any adjournments or postponements thereof. This
Proxy Statement/Prospectus and the accompanying form of proxy are first being
mailed to stockholders of HomeUSA on or about June 16, 1998.
MATTERS TO BE CONSIDERED AT THE MEETING
At the HomeUSA Special Meeting, stockholders of record of HomeUSA as of the
close of business on May 19, 1998 will consider and vote upon a proposal to
approve and adopt the Merger Agreement and the Merger. The Merger Agreement
provides that, upon the terms and subject to the conditions thereof, HomeUSA
will be merged with and into Acquisition Sub and Acquisition Sub will change its
name to HomeUSA, Inc., continue as the surviving corporation and succeed to and
assume all the rights and obligations of HomeUSA. In the Merger, and subject to
the election and allocation provisions contained in the Merger Agreement, all
outstanding shares of HomeUSA Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into the right to receive (i) a
number of shares of Fleetwood Common Stock equal to the quotient (calculated to
the nearest 0.0001) of the Per Share Cash Amount ($10.25) divided by the
Exchange Ratio; (ii) in cash, without interest, the Per Share Cash Amount; or
(iii) a combination of shares of Fleetwood Common Stock and cash equal to the
Per Share Cash Amount. On or about July 7, 1998, HomeUSA will issue a press
release advising its stockholders of the Valuation Period Stock Price and the
Exchange Ratio resulting therefrom. In addition, each outstanding HomeUSA Option
will automatically be converted, based upon the Exchange Ratio, into an option
to purchase shares of Fleetwood Common Stock, under the terms and conditions of
the Merger Agreement and HomeUSA's existing stock incentive plans and
agreements. See "THE MERGER--Terms of the Merger--CONVERSION OF HOMEUSA COMMON
STOCK" and "--CONVERSION OF HOMEUSA OPTIONS." No fractional shares of Fleetwood
Common Stock will be issued in the Merger, and the market value of any
fractional share resulting from the Merger will be paid in cash. See "THE
MERGER--Merger Consideration--FRACTIONAL SHARES." The holders of HomeUSA Common
Stock will not be entitled to appraisal rights in connection with the Merger.
See "THE MERGER--No Appraisal Rights."
THE HOMEUSA BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AND RECOMMENDS THAT HOMEUSA STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE MERGER. SEE "BACKGROUND OF AND REASONS FOR THE
MERGER."
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The close of business on May 19, 1998 has been fixed as the Record Date for
determining the holders of HomeUSA Common Stock who are entitled to notice of
and to vote at the HomeUSA Special Meeting. Under the DGCL and the HomeUSA
Bylaws, the presence, in person or by proxy, of the holders of shares
representing a majority of the voting power of the HomeUSA Common Stock entitled
to vote is necessary to constitute a quorum for the transaction of business at
the HomeUSA Special Meeting. The affirmative vote of holders of shares
representing a majority of the number of shares of HomeUSA Common Stock
outstanding is necessary to approve and adopt the Merger Agreement and the
Merger. At the close of business on the Record Date, there were 15,441,887
shares of HomeUSA Common Stock outstanding and entitled to vote, of which
7,806,971 shares (50.6%) were beneficially owned by members of the HomeUSA
Board, HomeUSA's executive officers and their affiliates. Stockholders of
HomeUSA owning an aggregate of approximately 10,378,998 shares of HomeUSA Common
Stock, and representing approximately 67.2% of the outstanding shares of HomeUSA
Common Stock as of the Record Date, have informed HomeUSA
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that they intend to vote all of their shares of HomeUSA Common Stock for
approval of the Merger Agreement and the Merger. If such stockholders vote in
accordance with their expressed intentions, approval of the Merger Agreement and
the Merger is assured.
If fewer shares of HomeUSA Common Stock are voted in favor of the Merger
Agreement and the Merger than the number required for approval, it is expected
that the HomeUSA Special Meeting will be postponed or adjourned for the purpose
of allowing additional time for soliciting and obtaining additional proxies or
votes, and, at any subsequent reconvening of the HomeUSA Special Meeting, all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the HomeUSA Special Meeting, except for any proxies
that have theretofore effectively been revoked or terminated.
PROXIES; PROXY SOLICITATION
All shares of HomeUSA Common Stock represented by properly executed proxies
received prior to the HomeUSA Special Meeting and not revoked will be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated on a properly executed returned proxy, such proxy will be voted
"FOR" the Merger Agreement and the Merger. A properly executed proxy marked
"ABSTAIN," although counted for purposes of determining whether there is a
quorum, will not be voted. Accordingly, since the affirmative vote of a majority
of the votes represented by the shares of HomeUSA Common Stock outstanding on
the Record Date is required for approval of the Merger Agreement and the Merger,
a proxy marked "ABSTAIN" will have the effect of a vote against the Merger
Agreement and the Merger. In accordance with NYSE rules, brokers and nominees
are precluded from exercising their voting discretion on the Merger Agreement
and the Merger and thus, absent specific instructions from the beneficial owner
of such shares, are not empowered to vote such shares on the Merger Agreement
and the Merger. Therefore, because the affirmative vote of a majority of the
votes represented by the shares of HomeUSA Common Stock outstanding on the
Record Date is required for approval of the Merger Agreement and the Merger, a
broker non-vote will have the effect of a vote against the Merger Agreement and
the Merger. Shares represented by broker non-votes will, however, be counted for
purposes of determining whether there is a quorum at the HomeUSA Special
Meeting.
The grant of a proxy will confer discretionary authority on the persons
named in the proxy as proxy appointees to vote in accordance with their best
judgment on matters incident to the conduct of the HomeUSA Special Meeting,
including (except as stated in the following sentence) postponement or
adjournment for the purpose of soliciting additional votes. However, shares
represented by proxies that have been voted "AGAINST" the Merger Agreement and
the Merger will not be used to vote "FOR" postponement or adjournment of the
HomeUSA Special Meeting for the purpose of allowing additional time for
soliciting additional votes "FOR" the Merger Agreement and the Merger. Except
for the matters referred to herein and matters incidental to the conduct of the
HomeUSA Special Meeting, no other matter will be presented for action at the
HomeUSA Special Meeting.
ALTERNATIVELY, HOMEUSA STOCKHOLDERS MAY VOTE VIA TELEPHONE BY CALLING
800-840-1208.
A HomeUSA stockholder may revoke or change his vote or proxy at any time
prior to the HomeUSA Special Meeting by changing his vote by telephone, by
delivering to the Secretary of HomeUSA a signed notice of revocation or a later
dated signed proxy, or by attending the HomeUSA Special Meeting and voting in
person. Attendance at the HomeUSA Special Meeting will not itself constitute the
revocation of a proxy or telephonic vote.
Fleetwood and HomeUSA will each bear one-half of the cost of mailing this
Proxy Statement/ Prospectus. The cost of solicitation of proxies will be paid by
HomeUSA. In addition to solicitation by mail, proxies may be solicited in person
by directors, officers and employees of HomeUSA, without additional
compensation, and by telephone, telegram, facsimile or similar method.
Arrangements will be made with
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brokerage houses and other custodians, nominees and fiduciaries to send proxy
material to beneficial owners; and HomeUSA will, upon request, reimburse them
for their reasonable expenses in doing so. HomeUSA has retained ChaseMellon
Shareholder Services, L.L.C. to aid in the solicitation of proxies as part of
its transfer agent services for HomeUSA. HomeUSA will not incur any additional
fees for the solicitation services, but will reimburse ChaseMellon for the
expenses it incurs in connection therewith. To the extent necessary in order to
ensure sufficient representation at the HomeUSA Special Meeting, HomeUSA may
request by telephone or telegram the return of proxies. The extent to which this
will be necessary depends entirely upon how promptly proxies are returned.
HOMEUSA STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES REPRESENTING
SHARES OF HOMEUSA COMMON STOCK WITH THE ENCLOSED PROXY CARD. A LETTER OF
TRANSMITTAL AND ELECTION FORM IS ALSO ENCLOSED WITH THIS PROXY
STATEMENT/PROSPECTUS AND, UPON REQUEST TO THE EXCHANGE AGENT, WILL BE MAILED TO
EACH PERSON WHO BECOMES A HOLDER OR BENEFICIAL OWNER OF HOMEUSA COMMON STOCK
BETWEEN THE ELECTION FORM RECORD DATE AND THE BUSINESS DAY PRIOR TO THE ELECTION
DEADLINE. HOMEUSA STOCKHOLDERS SHOULD SEND CERTIFICATES REPRESENTING HOMEUSA
COMMON STOCK TO THE EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND ONLY IN
ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN THE LETTER OF TRANSMITTAL.
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BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
HomeUSA was founded with the objective of becoming the leading independent
national retailer of manufactured housing by pursuing the consolidation of the
highly-fragmented retail manufactured housing industry. Concurrently with the
consummation of its initial public offering in November 1997 (the "HomeUSA
IPO"), HomeUSA acquired the nine Founding Companies. In the course of
identifying the Founding Companies, HomeUSA contacted approximately 100
manufactured housing retailers, and entered into confidentiality agreements in
connection with a due diligence review of approximately 60 of such retailers.
Based on those discussions, HomeUSA believed that it would be able to implement
its acquisition strategy after the HomeUSA IPO, using shares of HomeUSA Common
Stock for all or a substantial portion of the purchase price. Further, HomeUSA
believed that it had a reasonable understanding of the approximate values of the
acquisition targets and the expectations of the owners of such retailers
regarding the terms of any potential acquisition.
In late December 1997, after consummating the HomeUSA IPO, HomeUSA initiated
or resumed discussions with approximately 65 manufactured housing retailers
located across the United States. In late December 1997 and continuing through
mid-February 1998, HomeUSA held substantive negotiations with the owners of
approximately 36 of such retailers, and made offers to enter into letters of
intent to acquire approximately 17 of such retailers. It became apparent,
however, that the owners of substantially all of the retailers HomeUSA was
attempting to acquire were also negotiating to sell their businesses to one or
more of Champion Enterprises, Inc. ("Champion"), Expression Homes Corporation
("Expression Homes")(the venture formed by Fleetwood and Pulte Corporation
("Pulte") in October 1997 to pursue the acquisition of retail sales centers),
Palm Harbor Homes, Inc. ("Palm Harbor") and Cavco Industries, Inc., a subsidiary
of Centex Corporation ("Cavco") (collectively, the "Competing Bidders"). In
almost every case, HomeUSA was forced to compete with bids from one or more of
the Competing Bidders that were in excess of the values HomeUSA considered
reasonable, many of which bids included a significantly greater cash component
than HomeUSA had contemplated or was capable of offering.
On January 16, 1998, Champion announced publicly 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 HomeUSA had believed it could
acquire.
As a result of these public announcements by Champion, Palm Harbor and
Cavco, as well as the acquisition activities of Expression Homes and the
extraordinary offers some of the Competing Bidders, particularly Champion, were
making to the owners of the retailers HomeUSA was attempting to acquire, by
early February 1998, management of HomeUSA had concluded that the acquisition
market for manufactured housing retailers had undergone a fundamental change
from the acquisition market that had existed prior to the HomeUSA IPO, and that
HomeUSA would have a difficult time implementing its acquisition strategy on the
timetable it had contemplated. HomeUSA had anticipated the consolidation of the
retail industry, and was formed specifically to participate in that
consolidation, but it had not expected such immediate and aggressive competition
from well-capitalized bidders. HomeUSA had expected that the premier retailers
would want to continue to have an equity interest in their businesses, and thus
would be receptive to HomeUSA securities as an acquisition currency. Instead,
HomeUSA found that some of the premier retailers were willing to sell to the
highest cash bidder, and many of the Competing Bidders were able to offer higher
cash bids than HomeUSA was able to offer.
HomeUSA believed that Fleetwood, the principal supplier of manufactured
homes to HomeUSA retail centers, had substantially greater capital resources
than HomeUSA, but that HomeUSA had significant expertise in some aspects of
manufactured housing retail center acquisition and development, and that a
business arrangement might, therefore, be attractive to both companies.
Consequently, on February 2, 1998, Cary N. Vollintine, the President, Chief
Executive Officer and Chairman of the Board of
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HomeUSA, and Steven S. Harter, a member of the Board of Directors of HomeUSA and
the Chairman of Notre Capital Ventures, II, L.L.C. ("Notre"), contacted John
Pollis, the Senior Vice President-Retail Housing Division, and suggested a
meeting to discuss the possibility of a business arrangement between HomeUSA and
Fleetwood or Expression Homes. A meeting between representatives of HomeUSA,
Fleetwood and Expression Homes was scheduled for February 9, 1998 at Fleetwood's
executive offices in Riverside, California. In anticipation of this meeting, on
February 8, 1998, Mr. Vollintine sent a letter to Mr. Pollis in which Mr.
Vollintine expressed his belief that the interests of HomeUSA and Fleetwood
would be served by Fleetwood making an investment in HomeUSA and a combination
of the efforts of HomeUSA and Fleetwood in consolidating a portion of
Fleetwood's independent retailing network into a national organization.
On February 9, 1998, representatives of HomeUSA, including Messrs.
Vollintine and Harter, met with representatives of Fleetwood and Expression
Homes. Mr. Vollintine discussed the types of business arrangements that he
believed would be of interest to HomeUSA, which were (i) an investment by
Fleetwood in HomeUSA, and (ii) a combination of the businesses of HomeUSA and
Expression Homes, with the resulting entity becoming the primary retail
distribution channel for Fleetwood while remaining a publicly traded company.
After a discussion, the Fleetwood representatives indicated that they would
review these potential business arrangements, but were unable at that time to
pursue any substantive discussions.
At a subsequent meeting also held on February 9, representatives of
Fleetwood's investment bankers, PaineWebber Incorporated ("PaineWebber"),
indicated to HomeUSA that Fleetwood was considering a possible modification or
termination of the Expression Homes venture with Pulte. The investment bankers
discussed the possibility of Fleetwood acquiring the equity interests in HomeUSA
held by Notre and the management of HomeUSA, and also raised the possibility of
a merger of HomeUSA with Fleetwood. The discussions concluded without any
commitment by HomeUSA or by the investment bankers on behalf of Fleetwood, other
than to consider the matters further. Mr. Harter indicated that he would be in
New York on February 12, 1998, and would be available to meet further with
Fleetwood's investment bankers if requested to do so.
On February 12, Mr. Harter and counsel to HomeUSA met in New York with
Fleetwood's investment bankers. The bankers advised Mr. Harter that Fleetwood
had commenced negotiations with Pulte to acquire Pulte's interest in Expression
Homes. The bankers also stated that Fleetwood was not interested in making an
investment or acquiring any interest in HomeUSA that did not provide Fleetwood
with control of HomeUSA, and suggested that Fleetwood would be interested in
purchasing all of the HomeUSA Common Stock owned by Notre and HomeUSA
management, but without purchasing the shares held by the public stockholders of
HomeUSA. Mr. Harter rejected this proposal and advised the investment bankers
that Notre would not be interested in any offer from Fleetwood that was not also
made available to the public stockholders of HomeUSA. Mr. Harter also advised
the investment bankers that he believed that any combination of HomeUSA with
Fleetwood should provide each HomeUSA stockholder as much flexibility as
possible to choose to receive up to 100% of the consideration in Fleetwood
Common Stock, to choose as much cash as possible (subject to tax considerations)
or to choose a combination of Fleetwood Common Stock and cash. Mr. Harter
indicated that he did not think the HomeUSA Board would be receptive to any
proposal that was contingent in any material respect, including any contingency
relating to conclusion of negotiations between Fleetwood and Pulte regarding
Expression Homes.
On February 13 and 14, Messrs. Vollintine and Michael F. Loy, Senior Vice
President, Chief Financial Officer and a director of HomeUSA, contacted the
other members of the HomeUSA Board by telephone and advised them that the
HomeUSA Board would hold a special telephonic board meeting on the afternoon of
February 14 to discuss recent developments in HomeUSA's acquisition efforts and
the contacts with Fleetwood. The special meeting was held on Saturday, February
14, during which Mr. Vollintine reviewed with the full HomeUSA Board the
developments in the acquisition market during the past several weeks, and
Messrs. Vollintine and Harter described for the HomeUSA Board the meetings with
Fleetwood and with Fleetwood's investment bankers. After a discussion, the
HomeUSA Board
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members decided to convene a special meeting on February 16 to discuss the
status of the acquisition program, the implications of the recent changes in the
acquisition market for HomeUSA and the possibility of a business arrangement
with Fleetwood. The HomeUSA Board also authorized Messrs. Loy and Harter to
pursue additional discussions with Fleetwood, and authorized HomeUSA to retain
BT Alex. Brown as financial advisor to the HomeUSA Board and HomeUSA in
connection with those discussions.
On February 15, representatives of HomeUSA and its financial, legal, tax and
accounting advisors, as well as counsel to the outside directors of HomeUSA, met
with representatives of Fleetwood and its investment bankers and counsel.
Fleetwood provided the HomeUSA representatives with briefings regarding
Fleetwood's principal business lines, financial position, results of operations,
business strategy, manufactured housing retail sales center acquisition strategy
and related matters. Fleetwood's Treasurer and Senior Vice President-General
Counsel attended the meeting in person, and Fleetwood's Chief Executive Officer,
President and Chief Financial Officer participated in a portion of the meeting
by telephone. The representatives of Fleetwood and HomeUSA discussed, among
other things, a variety of operational issues relating to the potential
combination of the businesses, including Fleetwood's management structure and
philosophy and how Fleetwood would integrate HomeUSA and its operating personnel
into Fleetwood.
Following the day's discussions of the companies' respective businesses,
financial matters and related matters, Fleetwood's investment bankers stated
that Fleetwood was willing to make an offer to acquire all of the outstanding
shares of HomeUSA Common Stock by means of a business combination with a wholly
owned subsidiary of Fleetwood at a price of $9.00 per share, subject to approval
of the Fleetwood Board and the negotiation and execution of definitive
documentation. The proposal contemplated a partially tax-free reorganization in
which HomeUSA stockholders, other than HomeUSA Board members and certain other
affiliates of HomeUSA, would be given the most flexibility possible to elect to
take their Merger Consideration in the form of Fleetwood Common Stock, cash or a
combination thereof. The proposal also required members of management of
HomeUSA, including all members of the HomeUSA Board, and certain other
affiliates of HomeUSA, to waive the benefit of the change of control provisions
in their employment and stock option agreements with HomeUSA.
After substantial discussions and negotiations following Fleetwood's offer,
and after consultation with their respective advisors, representatives of
Fleetwood and HomeUSA each agreed to take an offer of $10.25 per share to their
respective boards of directors for approval.
On February 16, the HomeUSA Board convened a special meeting at the offices
of counsel to HomeUSA. The meeting lasted twelve hours. All of the members of
the HomeUSA Board, one of whom participated in the meeting by means of
conference telephone, were present at the meeting. In addition, representatives
of HomeUSA's independent financial, legal, tax and accounting advisors, as well
as counsel to the non-management members of the HomeUSA Board, were in
attendance at the meeting.
The HomeUSA Board discussed, among other things, HomeUSA's strategic
alternatives in light of (i) the extraordinary developments in the market for
manufactured housing retail operations, and (ii) the proposal by Fleetwood to
acquire HomeUSA. The HomeUSA Board members discussed the changes in the
acquisition market in detail, including the history of HomeUSA's discussions
with a number of potential acquisition targets, the efforts to enter into
letters of intent to acquire those targets, and the bidding competition that had
resulted between HomeUSA and the Competing Bidders, including Champion and
Expression Homes.
The HomeUSA Board also discussed in detail HomeUSA's prospects as an
independent consolidator, and concluded that the changes in the retail
manufactured housing industry would require HomeUSA to utilize far more cash
than it had anticipated to implement an acquisition program. The HomeUSA Board
also discussed the fact that HomeUSA's resources were limited because HomeUSA
had not yet obtained credit facilities in the amounts it originally
contemplated. The HomeUSA Board discussed its judgment that the developments
discussed at the meeting had significantly reduced the likelihood that HomeUSA
would be able to successfully implement its acquisition strategy by itself, and
that to implement
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HomeUSA's acquisition strategy and compete effectively with the Competing
Bidders for acquisitions, HomeUSA would need access to significantly greater
financial resources than were available to it.
The HomeUSA Board reviewed carefully the draft dated February 14, 1998 of
the Merger Agreement, and discussed the Merger Agreement with HomeUSA's legal
counsel and investment bankers. The HomeUSA Board further discussed the fact
that Fleetwood's proposal would give the public stockholders of HomeUSA a choice
of cash, Fleetwood Common Stock or a combination, in each case valued at $10.25
per share of HomeUSA's Common Stock, subject to overall limitations intended to
preserve the intended tax treatment of the transaction. The HomeUSA Board also
discussed the manner in which shares of Fleetwood Common Stock would be valued,
based on the average of the closing prices of Fleetwood Common Stock on the NYSE
during the ten-day period ending ten days prior to the anticipated closing date
of the Merger.
The HomeUSA Board discussed the fact that Fleetwood's proposal imposed a 25%
limitation on the percentage of cash that members of the HomeUSA Board and the
former principal stockholders of each of the Founding Companies would be
permitted to receive in the transaction. The HomeUSA Board discussed the fact
that Fleetwood's proposal would require all members of the HomeUSA Board and the
former principal stockholders of each of the Founding Companies, as well as
members of senior management of HomeUSA, to waive their existing contractual
rights to certain payments under employment agreements with HomeUSA, as well as
the accelerated vesting provisions of options they held to acquire shares of
HomeUSA Common Stock, all of which would otherwise entitle such persons to such
benefits in connection with the proposed transaction. In order to make
Fleetwood's proposal available to HomeUSA's stockholders at $10.25 per share,
the HomeUSA Board members and members of management who were present at the
meeting each agreed to waive his right to these payments.
The HomeUSA Board discussed the fact that the Merger Agreement would permit
HomeUSA to entertain other offers for HomeUSA, would permit HomeUSA to provide
nonpublic information to potential bidders, and would permit HomeUSA to enter
into negotiations with other potential bidders, and, subject to Fleetwood's
right to match a competing proposal and the payment of a $6 million termination
fee, would permit HomeUSA to enter into an alternative agreement with a third
party. The HomeUSA Board discussed Fleetwood's statements that Fleetwood
intended to reach an agreement with Pulte, pursuant to which Fleetwood would
acquire 100% of the equity interest in Expression Homes. The HomeUSA Board also
discussed Fleetwood's agreements with respect to the treatment of HomeUSA's
employees. The HomeUSA Board also discussed the potential short-term adverse
effects of the Merger on HomeUSA's acquisition strategy, and discussed how they
would attempt to minimize those adverse effects by asking Fleetwood to meet
promptly with HomeUSA's acquisition team and to help the acquisition team with
proposed acquisitions.
At approximately 11:00 p.m., the HomeUSA Board adjourned the meeting until
the following morning.
At the February 17, 1998 meeting of the HomeUSA Board, representatives of BT
Alex. Brown made a presentation with respect to the financial analyses performed
by it in connection with the Merger and rendered to the HomeUSA Board its oral
opinion, subsequently confirmed in writing as of the same date, that, as of such
date and subject to the assumptions made, matters considered and limitations set
forth in such opinion, the Merger Consideration was fair, from a financial point
of view, to HomeUSA's stockholders. See "--Opinion of BT Alex. Brown, Financial
Advisor to HomeUSA."
Following the discussions with BT Alex. Brown, the HomeUSA Board determined
that in its judgment, subject to receiving confirmation from Fleetwood that
Fleetwood was not restricted by its agreement with Pulte from entering into and
consummating the Merger Agreement, the proposed business combination with
Fleetwood was the best long-term strategic alliance reasonably available to
HomeUSA, and was the best possible course of action for HomeUSA and its
stockholders. The HomeUSA Board's judgment was based on the fact that HomeUSA's
retail operations sold far more Fleetwood products than any other manufacturer's
products, and that a majority of the members of the HomeUSA Board
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considered Fleetwood products to be superior to those of any other manufacturer,
and that consequently the combination of HomeUSA with Fleetwood was likely to
result in a better long-term value for the HomeUSA stockholders than a
combination with any other manufacturer. In reaching this judgment, the HomeUSA
Board considered the fact that the Merger Agreement expressly permits HomeUSA to
entertain proposals from other persons, to provide nonpublic information to
negotiate with other persons, and to enter into an alternative transaction with
another person. The HomeUSA Board approved the Merger Agreement and the Merger,
authorized Mr. Vollintine to execute and deliver the Merger Agreement, and
determined to recommend that the stockholders of HomeUSA approve and adopt the
Merger Agreement and the Merger.
At approximately 3:00 p.m., Fleetwood informed HomeUSA that it had no
impediments to executing, delivering and performing its obligations under the
Merger Agreement. HomeUSA promptly requested that the NYSE halt trading in the
HomeUSA Common Stock pending an announcement; HomeUSA and Fleetwood executed and
delivered the Merger Agreement; and each promptly issued a press release
announcing the proposed Merger.
FLEETWOOD'S REASONS FOR THE MERGER
In reaching its determination to enter into the Merger Agreement and the
Merger, the Fleetwood Board consulted with Fleetwood's management, as well as
its legal counsel and investment bankers, and considered a number of factors.
The Fleetwood Board considered the nature and scope of the business of HomeUSA,
the quality and breadth of its assets, and its financial condition, competitive
position and prospects for further development. The Fleetwood Board also
considered the following factors (which include all material factors):
NEED TO BECOME A VERTICALLY INTEGRATED MANUFACTURED HOUSING
COMPANY. Fleetwood believes that the current and prospective environment in
which Fleetwood and HomeUSA operate, including competitive conditions and
industry consolidations in the retail manufactured housing industry, favor the
larger retail manufactured housing operation that the Merger will provide.
Recently, competition for manufactured home retail shelf space has significantly
intensified as additional industry companies have sought to achieve or enhance
vertical integration by buying retailers. See "RISK FACTORS--Risks Relating to
the Companies' Businesses--DECLINE IN FLEETWOOD'S MANUFACTURED HOUSING MARKET
SHARE." In addition, site-builders with no previous involvement in the retail
manufactured home business have attempted to purchase industry retailers. These
efforts create a risk that independent distribution channels for Fleetwood homes
may not be as readily available as they have been in the past, which might
require Fleetwood to alter the way it markets its homes in the future and
potentially reduce manufactured housing revenues. Fleetwood has responded to
these trends by developing a multi-pronged retail strategy, which includes
defensive acquisitions, the establishment of new company-owned stores, and
acquisitions of selected competitors to obtain additional distribution networks.
The Merger with HomeUSA will be a significant step in fulfilling this strategy,
particularly in light of the fact that eight of the nine Founding Companies are
Fleetwood retailers. In the Merger, Fleetwood will acquire 65 retail locations
in 14 states, with sales of $205.1 million in 1997. In addition, Fleetwood's
acquisition of a 100% interest in Expression Homes enables Fleetwood to obtain
control of the retail distribution centers to be acquired by Expression Homes.
This growth will help establish Fleetwood as a vertically integrated
manufactured housing company and a major force in the manufactured housing
retail sector.
ABILILITY TO UPGRADE, EXPAND AND CONTROL RETAIL DISTRIBUTION
NETWORK. Fleetwood believes that the Merger presents Fleetwood with a
significant opportunity to upgrade, expand and exercise greater control over its
retail distribution network. Since 1991, Fleetwood has reduced the number of
retail distribution centers approved to sell Fleetwood manufactured housing
products from approximately 1,800 to 1,400. Fleetwood believes that this action
has allowed it to focus its efforts on larger retailers that share Fleetwood's
approach to merchandising homes and customer satisfaction, and Fleetwood now
seeks to expand its manufactured housing retail network by adding retailers,
such as those operated by HomeUSA,
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that meet Fleetwood's criteria. Combined with purchasing Pulte's 51% interest in
Expression Homes, Fleetwood believes that the Merger will provide it with more
effective control over a significant portion of its retail distribution network.
Fleetwood expects that this will increase the opportunity for Fleetwood to
expand and standardize the range of services offered by Fleetwood retailers to
include such services as financing, insurance, set-up services, site location
and community development, and to implement significant operating improvements
that would not only increase profitability but also increase customer
satisfaction.
RETAIL OPERATION EXPERTISE. Fleetwood believes that the Merger with HomeUSA
provides an excellent opportunity to combine Fleetwood's strengths in
manufactured housing with HomeUSA's expertise in retail operations. While
HomeUSA is a new enterprise that does not itself have an established track
record of operating retail sales centers, the Founding Companies have been in
business an average of 16 years and have extensive experience in all aspects of
retail operations, including successful retailing techniques, site selections
and relocations, finance and insurance, manufactured home siting assistance,
permitting, transportation and installation, and retailer-installed options.
TRANSACTION SIZE AND TERMS. Fleetwood believes that, in comparison to other
acquisition and investment opportunities that have been available (which
generally involved the opportunity to acquire individual retail locations or a
small group of retail locations, as opposed to the substantial number of retail
locations owned by HomeUSA) and may in the future become available to Fleetwood,
the Merger offers more potential for promoting Fleetwood shareholder value,
because the Merger will enable Fleetwood to acquire, in a single transaction, 65
retail locations in 14 states. The benefits of this transaction are enhanced by
the structure and favorable tax treatment of the Merger. The Fleetwood Board
reviewed the current environment for retail location purchases, including
recently announced acquisitions by Champion, Palm Harbor and Cavco, and received
advice from its financial advisors regarding current transaction valuations and
alternatives. The Fleetwood Board and management also considered the strategic
importance of moving decisively in a time of rapid change and turmoil in the
manufactured housing retail sector and the importance and benefits of the move
to Fleetwood and it stockholders. The Fleetwood Board also reviewed the earnings
multiples of vertically integrated companies and the potential positive effect
on market valuations for Fleetwood stock.
Fleetwood's management also discussed with the Fleetwood Board, and the
Fleetwood Board considered in evaluating the Merger proposal, the following risk
factors that were believed by Fleetwood's management to be presented by the
Merger proposal: (i) the risk that the businesses of HomeUSA would perform
significantly below expectations; (ii) the risk that positive market trends,
including favorable valuations of manufactured home retailers and the
manufactured home industry in general, would turn adverse; and (iii) the risk
that integration of HomeUSA's operations will not be able to be completed
without an adverse impact on Fleetwood's business operations. The Fleetwood
Board concluded that the substantial potential benefits believed to be available
to Fleetwood through the Merger clearly outweighed these potential risks.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Fleetwood Board did not attempt to quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determination.
No member of the Fleetwood Board has any interest in the Merger other than
as a Fleetwood stockholder.
RECOMMENDATION OF THE HOMEUSA BOARD; HOMEUSA'S REASONS FOR THE MERGER
THE HOMEUSA BOARD HAS DETERMINED THE MERGER TO BE FAIR TO AND IN THE BEST
INTERESTS OF HOMEUSA AND ITS STOCKHOLDERS. THE HOMEUSA BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDED THAT HOMEUSA
STOCKHOLDERS VOTE "FOR" THE MERGER AGREEMENT AND THE MERGER.
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In the course of reaching its decision to approve the Merger Agreement and
the Merger, the HomeUSA Board consulted with its legal advisors regarding the
legal terms of the Merger Agreement and the HomeUSA Board's obligations in its
consideration thereof, its financial advisor regarding the financial terms and
fairness, from a financial point of view, of the Merger to the HomeUSA
stockholders and the management of HomeUSA. The HomeUSA Board considered a
number of factors, including the following:
CHANGES IN THE MANUFACTURED HOUSING RETAILER ACQUISITION MARKET. As
discussed above, the principal reason the HomeUSA Board approved the Merger was
its belief that HomeUSA would not be able to implement its acquisition strategy
on its original timetable without access to significant additional capital
resources. See "--Background of the Merger." The HomeUSA Board believed that the
dramatic changes in early 1998 in the acquisition market for manufactured
housing retailers made it unlikely that HomeUSA would be able to implement its
acquisition strategy on its contemplated timetable. These changes included (i)
the acquisition activities of Expression Homes, Champion, Palm Harbor, and
Cavco; (ii) the relatively high prices being offered to potential acquisition
targets by the Competing Bidders, including those mentioned above; and (iii) the
fact that the successful bidders for retailers were primarily using cash rather
than securities. The HomeUSA Board's judgment was that the bidding competition
for retailers made it unlikely that HomeUSA would be able to acquire retailers
at the rate the HomeUSA Board believed necessary to meet the investment
community's expectations for HomeUSA, and that if HomeUSA failed to announce
acquisitions meeting those expectations, the trading price of HomeUSA Common
Stock would be likely to decrease, making the use of HomeUSA Common Stock as an
acquisition currency even more difficult. Consequently, the HomeUSA Board
believed that swift action was important, and, for the reasons described below,
believed that a business combination with Fleetwood was the best course possible
for HomeUSA.
HOMEUSA'S LIMITED ABILITY TO COMPETE WITH COMPETING BIDDERS. HomeUSA's
ability to compete with the Competing Bidders by offering high cash prices to
acquire retailers was limited by its cash resources and its borrowing capacity.
Although at the time the HomeUSA Board approved the Merger, HomeUSA had $32
million in available cash and unused capacity under a credit facility, in the
HomeUSA Board's judgment, this amount was insufficient to enable HomeUSA to
compete effectively with the significantly greater cash resources of some of the
Competing Bidders. Further, the HomeUSA Board believed that some of the
Competing Bidders were offering prices to potential sellers of retail businesses
that were significantly in excess of the value of those businesses. Although the
HomeUSA Board believed that some of the Competing Bidders were unlikely to close
some of the announced acquisitions at the agreed upon prices, the HomeUSA Board
believed that the announcements effectively precluded HomeUSA from completing
its acquisition program on the timetable contemplated.
HomeUSA's willingness to compete with the Competing Bidders by offering high
cash prices to acquire retailers was also limited by the HomeUSA Board's belief
that HomeUSA needed to motivate former owners of acquired retailers through
equity ownership in HomeUSA. Sellers who sold largely for cash were, in the
HomeUSA Board's judgment, not likely to maintain the level of effort that had
made them successful. Consequently, except in locations in which HomeUSA already
had or could quickly recruit significant managerial expertise and sales
personnel, purchases of retailers entirely or largely for cash were relatively
unattractive to HomeUSA.
HOMEUSA SALES OF FLEETWOOD PRODUCTS. The HomeUSA Board believed that a
business combination with a leading manufacturer was important, and that a
combination with Fleetwood would be preferable to a combination with any other
manufacturer, in part because HomeUSA's retailers sold far more Fleetwood
products than any other line. Approximately 65% of HomeUSA's subsidiaries' 1997
sales were of Fleetwood products; the second largest product line accounted for
only 6% of 1997 sales. A majority of the members of the HomeUSA Board considered
Fleetwood's products superior to those sold by any other manufacturer, and the
bulk of the HomeUSA sales force is a Fleetwood sales force. Consequently, the
HomeUSA Board members believed that a Fleetwood/HomeUSA combination was the most
logical
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business combination for HomeUSA, and that a business combination with any
manufacturer other than Fleetwood would have risked substantial disruption to
the business of the HomeUSA retailers.
The HomeUSA Board believed that the long-term value to HomeUSA's
stockholders of the combined entity would exceed the value of any other
transaction reasonably available to HomeUSA because of the highly complimentary
nature of the companies' businesses. The HomeUSA Board believed that Fleetwood's
manufacturing capacity, HomeUSA's existing retail distribution system,
Fleetwood's significant capital resources and desire to invest in the retail
market (evidenced, in part, by Fleetwood's investment in Expression Homes), and
HomeUSA's significant expertise in both greenfield development and acquisition-
based expansion of its retail system, together with the companies' mutual belief
in the advisability of expanding their retail distribution capacity, made a
business combination with Fleetwood highly desirable. Although the Merger
Agreement expressly permits HomeUSA to entertain proposals from other persons,
to provide nonpublic information to and negotiate with other persons, and to
enter into an alternative transaction with another person, the HomeUSA Board did
not expect that any other proposal could offer as much value to the HomeUSA
stockholders, and no other proposals have been made.
FLEETWOOD'S COMMITMENT TO ENTER THE RETAIL MARKET. The HomeUSA Board also
considered a business combination with Fleetwood to be desirable because of
Fleetwood's recently announced venture with Pulte into the retail market. The
HomeUSA Board believed that the venture, Expression Homes, had clearly
demonstrated Fleetwood's commitment to enter the retail market and to devote
significant capital resources to it. At the same time, however, the HomeUSA
Board believed that the combination of Fleetwood's manufacturing prowess and
significant capital resources with the expertise and depth of HomeUSA's
management team and HomeUSA's existing retail operations would result in a
business operation that could accomplish far more together than the two
companies would have been likely to accomplish operating independently. The
HomeUSA Board also considered the fact that Fleetwood had granted Expression
Homes a right of first refusal on all manufactured housing retail startup and
acquisition opportunities that came to Fleetwood's attention.
STRUCTURE OF THE MERGER. The HomeUSA Board considered the structure of the
Fleetwood offer important because it will permit each HomeUSA stockholder who
wishes to do so to continue to participate in the equity ownership of the
business conducted by HomeUSA, as well as the business of Fleetwood, after the
Merger. HomeUSA stockholders who elect to do so will have the opportunity to
benefit from the potential appreciation in the value of Fleetwood Common Stock,
even while receiving an immediate premium for their shares of HomeUSA Common
Stock and obtaining tax-free treatment to the extent they elect to take
Fleetwood Common Stock in the Merger. See "THE MERGER--Certain Federal Income
Tax Considerations." The HomeUSA Board also considered it important that HomeUSA
stockholders (other than members of the HomeUSA Board and certain other
affiliates of HomeUSA) will have the right to elect to take a significant
portion of their Merger Consideration in cash. In addition, the HomeUSA Board
considered favorably the relatively high historical trading volume in Fleetwood
Common Stock, which HomeUSA's financial advisors advised the HomeUSA Board will
facilitate sales of Fleetwood Common Stock by former HomeUSA stockholders who
desire to sell Fleetwood Common Stock they may receive in the Merger.
TRADING VALUE OF THE MERGER CONSIDERATION. The HomeUSA Board considered the
trading value of the Merger consideration, and considered the amount of the
premium the $10.25 Per Share Cash Amount would represent over (i) the $8.00
closing price of HomeUSA Common Stock on the NYSE on February 13, 1998, the
trading day prior to the announcement of the proposed transaction (28.1%); (ii)
the $8.14 average price of HomeUSA Common Stock on the NYSE since the date of
the HomeUSA IPO, November 21, 1997 (25.9%); (iii) the $9.00 all-time high
closing price of HomeUSA Common Stock on the NYSE (13.9%); and (iv) the $7.63
all-time low closing price of HomeUSA Common Stock on the NYSE (34.4%).
BT ALEX. BROWN OPINION. The HomeUSA Board considered the presentation of BT
Alex. Brown delivered to the HomeUSA Board on February 17, 1998, including BT
Alex Brown's opinion that the
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Merger Consideration was fair, from a financial point of view, to HomeUSA's
stockholders. For a discussion of the presentation of BT Alex. Brown and the
assumptions made, matters considered and limitations set forth in the BT Alex.
Brown Opinion, see "--Opinion of BT Alex. Brown, Financial Advisor to HomeUSA."
TERMS OF THE MERGER AGREEMENT. The HomeUSA Board considered the terms and
conditions of the Merger Agreement, including, without limitation, (i) the
amount and form of the Merger Consideration, (ii) the limited conditions to
Fleetwood's obligation to consummate the Merger, and (iii) the ability of
HomeUSA to consider alternative business combination proposals at any time prior
to HomeUSA Stockholder Approval. See "THE MERGER--No Solicitation." The HomeUSA
Board determined, based in part on presentations made to the HomeUSA Board by
financial advisors and legal counsel, that the terms and conditions of the
Merger Agreement were generally favorable to HomeUSA and its stockholders.
The foregoing discussion of information and factors considered and given
weight by the HomeUSA Board is not intended to be exhaustive. The HomeUSA Board
did not quantify or otherwise attempt to assign relative weights to the specific
factors considered, and individual members of the HomeUSA Board may have
attributed different weights to different factors.
HomeUSA's management also discussed with the HomeUSA Board, and the HomeUSA
Board considered in evaluating the Merger proposal, (i) the risk that the
combined company would perform below expectations; and (ii) the risk that
integrating the operations of HomeUSA, Expression Homes and Fleetwood would be
more difficult than the HomeUSA Board believed.
The HomeUSA Board was aware that certain members of HomeUSA's management and
the HomeUSA Board may be deemed to have certain interests in the Merger that are
in addition to their interests as HomeUSA stockholders generally, and HomeUSA
considered these interests in approving the Merger. Such interests did not weigh
either in favor of or against approving the Merger. See "--Interests of Certain
Persons in the Merger."
OPINION OF BT ALEX. BROWN, FINANCIAL ADVISOR TO HOMEUSA
HomeUSA retained BT Alex. Brown on February 14, 1998 to act as HomeUSA's
financial advisor in connection with the Merger, including rendering its opinion
to the HomeUSA Board as to the fairness, from a financial point of view, of the
Merger Consideration to HomeUSA's stockholders.
At the February 17, 1998 meeting of the HomeUSA Board, representatives of BT
Alex. Brown made a presentation with respect to the Merger and rendered to the
HomeUSA Board its oral opinion, subsequently confirmed in writing as of the same
date, that, as of such date and subject to the assumptions made, matters
considered and limitations set forth in such opinion and summarized below, the
Merger Consideration was fair, from a financial point of view, to HomeUSA's
stockholders. No limitations were imposed by the HomeUSA Board upon BT Alex.
Brown with respect to the investigations made or procedures followed by it in
rendering its opinion.
THE FULL TEXT OF THE BT ALEX. BROWN OPINION DATED FEBRUARY 17, 1998, WHICH
SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX B AND IS
INCORPORATED HEREIN BY REFERENCE. HOMEUSA STOCKHOLDERS ARE URGED TO READ THE BT
ALEX. BROWN OPINION IN ITS ENTIRETY. THE BT ALEX. BROWN OPINION IS DIRECTED TO
THE HOMEUSA BOARD, ADDRESSES ONLY THE FAIRNESS OF THE MERGER CONSIDERATION TO
HOMEUSA'S STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOMEUSA STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE HOMEUSA SPECIAL MEETING. THE BT ALEX. BROWN OPINION WAS RENDERED TO THE
HOMEUSA BOARD FOR ITS CONSIDERATION IN DETERMINING WHETHER TO APPROVE THE MERGER
AGREEMENT. THE DISCUSSION OF THE BT ALEX. BROWN OPINION IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE BT ALEX. BROWN OPINION.
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In connection with the BT Alex. Brown Opinion, BT Alex. Brown reviewed
certain publicly available financial information and other information
concerning HomeUSA and Fleetwood, and certain analyses and other information
furnished to it by HomeUSA and by or on behalf of Fleetwood, including nonpublic
financial projections prepared by HomeUSA and by or on behalf of Fleetwood. BT
Alex. Brown also held discussions with the members of the senior managements of
HomeUSA and Fleetwood regarding the businesses and prospects of their respective
companies and the joint prospects of a combined company. In addition, BT Alex.
Brown (i) considered the potential pro forma financial impact of the Merger on
Fleetwood; (ii) reviewed the reported prices and trading activity for both
HomeUSA Common Stock and Fleetwood Common Stock; (iii) compared certain
financial and stock market information for HomeUSA and Fleetwood with similar
information for certain selected companies whose securities are publicly traded;
(iv) reviewed the financial terms of certain recent business combinations that
it deemed comparable in whole or in part; (v) reviewed the terms of the Merger
Agreement and attached documents; and (vi) performed such other studies and
analyses and considered such other factors as it deemed appropriate.
In conducting its review and arriving at its opinion, BT Alex. Brown assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for purposes of rendering its opinion. With respect to the
information relating to the prospects of HomeUSA and Fleetwood, BT Alex. Brown
assumed that such information reflected the best currently available judgments
and estimates of the respective managements of HomeUSA and Fleetwood as to the
likely future financial performances of their respective companies. The
financial projections of HomeUSA that were provided to BT Alex. Brown were
utilized and relied upon by BT Alex. Brown in the Contribution Analysis, the
Discounted Cash Flow Analysis and the Pro Forma Earnings Analysis summarized
below. BT Alex. Brown did not make, and was not provided with, an independent
evaluation or appraisal of the assets of HomeUSA and Fleetwood, nor has BT Alex.
Brown been furnished with any such evaluations or appraisals. The BT Alex. Brown
Opinion is based on market, economic and other conditions as they existed and
could be evaluated as of the date of the opinion letter. In rendering its
opinion, BT Alex. Brown assumed, with HomeUSA's consent, that the publicly
quoted price on the NYSE, as of February 13, 1998, for Fleetwood Common Stock
fairly represents the per share value of Fleetwood Common Stock being delivered
in the Merger. BT Alex. Brown did not express any opinion as to what the value
of the shares of Fleetwood Common Stock actually would be when issued to
HomeUSA's stockholders pursuant to the Merger or the prices at which such shares
of Fleetwood Common Stock would trade subsequent to the Merger. BT Alex. Brown
was not requested to opine as to, and its opinion did not in any manner address,
HomeUSA's underlying business decision to effect the Merger.
In arriving at its opinion, BT Alex. Brown was not authorized to solicit,
and did not solicit, interest from any party with respect to the acquisition of
HomeUSA or any of its assets, nor did BT Alex. Brown have discussions or
negotiate with any party, other than Fleetwood, in connection with the Merger.
The following is a summary of the analyses performed and factors considered
by BT Alex. Brown in connection with the rendering of the BT Alex. Brown
Opinion.
HISTORICAL FINANCIAL POSITION. In rendering its opinion, BT Alex. Brown
reviewed and analyzed the historical and current financial condition of HomeUSA
by assessing HomeUSA's recent financial statements and analyzing HomeUSA's
revenue, growth and operating performance trends.
HISTORICAL STOCK PRICE PERFORMANCE. BT Alex. Brown reviewed and analyzed
the daily closing per share market prices and trading volume for HomeUSA Common
Stock from November 24, 1997 (the "HomeUSA IPO Date") to February 13, 1998 and,
for Fleetwood Common Stock, from January 1, 1995 to February 13, 1998. BT Alex.
Brown also reviewed the daily closing per share market prices of HomeUSA Common
Stock and compared the movement of such daily closing prices with the movement
of the S&P 500 composite average and the movement of a manufactured housing
industry composite average (consisting of Cavalier Homes, Inc., Champion,
Skyline Corp., Southern Energy Homes, Inc., American
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Homestar Corp., Clayton Homes, Inc. ("Clayton"), Oakwood Homes Corporation and
Palm Harbor (collectively, the "Selected Manufactured Housing Manufacturers")
over the period from the HomeUSA IPO Date through February 13, 1998. BT Alex.
Brown noted that, on a relative basis, HomeUSA trailed both the S&P 500
composite average and the manufactured housing industry composite average in
that period. BT Alex. Brown also reviewed the daily closing per share market
prices of Fleetwood Common Stock and compared the movement of such daily closing
prices with the movement of the S&P 500 composite average and the movement of a
manufactured housing industry composite average (consisting of the Selected
Manufactured Housing Manufacturers) over the period from January 1, 1996 through
February 13, 1998. BT Alex. Brown noted that, on a relative basis, the
performance of Fleetwood Common Stock was consistent with both the S&P 500
composite average and the manufactured housing industry composite average in
that period. This information was presented to give the HomeUSA Board background
information regarding the respective stock prices of HomeUSA and Fleetwood over
the periods indicated.
LIQUIDITY ANALYSIS. BT Alex. Brown analyzed the liquidity of HomeUSA Common
Stock and Fleetwood Common Stock, and noted that the average number of shares of
HomeUSA Common Stock traded daily during the 30 trading days ended February 13,
1998 was 41,493 shares, compared with 307,290 shares for Fleetwood Common Stock
during the same period.
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES. BT Alex. Brown
compared certain financial information (based on the commonly used valuation
measurements described below) relating to HomeUSA to certain corresponding
information from three groups: a group of nine publicly-traded companies in the
manufactured housing industry (consisting of the Selected Manufactured Housing
Manufacturers and Fleetwood), a group of four publicly-traded companies in the
automobile retailing industry (consisting of United Auto Group, Lithia Motors,
Cross-Continent Auto Retailers, and Rush Enterprises (collectively, the
"Selected Automobile Retailers")), and a group of seven publicly-traded
companies that are considered industry consolidators (consisting of Coach USA,
Metals USA, Service Experts, Comfort Systems USA, Group Maintenance America
Corporation, American Residential Services and PalEx (collectively, the
"Selected Industry Consolidators")). Such financial information included, among
other things, (i) common equity market valuation; (ii) capitalization ratios;
(iii) operating performance; (iv) ratios of common equity market value as
adjusted for debt and cash ("Adjusted Value") to revenues, earnings before
interest expense, income taxes, depreciation and amortization ("EBITDA"), and
earnings before interest expense and income taxes ("EBIT"), each for the latest
reported 12-month period as derived from publicly available information; (v)
ratios of common equity market prices per share ("Equity Value") to earnings per
share ("EPS"); (vi) ratios or common equity market value to book value; and
(vii) ratios of common stock price divided by EPS ("P/E"), using calendar year
1998 estimated EPS, to estimated EPS growth rate ("P/E to Growth Rate").
The financial information used in connection with the multiples provided
below with respect to HomeUSA, Fleetwood, the Selected Manufactured Housing
Manufacturers, the Selected Automobile Retailers, and the Selected Industry
Consolidators was based on the latest reported 12-month period ("LTM"), as
derived from publicly available information and on estimated EPS for calendar
years 1998 and 1999, as reported by the Institutional Brokers Estimating System
("IBES"), except that the calendar year 1999 estimate for Fleetwood was taken
from PaineWebber research with the approval of Fleetwood management. BT Alex.
Brown noted that, on a trailing 12-month basis, the multiple of Adjusted Value
to revenues was 0.5x for HomeUSA, compared to a mean of 0.9x for the Selected
Manufactured Housing Manufacturers and Fleetwood, a mean of 0.3x for the
Selected Automobile Retailers, and a mean of 1.4x for the Selected Industry
Consolidators; the multiple of Adjusted Value to EBITDA was 7.4x for HomeUSA,
compared to a mean of 9.1x for the Selected Manufactured Housing Manufacturers
and Fleetwood, a mean of 8.9x for the Selected Automobile Retailers, and a mean
of 12.3x for the Selected Industry Consolidators; and the multiple of Adjusted
Value to EBIT was 8.7x for HomeUSA, compared to a mean of 10.3x for the Selected
Manufactured Housing Manufacturers and Fleetwood, a mean of 11.4x
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for the Selected Automobile Retailers, and a mean of 15.1x for the Selected
Industry Consolidators. BT Alex. Brown further noted that the multiple of Equity
Value to trailing 12-month EPS was 20.0x for HomeUSA, compared to a mean of
16.5x for the Selected Manufactured Housing Manufacturers and Fleetwood, a mean
of 16.7x for the Selected Automobile Retailers, and a mean of 23.6x for the
Selected Industry Consolidators; the multiple of Equity Value to calendar year
1998 EPS was 10.3x for HomeUSA, compared to a mean of 15.0x for the Selected
Manufactured Housing Manufacturers and Fleetwood, a mean of 11.6x for the
Selected Automobile Retailers, and a mean of 15.8x for the Selected Industry
Consolidators; the multiple of Equity Value to calendar year 1999 EPS was 7.6x
for HomeUSA, compared to a mean of 13.7x for the Selected Manufactured Housing
Manufacturers and Fleetwood, a mean of 9.1x for the Selected Automobile
Retailers, and a mean of 11.9x for the Selected Industry Consolidators; and the
multiple of common equity market value to book value was 1.5x for HomeUSA,
compared to a mean of 3.3x for the Selected Manufactured Housing Manufacturers
and Fleetwood, a mean of 1.7x for the Selected Automobile Retailers, and a mean
of 2.6x for the Selected Industry Consolidators. BT Alex. Brown also noted that
HomeUSA's P/E to Growth Rate was 46.6%, compared to a mean of 82.6% for the
Selected Manufactured Housing Manufacturers and Fleetwood, a mean of 50.2% for
the Selected Automobile Retailers, and a mean of 58.8% for the Selected Industry
Consolidators. As a result of the foregoing procedures, BT Alex. Brown noted
that the multiples for HomeUSA were generally lower than the mean of the
multiples for the Selected Manufactured Housing Manufacturers and Fleetwood, the
Selected Automobile Retailers and the Selected Industry Consolidators. BT Alex.
Brown also considered the competitive dynamics and market for acquisition
targets in the manufactured housing dealership industry, particularly the
increased competition for potential acquisition targets in the manufactured
housing dealership industry, the increased multiples paid for such targets, the
increased weight of cash as a percentage of total acquisition consideration, and
the impact of such market and economic factors on the valuation measurements
described above. BT Alex. Brown also noted that the relevance of this analysis
was limited due to the fact that no other publicly traded companies focused
solely on the manufactured housing dealership industry. The IBES mean EPS
estimates, as of February 17, 1998 for the calendar year 1998 for HomeUSA was
$0.78 and for Fleetwood was $2.85 and for the calendar year 1999 for HomeUSA was
$1.05. The PaineWebber estimate as of February 17, 1998 for the calendar year
1999 for Fleetwood was $3.30.
ANALYSIS OF SELECTED MERGERS AND ACQUISITIONS. BT Alex. Brown noted that
there was little publicly available information concerning mergers and
acquisitions in the manufactured housing dealership industry. However, BT Alex.
Brown reviewed the financial terms, to the extent publicly available, of eleven
pending or completed mergers and acquisitions in the manufactured home
manufacturing industry (the "Selected Manufactured Home Transactions"), eleven
pending or completed mergers and acquisitions by Republic Industries, Inc. in
the automobile retailing industry (the "Selected Republic Automobile Retailing
Transactions"), and five pending or completed mergers and acquisitions by
acquirors other than Republic Industries, Inc. in the automobile retailing
industry (the "Selected Other Automobile Retailing Transactions"), which
industry sectors BT Alex. Brown deemed to have similar economic and/or internal
competitive dynamics to the manufactured housing dealership industry.
BT Alex. Brown calculated various financial multiples based on certain
publicly available information for each of the transactions and compared them to
corresponding financial multiples for the Merger, based on the Exchange Ratio
and the Per Share Cash Amount. BT Alex. Brown noted that the multiple of
adjusted purchase price (value of consideration paid for common equity adjusted
for debt, preferred stock and cash) to trailing 12-month revenues was 0.72x for
the Merger versus a range of 0.15x to 0.55x, with a mean of 0.35x, for the
Selected Manufactured Home Transactions, a range of 0.16x to 0.46x, with a mean
of 0.26x, for the Selected Republic Automobile Retailing Transactions, and a
range of 0.12x to 0.25x, with a mean of 0.20x, for the Selected Other Automobile
Retailing Transactions. BT Alex. Brown further noted that the multiple of
adjusted purchase price to trailing 12-month EBITDA was 10.0x for the Merger
versus a range of 2.6x to 8.3x, with a mean of 5.0x, for the Selected
Manufactured Home Transactions, a range of 3.6x to 17.1x, with a mean of 10.5x,
for the Selected Republic Automobile Retailing Transactions, and a
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range of 4.3x to 7.7x, with a mean of 5.6x, for the Selected Other Automobile
Retailing Transactions. BT Alex. Brown also noted that the multiple of adjusted
purchase price to trailing 12-month EBIT was 11.8x for the Merger versus a range
of 2.6x to 8.8x, with a mean of 5.5x, for the Selected Manufactured Home
Transactions, a range of 3.8x to 29.2x, with a mean of 13.0x, for the Selected
Republic Automobile Retailing Transactions, and a range of 4.5x to 8.8x, with a
mean of 6.2x, for the Selected Other Automobile Retailing Transactions. BT Alex.
Brown further noted that the multiple of equity purchase price to trailing
12-month net income was 25.6x for the Merger versus a range of 6.2x to 14.4x,
with a mean of 9.6x, for the Selected Manufactured Home Transactions, a range of
12.6x to 32.6x, with a mean of 22.6x, for the Selected Republic Automobile
Retailing Transactions, and a range of 7.7x to 12.7x, with a mean of 10.1x, for
the Selected Other Automobile Retailing Transactions; and the multiple of equity
purchase price to book value was 2.0x for the Merger versus a range of 1.3x to
16.5x, with a mean of 7.2x, for the Selected Manufactured Home Transactions, a
range of 4.4x to 50.6x, with a mean of 14.3, for the Selected Republic
Automobile Retailing Transactions, and a range of 3.7x to 31.1x, with a mean of
15.0x, for the Selected Other Automobile Retailing Transactions. BT Alex. Brown
noted that the multiples for the Merger were generally within or above the range
of multiples for the Selected Manufactured Home Transactions, the Selected
Republic Automobile Retailing Transactions and the Selected Other Automobile
Retailing Transactions, except that the multiple of equity purchase price to
book value for the Merger was below the range of multiples for the Selected
Republic Automobile Retailing Transactions and the Selected Other Automobile
Retailing Transactions. BT Alex. Brown believed that the multiple of equity
purchase price to book value was not meaningful to its analysis because book
value is generally not considered a meaningful indicator of value for companies
in the manufactured housing dealership industry or industry consolidators. All
multiples for the transactions analyzed were based on public information
available at the time of announcement of such transaction, without taking into
account differing market and other conditions during the four-year period during
which the transactions occurred.
PREMIUMS PAID ANALYSIS. BT Alex. Brown reviewed the premiums paid, to the
extent publicly available, in 40 merger or acquisition transactions announced
since January 1, 1995 involving cash or a mixture of cash and stock
consideration, with transaction values between $100 million and $200 million
(collectively, the "Premium Transactions"). BT Alex. Brown noted that the
Premium Transactions were effected at mean and median premiums to the target's
per share market price one day prior to announcement of 26.8% and 24.0%,
respectively, versus a transaction premium of 28.1% for the Merger (based on
HomeUSA's closing per share market price one day prior to the February 14, 1998
announcement of the Merger). BT Alex. Brown also noted that the transaction
premium for the Merger (based on the average closing per share market price for
HomeUSA Common Stock since the HomeUSA IPO Date) is 25.9%.
HISTORICAL EXCHANGE RATIO ANALYSIS. BT Alex. Brown reviewed and analyzed
the historical ratio of the daily per share market closing prices of Fleetwood
Common Stock divided by the corresponding prices of HomeUSA Common Stock over
the periods from the HomeUSA IPO Date through February 13, 1998, from January 1,
1998 through February 13, 1998, and as of February 13, 1998 (the last business
day prior to announcement of the Merger). Such average exchange ratios for the
aforementioned time periods and as of such date were 0.204, 0.204 and 0.181,
respectively, as compared to the exchange ratio for the Merger of 0.232 (based
on Fleetwood's per share closing market price one day prior to the announcement
of the Merger).
CONTRIBUTION ANALYSIS. BT Alex. Brown analyzed the relative contributions
of HomeUSA and Fleetwood, as compared to HomeUSA's relative ownership of
approximately 10.3% of the outstanding capital of the combined company assuming
100% stock consideration for the Merger and approximately 5.5% of the combined
company assuming 51% stock and 49% cash consideration for the Merger, to the pro
forma historical and projected income statement of the combined company, with
projected data based on management's Scenario 1 (defined below) projections for
HomeUSA, IBES mean estimates for Fleetwood for calendar year 1998 and
PaineWebber research estimates, as instructed by Fleetwood management, for
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Fleetwood for calendar year 1999. This analysis showed that on a pro forma
combined basis (excluding (i) the effect of any synergies that may be realized
as a result of the Merger, (ii) non-recurring expenses relating to the Merger,
and (iii) any accounting adjustments resulting from the Merger), based on the
12-month period ending September 30, 1997 for HomeUSA and the 12-month period
ending October 26, 1997 for Fleetwood, HomeUSA and Fleetwood would account for
approximately 6.6% and 93.4%, respectively, of the combined company's pro forma
revenue; approximately 8.5% and 91.5%, respectively, of the combined company's
pro forma EBITDA; approximately 8.7% and 91.3%, respectively, of the combined
company's pro forma EBIT; and approximately 5.5% and 94.5%, respectively, of the
combined company's pro forma net income. BT Alex. Brown further noted that on a
pro forma combined basis (excluding (i) the effect of any synergies that may be
realized as a result of the Merger, (ii) non-recurring expenses relating to the
Merger, and (iii) any accounting adjustments resulting from the Merger), HomeUSA
and Fleetwood would account for approximately 11.4% and 88.6%, respectively, of
the combined company's pro forma net income for calendar year 1998 and
approximately 12.3% and 87.7%, respectively, of the combined company's pro forma
net income for calendar year 1999.
DISCOUNTED CASH FLOW ANALYSIS. BT Alex. Brown performed a discounted cash
flow analysis for HomeUSA. The discounted cash flow approach values a business
based on the current value of the future cash flow that the business will
generate. To establish a current value under this approach, future cash flow
must be estimated and an appropriate discount rate determined. Two separate
scenarios of projections of HomeUSA's future financial performance were prepared
by HomeUSA management due to the changing competitive dynamics in the
manufactured home dealer industry, each based upon differing assumptions. The
first scenario ("Scenario 1") was based on the assumptions that HomeUSA would
complete no acquisitions of manufactured home dealers in 1998 and 1999 and that
new sales centers would be opened in both 1998 and 1999. The second scenario
("Scenario 2") was based on the assumption that HomeUSA would complete some
acquisitions of manufactured home dealers in 1998 and 1999, all of which would
be accounted for under the purchase method of accounting. HomeUSA management
considered Scenario 1 to be more likely to result than Scenario 2, which they
considered relatively optimistic and less likely to be achieved.
For each Scenario, BT Alex. Brown aggregated the present value of the cash
flows through 2000 with the present value of a range of terminal values. BT
Alex. Brown discounted these cash flows at discount rates ranging from 15.0% to
20.0%. The terminal value was computed based on projected EPS in calendar year
2001 and a range of terminal P/E multiples of 10.0x to 14.0x. BT Alex. Brown
arrived at such discount rates based on its judgment of the weighted average
cost of capital of the Selected Industry Consolidators, and arrived at such
terminal values based on its review of the trading characteristics of the common
stock of the Selected Manufactured Housing Manufacturers and Fleetwood, Selected
Automobile Retailers and Selected Industry Consolidators. This analysis
indicated a range of values of $6.45 to $9.90 per share based on Scenario 1 and
a range of values of $9.97 to $15.91 per share based on Scenario 2. Because
Scenario 2 was considered by HomeUSA management to be the more optimistic and
less likely of the two projection scenarios, BT Alex. Brown conducted a
sensitivity analysis on the discounted cash flow analysis for Scenario 2 by
reducing HomeUSA's projected earnings in ten percent increments. Based on such
sensitivity analysis, BT Alex. Brown noted that with a 10%, 20%, 30%, 40% and
50% degradation in earnings, the analysis indicated a range of values of $8.72
to $14.05 per share, $7.48 to $12.19 per share, $6.23 to $10.33 per share, $4.99
to 8.48 per share, and $3.74 to $6.62 per share, respectively.
PRO FORMA COMBINED EARNINGS ANALYSIS. BT Alex. Brown analyzed certain pro
forma effects of the Merger, assuming 51% stock and 49% cash consideration for
the Merger. Based on such analysis, BT Alex. Brown computed the resulting
dilution/accretion to the combined company's EPS estimate for calendar years
1998 and 1999 pursuant to the Merger, before taking into account any potential
cost savings and other synergies that HomeUSA and Fleetwood could achieve if the
Merger were consummated, and before nonrecurring costs relating to the Merger.
For purposes of this analysis, BT Alex. Brown utilized management's Scenario 1
projections for HomeUSA, IBES mean estimates for Fleetwood for calendar
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year 1998 and PaineWebber research estimates, as instructed by Fleetwood
management, for Fleetwood for calendar year 1999. BT Alex. Brown noted that
before taking into account any potential cost savings and other synergies and
before certain nonrecurring costs relating to the Merger, the Merger would be
approximately 0.5% and 2.1% accretive to the combined company's EPS for calendar
years 1998 and 1999, respectively.
RELEVANT MARKET AND ECONOMIC FACTORS. In rendering its opinion, BT Alex.
Brown considered, among other factors, the condition of the U.S. stock markets,
particularly the public market for HomeUSA Common Stock as compared to the
manufactured home sector, and the current level of economic activity. BT Alex.
Brown also considered the competitive dynamics and market for acquisition
targets in the manufactured housing dealership industry, particularly the
increased competition for potential acquisition targets in the manufactured
housing dealership industry, the increased multiples paid for such targets, and
the increased weight of cash as a percentage of total acquisition consideration,
and the potential impact of such market and economic factors on HomeUSA
management's acquisition plans and projections.
No company used in the analysis of other publicly-traded companies nor any
transaction used in the analysis of selected mergers and acquisitions summarized
above is identical to HomeUSA or the Merger. Accordingly, such analyses must
take into account differences in the financial and operating characteristics of
the Selected Manufactured Housing Manufacturers and Fleetwood, the Selected
Automobile Retailers and the Selected Industry Consolidators and the companies
in the Selected Manufactured Home Transactions and Fleetwood, the Selected
Republic Automobile Retailing Transactions and the Selected Other Automobile
Retailing Transactions and other factors that would affect the public trading
value and acquisition value of the Selected Manufactured Housing Manufacturers
and Fleetwood, the Selected Automobile Retailers and the Selected Industry
Consolidators and the companies in the Selected Manufactured Home Transactions,
the Selected Republic Automobile Retailing Transactions and the Selected Other
Automobile Retailing Transactions, respectively.
While the foregoing summary describes all analyses and factors that BT Alex.
Brown deemed material in its presentation to the HomeUSA Board, it is not a
comprehensive description of all analyses and factors considered by BT Alex.
Brown. The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the applications of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. BT Alex. Brown believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the evaluation process underlying the BT Alex.
Brown Opinion. In performing its analyses, BT Alex. Brown considered general
economic, market and financial conditions and other matters, many of which are
beyond the control of HomeUSA and Fleetwood. The analyses performed by BT Alex.
Brown are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than those suggested by such
analyses. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. Additionally, analyses relating to the value of a
business do not purport to be appraisals or to reflect the prices at which the
business actually may be sold. Furthermore, no opinion is being expressed as to
the prices at which shares of Fleetwood Common Stock may trade at any future
time.
Pursuant to a letter agreement dated February 14, 1998 between HomeUSA and
BT Alex. Brown, the fees to date payable to BT Alex. Brown for rendering the BT
Alex. Brown Opinion have been $850,000, which amount will be credited against
the final fee of 1.25% of the aggregate consideration payable to HomeUSA or its
stockholders in the Merger, payable upon consummation of the Merger. In
addition, HomeUSA has agreed to reimburse BT Alex. Brown for its reasonable
out-of-pocket expenses incurred in connection with rendering financial advisory
services, including fees and disbursements of its legal counsel. HomeUSA has
agreed to indemnify BT Alex. Brown and its directors, officers, agents,
employees and controlling persons, for certain costs, expenses, losses, claims,
damages and liabilities related to or arising out of its rendering of services
under its engagement as financial advisor.
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The HomeUSA Board retained BT Alex. Brown to act as its financial advisor in
connection with the Merger. BT Alex. Brown also acted as lead managing
underwriter for the HomeUSA IPO. BT Alex. Brown is an internationally recognized
investment banking firm and, as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for corporate and other purposes. BT Alex. Brown may
actively trade the equity securities of HomeUSA and Fleetwood for its own
account and for the account of its customers and, accordingly, may at any time
hold a long or short position in such securities. BT Alex. Brown regularly
publishes research reports regarding the business and securities of HomeUSA.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the HomeUSA Board with respect to the
Merger Agreement and the transactions contemplated thereby, stockholders of
HomeUSA should be aware that certain members of the management of HomeUSA and
the HomeUSA Board have certain interests in the Merger that are different from,
or in addition to, the interests of stockholders of HomeUSA generally.
OFFICERS. The Merger Agreement provides that the officers of HomeUSA
immediately prior to the Effective Time will 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. Such officers
may include certain current executive officers of HomeUSA. See "THE
MERGER--Management and Operations After the Merger."
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. The Merger Agreement
provides 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 HomeUSA and its subsidiaries will
survive the Merger and will continue for a period of not less than six years
following the Effective Time, provided that rights to indemnification in respect
of any claim asserted within such period will continue until final disposition
of such claim. In addition, from and after the Effective Time, Fleetwood has
agreed to indemnify all such persons to the fullest extent permitted by
applicable law against any liability or expense incurred in connection with all
acts and omissions arising out of such individuals' services as officers,
directors, employees or agents of HomeUSA 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, HomeUSA or any of its subsidiaries, occurring at
or prior to the Effective Time, including transactions contemplated by the
Merger Agreement. The Merger Agreement further provides that Fleetwood will
cause to be maintained for a period of not less than six years following the
Effective Time HomeUSA's current directors' and officers' liability insurance
and indemnification policy to the extent that it provides coverage for events
occurring prior to or at the Effective Time, or any equivalent substitute
therefor, provided that Fleetwood will not be required to expend more than
$614,000 in annual premiums therefor. See "THE MERGER-- Certain Covenants and
Agreements--INDEMNIFICATION AND INSURANCE."
EXISTING EMPLOYMENT AGREEMENTS. In the Merger Agreement, Fleetwood has
agreed to cause Acquisition Sub to assume and agree to perform HomeUSA's
obligations under all employment contracts between HomeUSA or any of its
subsidiaries and any current or former director, officer or employee thereof;
provided, however, that each executive officer and director of HomeUSA and
former principal stockholder of the Founding Companies has 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 will remain in full force and effect as of the Effective Time.
Each of Cary N. Vollintine, Chairman of the Board, Chief Executive Officer
and President of HomeUSA; Michael F. Loy, Senior Vice President and Chief
Financial Officer of HomeUSA; Frank W. Montfort, Senior Vice President of Market
Development of HomeUSA; and Philip deMena, Senior Vice
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President of Real Estate and Construction of HomeUSA, has entered into an
employment agreement with HomeUSA providing for an annual base salary of
$150,000. Each of Don A. Palmour, Vice President and Chief Technology Officer of
HomeUSA; Philip E. Campbell, Vice President and Controller of HomeUSA; and David
D. Moseley, Vice President of Financial Services of HomeUSA, has entered into an
employment agreement with HomeUSA 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 HomeUSA or not
renewed by the employee, the term will continue thereafter on a year-to-year
basis on the same terms and conditions existing at the time of renewal.
Each of Frank C. McDonald, President of McDonald Mobile; Harold K. Patrick,
President of Patrick Home; Larry T. Schaffer, President of Universal; Gary W.
Fordham, President of AAA Homes; David E. Thompson, Chief Operating Officer of
AAA Homes; Randle C. Cooper, President of Cooper's; Stanley Poisso, President of
Mobile World; Richard Berry, President of Home Folks; and Joseph R. Copeland,
President of First American, 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.
STOCK OPTIONS; BENEFIT PLANS. The Merger Agreement provides that at the
Effective Time, each HomeUSA Option that is outstanding immediately prior
thereto will be converted automatically into an Exchanged Option to purchase
that number of shares of Fleetwood Common Stock that is equal to the product of
the number of shares of HomeUSA Common Stock subject to the original HomeUSA
Option and the Exchange Ratio, provided that any fractional shares of Fleetwood
Common Stock resulting from such multiplication will be rounded down to the
nearest share of Fleetwood Common Stock. Subject to the terms of HomeUSA's 1997
Long-Term Incentive Plan, 1997 Non-Employee Directors' Stock Plan and the
agreements evidencing the HomeUSA Options, each Exchanged Option will be
exercisable until the current termination of the HomeUSA Option from which it
was converted, at an exercise price that is equal to the exercise price per
share of HomeUSA Common Stock underlying the original HomeUSA Option divided by
the Exchange Ratio, provided that such exercise price will be rounded to the
nearest cent. See "THE MERGER--Merger Consideration--CONVERSION OF HOMEUSA
OPTIONS."
In addition, promptly after the Effective Time, Fleetwood has agreed that it
will cause Acquisition Sub and its subsidiaries to provide HomeUSA employees who
are employees thereof or any of its subsidiaries with compensation and employee
benefit plans. See "THE MERGER--Certain Covenants and Agreements--STOCK OPTIONS;
BENEFIT PLANS."
VALUE OF CONSIDERATION TO BE RECEIVED. As of the Record Date, executive
officers and directors of HomeUSA beneficially owned an aggregate of 7,806,971
shares of HomeUSA Common Stock and held HomeUSA Options to acquire an aggregate
of 690,000 shares of HomeUSA Common Stock (including
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currently exercisable HomeUSA Options to acquire 40,000 shares of HomeUSA Common
Stock, which the holders thereof are deemed to beneficially own), exercisable at
$8.00 per share, as follows:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY MERGER
OWNED CONSIDERATION
----------- -------------
<S> <C> <C>
Cary N. Vollintine................................................ 430,226 $ 4,409,817
Michael F. Loy.................................................... 116,250 1,191,563
Frank W. Montfort................................................. 121,000 1,240,250
Philip deMena..................................................... 110,000 1,127,500
Philip E. Campbell................................................ 55,000 563,750
Don A. Palmour.................................................... 50,000 512,500
Donald D. Moseley................................................. 50,000 512,500
Larry T. Shaffer(1)............................................... 2,271,915 23,287,128
Gary W. Fordham................................................... 600,000 6,150,000
David E. Thompson................................................. 565,901 5,800,485
Frank C. McDonald................................................. 610,416 6,256,764
Harold K. Patrick(2).............................................. 936,058 9,594,595
Stanley Poisso(3)................................................. 521,101 5,341,285
Randle C. Cooper.................................................. 691,308 7,085,907
Steven S. Harter(4)............................................... 596,796 6,117,159
Thomas N. Amonett(4).............................................. 21,000 215,250
James J. Blosser(4)............................................... 30,000 307,500
Stephen F. Smith(4)............................................... 30,000 307,500
----------- -------------
All executive officers and directors as a group (18 persons)...... 7,806,971 $ 80,021,453
----------- -------------
----------- -------------
</TABLE>
- ------------------------
(1) Includes 323,956 shares of HomeUSA 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 HomeUSA 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 HomeUSA Common Stock owned equally by three of
Mr. Poisso's adult children. These shares may be deemed to be beneficially
owned by Mr. Poisso.
(4) Includes 10,000 shares of HomeUSA Common Stock issuable upon the exercise of
options granted under HomeUSA's 1997 Non-Employee Directors' Stock Plan.
Based on the Per Share Cash Amount of $10.25, the aggregate dollar value of
the Merger Consideration to be received by these executive officers and
directors in respect of outstanding shares of HomeUSA Common Stock would be
approximately $80,021,453, representing approximately 50.6% of the aggregate
Merger Consideration to be received by all holders of HomeUSA Common Stock.
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<PAGE>
THE MERGER
THE DESCRIPTION OF THE MERGER AGREEMENT SET FORTH BELOW DESCRIBES ALL
MATERIAL TERMS OF THE MERGER AGREEMENT, BUT DOES NOT PURPORT TO BE COMPLETE AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF
WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT/PROSPECTUS AND
INCORPORATED BY REFERENCE HEREIN.
GENERAL
Pursuant to the Merger Agreement and subject to the terms and conditions of
thereof, HomeUSA will merge with and into Acquisition Sub at the Effective Time.
Following the Effective Time, the separate corporate existence of HomeUSA will
cease, and Acquisition Sub will change its name to "HomeUSA, Inc.," continue as
the surviving corporation, and succeed to and assume all the rights and
obligations of HomeUSA in accordance with the DGCL.
The closing of the Merger will take place on a date specified by the parties
to the Merger Agreement, which will be no later than the second business day
after the date on which certain conditions set forth therein have been satisfied
or waived (assuming the prior satisfaction or waiver of all other conditions set
forth therein), unless another date is agreed to by the parties (the "Closing
Date"). See "--Conditions to the Merger." The Merger will become effective upon
the filing of a certificate of merger with the Delaware Secretary of State.
MERGER CONSIDERATION
CONVERSION OF HOMEUSA COMMON STOCK. At the Effective Time, subject to the
election and allocation provisions described below, all shares of HomeUSA Common
Stock issued and outstanding immediately prior to the Effective Time (excluding
any treasury shares and shares held directly or indirectly by Fleetwood) will
automatically be converted into the Merger Consideration, consisting of the
right to receive (i) a number of shares of Fleetwood Common Stock equal to the
quotient (calculated to the nearest 0.0001) of the Per Share Cash Amount
($10.25) divided by the Valuation Period Stock Price (I.E., the Exchange Ratio);
(ii) in cash, without interest, the Per Share Cash Amount; or (iii) a
combination of shares of Fleetwood Common Stock and cash equal to the Per Share
Cash Amount; provided, however, that if between the date of the Merger Agreement
and the Effective Time the outstanding shares of Fleetwood Common Stock or
HomeUSA Common Stock are 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 will 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 closing sale prices for the Fleetwood 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 July
6, 1998 (I.E., the tenth day immediately prior to the anticipated Closing Date,
July 16 ,1998). On or about July 7, 1998, HomeUSA will issue a press release
advising its stockholders of the Valuation Period Stock Price and the Exchange
Ratio resulting therefrom.
Each share of HomeUSA Common Stock issued and outstanding immediately prior
to the Effective Time (excluding any treasury shares and shares held directly or
indirectly by Parent) will at the Effective Time no longer be outstanding and
will automatically be canceled and retired and will cease to exist, and each
certificate previously evidencing any such shares ("Certificates") will
thereafter represent the right to receive only the Merger Consideration. The
holders of Certificates will cease to have any rights with respect to the shares
of HomeUSA Common Stock previously represented thereby, except as otherwise
provided herein or by law. Such Certificates will be exchanged for (i)
certificates evidencing whole shares of Fleetwood Common Stock issued in
consideration therefor, (ii) the Per Share Cash Amount multiplied by the number
of shares previously evidenced by the canceled Certificate or (iii) a
combination of such
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<PAGE>
certificates and cash, in each case in accordance with the allocation procedures
described below in
"-- ALLOCATION AND PRORATION" and upon the surrender of such Certificates in the
manner described below in "--ELECTION PROCEDURE," without interest. No
fractional shares of Fleetwood Common Stock will be issued and, in lieu thereof,
a cash payment will be made as described in "--FRACTIONAL SHARES."
ELECTION PROCEDURE. An Election Form and a Letter of Transmittal is
enclosed with this Proxy Statement/Prospectus. Each Election Form permits the
holder (or the beneficial owner) to choose to receive (subject to the allocation
and proration procedures described below in "--ALLOCATION AND PRORATION") one of
the following in exchange for such holder's shares of HomeUSA Common Stock: (i)
only cash (I.E., a Cash Election), (ii) only Fleetwood Common Stock (I.E., a
Stock Election) or (iii) a combination of cash and Fleetwood Common Stock (I.E.,
a Mixed Election). Alternatively, each Election Form permits the holder to
indicate that such holder has no preference as to the receipt of cash or
Fleetwood Common Stock for such holder's shares of HomeUSA Common Stock (I.E., a
Non-Election). No HomeUSA director or former principal stockholder of the
Founding Companies (as defined in HomeUSA's Registration Statement on Form S-1)
is entitled to elect to receive more than 25% of his Merger Consideration in
cash. Holders of record of shares of HomeUSA Common Stock who hold such shares
as nominees, trustees or in other representative capacities (a "Representative")
may submit multiple Election Forms, provided that such Representative certifies
that each such Election Form covers all the shares of HomeUSA Common Stock held
by each Representative for a particular beneficial owner. Fleetwood will make
available (or will cause the Exchange Agent to make available) one or more
separate Election Forms to all persons who become holders (or beneficial owners)
of HomeUSA Common Stock between the Election Form Record Date and the close of
business on the business day prior to the Election Deadline (described below)
upon such holder's request to the Exchange Agent, and HomeUSA will provide to
the Exchange Agent all information reasonably necessary for it to perform as
specified herein.
The Election Deadline will be 5:00 p.m. New York City time, on July 13, 1998
(I.E., the 25th day following the Mailing Date), or such other time and date as
Fleetwood and HomeUSA may mutually agree. Any shares of HomeUSA Common Stock
(excluding any treasury shares and shares held directly or indirectly by
Fleetwood) with respect to which the holder (or the beneficial owner, as the
case may be) has not submitted to the Exchange Agent an effective, properly
completed Election Form on or before the Election Deadline will be deemed to be
shares of HomeUSA Common Stock with respect to which a Non-Election has been
made.
Any such election will have been properly made only if the Exchange Agent
actually receives a properly completed Election Form by the Election Deadline.
An Election Form will be deemed properly completed only if accompanied by one or
more Certificates (or affidavits and indemnification regarding the loss or
destruction of such Certificates reasonably acceptable to Fleetwood or the
guaranteed delivery of such Certificates) representing all shares of HomeUSA
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
HomeUSA Common Stock represented by such Election Form will be deemed to be
shares covered by a Non-Election (unless thereafter covered by a duly completed
Election Form) and Fleetwood will 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.
Fleetwood will have the discretion, which it may delegate in whole or in
part to the Exchange Agent, to determine whether Election Forms have been
properly completed, signed and submitted or revoked and to disregard immaterial
defects in Election Forms. If Fleetwood (or the Exchange Agent) determines that
any purported Cash Election or Stock Election was not properly made, such
purported Cash Election or Stock Election will have no force and effect and the
holder making such purported Cash Election or Stock Election will for purposes
hereof be deemed to have made a Non-Election. The decision of Fleetwood (or the
Exchange Agent) in all such matters will be conclusive and binding. Neither
Fleetwood nor the Exchange Agent will be under any obligation to notify any
person of any defect in an Election Form
46
<PAGE>
submitted to the Exchange Agent. The Exchange Agent will also make all
computations and all such computations will be conclusive and binding on the
holders of HomeUSA Common Stock.
HOMEUSA STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING HOMEUSA
COMMON STOCK WITH THE ENCLOSED PROXY CARD. A LETTER OF TRANSMITTAL AND ELECTION
FORM IS ALSO ENCLOSED WITH THIS PROXY STATEMENT/PROSPECTUS AND, AND UPON REQUEST
TO THE EXCHANGE AGENT, WILL BE MAILED TO EACH PERSON WHO BECOMES A HOLDER OR
BENEFICIAL OWNER OF HOMEUSA COMMON STOCK BETWEEN THE ELECTION FORM RECORD DATE
AND THE BUSINESS DAY PRIOR TO THE ELECTION DEADLINE. HOMEUSA STOCKHOLDERS SHOULD
SEND CERTIFICATES REPRESENTING HOMEUSA COMMON STOCK TO THE EXCHANGE AGENT ONLY
AFTER THEY RECEIVE, AND ONLY IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN
THE LETTER OF TRANSMITTAL.
ALLOCATION AND PRORATION. In order for the Merger to be treated for federal
income tax purposes as a "reorganization" (see "THE MERGER--Certain Federal
Income Tax Considerations"), the Merger Agreement requires that at least 51% of
the aggregate Merger Consideration consist of shares of Fleetwood Common Stock.
Therefore, the aggregate number of shares covered by Cash Elections (I.E., Cash
Election Shares) and the aggregate number of such shares covered by Mixed
Elections to be acquired for cash (I.E., Mixed Election Cash Shares) times the
Per Share Cash Amount may not exceed 49% of the aggregate Merger Consideration
(I.E., the Maximum Cash Merger Consideration). Accordingly, the aggregate cash
component of the Merger Consideration is limited, and a HomeUSA stockholder may
not receive exactly the consideration elected by him on the Election Form. If
cash is oversubscribed, then (i) all Stock Election Shares and all shares of
HomeUSA Common Stock covered by Non-Elections (I.E., Non-Election Shares) will
be converted into the right to receive Fleetwood Common Stock; and (ii) each
Cash Election Share and each Mixed Election Cash Share will 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 Fleetwood
Common Stock at the Exchange Ratio.
In addition to the aggregate Merger Consideration, Fleetwood expects to pay
on or about the Closing Date approximately $4 million to satisfy miscellaneous
expenses in connection with the Merger. See "BACKGROUND OF AND REASONS FOR THE
MERGER--Interests of Certain Persons in the Merger."
CONVERSION OF HOMEUSA OPTIONS. At the Effective Time, each HomeUSA Option
that is outstanding immediately prior thereto will be converted automatically
into an Exchanged Option to purchase that number of shares of Fleetwood Common
Stock that is equal to the product of the number of shares of HomeUSA Common
Stock subject to the original HomeUSA Option and the Exchange Ratio, provided
that any fractional shares of Fleetwood Common Stock resulting from such
multiplication will be rounded down to the nearest share of Fleetwood Common
Stock. Subject to the terms of HomeUSA's 1997 Long-Term Incentive Plan, 1997
Non-Employee Directors' Stock Plan and the agreements evidencing the HomeUSA
Options, each Exchanged Option will be exercisable until the current termination
of the HomeUSA Option from which it was converted, at an exercise price that is
equal to the exercise price per share of HomeUSA Common Stock underlying the
original HomeUSA Option divided by the Exchange Ratio, provided that such
exercise price will be rounded to the nearest cent.
FRACTIONAL SHARES. No fractional shares of Fleetwood Common Stock will be
issued in the Merger, no dividend or distribution of Fleetwood will 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
Fleetwood. Each holder of record of shares of HomeUSA Common Stock exchanged
pursuant to the Merger who would otherwise be entitled to receive a fraction of
a share of Fleetwood Common Stock will receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Fleetwood
Common Stock multiplied by the closing sales price of one share of Fleetwood
Common Stock on the NYSE Composite Transactions Tape on the trading day
immediately preceding the Closing Date.
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<PAGE>
TREASURY STOCK AND STOCK OWNED BY FLEETWOOD. Each share of HomeUSA Common
Stock held in the treasury of HomeUSA and each share of HomeUSA Common Stock
owned by Fleetwood or any direct or indirect wholly owned subsidiary of
Fleetwood or of HomeUSA immediately prior to the Effective Time will be canceled
and extinguished without any conversion thereof and no payment will be made with
respect thereto.
EXCHANGE OF HOMEUSA COMMON STOCK AND HOMEUSA OPTIONS
As of the Effective Time, Fleetwood will deposit with the Exchange Agent,
for the benefit of the holders of shares of HomeUSA Common Stock, for exchange
through the Exchange Agent, (i) certificates representing the shares of
Fleetwood Common Stock issuable in exchange for outstanding shares of HomeUSA
Common Stock and (ii) cash in the amount sufficient to pay the cash portion of
the aggregate Merger Consideration (collectively, together with dividends or
distributions with respect thereto and any cash payable in lieu of any
fractional shares of Fleetwood Common Stock, the "Exchange Fund"). No later than
the business day after the Effective Time, the Exchange Agent will mail to each
HomeUSA stockholder who has not already submitted a Letter of Transmittal and
Election Form to the Exchange Agent a Letter of Transmittal and instructions for
use in effecting the surrender of Certificates in exchange for the Merger
Consideration. Upon the later of the Effective Time and the surrender of a
Certificate for cancellation to the Exchange Agent, 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 will be entitled
to receive in exchange therefor (a) a certificate representing that number of
whole shares of Fleetwood Common Stock and (b) a certified or bank cashier's
check in the amount equal to the cash that the holder has the right to receive
pursuant to the provisions of the Merger Agreement (in each case, less the
amount of any withholding taxes required under applicable law), and the
Certificate so surrendered will forthwith be canceled. No interest will be paid
or will accrue on any cash payable to holders of HomeUSA Certificates pursuant
to the exchange provisions of the Merger Agreement. Any portion of the Exchange
Fund that remains undistributed to the holders of HomeUSA Certificates for six
months after the Effective Time will be delivered to Fleetwood, upon demand, and
any holders of such Certificates who have not theretofore complied with the
exchange procedures of the Merger Agreement may thereafter look only to
Fleetwood 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 the Merger Agreement, in each case without interest thereon.
At the Effective Time, each HomeUSA Option will cease to represent a right
to acquire shares of HomeUSA Common Stock and will automatically be converted
into an Exchanged Option to purchase shares of Fleetwood Common Stock. Promptly
after the Effective Time, Fleetwood will issue to each holder of an Exchanged
Option a document evidencing Fleetwood's assumption of HomeUSA's obligations
under the HomeUSA Option. The Exchanged Options will have the same terms and
conditions as the HomeUSA Options.
STOCK EXCHANGE LISTING
In the Merger Agreement, Fleetwood has agreed to use all reasonable efforts
to cause the shares of Fleetwood Common Stock that are to be issued pursuant to
the Merger Agreement to be approved for listing on the NYSE, subject to official
notice of issuance, prior to the Closing Date.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the parties thereto. HomeUSA has made representations and warranties as to (i)
the corporate organization, good standing and corporate powers of HomeUSA and
its significant subsidiaries; (ii) equity investments made by HomeUSA and its
subsidiaries, and the valid issuance, ownership and absence of liens on shares
of HomeUSA's subsidiaries' stock; (iii) the capitalization of HomeUSA and its
subsidiaries, and options,
48
<PAGE>
warrants and other rights to acquire or vote the capital stock of HomeUSA; (iv)
the authority of HomeUSA to enter into the Merger Agreement and the absence of a
need for third party consents; (v) the absence of a need for governmental
authorizations in connection with the execution and delivery of the Merger
Agreement; (vi) the accuracy and completeness of all filings made by HomeUSA
with the Commission; (vii) the accuracy and completeness of all information
supplied by HomeUSA for the preparation of the Proxy Statement/Prospectus and
Registration Statement; (viii) the absence of certain changes and events; (ix)
the absence of certain litigation; (x) compliance with laws governing employee
compensation and other benefits; (xi) HomeUSA's voting requirements to approve
and adopt the Merger Agreement and the Merger; (xii) the inapplicability of
state takeover statutes; (xiii) the absence of brokers', finders', financial
advisors' and similar fees or commissions in connection with the Merger
Agreement and the Merger (other than those paid or to be paid by HomeUSA to BT
Alex. Brown); (xiv) receipt of the fairness opinion of HomeUSA's financial
advisor, BT Alex. Brown; (xv) compliance with applicable laws; (xvi) the timely
payment of taxes and filing of tax returns; (xvii) collective bargaining
agreements or contracts with labor unions or labor organizations; (xviii)
compliance with applicable environmental laws and the absence of any notices
with respect to environmental matters; (xix) permits, licenses, waivers and
authorizations necessary for HomeUSA to conduct its business; (xx) ownership and
rights to use intellectual property and noninfringement on the intellectual
property rights of others; and (xxi) HomeUSA's compliance with and nonbreach of
its material agreements.
Fleetwood and Acquisition Sub have made representations and warranties as to
(i) the corporate organization, good standing and corporate powers of Fleetwood,
its significant subsidiaries and Acquisition Sub; (ii) the valid issuance,
ownership and absence of liens on shares of Fleetwood's subsidiaries' stock;
(iii) the capitalization of Fleetwood and its subsidiaries, and options,
warrants and other rights to acquire or vote the capital stock of Fleetwood;
(iv) the authority of Fleetwood and Acquisition Sub to enter into the Merger
Agreement and the absence of a need for third party consents; (v) the absence of
a need for governmental authorizations in connection with the execution and
delivery of the Merger Agreement; (vi) the accuracy and completeness of all
filings made by Fleetwood with the Commission; (vii) the accuracy and
completeness of all information supplied by Fleetwood or Acquisition Sub for the
preparation of the Proxy Statement/Prospectus and Registration Statement; (viii)
the absence of certain changes and events; (ix) the absence of certain
litigation; (x) compliance with laws governing employee compensation and other
benefits; (xi) the absence of broker's, finder's, financial advisor's and
similar fees or commissions in connection with the Merger Agreement and the
Merger (other than those paid or to be paid by Fleetwood to PaineWebber
Incorporated); (xii) the interim operations of Acquisition Sub; (xiii) the
timely payment of taxes and filing of tax returns; (xiv) compliance with
applicable laws; (xv) collective bargaining agreements or contracts with labor
unions or labor organizations; (xvi) compliance with applicable environmental
laws and the absence of any notices with respect to environmental matters;
(xvii) permits, licenses, waivers and authorizations necessary for Fleetwood to
conduct its business; (xviii) ownership and rights to use intellectual property
and noninfringement on the intellectual property rights of others; and (xix)
Fleetwood's compliance with and nonbreach of its material agreements; (xx) the
availability of funds necessary to satisfy Fleetwood's and Acquisition Sub's
obligations under the Merger Agreement and to pay all the related fees and
expenses in connection with the foregoing; and (xxi) no ownership of HomeUSA
Common Stock.
CERTAIN COVENANTS AND AGREEMENTS
CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Merger Agreement,
HomeUSA has made customary covenants relating to the conduct of its business
prior to the Merger. HomeUSA has agreed that, prior to the Effective Time,
except as contemplated by the Merger Agreement or otherwise agreed by Fleetwood,
it will operate its business in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the date of the Merger
Agreement and in compliance in all material respects with all applicable laws
and regulations and, to the extent consistent therewith, will use all reasonable
efforts to preserve intact its current business organization, keep available the
services of its current officers
49
<PAGE>
and employees, and preserve its relationships with customers, suppliers,
licensors, licensees and others having business dealings with it. HomeUSA also
agreed, among other things, that prior to the Effective Time, it will not (i)
(a) declare, set aside or pay any dividend or other distribution with respect to
its capital stock, (b) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of shares of
its capital stock, or (c) purchase, redeem or otherwise acquire any shares of
its capital stock or any of its other securities or any rights, warrants or
options to acquire any such shares or other securities; (ii) issue, sell or
pledge any shares of its capital stock or any other voting securities or
securities convertible into, or any rights, warrants or options to acquire any
such securities (other than the issuance of HomeUSA Common Stock upon the
exercise of employee stock options outstanding on the date of the Merger
Agreement); (iii) amend its certificate of incorporation, bylaws or other
charter or organizational documents; (iv) acquire or agree to acquire any
business organization or division thereof, or any assets that are material to
HomeUSA and its subsidiaries taken as a whole; (v) sell, lease, license, or
mortgage or otherwise dispose of any of its properties or assets, except in the
ordinary course of business consistent with past practice; (vi) (a) incur any
indebtedness, except for floor plan financing and borrowings (net of cash, cash
equivalents and marketable securities held by HomeUSA or any of its
subsidiaries) of not more than $500,000 outstanding at any one time incurred in
the ordinary course of business consistent with past practice or (b) make any
loans, advances or capital contributions to, or investments in, any other
person, other than to any direct or indirect wholly owned subsidiary of HomeUSA,
except in the ordinary course of business consistent with past practice; (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) modify, amend or terminate any material contract or agreement to
which HomeUSA or any subsidiary is a party or waive, release or assign any
material rights or claims thereunder, except in the ordinary course of business
or except as would not have a material adverse effect on HomeUSA; (x) make any
material change to its accounting methods, principles or practices, except as
may be required by generally accepted accounting principles; or (xi) except as
required to comply with applicable law and except as necessary to comply with
the Merger Agreement, (a) adopt, enter into, terminate or amend any of HomeUSA's
compensation and benefit plans or other arrangement for the benefit or welfare
of any current or former director, officer or employee, (b) increase the
compensation or 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), (c) pay any benefit not
provided for under any of HomeUSA's compensation and benefit plans, or (d) grant
any awards under any bonus, incentive, performance or other compensation plan or
arrangement or of HomeUSA's compensation and benefit plans.
Fleetwood has agreed that, prior to the Effective Time, without the prior
written consent of HomeUSA, Fleetwood will not (i) declare, set aside or pay any
dividends on, or make any other distributions in respect of, Fleetwood any
shares of its capital stock, other than quarterly dividends paid in accordance
with past practice; or (ii) split, combine or reclassify Fleetwood's capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for Fleetwood Common Stock.
NO SOLICITATION. Pursuant to the Merger Agreement, HomeUSA has agreed that
neither it nor any of its subsidiaries will, nor will it permit any of its
officers, directors, employees, investment bankers, attorneys or other advisors
or representatives to, directly or indirectly, (i) except as contemplated by the
Merger Agreement, solicit, initiate or knowingly encourage the submission of any
proposal for a merger, consolidation or other business combination involving
HomeUSA or any of its significant subsidiaries or any proposal or offer to
acquire an equity interest in, any voting securities of, or a substantial
portion of the assets of HomeUSA or any of its significant subsidiaries (a
"Takeover Proposal"), (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. However, if, at
any time prior to the receipt of HomeUSA
50
<PAGE>
Stockholder Approval, the HomeUSA Board determines in good faith that it is
necessary to do so in order to comply with its fiduciary duties to HomeUSA's
stockholders under applicable law, as advised by outside counsel, HomeUSA may,
with respect to an actual or potential unsolicited Takeover Proposal and subject
to compliance with the provisions of the Merger Agreement, (x) furnish
non-public information with respect to HomeUSA to such person making such actual
or potential unsolicited Takeover Proposal and (y) participate in negotiations
regarding such proposal.
HomeUSA has further agreed that neither the HomeUSA Board nor any of its
committees will (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Fleetwood or Acquisition Sub, the approval or recommendation
by the HomeUSA Board or any committee of the Merger 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. However, the HomeUSA Board may approve or recommend (and, in
connection therewith, withdraw or modify its approval or recommendation of the
Merger Agreement or the Merger) (a) a bona fide Takeover Proposal to acquire,
directly or indirectly, all or a substantial portion of the shares of HomeUSA
Common Stock or all or substantially all of the assets of HomeUSA and (b)
otherwise on terms that the HomeUSA Board determines in its good faith judgment
to be more favorable to HomeUSA's stockholders than the Merger after receipt of
the written advice of HomeUSA's independent financial advisor (a "Superior
Proposal") if (x) the HomeUSA Board determines in good faith that it is
necessary, in order to comply with its fiduciary duties to HomeUSA's
stockholders under applicable law, as advised by outside counsel, to approve or
recommend such Superior Proposal, (y) HomeUSA gives notice to Fleetwood advising
Fleetwood that HomeUSA 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 HomeUSA intends to approve or
recommend such Superior Proposal, and (z) if Fleetwood does not, within seven
business days of Fleetwood's receipt of such notice, make an offer that the
HomeUSA Board determines in its good faith judgment (based on the written advice
of a financial adviser of nationally recognized reputation) to be as favorable
to HomeUSA's stockholders as the Superior Proposal.
In addition, HomeUSA has agreed that it 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 that could reasonably be expected to lead to,
any Takeover Proposal that, in any such case, is either (i) in writing or (ii)
made to any executive officer or director of HomeUSA (and brought to the
attention of the Chief Executive Officer of HomeUSA), 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. HomeUSA has also
agreed to 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 Merger Agreement, however, prohibits HomeUSA or the
HomeUSA Board from (i) taking and disclosing to its stockholders a position
contemplated by Rule 14e-2 of the Exchange Act or (ii) making any disclosure to
its stockholders that in the judgment of the HomeUSA Board, as advised by its
outside legal counsel, is required under applicable law.
PREPARATION OF REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS;
HOMEUSA SPECIAL MEETING. The Merger Agreement provides that as soon as
practicable after execution and delivery of the Merger Agreement, HomeUSA and
Fleetwood will prepare and HomeUSA will file with the Commission the Proxy
Statement, and Fleetwood will prepare and file with the Commission the
Registration Statement, in which the Proxy Statement will be included as the
Prospectus. HomeUSA and Fleetwood have agreed to use all reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing, and to cause the Proxy
Statement/Prospectus to be mailed to HomeUSA's stockholders as promptly as
practicable thereafter. In addition, HomeUSA has agreed that it will (i) as soon
as reasonably practicable following the date of the Merger Agreement, duly call,
give notice of, convene and hold the HomeUSA Special Meeting, regardless of the
commencement, public proposal, public disclosure or communication to HomeUSA of
any Takeover Proposal; and (ii) through the
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HomeUSA Board, recommend to HomeUSA's stockholders the approval and adoption of
the Merger Agreement and the Merger. However, the HomeUSA Board may withdraw or
modify its recommendation upon its approval of a Superior Proposal, in the
manner described in "--NO SOLICITATION."
REASONABLE EFFORTS. Pursuant to the Merger Agreement, each of Fleetwood and
HomeUSA has agreed 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 the Merger 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, 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 the Merger Agreement or the Merger; and (iv) the execution and
delivery of any additional instruments necessary to consummate the Merger.
However, no party is obligated to take any such action if the taking of such
action or the obtaining of any waiver, consent, approval or exemption would have
a material adverse effect on HomeUSA or Fleetwood.
In addition, HomeUSA and the HomeUSA Board has agreed to (i) use all
reasonable efforts to ensure that no state takeover statute or similar statute
or regulation is or becomes applicable to the Merger Agreement or any of the
other transactions contemplated thereby and (ii) if any state takeover statute
or similar statute or regulation becomes applicable to the Merger Agreement or
any of the transactions contemplated thereby, to use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by the Merger
Agreement may be consummated as promptly as practicable on the terms
contemplated by the Merger Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger and the other transactions contemplated
by the Merger Agreement.
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides 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 HomeUSA and its subsidiaries (collectively, the
"Indemnified Parties") as provided in their respective certificates of
incorporation or bylaws (or comparable charter or organizational documents) or
otherwise will survive the Merger and will continue in full 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, Fleetwood has agreed to
guarantee the performance by the Acquisition Sub of its obligations referred to
in the immediately preceding sentence; provided that, in the event any claim is
asserted or made within such six-year period, all rights to indemnification in
respect of any such claim, and Fleetwood's guarantee with respect thereto, will
continue until final disposition of such claim. From and after the Effective
Time, Fleetwood has also agreed 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 HomeUSA 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; HomeUSA or any of its subsidiaries, occurring at or
prior to the Effective Time, including the transactions contemplated by the
Merger Agreement. Fleetwood has also agreed to pay as incurred an indemnified
Party's reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection with any action,
proceeding or investigation in which such Indemnified Party becomes involved
relating to any of such acts or omissions. In addition, Fleetwood will maintain,
for a period of not less than six years from the Effective Time, HomeUSA's
current directors' and officers' insurance and indemnification policy ("D&O
Insurance") to the extent that it provides coverage for events occurring prior
to or at the Effective Time, provided that Fleetwood will not be obligated to
pay annual premiums for such D&O Insurance in excess of $614,000 (the "Maximum
Premium"). However, Fleetwood may, in lieu of maintaining the existing D&O
Insurance as provided above, cause coverage to be
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provided under any policy maintained for the benefit of Fleetwood or any of its
subsidiaries, so long as the terms of the policy are no less advantageous to the
intended beneficiaries than the existing D&O Insurance. If the existing D&O
Insurance expires, is terminated or canceled or is not available during the
six-year period, Fleetwood will use all reasonable efforts to obtain 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.
STOCK OPTIONS; BENEFIT PLANS. Pursuant to the Merger Agreement, Fleetwood
has agreed that it will cause a Registration Statement on Form S-8 (a "Form
S-8") to be filed with the Commission not more than 30 days after the Effective
Time, registering the shares of Fleetwood Common Stock underlying the Exchanged
Options granted in replacement of HomeUSA Options, or will cause such shares
underlying such Exchanged Options to be subject to an existing Form S-8.
Fleetwood has further agreed that it will use its best efforts to maintain the
effectiveness of such Form S-8 for so long as any Exchanged Options remain
outstanding. In addition, promptly after the Effective Time, Fleetwood has
agreed that it will cause Acquisition Sub and its subsidiaries to provide
HomeUSA 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 Fleetwood or
its subsidiaries who are not employees of HomeUSA; provided, however, that
employees of HomeUSA will not be required to satisfy any additional copayment or
other deductible requirements in connection therewith; and provided, further,
that this obligation of Fleetwood will not apply to any employees of HomeUSA or
any of its subsidiaries covered by a collective bargaining agreement to which
HomeUSA 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),
Fleetwood will give effect to years of service (and for purposes of qualified
and nonqualified pension plans, prior earnings) with HomeUSA or its
subsidiaries, as the case may be, as if they were with Fleetwood or one of its
subsidiaries. Fleetwood also will cause Acquisition Sub to assume and agree to
perform HomeUSA's obligations under all employment, severance, consulting and
other compensation contracts between HomeUSA or any of its subsidiaries and any
current or former director, officer or employee thereof; provided, however, that
each executive officer and director of HomeUSA and former principal stockholder
of the Founding Companies has 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 will remain in full
force and effect as of the Effective Time. However, nothing in the applicable
provisions of the Merger Agreement will be construed or applied to restrict the
ability of Acquisition Sub to establish such types and levels of compensation
and benefits as it determines to be appropriate or to modify or terminate
compensation or benefit programs adopted pursuant to the preceding sentence of
this paragraph.
CERTAIN OTHER AGREEMENTS. Each of Fleetwood and HomeUSA has agreed (i) to
use all reasonable efforts to cause to be delivered to the other party a letter
from its independent public accountants in a form reasonably satisfactory to the
other party and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement; (ii) subject to the terms of the
Confidentiality Agreement dated as of February 9, 1998 (the "Confidentiality
Agreement") between Fleetwood and HomeUSA, to allow the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party reasonable access to all its properties, books, contracts, commitments,
personnel and records and to cause its employees to provide requested
information; (iii) to use all reasonable efforts to consult with each other
prior to issuing, and to provide each other the opportunity to review and
comment on, any press release or public statement with respect to any of the
transactions contemplated by the Merger Agreement; (iv) that HomeUSA will, at
least 30 days before the Closing Date, deliver to Fleetwood a letter identifying
all
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persons who are "affiliates" (as such term is defined under the Securities Act)
of HomeUSA (the "HomeUSA Affiliates"), and that HomeUSA will use all reasonable
efforts to cause to be delivered to Fleetwood, prior to the Closing Date, an
affiliate letter, in the form attached to the Merger Agreement, from each of the
HomeUSA Affiliates; and (v) that HomeUSA will advise Fleetwood of all material
developments in any stockholder litigation against HomeUSA and its directors
relating to the transactions contemplated by the Merger Agreement, and that
HomeUSA will not agree to any settlement of such litigation without Fleetwood's
consent (not to be unreasonably withheld).
CONDITIONS TO THE MERGER
The obligations of HomeUSA, Fleetwood and Acquisition Sub to consummate the
Merger are subject to the satisfaction or waiver of certain conditions on or
prior to the Closing Date, including, among other things, (i) approval and
adoption of the Merger Agreement by the requisite vote of HomeUSA stockholders
at the HomeUSA Special Meeting; (ii) the receipt of all other consents,
authorizations, orders and approvals of (or filings or registrations with) any
governmental entity required in connection with the execution, delivery and
performance of the Merger Agreement (except for those documents required to be
filed after the Effective Time and except where the failure to obtain or make
any consent, authorization, order, approval, filing or registration would not
have a material adverse effect on Fleetwood and HomeUSA after the Effective
Time); (iii) there not being in effect any (a) decree, temporary restraining
order, preliminary or permanent injunction or other order entered, issued or
enforced by any court of competent jurisdiction or (b) federal, state or local
statute, rule or regulation enacted or promulgated that would have a material
adverse effect on Fleetwood after the Effective Time; (iv) the effectiveness of
the Registration Statement and the absence of any stop order or proceedings
seeking a stop order; and (v) the listing of the Fleetwood Common Stock to be
issued in the Merger on the NYSE, subject to official notice of issuance.
The obligations of Fleetwood and Acquisition Sub to effect the Merger are
further subject to satisfaction or waiver of the following: (i) the
representations and warranties of HomeUSA in the Merger Agreement being true and
correct (except for inaccuracies that individually or in the aggregate do not
have a material adverse effect on HomeUSA), and Fleetwood's receipt of a
certificate dated the Closing Date and signed on behalf of HomeUSA to such
effect; (ii) HomeUSA's performance in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Closing Date, and Fleetwood's receipt of a certificate dated the Closing Date
signed on behalf of HomeUSA to such effect; (iii) Fleetwood's receipt from its
counsel, Gibson, Dunn & Crutcher LLP, on the date of this Proxy
Statement/Prospectus and on the Closing Date, of opinions 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 Fleetwood, Acquisition
Sub and HomeUSA will each be a party to that reorganization within the meaning
of Section 368 of the Code; (iv) Fleetwood's receipt of an opinion from counsel
to HomeUSA, Bracewell & Patterson, L.L.P., effective as of the Closing Date,
with respect to matters customary in public company merger transactions; and (v)
the waiver by each executive officer and director of HomeUSA and former
principal stockholder of the Founding Companies of 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 the full force
and effect of all such contracts as of the Effective Time.
The obligation of HomeUSA to effect the Merger is further subject to
satisfaction or waiver of the following: (i) the representations and warranties
of Fleetwood and Acquisition Sub set forth in the Merger Agreement being true
and correct (except for inaccuracies that individually or in the aggregate do
not have a material adverse effect on Fleetwood), and HomeUSA's receipt of a
certificate dated the Closing Date and signed on behalf of Fleetwood to such
effect; (ii) Fleetwood's and Acquisition Sub's performance in all material
respects all obligations required to be performed by them under the Merger
Agreement at or prior to the Closing Date, and HomeUSA's receipt of a
certificate signed on behalf of Fleetwood to such effect; (iii) HomeUSA receipt
from its tax advisor, Arthur Andersen LLP, on the date of this Proxy
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Statement/Prospectus and on the Closing Date, of opinions 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 Fleetwood, Acquisition
Sub and HomeUSA will each be a party to that reorganization within the meaning
of Section 368 of the Code; and (iv) HomeUSA's receipt from special counsel to
Fleetwood and Acquisition Sub, Gibson, Dunn & Crutcher LLP, of an opinion or
opinions dated the Closing Date, reasonably satisfactory to HomeUSA, with
respect to matters customary in public company merger transactions.
TERMINATION, AMENDMENT AND WAIVER
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after HomeUSA Stockholder Approval, (i) by
mutual written consent of Fleetwood, Acquisition Sub and HomeUSA; (ii) by either
Fleetwood or HomeUSA (a) if the HomeUSA Special Meeting (including as it may be
adjourned from time to time) concludes without HomeUSA Stockholder Approval, (b)
if the Merger has not been consummated on or before August 30, 1998 (the
"Termination Date"), provided that the party seeking to terminate the Merger
Agreement is not otherwise in material breach of the Merger Agreement, (c) if
any governmental entity has 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 has become final and nonappealable, or (d) in the event of a breach by
the other party of any representation, warranty, covenant or other agreement
contained in the Merger Agreement that (I) would give rise to the failure of any
other condition set forth in the Merger Agreement and (II) 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 the Merger Agreement); or (iii) by either Fleetwood or HomeUSA if
the HomeUSA Board approves or recommends a Superior Proposal.
If the Merger Agreement is terminated by either HomeUSA or Fleetwood, the
Merger Agreement will become void and have no effect, without any liability or
obligation on the part of Fleetwood, Acquisition Sub or HomeUSA, except for,
among other things, the liabilities and obligations associated with HomeUSA's
brokers' and investment bankers' fees, the parties' respective confidentiality
obligations, the fees and expenses described below under "--Fees and Expenses,"
and any liability of a party for damages resulting from a material breach of the
Merger Agreement.
AMENDMENT, EXTENSION AND WAIVER. The Merger Agreement may be amended by the
parties at any time before or after HomeUSA Stockholder Approval. After HomeUSA
Stockholder Approval has been obtained, however, no amendment will be made to
the Merger Agreement that by law requires further approval by the stockholders
of HomeUSA, without obtaining such further approval. In addition, at any time
prior to the Effective Time, Fleetwood, Acquisition Sub and/or HomeUSA may (i)
extend the time for the performance of any of the obligations or other acts of
the other parties; (ii) waive any inaccuracies in the representations and
warranties of the other parties contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement; or (iii) subject to the
restrictions on amendment, waive compliance by the other parties with any of the
agreements or conditions contained in the Merger Agreement.
FEES AND EXPENSES
The Merger Agreement provides that all fees and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated, except that each of Fleetwood and
HomeUSA will bear and pay one-half of the costs and expenses incurred in
connection with the filing, printing and mailing of the Registration Statement
and this Proxy Statement/Prospectus. However, in the event that Fleetwood
terminates the Merger Agreement because (i) the HomeUSA Special Meeting
(including as it may be adjourned from time to time) concludes without HomeUSA
Stockholder Approval
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or (ii) the HomeUSA Board approves or recommends a Superior Proposal, HomeUSA
will be required to reimburse Fleetwood and Acquisition Sub for all actual
documented out-of-pocket fees and expenses, not to exceed $1 million, incurred
by either of them or on their behalf in connection with the Merger and the
transactions contemplated by the Merger Agreement.
The Merger Agreement also provides that HomeUSA is required to pay to
Fleetwood the Termination Fee of $6 million upon demand if (i) HomeUSA or
Fleetwood terminates the Merger Agreement because the HomeUSA Board approves or
recommends a Superior Proposal; or (ii) HomeUSA or Fleetwood terminates the
Merger Agreement because HomeUSA Stockholder Approval was not obtained and,
within 12 months of such termination, either (a) an Acquiring Party acquires, in
one transaction or any related series of transactions, a majority of the voting
power of the outstanding securities of HomeUSA or all or substantially all of
the assets of HomeUSA, in which consideration for HomeUSA Common Stock
(including the value of any stub equity) is in excess of the aggregate Merger
Consideration, or (b) a consolidation, merger or similar business combination
between HomeUSA and an Acquiring Party is consummated, in which stockholders of
HomeUSA immediately prior to such 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) immediately following
the consummation thereof, and in which consideration for HomeUSA Common Stock
(including the value of any stub equity) is in excess of the aggregate Merger
Consideration. However, with respect to clause (ii), no Termination Fee will be
payable unless there is made public, prior to the HomeUSA Special Meeting, a
takeover proposal involving consideration for HomeUSA Common Stock (including
the value of any stub equity) in excess of the aggregate Merger Consideration.
If HomeUSA fails promptly to pay the Termination Fee and, in order to obtain
payment of the Termination Fee, Fleetwood or Acquisition Sub commences a suit
that results in a judgment against HomeUSA for the Termination Fee, HomeUSA has
agreed that it will pay to Fleetwood or Acquisition 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.
Under the Merger Agreement, Acquisition Sub has agreed to 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.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the Merger, the certificate of incorporation and bylaws of Acquisition
Sub will be the certificate of incorporation and bylaws of the surviving
corporation, and Acquisition Sub will be a wholly owned subsidiary of Fleetwood.
The directors of Acquisition Sub immediately prior to the Effective Time will
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. The officers of HomeUSA immediately prior to the Effective Time will
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. Acquisition Sub will operate as one of Fleetwood's
business units, and Fleetwood currently intends to maintain its corporate
headquarters in Texas. After the Merger, Acquisition Sub will have access to
resources generally available to Fleetwood's other business units, will
participate in appropriate activities with other Fleetwood business units, and
will operate under the direction and guidance of the Fleetwood Board and senior
management.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material United States federal
income tax consequences of the Merger and does not purport to be a complete
analysis of all potential tax consequences. The summary is based upon current
provisions of the Code, temporary and final Treasury regulations thereunder, and
current administrative rulings and court decisions, all of which are subject to
change (possibly on a retroactive basis) and any such change could affect the
continuing validity of this summary. This summary does not address the state,
local or foreign tax aspects of the Merger. In addition, it does not discuss the
United States federal income tax considerations that may be relevant to certain
persons, including holders of options, and may not apply to certain holders
subject to special tax rules, including dealers in securities, foreign holders
and holders who acquired their shares of HomeUSA Common Stock pursuant to the
exercise of options or otherwise as compensation.
THE GENERAL SUMMARY SET FORTH BELOW IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOMEUSA STOCKHOLDER.
BECAUSE THE PARTICULAR TAX ATTRIBUTES OF EACH HOMEUSA STOCKHOLDER WILL VARY AND
THE TAX CONSEQUENCES OF THE MERGER WILL VARY DEPENDING UPON WHETHER A HOMEUSA
STOCKHOLDER RECEIVES IN THE MERGER SOLELY FLEETWOOD COMMON STOCK, A COMBINATION
OF CASH AND FLEETWOOD COMMON STOCK, OR SOLELY CASH, EACH HOMEUSA STOCKHOLDER
SHOULD CONSULT HIS, HER, OR ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF ANY STATE,
LOCAL, AND FOREIGN TAX LAWS.
TAX OPINIONS. Fleetwood and HomeUSA have received opinions dated as of the
date of this Proxy Statement/Prospectus, and consummation of the Merger is
conditioned upon Fleetwood and HomeUSA receiving opinions dated as of the
Closing Date, from Gibson, Dunn & Crutcher, LLP, counsel to Fleetwood, and
Arthur Andersen, LLP, tax advisor to HomeUSA, that the Merger will be treated
for federal income tax purposes as a "reorganization" within the meaning of
Section 368(a) of the Code and that Fleetwood, Acquisition Sub and HomeUSA will
each be a party to that reorganization within the meaning of Section 368(b) of
the Code.
In rendering their opinions, each counsel or advisor has relied upon and
assumed as accurate and correct on the date hereof, and will rely and assume as
accurate and correct as of the Effective Time, the information contained in this
Proxy Statement/Prospectus and certain representations as to factual matters
made by Fleetwood and HomeUSA. The principal representations relied upon are (i)
HomeUSA will not redeem, and a corporation related to HomeUSA will not acquire,
HomeUSA Common Stock prior to or in connection with the Merger; (ii) HomeUSA
will not make an "extraordinary distribution" with respect to HomeUSA Common
Stock prior to or in connection with the Merger; (iii) there is no plan or
intention on the part of Fleetwood, or a corporation related to Fleetwood, to
purchase any of the Fleetwood Common Stock transferred to the HomeUSA
stockholders in the Merger; (iv) except for the HomeUSA Common Stock acquired
for cash pursuant to the Merger Agreement, neither Fleetwood nor a corporation
related to Fleetwood will acquire, prior to or in connection with the Merger,
HomeUSA Common Stock using consideration other than Fleetwood Common Stock; (v)
Acquisition Sub will acquire at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets of HomeUSA
immediately prior to the Merger, taking into account any redemptions or
distribution by HomeUSA occurring prior to the Merger; (vi) Fleetwood has no
plan or intention to liquidate Acquisition Sub or merge Acquisition Sub with
itself or another corporation following the Merger; and (vii) following the
Merger, Fleetwood will continue the historic business of HomeUSA or use a
significant portion of HomeUSA's assets in a business and will not make any
transfers of HomeUSA's assets that would cause Fleetwood to be considered as no
longer continuing the business of HomeUSA for purposes of Code Section 368 and
the regulations thereunder. Any inaccuracy or change with respect to such
information or representations, or any past or future actions by Fleetwood or
HomeUSA contrary to such representations, could adversely affect the conclusions
reached in the opinions and the tax summary set forth below.
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These opinions represent such counsel's and advisor's best judgments as to
the tax treatment of the Merger, but are not binding on the Internal Revenue
Service (the "Service"). The parties have not and will not request a ruling from
the Service in connection with the federal income tax consequences of the
Merger. The following summary of material United States federal tax consequences
is based upon the conclusions reached in such opinions.
RECOGNITION OF GAIN OR LOSS BY HOMEUSA STOCKHOLDERS. Except as discussed
above under "--Merger Consideration--FRACTIONAL SHARES," a HomeUSA stockholder
who exchanges HomeUSA Common Stock solely for shares of Fleetwood Common Stock
will recognize neither gain nor loss on such exchange. In contrast, a HomeUSA
stockholder who exchanges HomeUSA Common Stock for a combination of cash and
Fleetwood Common Stock and realizes gain will recognize such gain in an amount
equal to the lesser of (i) the amount of gain realized by such stockholder
(I.E., the excess of the sum of cash and fair market value of Fleetwood Common
Stock received by the stockholder over the stockholder's tax basis in the
HomeUSA Common Stock surrendered) and (ii) the amount of cash received by the
stockholder. If, however, a HomeUSA stockholder realizes a loss upon the
exchange of HomeUSA Common Stock for a combination of cash and Fleetwood Common
Stock, such loss cannot be recognized by the stockholder. Finally, a HomeUSA
stockholder who exchanges HomeUSA Common Stock solely for cash in the Merger
will recognize any gain realized and, depending on the particular circumstances
of such holder, should recognize any realized loss.
CHARACTER OF GAIN RECOGNIZED BY A HOMEUSA STOCKHOLDER THAT RECEIVES A
COMBINATION OF CASH AND FLEETWOOD COMMON STOCK. The character of the gain
recognized upon the receipt of cash depends on the particular facts and
circumstances relating to each HomeUSA stockholder. Any gain recognized will be
capital gain, unless the receipt of cash has the effect of the distribution of a
dividend under Section 356 of the Code, in which case the gain will be taxable
as ordinary dividend income. To determine whether any such gain is capital gain
or ordinary dividend income, the principle established in CLARK V. COMMISSIONER,
489 U.S. 726 (1989), requires a comparison of the stock interest in Fleetwood a
HomeUSA stockholder actually has following the Merger with the stock interest
such stockholder would have had in Fleetwood if solely Fleetwood Common Stock
had been received by the stockholder in the Merger. To make this comparison, a
hypothetical redemption is deemed to occur under which a HomeUSA stockholder
that receives a combination of cash and Fleetwood Common Stock is treated as (i)
hypothetically receiving solely shares of Fleetwood Common Stock in exchange for
the stockholder's HomeUSA Common Stock, and (ii) having a portion of such shares
of Fleetwood Common Stock (equal in amount to the cash actually received in the
Merger) redeemed by Fleetwood. The cash received in the hypothetical redemption
will have the effect of a distribution of a dividend unless, under the
redemption tests of Section 302 of the Code, such distribution (x) is "not
essentially equivalent to a dividend" with respect to the stockholder or (y)
results in a "substantially disproportionate" redemption of such stockholder's
equity interest in Fleetwood.
The hypothetical redemption will be "substantially disproportionate" with
respect to a HomeUSA stockholder if (i) after the redemption the stockholder
owns less than 50% of the total combined voting power of all classes of stock of
Fleetwood entitled to vote, and (ii) the percentage ownership of Fleetwood
"common stock" and "voting stock" immediately after the hypothetical redemption
is less than 80% of the HomeUSA stockholder's percentage ownership in such stock
immediately before the hypothetical redemption. If the hypothetical redemption
from a HomeUSA stockholder fails to satisfy the "substantially disproportionate"
test, such stockholder may nonetheless satisfy the "not essentially equivalent
to a dividend" test.
Under the principles established in UNITED STATES V. DAVIS, 397 U.S. 301
(1970), a distribution to a HomeUSA stockholder will not be "essentially
equivalent to a dividend" if it results in a "meaningful reduction" in such
stockholder's proportionate stock interest in Fleetwood. If a stockholder with a
relatively minimal stock interest in Fleetwood and no exercise of control over
corporate affairs suffers a reduction in his proportionate interest in Fleetwood
as a result of the hypothetical redemption, that
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stockholder should be regarded as having suffered a meaningful reduction of his
interest in Fleetwood. For example, the Service has held in a published ruling
that in the case of a less than 1% stockholder who does not have management
control over the corporation, any reduction in proportionate interest will
constitute a "meaningful reduction."
In applying these redemption tests, the Code requires that each HomeUSA
stockholder take into account not only the Fleetwood Common Stock directly owned
by the stockholder (including the Fleetwood Common Stock received in the
Merger), but also Fleetwood stock owned by certain of the stockholder's family
members, stock owned by partnerships, trusts, corporations and other entities in
which the stockholder has an interest, as well as Fleetwood stock the
stockholder has a right or option to acquire. The Section 302 redemption tests
described above and the application of the stock ownership attribution rules are
complex and will depend upon each HomeUSA stockholder's particular facts and
circumstances. Each HomeUSA stockholder who elects to receive a portion of the
Merger consideration as cash is urged to consult their tax advisors to determine
the character of any gain that may be recognized as a result of the Merger.
If none of the redemption tests under Section 302 of the Code is satisfied,
a HomeUSA stockholder who exchanges their HomeUSA Common Stock for a combination
of shares of Fleetwood Common Stock and cash will be treated as having a taxable
distribution with respect to his shares of Fleetwood Common Stock. The amount of
such distribution will generally equal the amount of cash received by the
stockholder (but not in excess of the gain realized on the exchange pursuant to
the Merger), and will be treated as a dividend to the extent of such
stockholder's allocable portion of the accumulated earnings and profits (as
determined for federal income tax purposes) of Fleetwood. If the amount of such
distribution exceeds such stockholder's allocable portion of Fleetwood's
accumulated earnings and profits, the excess then will be treated as gain from
the sale or exchange of such stock. If such distribution is taxable as a
dividend to a corporate stockholder, it may be subject to the "extraordinary
dividend" provisions of Section 1059 of the Code.
CHARACTER OF GAIN RECOGNIZED BY A HOMEUSA STOCKHOLDER THAT RECEIVES SOLELY
CASH. It is unclear whether the principle of the CLARK case discussed above
applies to a HomeUSA stockholder who receives solely cash and no Fleetwood
Common Stock in the Merger, because such case solely considered the tax
treatment of a stockholder that received a combination of cash and stock in a
Code Section 368 reorganization. If the principle of CLARK applies, the
character of gain recognized, as well as the ability to recognize any loss
realized, by a HomeUSA stockholder who receives solely cash and no Fleetwood
Common Stock in the Merger will apparently be determined by treating such
stockholder as hypothetically receiving solely Fleetwood Common Stock in the
Merger that Fleetwood thereafter redeems for cash. Alternatively, the Service
may take the position that the tax treatment associated with solely receiving
cash is determined by treating the HomeUSA stockholder as having his HomeUSA
shares redeemed by HomeUSA immediately prior to the Merger. In either case,
provided that the redemption of the stockholder's shares satisfies one of the
Section 302 redemption tests described above, or such redemption results in a
"complete termination" of such stockholder's interest, determined by taking into
account the stock attribution rules described above, such stockholder will be
permitted to recognize loss, as well as be required to recognize any gain,
realized on the exchange. Such gain or loss will be capital gain or loss,
provided that the shares of HomeUSA Common Stock were held by the HomeUSA
stockholder as a capital asset as of the Effective Time.
If the Section 302 redemption tests are not satisfied, the cash received by
such stockholder will be treated as ordinary dividend income, to the extent of
such stockholder's allocable portion of current and accumulated earnings and
profits, and any excess will be treated as gain from the sale or exchange of
such stock. Also, the HomeUSA stockholder will not be permitted to recognize any
loss and special rules will apply for purposes of allocating the tax basis of
the HomeUSA Common Stock surrendered in the Merger. HomeUSA stockholders who
elect to receive solely cash in the Merger are urged to consult their own tax
advisors regarding the tax consequences associated with such election.
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FRACTIONAL SHARES. Cash received by a HomeUSA stockholder in lieu of any
fractional share interest in Fleetwood Common Stock will result in the
recognition of gain or loss for federal income tax purposes, measured by the
difference between the amount of cash received and the portion of the adjusted
tax basis of HomeUSA Common Stock allocable to such fractional share interest.
Such gain or loss will be capital gain or loss, provided that the Home USA
Common Stock was held as a capital asset as of the Effective Time.
TAX BASIS AND HOLDING PERIOD OF FLEETWOOD COMMON STOCK RECEIVED IN THE
MERGER. The tax basis of the shares of Fleetwood Common Stock received by a
Home USA stockholder upon the exchange of his, her or its HomeUSA Common Stock
for such Fleetwood Common Stock pursuant to the Merger will be the same as the
tax basis of the shares of HomeUSA Common Stock surrendered (less any portion of
such basis allocable to any fractional share interest in any share of Fleetwood
Common Stock for which cash is received), increased by the amount of any gain
recognized (whether treated as capital gain or a dividend) and decreased by the
amount of any cash received. The holding period of such shares of Fleetwood
Common Stock will include the holding period of the HomeUSA Common Stock
surrendered, provided that such shares of HomeUSA Common Stock were held by the
HomeUSA stockholder as a capital asset as of the Effective Time.
HOMEUSA STOCKHOLDER REPORTING REQUIREMENTS. A HomeUSA stockholder who
exchanges HomeUSA Common Stock for Fleetwood Common Stock or a combination of
Fleetwood Common Stock and cash pursuant to the Merger will be required to
retain records and file with such stockholder's federal income tax return for
the taxable year in which the Merger takes place a statement setting forth all
relevant facts in respect of the nonrecognition of gain or loss upon such
exchange. The statement is required to include (i) such stockholder's basis in
the shares of HomeUSA Common Stock surrendered in the Merger, and (ii) the value
of Fleetwood Common Stock received (using fair market value as of the Effective
Time) and the amount of any cash received in the Merger.
TREATMENT OF HOMEUSA, FLEETWOOD, AND ACQUISITION SUB. No gain or loss will
be recognized by HomeUSA, Fleetwood, or Acquisition Sub as a result of the
Merger.
CERTAIN FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of Fleetwood Common Stock received by HomeUSA stockholders in the
Merger will be freely transferable under the Securities Act, except as described
in the final sentence of this paragraph and that (i) shares of Fleetwood Common
Stock received by HomeUSA Affiliates at the time of the HomeUSA Special Meeting
may be resold by them only in transactions permitted by the resale provisions of
Rule 145 promulgated under the Securities Act or as otherwise permitted under
the Securities Act and (ii) shares of Fleetwood Common Stock received by persons
who are deemed to be affiliates of Fleetwood may be resold by them only in
transactions permitted by Rule 144 promulgated under the Securities Act or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of HomeUSA and/or Fleetwood, as the case may be, generally include
individuals or entities that control, are controlled by, or are under common
control with, such person and may include certain officers and directors of such
person as well as principal stockholders of such person. The Merger Agreement
requires HomeUSA to use reasonable efforts to deliver or cause to be delivered
to Fleetwood, prior to the Closing Date, from each HomeUSA Affiliate, a letter
agreement to the effect that such person will not offer or sell or otherwise
dispose of any of the shares of Fleetwood Common Stock issued to such person in
the Merger in violation of the Securities Act or the rules and regulations
promulgated by the Commission thereunder. The Merger Agreement further requires
HomeUSA to deliver to Fleetwood, prior to the Closing Date, the agreement of
each HomeUSA director and former principal stockholder of the Founding Companies
that the one year sale restrictions in connection with the HomeUSA IPO will
continue to apply until November 21, 1998 with respect to 50% of the number of
shares of Fleetwood Common Stock to which such director or stockholder would be
entitled if he elects solely to receive Fleetwood Common Stock in the Merger.
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ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting, in
accordance with generally accepted accounting principles. Under the purchase
method of accounting, the purchase price of HomeUSA, including direct costs of
the Merger, will be allocated to the tangible assets acquired and liabilities
assumed based on their estimated relative fair market values, with the excess
purchase consideration allocated to intangible assets. The results of
Fleetwood's operations will include the results of operations of HomeUSA only
from and after the Effective Time.
The Unaudited Pro Forma Combined Condensed Financial Statements appearing
elsewhere in this Proxy Statement/Prospectus are based on certain assumptions
and allocate the purchase price to assets and liabilities based upon preliminary
estimates of their respective fair market values. The unaudited pro forma
adjustments and combined amounts are included for informational purposes only.
If the Merger is consummated, Fleetwood's financial statements will reflect the
effects of acquisition adjustments only from and after the Effective Time. The
actual allocation of the purchase price may differ from the allocation reflected
in the Unaudited Pro Forma Combined Condensed Financial Statements but, in the
opinion of management, such difference will not be significant.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the Antitrust Division and the FTC, and
specified waiting period requirements have been satisfied. Fleetwood and HomeUSA
each filed with the Antitrust Division and the FTC a Notification and Report
Form for Certain Mergers and Acquisitions with respect to the Merger on March
27, 1998 and March 30, 1998, respectively. Effective April 3, 1998, the FTC
granted early termination of the waiting period for each of these filings.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the HomeUSA Special Meeting, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the Merger or seeking the
divestiture of substantial assets of HomeUSA or its subsidiaries or Fleetwood or
its subsidiaries.
In addition, state antitrust authorities may also bring legal action under
state antitrust laws. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture of certain assets of Fleetwood
or HomeUSA. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances. There can be no assurance that a
challenge to the Merger on antitrust grounds will not be made or, if such a
challenge is made, of the result thereof.
FINANCING THE MERGER
It is expected that the total cash to be paid to HomeUSA stockholders in the
Merger will be funded through the use of cash or cash equivalents and short-term
investments of Fleetwood available at the time such cash is paid. It is not
expected that any new borrowings will be made by Fleetwood to fund the Merger.
NO APPRAISAL RIGHTS
Under the DGCL, HomeUSA stockholders will not be entitled to any appraisal
or dissenter's rights in connection with the Merger.
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BUSINESS OF FLEETWOOD
GENERAL
Fleetwood is the nation's largest producer of manufactured homes and RVs.
Fleetwood had a 4.4% share of the single-family housing market in 1996 and an
18.1% share of the manufactured housing market in 1997. In its fiscal year ended
April 1997, Fleetwood sold 65,354 manufactured homes and was the largest home
builder in the United States in terms of units sold (a distinction Fleetwood has
held since 1981). In 1997, Fleetwood had a 26.6% share of the overall RV market,
a 29.1% share of the motor home market, a 21.7% share of the travel trailer
market, and a 35.4% share of the folding trailer market. In its fiscal year
ended April 1997, Fleetwood sold 65,243 RVs and held the leading market share in
each of these three product categories. From Fleetwood's' fiscal year ended
April 1993 through its fiscal year ended April 1997, Fleetwood's sales increased
from approximately $1.9 billion to approximately $2.9 billion, a 10.8% CAGR;
operating income increased from $73.1 million to $139.6 million, a 17.5% CAGR;
and earnings from continuing operations increased from $1.10 per share to $2.30
per share, a 20.2% CAGR. In its fiscal year ended April 1997, Fleetwood's
manufactured housing and RV groups represented 49.6% and 48.5% of sales,
respectively.
MANUFACTURED HOUSING. Fleetwood has been the leading producer of
manufactured housing in the United States since 1981 and has traditionally
distributed its products through a network of approximately 1,400 independent
retailers in 49 states. Fleetwood's share of the manufactured housing market,
based upon shipments to retailers, was 18.1% in calendar year 1997. A
manufactured home is a single-family house constructed entirely in a factory
environment, rather than at the home site, and is constructed in accordance with
HUD construction and safety standards. There are two basic categories of
manufactured housing--single-section and multi-section--and Fleetwood is a
leading producer of both types. Fleetwood produces manufactured housing using
efficient, assembly-line techniques and generally the same materials as are
found in site-built homes. From its fiscal year ended April 1993 through its
fiscal year ended April 1997, Fleetwood's manufactured housing group's sales
increased from $774.8 million to approximately $1.4 billion, a 16.5% CAGR; and
operating income increased from $39.7 million to $73.0 million, a 16.4% CAGR.
Fleetwood had a 19.4% share of the single-section manufactured housing
market in 1997, as measured by unit shipments. Fleetwood's single-section homes
range in size from 460 square feet to 1,230 square feet and include at least one
bedroom and bathroom, a kitchen and a common room; Fleetwood's average
single-section home retailed for approximately $20,000 (excluding land costs) in
its fiscal year ended April 1997. Single-section homes represented approximately
50% of Fleetwood's manufactured housing unit shipments and approximately 35% of
manufactured housing sales in its fiscal year ended April 1997. A majority of
Fleetwood's single-section homes retail for under $25,000 (excluding land costs)
and are designed for the affordable housing market which includes first-time,
retiree and value-oriented buyers.
Fleetwood had a 17.1% share of the multi-section manufactured housing market
in 1997, as measured by unit shipments. Fleetwood's multi-section homes range in
size from 940 square feet to 2,570 square feet and have two or more sections and
include the same types of rooms as a single-section home but generally have two
or more bedrooms and bathrooms; Fleetwood's average multi-section home retailed
for approximately $36,000 (excluding land costs) in its fiscal year ended April
1997. Multi-section homes represented approximately 50% of Fleetwood's
manufactured housing unit shipments and approximately 65% of manufactured
housing sales in its fiscal year ended April 1997.
RECREATIONAL VEHICLES. Fleetwood has been the leading producer of RVs in
the United States since 1973 and distributes its products through a network of
approximately 1,200 independent retailers in 49 states. RVs are either driven or
towed and are primarily used for vacations, camping trips and other leisure
activities. The general categories of RVs are motor homes, travel trailers and
folding trailers. From its fiscal year ended 1993 through its fiscal year ended
April 1997, Fleetwood's RV sales increased from approximately $1.1 billion to
approximately $1.4 billion, a 5.8% CAGR, and operating income increased from
$47.1 million to $77.6 million, a 13.3% CAGR.
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Fleetwood manufactures motor homes under the brand names Bounder, Southwind,
Southwind Storm, Pace Arrow, Pace Arrow Vision, Flair, Discovery, American
Eagle, American Dream, American Tradition, Tioga and Jamboree. A motor home
consists of a truck or bus chassis with a living unit built onto it. The
interior typically includes a driver area and kitchen, bathroom, dining and
sleeping areas. Fleetwood's conventional ("Class A") motor homes are fully
self-contained, having sleeping accommodations for four to eight people and such
optional features as air conditioning, an auxiliary power generator and home
electronics such as a stereo, television and VCR. Fleetwood's Class A motor
homes are available in a variety of models ranging in length from 24 to 40 feet
and retail for an average price of approximately $82,000. Fleetwood also
manufactures more compact ("Class C") motor homes built on a cut-away van
chassis with basically the same features and options as Class A products. These
units are available in various models ranging in length from 19 to 31 feet and
retail for an average price of approximately $50,000. Five of the industry's top
ten selling Class A motor homes are manufactured by Fleetwood, as well as two of
the top three Class C motor homes.
Fleetwood manufactures a variety of travel trailers under the Prowler,
Terry, Wilderness, Mallard, Savanna, Avion and Westport brand names. Fleetwood's
travel trailers are designed to be towed by pickup trucks, vans or other tow
vehicles, and are similar to motor homes in use and features. All of Fleetwood's
travel trailers include sleeping, eating and bathroom facilities and are
self-contained units with their own lighting, heating, refrigeration, fresh
water storage tanks and sewage holding tanks so that they can be used for short
periods without being attached to utilities. Most of Fleetwood's travel trailers
are 8 feet wide, vary in length from 19 to 39 feet (including trailer hitch) and
retail for an average price of approximately $18,000. Three of the industry's
top five selling travel trailers are manufactured by Fleetwood.
Fleetwood is the largest manufacturer of folding trailers under the
industry-leading Coleman-Registered Trademark- brand. Folding trailers are a
lower cost alternative to travel trailers and are lighter and easier to tow. All
of Fleetwood's folding trailers have eating and sleeping facilities, range in
length from 17 to 25 feet and retail for an average price of approximately
$6,700.
SUPPLY OPERATIONS AND OTHER BUSINESSES. Fleetwood's supply operations
include two fiberglass manufacturing companies and a lumber milling operation.
These operations provide a reliable source of quality components for Fleetwood's
principal manufacturing businesses, while also generating outside sales. In the
fiscal year ended April 1997, approximately 41% of the product volume of these
operations was used by Fleetwood internally, and the remaining 59% was sold to
third parties. Third party sales produced $52.3 million in revenues and the
total operating profit for the supply group was $2.2 million in the fiscal year
ended April 1997. The supply operations also include a lumber brokerage and a
component import business, each of which provides Fleetwood's manufactured
housing and RV businesses with reliable sources of quality raw materials and
components.
Fleetwood's wholly owned insurance subsidiary, Gibraltar Insurance Company,
Ltd., established in 1977, primarily insures Fleetwood's products liability
risks.
INDUSTRY OVERVIEW
MANUFACTURED HOUSING. The manufactured housing industry has grown
significantly since 1991. According to the Manufactured Housing Institute,
domestic shipments increased from 170,173 homes in 1991 to 353,676 homes in
1997, while total retail sales increased from approximately $4.7 billion to
approximately $14.0 billion over the same period, a 20% CAGR. In addition, the
manufactured housing industry's share of new single-family housing has increased
significantly in recent years, from 16.9% in 1991 to 23.8% in 1996. Fleetwood
believes that these increases have resulted from increasing consumer acceptance
of and preference for manufactured housing, which has been driven by the
following: (i) improved product quality, design and available amenities; (ii)
the large average price per square foot disparity between site-built housing
($58.11 in 1996, excluding land costs) and manufactured housing ($27.83 in 1996,
excluding land costs); (iii) favorable demographic and regional economic trends;
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(iv) improving business practices in the manufactured home retail industry; and
(v) increased attractiveness of financing terms available to manufactured
housing retailers and consumers. As consumer acceptance of manufactured housing
has increased among higher income buyers, demand has shifted toward larger,
multi-section homes, which accounted for 57.9% of industry shipments in 1997, up
from 46.7% in 1991. In 1996, approximately 40% of manufactured home purchasers
had family incomes over $30,000, as compared to approximately 27% in 1987.
About 68% of the manufactured homes produced in the United States are placed
on individually owned lots; the balance is located on leased sites in
manufactured housing communities. Most manufactured housing is sold in rural
regions and towns outside of major urban areas.
Today's manufactured homes offer customers similar quality to many
site-built homes at a much more affordable price. Manufactured homes are
constructed in a factory environment utilizing assembly line techniques, which
allow volume purchases of materials and components and more efficient use of
labor. The quality of manufactured homes has increased significantly over the
past 20 years, as manufactured home producers offer most of the amenities of
site-built housing and generally build homes with the same materials as
site-built homes. Many features associated with new site-built homes are
included in manufactured homes, such as central heating, name brand appliances,
carpeting, cabinets, walk-in closets, vaulted ceilings, wall coverings and
porches. In addition, optional features include such amenities as fireplaces,
wet bars, spa tubs and garages, as well as retailer-installed options such as
central air conditioning and furniture packages.
In 1996, the ten largest producers of manufactured housing accounted for
approximately 71% of unit sales. Most producers of manufactured housing,
including Fleetwood, have traditionally marketed their homes through independent
retailers. Recently, however, certain manufactured housing producers have begun
to acquire retailers. These acquisitions have occurred for a variety of reasons,
including manufacturers' desire to (i) control retail distribution, (ii) upgrade
marketing and merchandising efforts, including brand name development, and (iii)
provide an exit vehicle for family-owned retail businesses. Additionally, a
number of financial consolidators and residential developers have entered the
manufactured housing industry by acquiring retailers. The growing interest of
residential developers in manufactured housing as a substitute for
moderately-priced site-built homes is potentially a significant avenue of growth
for the industry. The convergence of manufactured homes and site-built homes is
largely a function of the increased quality and acceptance of manufactured homes
by consumers.
RECREATIONAL VEHICLES. Since 1991, the RV industry has experienced a
significant increase in demand. According to the Recreational Vehicle Industry
Association, manufacturers' shipments of motor homes increased from
approximately 42,000 units in 1991 to over 55,000 units in 1997, while shipments
of travel and folding trailers increased from approximately 121,000 units to
over 199,000 units over the same period. During the same time frame, motor home
retail sales increased from approximately $2.2 billion in 1991 to an estimated
$4.2 billion in 1997, an 11.4% CAGR, while travel and folding trailers increased
from approximately $1.3 billion to an estimated $2.8 billion, a 13.6% CAGR.
Fleetwood believes that there are certain demographic, economic and other
trends that have driven the growth in the RV industry in recent years and that
these trends support a favorable long-term outlook for the industry. RVs are
purchased by adults of all ages, but the highest ownership rate is in the 50 to
65 age group. While the average RV owner is 48 years old, the average age of
travel trailer and motor home owners is 52 and 63, respectively. The number of
Americans aged 50 to 65 years old has been projected to grow approximately 40%
over the next 10 years. As the "baby boomers" continue to enter this age group,
they represent the potential for significant additional RV sales. Other factors
influencing the recent significant industry growth include (i) higher disposable
income levels, (ii) the increasing importance of leisure activities, and (iii)
increasing recreational spending as a percentage of total consumer spending,
particularly among many of the RV industry's targeted customer categories.
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COMPETITIVE ADVANTAGES
Although the businesses in which Fleetwood operates are highly competitive,
Fleetwood believes that it has certain advantages over its competitors, as
described below.
COMMITMENT TO QUALITY AND CUSTOMER SATISFACTION. In its fiscal year ended
April 1992, Fleetwood formalized its quality improvement program, focusing on
increasing customer satisfaction by improving the quality and design of
Fleetwood's products and enhancing the customer's shopping experience. In
implementing its quality program, Fleetwood has developed a number of ongoing
processes, including (i) designing its products with materials that frequently
exceed government requirements and industry standards, (ii) training both its
employees and its retailers' employees in customer satisfaction techniques and
quality improvement procedures, (iii) providing additional services, such as
comprehensive training of its retailers' employees and contractors regarding
proper installation techniques for manufactured homes, (iv) offering some of the
most extensive warranties in the manufactured housing and RV industries, and (v)
responding quickly and effectively to customer inquiries and concerns.
Fleetwood's quality improvement process is facilitated by the use of
independent consumer surveys to determine whether retail customers are satisfied
with the quality of their Fleetwood product and the level of service provided by
Fleetwood and the retailer. An independent consumer research firm conducts
telephone surveys and communicates customer responses to Fleetwood's
manufacturing entities and retailers to reinforce quality performance and
eliminate customer problems. Each year, specific customer satisfaction goals are
established for Fleetwood's manufacturing operations and independent retailers.
Retailers who meet these performance standards are recognized with Fleetwood's
CIRCLE OF EXCELLENCE AWARD, and Fleetwood manufacturing centers are similarly
honored for meeting targeted levels of customer satisfaction. Fleetwood believes
that these efforts have resulted in increased awareness by Fleetwood employees
and retailers of the importance of product quality and service, which in turn
has significantly improved Fleetwood's customer satisfaction ratings.
As a result of these initiatives, consumer surveys indicate that customer
satisfaction with Fleetwood's manufactured housing products has increased from
86% in its fiscal year ended April 1990 to 89.5% in its fiscal year ended April
1997, while customer satisfaction with Fleetwood's manufactured housing
retailers increased from 76.9% to 81.5% during the same period. Customer
satisfaction with Fleetwood's RV products has increased from 90.4% in its fiscal
year ended April 1992 to 92.3% in its fiscal year ended April 1997, while the
ratings for Fleetwood's RV retailers increased from 87.6% to 95.3% during the
same time period.
REPUTATION FOR INNOVATIVE PRODUCT DEVELOPMENT. Fleetwood develops new
products and product enhancements through an integrated product development
process that involves cross-functional teams including engineering,
manufacturing and marketing personnel. Fleetwood also integrates feedback
received through its customer surveys into its product development process.
Fleetwood seeks to proactively design and manufacture products that address both
industry trends and specific customer requirements in an efficient,
cost-effective and timely manner. As an example, Fleetwood was the first to
develop the basement floor concept--which involves elevating the floor, which
had previously been set on the motor home chassis, to the level of the driver's
compartment, thus creating a "basement" area between the chassis and the
floor--when it introduced the Bounder motor home, which is currently the
best-selling Class A motor home in the United States.
EXPERIENCED AND INCENTIVIZED MANAGEMENT TEAM. Fleetwood and its
manufactured housing and RV groups benefit from the significant experience of
its senior managers, many of whom have over 20 years of operating experience
with Fleetwood. The compensation of Fleetwood's officers and other managers is
more heavily weighted toward incentive compensation than that of many
corporations. The base salaries of all managers are relatively low, with no base
salary exceeding $100,000. In addition, virtually since Fleetwood's inception,
all managers, including officers, have been provided a substantial opportunity
to receive incentive compensation quarterly, based on the operating results of
the manufacturing center,
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division, region or other operating group for which the particular manager has
supervisory responsibility. As a result of Fleetwood's emphasis on motivating
its officers and managers by means of quarterly incentives, such employees are
generally not provided with many of the employee perquisites that are
customarily received by employees of comparable companies employed in similar
capacities, such as expense accounts, country-club memberships, company cars,
airplanes, executive dining rooms, and financial consulting.
Fleetwood's longer-term compensation program is also substantially incentive
based. Fleetwood's Long-Term Incentive Plan, which provides additional incentive
compensation opportunities to officers and senior managers, utilizes cash flow
returns on Fleetwood's gross cash investment as the measurement and requires
returns at or above Fleetwood's cost of capital in order for any long-term
incentive compensation to be payable. Awards of stock options under Fleetwood's
1992 Stock-Based Incentive Compensation Plan to manufacturing center general
managers are not made unless the manufacturing centers managed by such
individuals meet or exceed Fleetwood's cost of capital during the preceding
fiscal year.
BUSINESS STRATEGY
Fleetwood's goals are to enhance its position as the leading provider of
affordable, high quality manufactured homes and RVs, to sustain long-term
profitable growth, and to enhance shareholder value by generating returns in
excess of its cost of capital. The key components of Fleetwood's business
strategy are described below.
PROVIDE THE BEST PRODUCT VALUE TO THE CUSTOMER. Fleetwood is committed to
offering the best product value in each of its market segments. Fleetwood
intends to achieve this by competitively pricing its products and by supplying
products superior to those of its competitors by maintaining high quality
control and product performance standards. Fleetwood is also committed to being
the low-cost producer in each market segment. To accomplish this, Fleetwood (i)
continuously improves its manufacturing processes, (ii) generates economies of
scale through high volume levels that reduce the impact of fixed costs, and
(iii) purchases materials and components in large quantities to obtain volume
discounts.
UPGRADE AND EXPAND FLEETWOOD'S RETAIL DISTRIBUTION NETWORKS. Since 1991,
Fleetwood has reduced the number of retail distribution centers approved to sell
Fleetwood manufactured housing products from approximately 1,800 to
approximately 1,400. Fleetwood believes that this action has allowed it to focus
its efforts on larger retailers that share Fleetwood's approach to merchandising
homes and customer satisfaction. Historically, Fleetwood had not focused on
exclusive retailer arrangements and most retailers sold competitive lines;
however, in recent years, Fleetwood has begun to develop exclusive retailer
arrangements. Currently, approximately 40% of Fleetwood's manufactured housing
retailers are exclusive, up from approximately 30% two years ago. Fleetwood has
increased its efforts to develop and implement retail "best practices" for its
retailers through Fleetwood sponsored training programs and manuals. Topics of
recent training seminars have included professional selling techniques and
proper home installation procedures. Fleetwood actively seeks to expand its
manufactured housing retail network by adding retailers that meet Fleetwood's
criteria.
With respect to RVs, Fleetwood is actively implementing "best practices"
across its retail network and developing programs to increase the proportion of
Fleetwood products sold by its independent retailers. This last initiative also
includes increasing the number of exclusive Fleetwood RV retailers. In addition,
Fleetwood is developing private label RV programs to expand retail sales through
distribution channels that currently do not sell RVs.
PROACTIVELY PARTICIPATE IN THE CONSOLIDATION OF THE MANUFACTURED HOUSING
RETAIL INDUSTRY. To take advantage of the significant opportunities in the
manufactured housing retail industry, on October 8, 1997, Fleetwood and Pulte,
the largest developer of site-built housing in the United States, announced the
formation of Expression Homes, which was to own and operate manufactured home
retail centers. Expression Homes was intended to profit from the potential for
(i) consolidation of the highly fragmented $14.0 billion industry, which has
over 6,000 retail sales centers, the majority of which are independently-
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owned private companies operating a single sales location, (ii) expanding and
standardizing the range of services offered by retailers to include financing,
insurance, set-up services, site location and community development, (iii)
implementing significant operating improvements, which would not only increase
profitability but also increase customer satisfaction, and (iv) opening new
sales center locations in selected geographic regions. In conjunction with the
decision to enter into the Merger with HomeUSA, Fleetwood negotiated with Pulte
to terminate this business arrangement and to purchase the entire ownership
interest in Expression Homes.
PROMOTE AND EXPAND "FLEETWOOD" BRAND NAME RECOGNITION. Fleetwood seeks to
expand consumer awareness of the "Fleetwood" name in both its manufactured
housing and RV operations. In its fiscal year ended April 1997, Fleetwood began
working with selected manufactured housing retailers to develop "Fleetwood Home
Centers," which exclusively carry Fleetwood products, have consistent signage
identifying the location as a Fleetwood Home Center and meet Fleetwood's highest
standards for home presentation and customer satisfaction. Fleetwood facilitated
the opening of 49 Fleetwood Home Centers in its fiscal year ended April 1997.
Current plans call for the opening of an additional 50 centers in 1998. In the
RV group, Fleetwood believes that it currently has leading brand names in each
product segment; however, Fleetwood seeks to promote each individual brand as a
part of the Fleetwood family of RVs. As an example, Fleetwood recently announced
that it will sponsor a NASCAR driver and team, Dale Jarrett and the Robert Yates
Racing Team, for three years. As part of the sponsorship arrangement, Fleetwood
has its logo on Dale Jarrett's race car and equipment. Fleetwood believes that
the NASCAR racing circuit has a large audience, estimated at 90 million, that
aligns with Fleetwood's targeted customer categories for RVs.
SALES AND DISTRIBUTION
GENERAL. Fleetwood sells its RVs and manufactured housing to retailers
operating approximately 2,600 locations in 49 states and Canada. Fleetwood
currently distributes its manufactured homes primarily through a network of
approximately 1,400 independent retailers in 49 states. In 1997, approximately
74% of Fleetwood's manufactured homes were shipped to retailers in the 15 states
with the highest retail sales, including Texas, North Carolina, South Carolina
and Georgia. In addition, Fleetwood was the market share leader in terms of
units shipped in 1997 in 12 of the 15 largest manufactured housing states.
Fleetwood distributes its RVs through a network of approximately 1,200
independent retailers in 49 states and Canada. In the model year ended July
1997, approximately 77% of Fleetwood's RVs were shipped to retailers in the 25
states with the highest retail sales, including California, Texas, Michigan,
Florida and Oregon. In the same period, Fleetwood was the market share leader in
terms of units sold in each of the top 25 RV states.
Consistent with industry practice, Fleetwood sells its products through many
independent retailers, none of which individually accounted for a material part
of Fleetwood's total sales. Fleetwood expects this industry practice to continue
with respect to RVs but will actively monitor this trend. However, recently,
certain manufactured housing producers have begun to acquire retailers. These
acquisitions have occurred for a variety of reasons, including the following:
(i) the desire of manufacturers to control retail distribution; (ii) upgrading
marketing and merchandising efforts including brand name development; and (iii)
providing an exit vehicle for family-owned retail businesses. In the first few
months of 1998, several competing manufacturers announced acquisitions of
several important Fleetwood retailers, which collectively accounted for
approximately $217 million in purchases from Fleetwood. Fleetwood has responded
to this industry trend by upgrading its manufactured home retail distribution
network, developing alternatives to replace retailers purchased by competitors,
and promoting and expanding Fleetwood brand name recognition through exclusive
"Fleetwood Home Centers" and through its own retail strategies, including the
Merger, the Expression Homes venture and the opening of company-owned stores.
As part of the sales process, Fleetwood offers most purchasers of its
manufactured homes and RVs comprehensive one-year warranties against defects in
materials and workmanship, excluding only certain components separately
warranted by a supplier. With respect to manufactured homes, Fleetwood's
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warranty is extended to five years for structural, plumbing, heating and
electrical system failures. The warranty period for motor homes is one year or
until the unit has been driven 15,000 miles, whichever occurs first, except for
structural items, which are covered for three years. Annual expenses under such
warranties were approximately $104.6 million in its fiscal year ended April 1997
and $102.4 million in its fiscal year ended April 1996. Fleetwood believes that
its warranty program is an investment that enhances its reputation for quality.
Fleetwood has no prior direct experience operating retail centers and will
rely heavily on HomeUSA and Expression Homes personnel to evaluate retail
acquisitions and administer its retail operations. Both HomeUSA and Expression
Homes are new enterprises that do not have established track records of running
retail sales operations. There can be no assurance that Fleetwood will be able
to build or maintain a successful retail network or that such efforts will
result in increased sales of Fleetwood products. In addition, there can be no
assurance that Fleetwood will be able to develop its retail distribution network
without additional capital investment.
ENGINEERING AND PRODUCT DEVELOPMENT
Fleetwood develops new products and product enhancements through an
integrated product development process that involves cross-functional teams
including engineering, manufacturing and marketing personnel. Fleetwood also
integrates feedback received through its customer surveys into its product
development process. As a result, Fleetwood believes that it is able to
proactively design and manufacture products that address both industry trends
and specific customer requirements in an efficient, cost-effective and timely
manner. As an example, Fleetwood recently added slide-out features, which
increase the usable interior space in an RV and were previously successfully
introduced on travel trailers and motor homes, to its folding trailers;
Fleetwood expects that this product enhancement will enable it to capture
additional market share. In addition, Fleetwood was the first to develop the
basement floor concept when it introduced the BOUNDER motor home, which is
currently the best-selling Class A motor home in the United States. Product
development with respect to RVs is done on a national basis while manufactured
housing is done on a regional basis in order to reflect regional preferences and
trends. Amounts spent on engineering and product development totaled $17.2
million in its fiscal year ended April 1997 and $19.2 million in its fiscal year
ended April 1996.
COMPONENT SUPPLIERS AND SOURCES
Most RV and manufactured home components are readily available from a
variety of sources. However, certain components are produced by only a small
group of quality suppliers which have the capacity to supply large quantities on
a national basis. This is especially true in the case of motor home chassis,
where Ford Motor Company and General Motors Corporation are the dominant
suppliers. Shortages, production delays or work stoppages by the employees of
such suppliers could have a material adverse effect on Fleetwood's business.
PRODUCT FINANCING
Sales of RVs and manufactured housing are generally made to retailers under
commitments by financial institutions which have agreed to finance retailer
purchases. Product financing is currently readily available from a variety of
sources including commercial banks, savings and loan institutions, credit unions
and consumer finance companies. With respect to manufactured housing, Associates
First Capital Corporation ("Associates"), Green Tree Financial Corp. ("Green
Tree") and BankAmerica Housing Services provide a substantial portion of the
financing available to finance wholesale and retail purchases of manufactured
homes.
Since 1991, Fleetwood has had an alliance with Associates, which has
provided special wholesale and retail finance programs for Fleetwood
manufactured housing retailers under the name "Fleetwood Finance by the
Associates." From time to time, when necessary to enhance sales or financing
terms, Fleetwood has subsidized the offering of below-market interest rates by
Associates and other lenders.
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Fleetwood currently has cooperative relationships with Associates and Green
Tree, but no such subsidies are being paid by Fleetwood to either organization.
Until May 1996, Fleetwood owned FCC, which provided a substantial portion of
the wholesale and retail financing on sales of Fleetwood's RVs. Fleetwood sold
FCC to Associates in May 1996. In connection with the sale, a long-term
operating agreement was signed to assure continuing cooperation between
Fleetwood and Associates and to facilitate wholesale and retail financing for
Fleetwood retailers and customers. Under the operating agreement, Fleetwood
agreed not to promote any other finance company's RV financing programs so long
as FCC remains competitive; Fleetwood also agreed to continue subsidizing FCC's
wholesale financing for Fleetwood's RV retailers until the end of Fiscal 1998,
although at gradually reduced rates. The aggregate cost of wholesale finance
subsidies was $3.8 million in its fiscal year ended April 1997 and $7.0 million
in its fiscal year ended April 1996. For the first half of Fleetwood's fiscal
year ended April 1998, these costs totaled $723,000, compared to $2.1 million
for the first half of its fiscal year ended April 1997.
The RV and manufactured housing industries are heavily dependent on the
availability and terms of wholesale and retail financing for retailer and retail
purchases. Increases in interest rates and the tightening of credit have
adversely affected Fleetwood's business in the past and may do so in the future.
As is customary in the industry, most lenders financing retailer inventories
require Fleetwood to execute repurchase agreements. These agreements provide
that in the event a retailer defaults on repayment of the financing, Fleetwood
may be required to repurchase its products from the lenders in accordance with a
declining repurchase price schedule. The risk of loss under these agreements is
spread over numerous retailers and lenders, and is further reduced by the resale
value of any products which may be repurchased. The number of units repurchased
and the losses incurred under these agreements have not been significant in the
past.
BUSINESS OF ACQUISITION SUB
Acquisition Sub, a wholly owned subsidiary of Fleetwood, has not conducted
any substantial business activities to date, other than those incident to its
formation, its execution of the Merger Agreement and related agreements and its
participation in the preparation of this Proxy Statement/Prospectus. Immediately
following the consummation of the Merger, Acquisition Sub (which will be renamed
HomeUSA, Inc.) will succeed to the assets, liabilities and businesses of
HomeUSA. See "BUSINESS OF HOMEUSA."
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EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME TITLE AGE
- ------------------------ ---------------------------------------------------------------- -----------
<S> <C> <C>
Glenn F. Kummer Chairman of the Board and Chief Executive Officer 64
Nelson W. Potter President and Chief Operating Officer 55
Paul M. Bingham Senior Vice President-Finance and Chief Financial Officer 55
Mallory S. Smith Senior Vice President-Housing Group 55
Richard E. Parks Senior Vice President-Recreational Vehicle Group 51
William H. Lear Senior Vice President-General Counsel and Secretary 58
John G. Pollis Senior Vice President-Fleetwood Retail Corp. 58
Carl D. Betcher Vice President-Towable Group 51
John R. Weiss Vice President-Motor Homes 46
Larry L. Mace Vice President-Supply Subsidiaries and Administration 55
Lyle N. Larkin Treasurer and Assistant Secretary 53
</TABLE>
None of the officers of the Company are related by blood, marriage or
adoption.
GLENN F. KUMMER has been with the Company since 1965. He was appointed to
his current position on January 12, 1998 and served as the Company's President
and Chief Operating Officer since 1982.
NELSON W. POTTER was appointed to his current position on January 12, 1998.
Previously, he served as the Company's Executive Vice President-Operations since
February 1997 and Vice President-Planning and Corporate Development since 1992.
He has been employed by the Company since 1978.
PAUL M. BINGHAM has been employed by the Company since 1970 and was
appointed Chief Financial Officer in 1987. He was appointed to his current
position as Senior Vice President in February 1997. Previously, he served as
Financial Vice President.
MALLORY S. SMITH has been with the Company since 1967 and was appointed to
his current position in May 1997. Previously, he served as Vice
President-Housing Group Operations until January 1996 when he was appointed Vice
President-Housing Group Eastern Region.
RICHARD E. PARKS has been with the Company since 1983 and was appointed to
his current position in April 1997. Previously, he was General Manager of the
Company's Decatur, Indiana motor home manufacturing center until he was promoted
to the position of Vice President-Motor Homes in April 1995.
WILLIAM H. LEAR joined the Company in 1971 as Secretary and General Counsel.
He became a Vice President in 1978 and was appointed to his current position in
March 1998.
JOHN G. POLLIS joined the Company in 1981 as Director-Marketing in the
Housing Group. In May 1996 he was appointed Vice President-Marketing. He
received his current assignment in February 1998.
CARL D. BETCHER has been employed by the Company since 1973 and was
appointed to his current position in August, 1997. Previously, he served as
General Manager at a Waco, Texas housing manufacturing center from 1995 until
1997, and at the Company's Riverside, California housing manufacturing center
from 1992 until 1995.
JOHN R. WEISS was appointed to his current position in April 1997. He has
been employed by the Company since 1975. His previous assignments and
responsibilities included serving as Sales Manager at the Chico, California
motor home facility beginning in 1985, General Manager at the Paxinos,
Pennsylvania motor home manufacturing center beginning in 1993 and
Director-Product Planning and Sales in the Motor Home Division beginning in
1995.
LARRY L. MACE joined the Company in 1973 and was appointed to his current
position in January 1998. He served previously as Vice President-Supply
Subsidiaries since 1988.
LYLE N. LARKIN has served in his current position since 1990. He joined the
Company in 1979.
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BUSINESS OF HOMEUSA
INTRODUCTION
HomeUSA 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 the HomeUSA IPO in November 1997. Simultaneously with the
closing of the HomeUSA IPO, HomeUSA acquired the Founding Companies. Since the
HomeUSA IPO, the nine Founding Companies have operated as wholly owned
subsidiaries of HomeUSA as a single national retailer of manufactured homes.
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
HomeUSA has experienced and expects to continue to experience significant
variability in home sales and net income as a result of seasonality in HomeUSA's
business. The manufactured housing industry and HomeUSA'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.
HOMEUSA'S RETAIL OPERATIONS
OPERATING SUBSIDIARIES. HomeUSA 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:
<TABLE>
<CAPTION>
COMPANY HEADQUARTERS
- ----------------------------------------- -----------------------------------------
<S> <C>
Universal Jackson, Tennessee
AAA Homes Hattiesburg, Mississippi
McDonald Mobile Tulsa, Oklahoma
Patrick Home Corinth, Mississippi
Mobile World San Antonio, Texas
First American Dothan, Alabama
Cooper's Wenatchee, Washington
Home Folks Owensboro, Kentucky
WillMax Colorado Springs, Colorado
</TABLE>
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RETAIL SALES CENTERS. As of December 31, 1997, HomeUSA 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 HomeUSA's sales centers 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
10 to 15 additional homes in inventory. The particular selection of model homes
displayed at HomeUSA'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. HomeUSA's sales centers are typically staffed with a manager
and three to five salespeople. HomeUSA has established incentive-based
compensation packages for sales center managers and salespeople, based on total
sales targets within gross margin limitations. HomeUSA 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. HomeUSA has established relationships with national
financing sources, including Green Tree, Associates and Bank of America. Most of
the Founding Companies currently serve as insurance agents for homeowner's
insurance and mortgage and credit-life insurance. HomeUSA 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, HomeUSA
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. HomeUSA provides for the transportation and
installation of new homes, the cost of which is included in the sales price of
the home. HomeUSA 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.
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HomeUSA 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. HomeUSA offers retailer-installed options,
including central air conditioning, washers, dryers, dishwashers, ceiling fans,
stereo systems and various furniture packages. In most instances, HomeUSA
purchases these items from local distributors as customer orders are received.
WARRANTIES. Manufacturers of manufactured housing also provide a one-year
warranty on the home and the components they install. Fleetwood, Palm Harbor and
Waverlee also provide limited five-year warranties on the structural components
of the homes they manufacture. HomeUSA 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
HomeUSA 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 HomeUSA, 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 HomeUSA, without land, typically range from
$26,000 to $62,000, depending upon floor plan, options and size. Multi-section
homes represented approximately 71% of HomeUSA's new home sales in 1997.
HomeUSA currently purchases manufactured homes primarily from Fleetwood,
Champion, Palm Harbor, Clayton and Belmont Homes, Inc. In 1997, approximately
65% of HomeUSA's new home sales were homes manufactured by Fleetwood. HomeUSA
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.
HomeUSA does not have contracts with manufacturers that would assure a
continuing supply of homes. HomeUSA'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
HomeUSA 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 HomeUSA's headquarters. HomeUSA 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 HomeUSA's suppliers,
customers, lenders and other parties with which HomeUSA does business. HomeUSA
has hired a Vice President and Chief Technology Officer with significant
experience in systems integration to develop these systems.
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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 10% 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. HomeUSA 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 HomeUSA's home sales.
ACQUISITION MARKET. HomeUSA faces competition in its efforts to acquire
additional retailers and consolidate the manufactured housing industry. HomeUSA
was founded and conducted the HomeUSA IPO with the objective of becoming the
leading independent national retailer of manufactured housing. HomeUSA's
strategy for achieving that objective depended, in large part, on HomeUSA'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,
HomeUSA engaged in substantive acquisition negotiations with the owners of
approximately 36 retailers. In almost every case, HomeUSA found itself competing
with one or more of the Competing Bidders (I.E., Expression Homes, Champion,
Palm Harbor and Cavco). 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 HomeUSA had believed it
could acquire. In almost every potential acquisition, HomeUSA was forced to
compete with bids from one or more of the Competing Bidders that were in excess
of amounts HomeUSA considered reasonable. The Competing Bidders generally have
significantly greater access to capital than does HomeUSA, and many of the
competing bids included a significantly greater cash component than HomeUSA was
willing to offer or capable of offering. By mid-February, HomeUSA 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.
REGULATION
The construction of manufactured homes is governed by the National
Manufactured Home Construction and Safety Standards Act of 1974. In 1976, HUD
issued regulations under this Act, known as the "HUD Code," which established
comprehensive national construction standards to preempt conflicting state and
local regulations. The HUD Code covers all aspects of manufactured home
construction, including structural integrity, energy efficiency, fire safety,
air-quality and thermal protection and is periodically updated to reflect new
technologies and construction methods. The HUD Code requires that homes sold in
hurricane-prone areas be designed to withstand 110 mile per hour winds. Detailed
inspections of homes during manufacture, conducted by independent HUD-designated
inspection agencies, are mandated by HUD to insure compliance with the HUD Code.
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
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hazardous to health and to require manufacturers to repair construction defects.
In addition to the HUD Code and CPSC, FTC regulations require disclosure of a
manufactured home's insulation specifications.
HomeUSA 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 HomeUSA to provide a customer whose credit request has
been denied with a statement of reasons for the denial. The Federal Fair Credit
Reporting Act also requires disclosure of certain information used as a basis to
deny credit. The FTC 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,
HomeUSA is required, under certain state laws, to obtain a mortgage or consumer
finance broker's license. The sale of insurance products by HomeUSA is subject
to various state insurance laws and regulations which govern allowable charges
and other insurance sales practices. HomeUSA must be licensed as an insurance
broker in each state where it arranges insurance for its customers. HomeUSA'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 HomeUSA'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, HomeUSA 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. HomeUSA does not have any
collective bargaining agreements.
PROPERTIES
As of December 31, 1997, HomeUSA 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. HomeUSA
does not anticipate difficulty in renewing leases as they expire or in obtaining
alternate sites as necessary. HomeUSA leases its principal executive and
administrative offices in Houston, Texas.
LEGAL PROCEEDINGS
HomeUSA is from time to time, a party to litigation arising in the normal
course of business. In the opinion of HomeUSA, 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 HomeUSA.
Promptly after HomeUSA publicly announced the proposed Merger, a complaint
(the "Complaint") was filed against HomeUSA, the members of the HomeUSA Board,
and Fleetwood in a Delaware Court of Chancery in New Castle County. The
Complaint was purportedly filed on behalf of a stockholder of HomeUSA,
individually and as a representative of a class of holders of HomeUSA Common
Stock. The
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suit seeks certification as a class action. The Complaint alleges, among other
things, that by entering into the Merger Agreement, HomeUSA and the members of
the HomeUSA Board did not act reasonably and in compliance with their fiduciary
duties to HomeUSA's stockholders. The Complaint seeks to enjoin the proposed
Merger and seeks rescissory and/or compensatory damages, attorneys' fees and
other relief. HomeUSA believes the Complaint is without merit and, with
Fleetwood, intends to actively oppose the action.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ORGANIZATION OF HOMEUSA. In connection with the formation of HomeUSA,
HomeUSA issued to Notre a total of 1,843,823 shares (as adjusted for a
90.7127-to-one stock dividend) of HomeUSA Common Stock for an aggregate cash
consideration of $18,439. Mr. Harter is the President of Notre and a director of
HomeUSA. In August 1997, Notre exchanged 1,718,823 shares of HomeUSA Common
Stock for 1,718,823 shares of HomeUSA's restricted voting common stock, par
value $0.01 per share. Notre advanced the funds necessary to effect the initial
acquisitions of the Founding Companies and the HomeUSA IPO. All of Notre's
advances were repaid from the net proceeds of the HomeUSA IPO.
From July 1996 through September 1997, HomeUSA issued a total of 876,226
shares of HomeUSA 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; Frank W. Montfort, Senior
Vice President of Market Development--121,000 shares; Philip deMena, Senior Vice
President of Real Estate and Construction--110,000 shares; Philip E. Campbell,
Vice President and Controller--55,000 shares; Don A. Palmour, Vice President and
Chief Technology Officer--50,000 shares; and Donald D. Moseley, Vice President
of Financial Services--50,000 shares. HomeUSA also issued 454,894 shares of
HomeUSA Common Stock at $0.01 per share to consultants to HomeUSA, including a
total of 30,000 shares of HomeUSA Common Stock to persons who became directors
of HomeUSA upon consummation of the HomeUSA IPO. HomeUSA also granted options to
purchase 10,000 shares of HomeUSA Common Stock under HomeUSA's Directors' Plan,
effective upon the consummation of the HomeUSA IPO, to Mr. Harter, Thomas N.
Amonett, James J. Blosser, and Stephen F. Smith, who became directors of HomeUSA
upon the consummation of the HomeUSA IPO.
In connection with the HomeUSA 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 HomeUSA. The aggregate consideration paid by HomeUSA
in these acquisitions consisted of $25.3 million in cash and 7,266,944 shares of
HomeUSA 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).
<TABLE>
<CAPTION>
SHARES OF HOMEUSA
COMPANY CASH COMMON STOCK
- ---------------------------------------------------------------- --------- ------------------
<S> <C> <C>
Universal....................................................... $ 6,131 2,299,311
AAA Homes....................................................... 2,745 1,165,901
McDonald Mobile................................................. 2,216 1,015,074
Patrick Home.................................................... 2,496 936,058
Mobile World.................................................... 1,390 521,101
First American.................................................. 768 288,123
Cooper's........................................................ 1,383 691,308
Home Folks...................................................... 663 248,620
Willmax......................................................... 271 101,448
</TABLE>
In connection with the initial acquisitions of the Founding Companies, and
as consideration for their interests in the Founding Companies, certain
officers, directors and holders of more than 5% of the
76
<PAGE>
outstanding shares of HomeUSA, together with trusts for which they act as
trustees, received cash and shares of HomeUSA Common Stock as follows. These
amounts do not include any owners' distributions or distributions of other
assets (dollars in thousands).
<TABLE>
<CAPTION>
SHARES OF HOMEUSA
INDIVIDUAL CASH COMMON STOCK
- ---------------------------------------------------------------- --------- ------------------
<S> <C> <C>
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
Sanley Poisso(3)................................................ 1,390 521,101
Randle C. Cooper................................................ 1,383 691,308
</TABLE>
- ------------------------
(1) Includes 323,956 shares of HomeUSA 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 HomeUSA 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 HomeUSA Common Stock owned equally by three of
Mr. Poisso's adult children. These shares may be deemed to be beneficially
owned by Mr. Poisso.
In consideration of their agreeing to serve as directors of HomeUSA upon the
consummation of the HomeUSA IPO, certain directors of HomeUSA received shares of
HomeUSA Common Stock, as follows:
<TABLE>
<CAPTION>
SHARES OF HOMEUSA
DIRECTOR COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
Thomas N. Amonett........................................................ 10,000
James J. Blosser......................................................... 10,000
Stephen F. Smith......................................................... 10,000
</TABLE>
Pursuant to the agreements entered into in connection with the initial
acquisitions of the Founding Companies, the stockholders of the Founding
Companies have agreed not to compete with HomeUSA for five years, commencing on
the date of consummation of the HomeUSA IPO.
LEASES OF REAL PROPERTY BY FOUNDING COMPANIES. HomeUSA 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. Mr. Shaffer remained
President of Universal following the consummation of the HomeUSA IPO and is a
director of HomeUSA. Each of the leases is for an initial term of five years,
expiring in October 2002 and contains one five-year renewal option. The annual
rental for the first year of the initial lease terms ranges from $8,900 to
$48,000. The rental for each subsequent year of each initial lease term and each
year of each renewal period of the leases will be adjusted in accordance with
the Consumer Price Index ("CPI"), not to exceed 5% of the rental for the
immediately preceding lease year. HomeUSA pays for all utilities, taxes and
insurance on the leased property. HomeUSA believes that the economic terms of
the leases do not exceed fair market value.
HomeUSA 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 HomeUSA. Each
of the leases is for an initial term of ten years, expiring in October 2007 and
contains two 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.
77
<PAGE>
HomeUSA will pay for all utilities, taxes and insurance on the leased property.
HomeUSA believes that the economic terms of the leases do not exceed fair market
value.
HomeUSA currently leases McDonald Mobile'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 Mobile and is also a director of HomeUSA. Each
of the leases is for an initial term of ten years, expiring in October 2007, and
contains one five-year renewal options. The annual rental for each of the
initial lease terms ranges from $15,000 to $60,000. The rental for each renewal
period of the leases will be adjusted in accordance with the CPI, not to exceed
5% of the rental for the immediately preceding lease term or renewal period, as
applicable. HomeUSA will pay for all utilities, taxes and insurance on the
leased property. HomeUSA believes that the economic terms of the leases do not
exceed fair market value.
HomeUSA leases Patrick Home'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 Home and who is a director of
HomeUSA, is a controlling person. The Millington lease is for an initial term of
three years, expiring in October 2000, and contains three 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 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. HomeUSA pays for all utilities, taxes and insurance on the leased
property. HomeUSA believes that the economic terms of the leases do not exceed
fair market value.
HomeUSA 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 HomeUSA. Each of the leases is for an
initial term of ten years, expiring in October 2007, and contains two 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. HomeUSA currently pays for all utilities, taxes and insurance on the
leased property. HomeUSA believes that the economic terms of the leases do not
exceed fair market value.
HomeUSA 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 HomeUSA. 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. HomeUSA believes that
the economic terms of the lease do not exceed fair market value.
HomeUSA 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's and is a director of HomeUSA. 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%.
HomeUSA pays for all utilities, taxes and insurance on the leased property.
HomeUSA believes that the economic terms of the lease do not exceed fair market
value.
HomeUSA 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
78
<PAGE>
director of HomeUSA. Each of the leases is for an initial term of ten years,
expiring in October 2007, and contains two 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. HomeUSA believes that the economic terms
of the lease do not exceed fair market value.
The above-described leases of real property are with owners of certain of
the Founding Companies who are officers and/or directors of HomeUSA 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
HomeUSA, own interests in manufactured housing developments in Missouri and
Washington, respectively. HomeUSA has entered into arrangements with Mr.
McDonald and Mr. Cooper, pursuant to which purchasers of manufactured homes from
HomeUSA would have access to lots within these developments on a preferential
basis. These arrangements between HomeUSA and Mr. McDonald and Mr. Cooper have
not been negotiated at arm's length, but HomeUSA believes that these
arrangements are on terms at least as favorable to HomeUSA as it could have
negotiated with unrelated third parties.
Cooper's hires delivery and installation services from Ryan's Trucking,
Inc., a company that is solely owned by Eric and Mary Cooper, Randle Cooper's
brother and sister-in-law. For these services, Cooper's 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's contracts for various construction services with First Home United
Contractors, Inc. For those services, Cooper's paid $32,372 for the year ended
December 31, 1997.
Patrick Home 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 Home 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 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.
HomeUSA 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
HomeUSA IPO.
INDEBTEDNESS OF MANAGEMENT. In April 1997, Mr. Poisso, who is the President
of Mobile World and who is a director of HomeUSA, borrowed $72,491 from Mobile
World on a non-interest bearing basis. As of December 31, 1997, the entire
balance had been repaid to HomeUSA.
At various times during 1997, Mr. Cooper, or entities of which he is a
controlling person, borrowed amounts from Cooper's 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 HomeUSA an aggregate of $720,999.
HOMEUSA POLICY. Any future transactions with directors, officers, employees
or affiliates of HomeUSA must be approved in advance by a majority of
disinterested members of the HomeUSA Board.
79
<PAGE>
SELECTED FINANCIAL DATA OF HOMEUSA
For financial statement presentation purposes, 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, "HomeUSA" 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 HomeUSA's future
financial results of operations.
<TABLE>
<CAPTION>
AT OR FOR THREE
MONTHS ENDED MARCH
31 AT OR FOR YEAR ENDED DECEMBER 31
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................................... $ 50.4 $ 9.6 $ 63.9 $ 51.3 $ 55.8 $ 48.4 $ 39.1
Cost of sales................................... 38.7 7.6 50.0 39.4 42.6 37.8 30.7
--------- --------- --------- --------- --------- --------- ---------
Gross profit.................................... 11.7 2.0 13.9 11.9 13.2 10.6 8.4
Selling, general and administrative expenses.... 9.5 1.5 9.6 9.3 10.1 7.8 6.4
--------- --------- --------- --------- --------- --------- ---------
Operating income................................ 2.2 0.5 4.3 2.6 3.1 2.8 2.0
Other (income) expense, net..................... (1.0) -- 0.7 -- (0.1) 0.2 (0.1)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes...................... 1.2 0.5 3.6 2.6 3.2 2.6 2.1
Provision for income taxes...................... 0.5 0.1 0.2 0.2 0.2 0.1 --
--------- --------- --------- --------- --------- --------- ---------
Net income...................................... 0.7 0.4 $ 3.4 $ 2.4 $ 3.0 $ 2.5 $ 2.1
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share-basic and diluted............ $ 0.05 $ 0.19 $ 0.91 $ 1.04 $ 1.28 $ 1.09 $ 0.90
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in computing basic and diluted
earnings per share............................ 15.5 2.3 3.7 2.3 2.3 2.3 2.3
PRO FORMA STATEMENT OF OPERATIONS DATA(1):
Total revenues.................................. $ 205.1
Cost of sales................................... 158.6
---------
Gross profit.................................... 46.5
Selling, general and administrative expenses.... 32.7
Goodwill amortization........................... 1.5
---------
Operating income................................ 12.3
Interest and other (income) expense, net........ 2.5
---------
Income before income taxes...................... 9.8
Provision for income taxes...................... 4.3
---------
Net income...................................... $ 5.5
---------
---------
Earnings per share--basic and diluted........... $ 0.39
Shares used in computing basic and diluted
earnings per share............................ 14.0
---------
---------
BALANCE SHEET DATA:
Working capital................................. $ 9.0 $ 11.1 $ 9.3 $ 10.2 $ 8.2 $ 5.4
Total assets.................................... 140.5 139.9 19.3 14.4 12.8 11.5
Long-term debt, less current maturities......... -- -- -- -- -- --
Shareholders' equity............................ 78.2 77.5 10.1 10.8 8.6 5.7
</TABLE>
- --------------------------
(1) The Pro Forma Statement of Operations Data assume that the acquisition of
the Founding Companies and the HomeUSA IPO were closed on January 1, 1997,
and are not necessarily indicative of the results HomeUSA would have
achieved had these events actually then occurred or of HomeUSA's future
results.
80
<PAGE>
HOMEUSA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH HOMEUSA'S
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO AND "SELECTED
FINANCIAL DATA OF HOMEUSA" APPEARING ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. STATEMENTS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
REGARDING FUTURE FINANCIAL OR OPERATIONAL PERFORMANCE AND RESULTS OF HOMEUSA 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 PROXY STATEMENT/PROSPECTUS.
OVERVIEW
HomeUSA was founded in 1996 to become the leading independent national
retailer of manufactured homes and in November 1997 completed the HomeUSA IPO.
HomeUSA acquired simultaneously with the closing of the HomeUSA IPO, nine
existing independent retailers of manufactured homes (I.E., the Founding
Companies). Since that date, the nine Founding Companies have operated as
subsidiaries of HomeUSA as a single national retailer of manufactured homes. See
"BUSINESS OF HOMEUSA-- HomeUSA's Retail Operations--OPERATING SUBSIDIARIES."
Prior to their acquisition by HomeUSA, 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, 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, HomeUSA means (i) Universal prior to November 30, 1997 and
(ii) HomeUSA and the Founding Companies on that date and thereafter.
HomeUSA'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 maintenance revenue. Sales of
pre-owned homes accounted for approximately 3% of HomeUSA'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 and subsidiaries appearing
elsewhere in this Proxy Statement/Prospectus.
81
<PAGE>
HOMEUSA CONSOLIDATED FINANCIAL DATA:
<TABLE>
<CAPTION>
AT OR FOR
THREE MONTHS
ENDED MARCH 31 YEAR ENDED DECEMBER 31,
------------------------------------------ -----------------------------------------------------
1998 1997 1997 1996 1995
-------------------- -------------------- -------------------- -------------------- ---------
(IN MILLIONS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales............... $ 48.9 $ 97.0% $ 9.6 100.0% $ 62.6 97.9% $ 50.9 99.3% $ 55.6
Other revenue............ 1.5 3.0 -- -- 1.3 2.1 0.4 0.7 0.2
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total revenue.............. 50.4 100.0 9.6 100.0 63.9 100.0 51.3 100.0 55.8
Cost of sales.............. 38.7 76.8 7.6 79.2 50.0 78.2 39.4 76.8 42.6
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............... 11.7 23.2 2.0 20.8 13.9 21.8 11.9 23.2 13.2
Selling, general and
administrative
expenses................. 9.5 18.8 1.5 15.6 9.6 15.0 9.3 18.2 10.1
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from operations..... 2.2 4.4 0.5 5.2 4.3 6.8 2.6 5.0 3.1
Interest and other (income)
expense, net............. (1.0) (2.0) -- -- 0.7 1.1 -- 0.0 (0.1)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income before income
taxes.................... 1.2 2.4 0.5 5.2 3.6 5.7 2.6 5.0 3.2
Provision for income
taxes.................... 0.5 1.0 0.1 1.0 0.2 0.4 0.2 0.3 0.2
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income................. $ 0.7 1.4% $ 0.4 4.2% $ 3.4 5.3% $ 2.4 4.7% $ 3.0
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
OPERATING DATA:
Period end sales centers... 66 15 65 15 15
Homes sold................. 1,492 356 2,168 1,807 2,060
Multi-section home sales... 65% 67% 71% 62% 56%
Average home sale price.... $ 32,743 $ 27,036 $ 28,891 $ 28,148 $ 26,998
<CAPTION>
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales............... 99.6%
Other revenue............ 0.4
---------
Total revenue.............. 100.0
Cost of sales.............. 76.3
---------
Gross profit............... 23.7
Selling, general and
administrative
expenses................. 18.2
---------
Income from operations..... 5.5
Interest and other (income)
expense, net............. (0.1)
---------
Income before income
taxes.................... 5.6
Provision for income
taxes.................... 0.3
---------
Net income................. 5.3%
---------
---------
OPERATING DATA:
Period end sales centers...
Homes sold.................
Multi-section home sales...
Average home sale price....
</TABLE>
HISTORICAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1997
HOME SALES. Home sales increased $39.3 million, or 408%, from $9.6 million
for the three months ended March 31, 1997 to $48.9 million for the three months
ended March 31, 1998. Approximately $37.9 million of the increase was
attributable to the acquisition of the Founding Companies. The remaining
increase was attributable to a 7% increase in the number of units sold and a 7%
increase in the average sale price per unit at Universal.
OTHER REVENUE. Other revenue increased $1.5 million, from less than $0.1
million for the three months ended March 31, 1997. Approximately $1.3 million of
the increase was attributable to the acquisition of the Founding Companies. The
remaining increase was primarily attributable to higher finance revenue at
Universal.
GROSS PROFIT. Gross profit increased $9.7 million, or 471%, from $2.0
million for the three months ended March 31, 1997 to $11.7 million for the three
months ended March 31, 1998. Approximately $9.3 million of the increase was
attributable to the acquisition of the Founding Companies. The remaining
increase was attributable to higher manufacturer rebates and higher finance
revenue at Universal. As a percentage of total revenue, gross profit increased
from 21.2% for the three months ended March 31, 1997 to 23.2% for the three
months ended March 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $8.0 million, or 530%, from $1.5 million for
the three months ended March 31, 1997 to $9.5 million for the three months ended
March 31, 1998. Almost all of the increase was attributable to the overhead of
the Founding Companies, corporate overhead of HomeUSA and amortization of
goodwill.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense), increased $1.0 million, from less than $0.1 million for the three
months ended March 31, 1997. Approximately $0.8 million of
82
<PAGE>
the increase was attributable to the acquisition of the Founding Companies. The
remaining increase was primarily a result of increased interest expense
associated with maintaining higher floor plan balances during the three months
ended March 31, 1998 as compared to the three months ended March 31, 1997.
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.
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 EXPENSE. 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
83
<PAGE>
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
At March 31, 1998, HomeUSA had working capital of $9.0 million and no
long-term debt. HomeUSA's credit facilities are discussed in Note 5 to the
Consolidated Financial Statements for the Quarter Ended March 31, 1998 included
elsewhere in this Proxy Statement/Prospectus.
Management anticipates that capital expenditures, exclusive of acquisitions,
will be approximately $9.0 million in 1998. Management believes that HomeUSA's
liquidity and capital resources are adequate to enable HomeUSA to execute its
internal growth plans during 1998. However, in February 1998 management
concluded that HomeUSA's liquidity and capital resources were not sufficient, in
light of the extraordinary competition in the acquisition market during January
and February 1998, to enable HomeUSA to implement its acquisition strategy on
the timetable previously contemplated. Consequently, on February 17, 1998,
HomeUSA entered into the Merger Agreement. In the event that the Merger
Agreement is not consummated for any reason, management believes that HomeUSA
would (i) seek an alternative business combination with another manufacturer,
(ii) seek additional capital resources from another source, and/or (iii) attempt
to implement its acquisition strategy by acquiring smaller retailers than the
retailers it had originally sought to acquire.
HomeUSA 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 HomeUSA IPO,
partially offset by distributions to shareholders. At December 31, 1997, HomeUSA
had working capital of $11.1 million and no long-term debt.
HomeUSA 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, HomeUSA had working capital of $9.3 million
and no long-term debt.
In February 1998, HomeUSA 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 HomeUSA'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
HomeUSA to seek the lenders' approval regarding certain acquisitions. No
borrowings have been made under the Credit Facility.
HomeUSA 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
HomeUSA. 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 HomeUSA's manufactured home inventory, the
related furniture, fixtures, accessories and accounts receivable. HomeUSA began
drawing on the two floor plan credit facilities in January 1998. Floor plan
payables are due upon receipt of sale proceeds from the related inventory;
however, HomeUSA 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
84
<PAGE>
after the date of purchase, the balance of the obligation related to the home
will become payable over a specified term. In addition, HomeUSA's floor plan
agreements include subjective acceleration clauses that could result in the
lines of credit being due on demand should HomeUSA 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.
The management of HomeUSA anticipates that capital expenditures, exclusive
of acquisitions, will be approximately $9.0 million in 1998. Although management
believes that HomeUSA's liquidity and capital resources would be adequate to
enable HomeUSA to execute HomeUSA's internal growth plans during 1998, it does
not believe that HomeUSA's liquidity or capital resources are sufficient, in
light of the extraordinary competition in the acquisition market during January
and February 1998, to enable HomeUSA to implement its acquisition strategy on
the timetable HomeUSA had contemplated. Consequently, on February 17, 1998
HomeUSA entered into the Merger Agreement. In the event that the Merger
Agreement is not consummated for any reason, HomeUSA's management believes that
HomeUSA (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, HomeUSA 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.
HomeUSA 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
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
HomeUSA 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. HomeUSA has
addressed the issue with respect to its existing subsidiaries and potential
acquisitions as part of its normal due diligence procedures. HomeUSA 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 HomeUSA's consolidated results of operations, consolidated
financial position or liquidity.
85
<PAGE>
PRINCIPAL STOCKHOLDERS OF HOMEUSA
The following table sets forth information regarding the beneficial
ownership of HomeUSA Common Stock as of June 3, 1998 by (i) each person known to
own beneficially more than 5% of the outstanding shares of HomeUSA Common Stock;
(ii) each HomeUSA 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 HomeUSA's principal executive
offices. The number of shares beneficially owned by each stockholder, executive
officer, director and Named Director is determined according to the rules of the
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual or entity has sole or shared voting power
or investment power. As a consequence, several persons may be deemed to be
"beneficial owners" of the same shares. Except as noted below, each holder has
sole voting and investment power with respect to shares of HomeUSA Common Stock
listed as owned by such person or entity.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
----------------------
NUMBER PERCENT
--------- -----------
<S> <C> <C>
Cary N. Vollintine......................................................... 430,226 2.8
Michael F. Loy............................................................. 116,250 0.7
Frank W. Montfort.......................................................... 121,000 0.8
Philip deMena.............................................................. 110,000 0.7
Philip E. Campbell......................................................... 55,000 0.3
Don A. Palmour............................................................. 50,000 0.3
Donald D. Moseley.......................................................... 50,000 0.3
Larry T. Shaffer(1)........................................................ 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(2)....................................................... 936,058 6.1
Stanley Poisso(3).......................................................... 521,101 3.4
Randle C. Cooper........................................................... 691,308 4.5
Steven S. Harter(4)........................................................ 596,796 3.9
Thomas N. Amonett(4)....................................................... 21,000 0.1
James J. Blosser(4)........................................................ 30,000 0.2
Stephen F. Smith(4)........................................................ 30,000 0.2
All executive officers and directors as a group (18 persons)............... 7,806,971 50.6
</TABLE>
- --------------------------
(1) Includes 323,956 shares of HomeUSA 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.
(2) Includes 187,212 shares of HomeUSA 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 HomeUSA Common Stock owned equally by three of
Mr. Poisso's adult children. These shares may be deemed to be beneficially
owned by Mr. Poisso.
(4) Includes 10,000 shares of HomeUSA Common Stock issuable upon the exercise of
options granted under HomeUSA's 1997 Non-Employee Directors' Stock Plan.
86
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
FLEETWOOD
The Fleetwood Common Stock is quoted on the NYSE and the Pacific Stock
Exchange and traded on various regional exchanges (Ticker Symbol: FLE). Options
are traded on the American Stock Exchange. The following table sets forth for
the periods indicated the high and low sales prices for the Fleetwood Common
Stock as reported on the NYSE Composite Tape, along with information on
dividends paid per share.
<TABLE>
<CAPTION>
PRICE PER SHARE
OF FLEETWOOD
COMMON STOCK
--------------------- DIVIDENDS
HIGH LOW PAID
---------- --------- -----------
<S> <C> <C> <C>
Fiscal Year Ended April 1996
First Quarter................................................................ $ 22.750 $ 18.125 $ 0.14
Second Quarter............................................................... 21.375 19.125 0.15
Third Quarter................................................................ 27.625 20.500 0.15
Fourth Quarter............................................................... 29.000 23.125 0.15
Fiscal Year Ended April 1997
First Quarter................................................................ $ 31.500 $ 24.125 $ 0.15
Second Quarter............................................................... 34.750 27.125 0.16
Third Quarter................................................................ 37.250 24.750 0.16
Fourth Quarter............................................................... 27.750 24.375 0.16
Fiscal Year Ended April 1998
First Quarter................................................................ $ 31.000 $ 25.125 $ 0.16
Second Quarter............................................................... 35.500 29.375 0.17
Third Quarter................................................................ 42.813 28.125 0.17
Fourth Quarter............................................................... 47.9375 39.375 0.17
Fiscal Year Ended April 1999
First Quarter (through May 19, 1998)......................................... $ 46.438 $ 42.125 $ 0.17
</TABLE>
On February 13, 1998, the last full trading day prior to announcement of the
execution of the Merger Agreement, the reported NYSE closing price per share of
Fleetwood Common Stock was $44.25. On June 8, 1998, the most recent available
date prior to printing this Proxy Statement/Prospectus, the reported NYSE
closing price per share of Fleetwood Common Stock was $39.375. On that date,
there were approximately 1,453 holders of record. HomeUSA stockholders are urged
to obtain current market quotations prior to making any decision with respect to
the Merger.
The declaration and payment of dividends on Fleetwood Common Stock is at the
discretion of the Fleetwood Board and depends on Fleetwood's results of
operations, financial condition and capital requirements, limitations on
dividends arising under the DGCL, and such other factors as the Fleetwood Board
deems relevant. On March 10, 1998, the Fleetwood Board declared a dividend of
$0.17 per share to stockholders of record on April 3, 1998, payable to
stockholders on May 13, 1998.
87
<PAGE>
HOMEUSA
The HomeUSA Common Stock began trading on the NYSE on November 21, 1997
(Ticker - Symbol: HSH). The following table sets forth for the periods indicated
the high and low sales prices for the HomeUSA Common Stock as reported on the
NYSE Composite Tape, along with information on dividends paid per share.
<TABLE>
<CAPTION>
PRICE PER SHARE
OF HOMEUSA
COMMON STOCK
--------------------
HIGH LOW DIVIDENDS PAID
--------- --------- ---------------
<S> <C> <C> <C>
Year Ended December 1997
Fourth Quarter (November 21 to December 31)..................................... $ 8.625 $ 7.125 --
Year Ended December 1998
First Quarter................................................................... $ 10.000 $ 7.625 --
Second Quarter (through May 19, 1998)........................................... 9.938 9.813 --
</TABLE>
On February 13, 1998, the last full trading day prior to announcement of the
execution of the Merger Agreement, the reported NYSE closing price per share of
HomeUSA Common Stock was $8.00. On June 8, 1998, the most recent available date
prior to printing this Proxy Statement/Prospectus, the reported NYSE closing
price per share of HomeUSA Common Stock was $9.938. On that date, there were
approximately 124 holders of record. HomeUSA stockholders are urged to obtain
current market quotations prior to making any decision with respect to the
Merger.
HomeUSA has never declared or paid cash dividends on shares of HomeUSA
Common Stock. It is not anticipated that any cash dividends will be paid on
HomeUSA Common Stock in the foreseeable future.
88
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of Fleetwood
and HomeUSA as of January 25, 1998 and December 31, 1997, respectively, and the
pro forma capitalization of Fleetwood and HomeUSA after giving effect to the
Merger. This table should be read in conjunction with the Unaudited Pro Forma
Combined Condensed Financial Statements included elsewhere in this Proxy
Statement/ Prospectus and the Fleetwood and HomeUSA historical consolidated
financial statements, including the notes thereto, that are incorporated by
reference or included elsewhere in this Proxy Statement/Prospectus. See
"UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS" and "INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE."
<TABLE>
<CAPTION>
HISTORICAL
------------------------
(AMOUNTS IN MILLIONS) FLEETWOOD HOMEUSA ADJUSTMENTS(1) PRO FORMA
- -------------------------------------------------------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Long-term debt................................................ $ 55.0 $ -- $ -- $ 55.0
Total shareholders' equity.................................... 524.7 77.5 5.1 607.3
----------- ----- ----- -----------
Total capitalization.......................................... $ 579.7(2) $ 77.5 $ 5.1 $ 662.3(2)
----------- ----- ----- -----------
----------- ----- ----- -----------
</TABLE>
- ------------------------
(1) Assumes the issuance of 1,836,000 shares of Fleetwood Common Stock at an
assumed price of $45 per share and payment of $83.4 million in cash to
acquire all of the issued and outstanding HomeUSA Common Stock, and the
payment of $4 million to satisfy miscellaneous expenses in connection with
the Merger. See "THE MERGER--Interests of Certain Persons in the Merger."
(2) Subsequent to January 25, 1998, Fleetwood purchased all of the shares of
Fleetwood Common Stock owned by its retiring Chairman of the Board and
founder. The approximate 5.2 million shares were acquired at a cost of
$176.9 million. On February 10, 1998, $287.5 million of mandatorily
redeemable convertible preferred securities were issued to fund the share
repurchase. The effect of these transactions was to increase total
capitalization by approximately $110 million. See "UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS."
89
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
FLEETWOOD/HOMEUSA COMBINED COMPANY
The accompanying unaudited pro forma combined condensed financial statements
reflect the acquisition by Fleetwood of all of the issued and outstanding
HomeUSA Common Stock as a consequence of the Merger. The transaction will be
accounted for as a purchase by Fleetwood of the net assets of HomeUSA.
The unaudited pro forma combined condensed balance sheet is based upon
Fleetwood's historical unaudited condensed consolidated balance sheet as of
January 25, 1998, adjusted for the effects of the purchase of 5.2 million shares
of stock from the founder for $176.9 million and the issuance of $287.5 million
of company-obligated mandatorily redeemable preferred securities (subsequent
transactions), and HomeUSA's historical audited consolidated balance sheet as of
December 31, 1997, and is presented as if the Merger and subsequent transactions
had been consummated on January 25, 1998.
The unaudited pro forma combined condensed statements of income for the year
ended April 27, 1997 and the nine months ended January 25, 1998 give effect to
the Merger and subsequent transactions as if they had occurred on April 29,
1996, the beginning of Fleetwood's most recently completed fiscal year. The
unaudited pro forma combined condensed income statement for the year ending
April 27, 1997 combines the audited historical consolidated results of Fleetwood
for such year adjusted for the income effects of the subsequent transactions
with the unaudited pro forma combined results of HomeUSA for the 12 month period
ending March 31, 1997. The unaudited pro forma combined condensed income
statement for the nine months ending January 25, 1998 combines the unaudited
historical consolidated results for Fleetwood for such period adjusted for the
income effects of the subsequent transactions with the unaudited pro forma
combined results of HomeUSA for the nine month period ending December 31, 1997.
HomeUSA was formed in connection with a series of simultaneous merger
transactions and the HomeUSA IPO effective November 21, 1997. The pro forma
combined operating results of HomeUSA include the historical results of HomeUSA
and the related nine Founding Companies for the respective periods presented,
including periods prior to November 30, 1997 for which the entities were not
under common control or management. Certain estimates have been used to conform
the year-end of HomeUSA to within one month of Fleetwood's.
The pro forma adjustments are based upon available information and upon
certain assumptions that the managements of Fleetwood and HomeUSA believe are
reasonable. However, the unaudited pro forma combined condensed financial
statements do not purport to be indicative of the results that would have been
achieved if the transaction had been completed on the respective dates above or
the results that may be achieved in the future.
90
<PAGE>
FLEETWOOD ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JANUARY 25, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
FLEETWOOD ADJUSTMENTS FLEETWOOD HOMEUSA ADJUSTMENTS(5) COMBINED
----------- ------------- --------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash............................ $ 21.8 $ -- $ 21.8 $ 16.8 $ -- $ 38.6
Investments..................... 146.1 (176.9)(1) 248.0 -- (83.4)(3) 164.6
278.8(2)
Receivables..................... 190.1 -- 190.1 8.6 -- 198.7
Inventories..................... 162.5 -- 162.5 45.5 -- 208.0
Property, plant and equipment,
net........................... 276.8 -- 276.8 6.6 -- 283.4
Goodwill........................ -- -- -- 60.3 88.5(4) 148.8
Other assets.................... 159.0 8.7(2) 167.7 2.1 -- 169.8
----------- ------------- --------- ----------- ------ -----------
Total assets.................... $ 956.3 $ 110.6 $ 1,066.9 $ 139.9 $ 5.1 $ 1,211.9
----------- ------------- --------- ----------- ------ -----------
----------- ------------- --------- ----------- ------ -----------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Accounts payable................ $ 103.7 $ -- $ 103.7 $ 9.1 $ -- $ 112.8
Employee comp and benefits...... 122.8 -- 122.8 -- -- 122.8
Other liabilities............... 150.1 -- 150.1 53.3 -- 203.4
Long term debt.................. 55.0 -- 55.0 -- -- 55.0
----------- ------------- --------- ----------- ------ -----------
Total liabilities............... 431.6 -- 431.6 62.4 -- 494.0
----------- ------------- --------- ----------- ------ -----------
Company-obligated mandatorily
redeemable convertible
preferred securities.......... -- 287.5(2) 287.5 -- -- 287.5
----------- ------------- --------- ----------- ------ -----------
Shareholders' equity:
Common stock.................. 36.5 (5.2)(1) 31.3 .1 (.1)(4) 33.1
1.8(3)
Capital surplus............... 57.5 (6.5)(1) 51.0 73.9 (73.9)(4) 131.8
80.8(3)
Retained earnings............. 430.7 (165.2)(1) 265.5 3.5 (3.5)(4) 265.5
----------- ------------- --------- ----------- ------ -----------
Total shareholders' equity.. 524.7 (176.9) 347.8 77.5 5.1 430.4
----------- ------------- --------- ----------- ------ -----------
Total liabilities and
shareholders' equity.......... $ 956.3 $ 110.6 $ 1,066.9 $ 139.9 $ 5.1 $ 1,211.9
----------- ------------- --------- ----------- ------ -----------
----------- ------------- --------- ----------- ------ -----------
</TABLE>
The Fleetwood pro forma balance sheet as of January 25, 1998 reflects the
following pro forma adjustments:
(1) To record the repurchase of 5.2 million shares of common stock from the
founder for $176.9 million. The shares were repurchased upon the
founder's retirement, at a price of $34 per share, on 8% discount from
the closing market price of Fleetwood's stock on January 12, 1998. The
shares were not subject to a repurchase agreement or a mandatory
redemption provision.
(2) To record the issuance of $287.5 million of mandatorily redeemable
preferred securities and issuance expenses of $8.7 million.
The pro forma combined condensed consolidated balance sheet as of January
25, 1998 reflects the following pro forma adjustments:
(3) To record the acquisition of 15.4 million shares of HomeUSA Common
Stock, at the Per Share Cash Amount of the Agreement and Plan of Merger
of $10.25 per share, and 1.7 million HomeUSA Options, at the Per Share
Cash Amount of $10.25 per share less the $8.00 per share exercise price
of the options, for $83.4 million in cash and $82.6 million in Fleetwood
Common Stock. The purchase price also includes $4.0 million in estimated
transaction costs.
(4) To eliminate HomeUSA book equity and record the excess of the purchase
price over the fair value of net assets acquired as goodwill. Goodwill is
calculated as the purchase price of $166.0 million less the estimated
fair value of the tangible net assets of HomeUSA of $17.2 million.
Management of Fleetwood anticipates, based on its preliminary analysis,
that the historical carrying value of HomeUSA's assets and liabilities
will approximate fair value.
(5) The pro forma balance sheet above assumes a ratio of cash to Fleetwood
common stock of 49% to 51%. Fully diluted combined pro forma EPS is
reduced less than 1% for each 10% increase in common stock in the cash to
stock ratio.
91
<PAGE>
FLEETWOOD ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 25, 1998
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HOMEUSA
-----------------------------------------
FLEETWOOD COMBINED
------------------------------------- HISTORICAL
HISTORICAL ADJUSTMENTS PRO FORMA HOMEUSA NINE ADJUSTMENTS PRO FORMA
FLEETWOOD (NOTE A) FLEETWOOD MONTHS (NOTE B) HOMEUSA
--------- ------------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales..................................... $ 2,208.2 $ -- $ 2,208.2 $ 164.7 $ (1.8) $ 162.9
Costs of sales................................ 1,784.6 -- 1,784.6 128.1 (2.3) 125.8
--------- ------ ----------- ------ ----- -----------
Gross profit................................ 423.6 -- 423.6 36.6 .5 37.1
Operating expenses............................ 314.1 -- 314.1 33.6 (6.4) 27.2
--------- ------ ----------- ------ ----- -----------
Operating income............................ 109.5 -- 109.5 3.0 6.9 9.9
Other income (expense)........................ 21.4 (12.9)(1) 8.3 (3.1) 1.1 (2.0)
(.2)(2)
--------- ------ ----------- ------ ----- -----------
Income from continuing operations before
provision for taxes.......................... 130.9 (13.1) 117.8 (.1) 8.0 7.9
Provision for income taxes.................... 50.7 (5.3)(3) 45.4 .9 2.5 3.4
--------- ------ ----------- ------ ----- -----------
Income from continuing operations............. $ 80.2 $ (7.8) $ 72.4 $ (1.0) $ 5.5 $ 4.5
--------- ------ ----------- ------ ----- -----------
--------- ------ ----------- ------ ----- -----------
Income per common share from continuing
operations:
Basic....................................... $ 2.23 $ 2.35 $ 0.32
Diluted..................................... $ 2.19 $ 2.15 $ 0.32
Weighted average common shares outstanding:
Basic....................................... 36.0 30.8 14.0
Diluted..................................... 36.6 37.3(10) 14.0
<CAPTION>
MERGER
ADJUSTMENTS PRO FORMA
(NOTE C) COMBINED
------------- -----------
<S> <C> <C>
Net Sales..................................... $ (71.0)(9) $ 2,300.1
Costs of sales................................ (71.0)(9) 1,839.4
------ -----------
Gross profit................................ -- 460.7
Operating expenses............................ 1.7(8) 343.0
------ -----------
Operating income............................ (1.7) 117.7
Other income (expense)........................ -- 6.3
------ -----------
Income from continuing operations before
provision for taxes.......................... (1.7) 124.0
Provision for income taxes.................... -- 48.8
------ -----------
Income from continuing operations............. $ (1.7) $ 75.2
------ -----------
------ -----------
Income per common share from continuing
operations:
Basic....................................... $ 2.30
Diluted..................................... $ 2.12
Weighted average common shares outstanding:
Basic....................................... 32.7
Diluted..................................... 39.2(10)
</TABLE>
92
<PAGE>
NOTE A
The Fleetwood pro forma income statement for the nine months ended January
25, 1998 reflects the following pro forma adjustments:
(1) To record interest expense at 6% on $287.5 million of mandatorily
redeemable preferred securities.
(2) To amortize capitalized issuance costs of preferred securities.
(3) To record tax effect of entries (1) and (2) above.
NOTE B
The HomeUSA pro forma income statement for the nine months ended December
31, 1997 reflects the following pro forma adjustments:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL PRO
------------------------------------------ FORMA
(4) (5) (6) (7) ADJUSTMENTS
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Net sales.......................................................... $ (2.3) $ -- $ -- $ .5 $ (1.8)
Costs of sales..................................................... (2.1) -- -- (.2) (2.3)
--------- --------- --------- --------- -----
Gross profit................................................... (.2) -- -- .7 .5
Operating expenses................................................. (1.1) (6.3) -- 1.0 (6.4)
--------- --------- --------- --------- -----
Operating income............................................... .9 6.3 -- (.3) 6.9
Other income (expense)............................................. -- -- -- 1.1 1.1
--------- --------- --------- --------- -----
Income from continuing operations before provision for taxes....... .9 6.3 -- .8 8.0
Provision for income taxes......................................... -- -- 2.5 -- 2.5
--------- --------- --------- --------- -----
Income from continuing operations.................................. $ .9 $ 6.3 $ (2.5) $ .8 $ 5.5
--------- --------- --------- --------- -----
--------- --------- --------- --------- -----
</TABLE>
(4) Represents the operating results of sales centers and non-operating
assets and liabilities of certain Founding Companies which were not
acquired in the HomeUSA mergers.
(5) Represents the reduction of salaries, bonuses and benefits to the owners
of the Founding Companies to which they have agreed prospectively in
connection with the mergers and the reversal of the non-recurring
portion of a non-cash compensation charge related to common stock issued
to the management of and consultants to HomeUSA offset by a charge for
the recurring portion of salary expenses of management.
(6) Reflects the incremental provision for federal and state income taxes
relating to the statement of operations adjustments and to reflect
income taxes on S corporation and LLC income as if these entities had
been taxed as C corporations during the period presented.
(7) Reflects other pro forma adjustments which include amortization of
goodwill, reduction of interest expense on floor plan refinancing,
increased volume rebates and financing income.
NOTE C
The pro forma combined condensed income statement for the nine months ended
January 25, 1998 reflects the following merger adjustments:
(8) To record amortization of goodwill over 40 years.
(9) To eliminate intercompany sales of Fleetwood to HomeUSA at Fleetwood's
selling price.
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<PAGE>
(10) The reconciliations for income (numerator) and shares (denominator)
between Basic EPS and Diluted EPS are shown below:
<TABLE>
<CAPTION>
PRO FORMA FLEETWOOD PRO FORMA COMBINED
----------------------------------- -----------------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
----------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income from continuing operations
available to common shareholders..... $ 72.4 30.8 $ 2.35 $ 75.2 32.7 $ 2.30
Effect of dilutive securities--
Stock options.......................... -- .6 -- .6
Company obligated mandatorily
redeemable preferred stock........... 7.8 5.9 7.8 5.9
Diluted EPS:
Income available to common shareholders
plus assumed conversions............. $ 80.2 37.3 $ 2.15 $ 83.0 39.2 $ 2.12
----- ----- --------- ----- ----- ---------
----- ----- --------- ----- ----- ---------
</TABLE>
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<PAGE>
FLEETWOOD ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 27, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HOMEUSA
---------------------------------------
FLEETWOOD COMBINED
----------------------------------- HISTORICAL
HISTORICAL ADJUSTMENTS PRO FORMA HOMEUSA ADJUSTMENTS PRO FORMA
FLEETWOOD (NOTE A) FLEETWOOD TWELVE MONTHS (NOTE B) HOMEUSA
--------- ---------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................................... $ 2,874.4 $-- $2,874.4 $190.9 $ 3.3 $194.2
Costs of sales.................................... 2,334.8 -- 2,334.8 149.3 2.3 151.6
--------- ---------- --------- ------ ----- ---------
539.6 -- 539.6 41.6 1.0 42.6
Operating expenses................................ 400.0 -- 400.0 33.8 (4.7) 29.1
--------- ---------- --------- ------ ----- ---------
Operating income................................ 139.6 -- 139.6 7.8 5.7 13.5
Other income (expense)............................ 7.5 (17.3)(1) (10.1) (3.3) .9 (2.4)
(.3)(2)
--------- ---------- --------- ------ ----- ---------
Income from continuing operations before provision
for taxes........................................ 147.1 (17.6) 129.5 4.5 6.6 11.1
Provision for income taxes........................ 57.0 (7.0)(3) 50.0 1.3 3.6 4.9
--------- ---------- --------- ------ ----- ---------
Income from continuing operations................. $ 90.1 $(10.6) $ 79.5 $ 3.2 $ 3.0 $ 6.2
--------- ---------- --------- ------ ----- ---------
--------- ---------- --------- ------ ----- ---------
Income per common share from continuing operations
Basic........................................... $ 2.36 $ 2.41 $ 0.45
Diluted......................................... $ 2.30 $ 2.26 $ 0.45
Weighted average common shares outstanding
Basic........................................... 38.2 33.0 13.9
Diluted......................................... 39.2 39.9(11) 13.9
<CAPTION>
MERGER
ADJUSTMENTS PRO FORMA
(NOTE C) COMBINED
--------------- ---------
<S> <C> <C>
Net sales......................................... $(77.0)(10) $2,991.6
Costs of sales.................................... (77.0)(10) 2,409.4
------ ---------
-- 582.2
Operating expenses................................ 2.2(9) 431.3
------ ---------
Operating income................................ (2.2) 150.9
Other income (expense)............................ -- (12.5)
------ ---------
Income from continuing operations before provision
for taxes........................................ (2.2) 138.4
Provision for income taxes........................ -- 54.9
------ ---------
Income from continuing operations................. $ (2.2) $ 83.5
------ ---------
------ ---------
Income per common share from continuing operations
Basic........................................... $ 2.39
Diluted......................................... $ 2.25
Weighted average common shares outstanding
Basic........................................... 34.9
Diluted......................................... 41.8(11)
</TABLE>
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<PAGE>
NOTE A
The Fleetwood pro forma income statement for the year ended April 27, 1997
reflects the following pro forma adjustments:
(1) To record interest expense at 6% related to the issuance of $287.5
million of mandatorily redeemable preferred securities.
(2) To amortize capitalized issuance costs of preferred securities.
(3) To record tax effect of entries (1) and (2) above.
NOTE B
The HomeUSA pro forma income statement for the twelve months ended March 31,
1997 reflects the following pro forma adjustments:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS TOTAL PRO
----------------------------------------------------- FORMA
(4) (5) (6) (7) (8) ADJUSTMENTS
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................................. $ (6.6) $ 9.4 $ -- $ -- $ .5 $ 3.3
Costs of sales............................................. (5.0) 7.5 -- -- (.2) 2.3
--------- --------- --------- --------- --------- -----
Gross profit........................................... (1.6) 1.9 -- -- .7 1.0
Operating expenses......................................... (1.3) 1.3 (6.2) -- 1.5 (4.7)
--------- --------- --------- --------- --------- -----
Operating income....................................... (.3) .6 6.2 -- (.8) 5.7
Other income (expense)..................................... .2 (.4) -- -- 1.1 .9
--------- --------- --------- --------- --------- -----
Income from continuing operations before provision for
taxes.................................................... (.1) .2 6.2 -- .3 6.6
Provision for income taxes................................. (.1) -- -- 3.7 -- 3.6
--------- --------- --------- --------- --------- -----
Income from continuing operations.......................... $ -- $ .2 $ 6.2 $ (3.7) $ .3 $ 3.0
--------- --------- --------- --------- --------- -----
--------- --------- --------- --------- --------- -----
</TABLE>
(4) Represents the operating results of sales centers and non-operating
assets and liabilities of certain Founding Companies which were not
acquired in the HomeUSA mergers.
(5) Represents pre-acquisition historical results of operations from sales
centers acquired by one of the Founding Companies in April 1997.
(6) Represents the reduction of salaries, bonuses and benefits to the owners
of the Founding Companies to which they have agreed prospectively in
connection with the mergers and the reversal of the non-recurring
portion of a non-cash compensation charge related to common stock issued
to the management of and consultants to HomeUSA offset by a charge for
the recurring portion of salary expenses of management.
(7) Reflects the incremental provision for federal and state income taxes
relating to the statement of operations adjustments and to reflect
income taxes on S corporation and LLC income as if these entities had
been taxed as C corporations during the period presented.
(8) Reflects other pro forma adjustments which include amortization of
goodwill, reduction of interest expense on floor plan refinancing,
increased volume rebates and financing income.
NOTE C
The pro forma combined condensed income statement for the fiscal year ended
April 27, 1997 reflects the following merger adjustments:
(9) To record amortization of goodwill over 40 years.
(10) To eliminate intercompany sales of Fleetwood to HomeUSA at Fleetwood's
selling price.
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<PAGE>
(11) The reconciliations for income (numerator) and shares (denominator)
between Basic EPS and Diluted EPS are shown below:
<TABLE>
<CAPTION>
PRO FORMA FLEETWOOD PRO FORMA COMBINED
----------------------------------- -----------------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
----------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income from continuing operations
available to common shareholders..... $ 79.5 33.0 $ 2.41 $ 83.5 34.9 $ 2.39
Effect of dilutive securities--
Stock options.......................... -- 1.0 -- 1.0
Company obligated mandatorily
redeemable preferred stock........... 10.6 5.9 10.6 5.9
Diluted EPS:
Income available to common shareholders
plus assumed conversions............. $ 90.1 39.9 $ 2.26 $ 94.1 41.8 $ 2.25
----- ----- --------- ----- ----- ---------
----- ----- --------- ----- ----- ---------
</TABLE>
97
<PAGE>
DESCRIPTION OF FLEETWOOD CAPITAL STOCK
FLEETWOOD COMMON STOCK AND PREFERRED STOCK
Fleetwood's authorized capital stock consists of 75,000,000 shares of
Fleetwood Common Stock, par value $1.00 per share, and 10,000,000 shares of
preferred stock, par value $1.00 per share. At March 31, 1998, there were
outstanding (a) 31,451,319 shares of Fleetwood Common Stock, as well as the same
number of Rights (described below); (b) exercisable stock options to purchase an
aggregate of approximately 2,158,424 shares of Fleetwood Common Stock; and (c)
no shares of preferred stock. Holders of Fleetwood Trust Preferred Securities
(described below) have the right to convert such securities into an aggregate of
5,131,363 shares of Fleetwood Common Stock.
Subject to the rights of holders of preferred stock, the holders of
Fleetwood Common Stock are entitled to receive such dividends as may be declared
by the Fleetwood Board from funds legally available therefor and, in the event
of liquidation, to receive pro rata all assets remaining after payment of all
obligations. Each holder of Fleetwood Common Stock is entitled to one vote for
each share held and to cumulate his votes for the election of directors.
Stockholders do not have preemptive rights.
The authorized shares of preferred stock are issuable, without further
stockholder approval, in one or more series as determined by the Fleetwood
Board, with such voting rights, designations, powers, preferences, and the
relative participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, as are fixed by the Fleetwood Board.
Fleetwood has designated one series, consisting of 50,000 shares of Series A
Junior Participating Preferred Stock, none of which is outstanding.
The Fleetwood Charter provides for a classified board of directors,
approximately one-third of which is elected annually for a three-year term, and
requires a vote of holders of not less than 80% of the voting stock to adopt or
modify the Fleetwood Bylaws or to approve a merger, sale of substantially all
the assets or certain other transactions between Fleetwood any other corporation
holding directly or indirectly more than 5% of Fleetwood's voting stock, unless
the merger, sale or other transaction was approved by the Fleetwood Board prior
to such other corporation's acquisition of more than 5% of Fleetwood's voting
stock. The above provisions cannot be changed except by the 80% affirmative vote
of stockholders. See "COMPARATIVE RIGHTS OF FLEETWOOD AND HOMEUSA STOCKHOLDERS."
BankBoston, N.A. is the transfer agent and registrar for Fleetwood Common
Stock.
RIGHTS
On November 10, 1988, the Fleetwood Board declared a dividend distribution
on each then outstanding share of Fleetwood Common Stock of one Right to acquire
one one-hundredth share of Series A Junior Participating Preferred Stock of
Fleetwood at an exercise price of $75.00, subject to adjustment, pursuant to the
terms of the Fleetwood Rights Agreement. The Rights are also issued with shares
of Fleetwood Common Stock issued after the initial dividend distribution and
before the occurrence of certain specified events.
The Rights may only be exercised ten days after public announcement that a
party has acquired or obtained the right to acquire 25% or more of the
outstanding Fleetwood Common Stock; ten business days after commencement of, or
announcement of intention to commence, a tender or exchange offer to acquire 30%
or more of the Fleetwood Common Stock; or ten business days after the Fleetwood
Board determines that any person, alone or together with its affiliates and
associates, has become the beneficial owner of an amount of Fleetwood Common
Stock that the Fleetwood Board determines to be substantial (which amount may
not be less than 15% of the shares of Fleetwood Common Stock outstanding) and at
least a majority of the Fleetwood Board who are not officers of Fleetwood, after
reasonable inquiry and investigation, including consultation with such persons
as such directors shall deemed appropriate, shall determine that such beneficial
ownership by such person is for the purpose of greenmail or is reasonably likely
to cause a material adverse impact on Fleetwood (any such person being referred
to as an "Adverse
98
<PAGE>
Person"). In the event a party acquires 30% or more of the outstanding shares of
Fleetwood Common Stock in accordance with certain defined terms or the Fleetwood
Board determines that any person has become an Adverse Person, each Right will
entitle its holder to purchase, at the Right's then current exercise price, a
number of shares of Fleetwood Common Stock having a market value of twice the
Right's then current exercise price.
The Rights do not have voting rights and expire November 9, 1998. They may
be redeemed by Fleetwood at a price of $0.02 per Right at any time prior to the
earlier of (i) their expiration; (ii) ten days following a person's acquisition
of 25% or more of the outstanding shares of Fleetwood Common Stock; or (iii) the
Fleetwood Board's determination of a person to be an Adverse Person. If
Fleetwood is acquired, under certain circumstances each Right entitles the
holder to purchase, at the Right's then current exercise price, a number of the
acquiring company's common shares having a market value of twice the Right's
then current exercise price.
Unless and until the Rights become exercisable, the Rights trade only with
shares of Fleetwood Common Stock and are represented by the stock certificates
representing Fleetwood Common Stock. If the Rights become exercisable, separate
certificates representing the Rights will be delivered to the holders of
Fleetwood Common Stock at such time, and the Rights will then trade separately
from the shares of Fleetwood Common Stock. The Rights will not become
exercisable or separately tradable as a result of the Merger.
FLEETWOOD TRUST PREFERRED SECURITIES
On February 10, 1998, Fleetwood Capital Trust, a Delaware statutory business
trust formed and wholly owned by Fleetwood ("Fleetwood Trust"), originally
issued 5,750,000 shares of 6% Convertible Trust Preferred Securities (the
"Fleetwood Trust Preferred Securities"), liquidation amount of $50 per Fleetwood
Trust Preferred Security, representing preferred undivided beneficial interests
in the assets of Fleetwood Trust. Fleetwood owns directly all of Fleetwood
Trust's common securities (the "Fleetwood Trust Common Securities" and, with the
Fleetwood Trust Preferred Securities, the "Fleetwood Trust Securities"),
representing common undivided beneficial interests in the assets of Fleetwood
Trust. Fleetwood Trust exists for the sole purpose of issuing the Fleetwood
Trust Securities and investing the proceeds thereof in an equivalent amount of
6% Convertible Subordinated Debentures due 2028 of Fleetwood (the "Fleetwood
Convertible Subordinated Debentures"). Each Fleetwood Trust Preferred Security
is convertible at the option of the holder, at any time, into shares of
Fleetwood Common Stock (including the associated Rights), at the initial
conversion price of $48.72 per share of Fleetwood Common Stock (equivalent to an
initial conversion rate of 1.02627 shares of Fleetwood Common Stock for each
Fleetwood Trust Preferred Security), subject to adjustment in certain
circumstances.
Fleetwood has agreed to file a Registration Statement on Form S-3 in respect
of the Fleetwood Trust Preferred Securities, Fleetwood's guarantee thereof, the
Fleetwood Convertible Subordinated Debentures, and the shares of Fleetwood
Common Stock issuable upon conversion thereof pursuant to the terms of a
Registration Rights Agreement by and among Fleetwood, Fleetwood Trust and the
initial purchaser of the Fleetwood Trust Preferred Securities, PaineWebber. If
Fleetwood fails to comply with certain of its obligations under the Registration
Rights Agreement, additional distributions will be payable on the Fleetwood
Trust Preferred Securities.
Holders of Fleetwood Trust Preferred Securities are entitled to receive
cumulative cash distributions at an annual rate of 6% of the liquidation amount
of $50 per Fleetwood Trust Preferred Security, accumulating from the first date
that any Fleetwood Trust Preferred Securities are issued and payable, quarterly
in arrears on February 15, May 15, August 15, and November 15 of each year,
commencing May 15, 1998. The payment of such distributions out of monies held by
Fleetwood Trust and payments on liquidation of Fleetwood Trust or the redemption
of Fleetwood Trust Preferred Securities, are guaranteed by Fleetwood. The
guarantee covers payments of distributions and other payments on the Fleetwood
Trust
99
<PAGE>
Preferred Securities only if and to the extent that Fleetwood Trust has funds
available therefor, which will not be the case unless Fleetwood has made a
payment of interest or principal or other payments on the Fleetwood Convertible
Subordinated Debentures held by Fleetwood Trust as its sole asset. The
obligations of Fleetwood under the guarantee are subordinate and junior in right
of payment to all other liabilities of Fleetwood (except any liabilities that
may rank pari passu expressly by their terms), and rank pari passu with the most
senior preferred stock, if any, issued from time to time by Fleetwood. The
obligations of Fleetwood under the Fleetwood Convertible Subordinated Debentures
are unsecured obligations of Fleetwood, and are subordinate and junior in right
of payment to all present and future senior indebtedness of Fleetwood. So long
as Fleetwood is not in default in the payment of interest on the Fleetwood
Convertible Subordinated Debentures, Fleetwood has the right to defer payments
of interest on the Fleetwood Convertible Subordinated Debentures from time to
time for successive periods by extending the interest payment period on the
Fleetwood Convertible Subordinated Debentures at any time for up to 20
consecutive quarters. If interest payments are so deferred, distributions to
holders of the Fleetwood Trust Preferred Securities will also be deferred.
During an extension period, distributions continue to accumulate with interest
thereon (to the extent permitted by applicable law) at the distribution rate,
compounded quarterly, and holders of Fleetwood Trust Preferred Securities are
required to include deferred interest payments in their gross income for United
States federal income tax purposes in advance of receipt of the cash
distributions with respect to such deferred interest payments.
The Fleetwood Convertible Subordinated Debentures are redeemable by
Fleetwood, in whole or in part, from time to time, at any time on or after
February 15, 2001 at specified redemption prices, plus accrued and unpaid
interest thereon to but excluding the date fixed for redemption. If Fleetwood
redeems the Fleetwood Convertible Subordinated Debentures, Fleetwood Trust must
redeem Fleetwood Trust Securities having an aggregate liquidation amount equal
to the aggregate principal amount of the Fleetwood Convertible Subordinated
Debentures so redeemed, at a redemption price corresponding to the redemption
price of the Fleetwood Convertible Subordinated Debentures, plus accrued and
unpaid interest thereon to the date fixed for redemption. The outstanding
Fleetwood Trust Preferred Securities will be redeemed upon maturity of the
Fleetwood Convertible Subordinated Debentures. The Fleetwood Convertible
Subordinated Debentures mature on February 15, 2028.
Upon the occurrence of certain events arising from a change in law or a
change in legal interpretation, unless the Fleetwood Convertible Subordinated
Debentures are redeemed, Fleetwood Trust may be dissolved, with the result that,
after satisfaction of liabilities to creditors of Fleetwood Trust, if any, the
Fleetwood Convertible Subordinated Debentures would be distributed to the
holders of Fleetwood Trust Preferred Securities, on a pro rata basis, in lieu of
any cash distribution. If the Fleetwood Convertible Subordinated Debentures are
distributed to the holders of the Fleetwood Trust Preferred Securities,
Fleetwood will use its best efforts to have the Fleetwood Convertible
Subordinated Debentures listed on the NYSE or on such other exchange as the
Fleetwood Trust Preferred Securities are then listed. If the Fleetwood
Convertible Subordinated Debentures are not distributed to the holders of the
Fleetwood Trust Preferred Securities, the holders of the Fleetwood Trust
Preferred Securities will be entitled to receive for each Fleetwood Trust
Preferred Security a liquidation amount of $50, plus accumulated and unpaid
distributions thereon, to the date of payment.
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<PAGE>
COMPARATIVE RIGHTS OF HOMEUSA AND FLEETWOOD STOCKHOLDERS
GENERAL. At the Effective Time, the stockholders of HomeUSA will become
stockholders of Fleetwood. As stockholders of Fleetwood, their rights will be
governed by the DGCL and the Fleetwood Charter and Fleetwood Bylaws, rather than
by HomeUSA's Amended and Restated Certificate of Incorporation (the "HomeUSA
Charter") and the HomeUSA Bylaws. Following are summaries of all material
differences between the rights of Fleetwood stockholders and the rights of
HomeUSA stockholders. For additional information regarding the rights of
Fleetwood stockholders, see "DESCRIPTION OF FLEETWOOD CAPITAL STOCK."
Both Fleetwood and HomeUSA are organized under the laws of the State of
Delaware. Any differences, therefore, in the rights of holders of Fleetwood
capital stock and HomeUSA capital stock arise solely from differences in their
respective certificates of incorporation and bylaws. The following summaries of
all material differences between the rights of Fleetwood stockholders and the
rights of HomeUSA stockholders is qualified in its entirety by reference to the
relevant provisions of the DGCL, the Fleetwood Charter, the Fleetwood Bylaws,
the Fleetwood Rights Agreement, the HomeUSA Charter, and the HomeUSA Bylaws, to
which stockholders of HomeUSA are referred. The identification of specific
differences is not meant to indicate that other equally or more significant
differences do not exist.
AUTHORIZED CAPITAL. Fleetwood's authorized capital stock consists of
75,000,000 shares of Fleetwood Common Stock, par value $1.00 per share, and
10,000,000 shares of preferred stock, par value $1.00 per share. HomeUSA's
authorized capital stock consists of 100,000,000 shares of HomeUSA Common Stock,
par value $0.01 per share, 5,000,000 shares of restricted common stock, $0.01
par value per share, and 5,000,000 shares of preferred stock, $0.01 par value
per share. Each share of HomeUSA's restricted common stock automatically
converts into HomeUSA 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 that 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 HomeUSA Common Stock, or (iii) in the event any person
offers to acquire 15% or more of the total number of outstanding shares of
HomeUSA Common Stock. Accordingly, all outstanding shares of HomeUSA's
restricted common stock have been converted into HomeUSA Common Stock as a
result of the Merger Agreement.
RIGHTS. The DGCL permits a corporation to create and issue rights entitling
the holders thereof to purchase from the corporation any shares of its capital
stock of any class or classes. HomeUSA has not issued any rights. On November
10, 1988, the Fleetwood Board declared a dividend distribution on each then
outstanding share of Fleetwood Common Stock of one Right to acquire one
one-hundredth share of Series A Junior Participating Preferred Stock of
Fleetwood at an exercise price of $75.00, subject to adjustment. The Rights are
also issued with shares of Fleetwood Common Stock issued after the initial
dividend distribution and before the occurrence of certain specified events. A
description of the Fleetwood Rights is set forth above in "DESCRIPTION OF
FLEETWOOD CAPITAL STOCK--Rights."
FLEETWOOD AND HOMEUSA PREFERRED STOCK. The DGCL permits a corporation's
certificate of incorporation to allow its board of directors to issue, without
stockholder approval, one or more series of preferred or preference stock and to
designate their rights, preferences, privileges and restrictions. The Fleetwood
Charter authorizes the issuance of preferred stock in one or more series. The
Fleetwood Board is authorized to fix the voting rights, designations, powers,
preferences and the relative, participating, optional or other rights, if any,
and the qualifications, limitations or restrictions of any series. Fleetwood has
designated one series, consisting of 50,000 shares of Series A Junior
Participating Preferred Stock. The HomeUSA Charter also grants such power to the
HomeUSA Board; however, the HomeUSA Board has not designated a series of
preferred stock.
VOTING RIGHTS. The DGCL states that, unless a corporation's certificate of
incorporation or, with respect to clauses (ii) and (iii), the bylaws, specify
otherwise, (i) each share of its capital stock is entitled to
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<PAGE>
one vote; (ii) a majority of voting power of the shares entitled to vote,
present in person or represented by proxy, shall constitute a quorum at a
stockholders' meeting; (iii) in all matters other than the election of
directors, the affirmative vote of a majority of the voting power of shares,
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter, shall be the action of the stockholders; and (iv) directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Each holder of Fleetwood Common Stock is entitled to one vote per
share on all matters to be voted on by the stockholders and to cumulate his
votes for the election of directors. Each holder of HomeUSA Common Stock is
entitled to one vote for each share on all matters to be voted on by the
stockholders and cumulative voting for the election of directors is not
permitted. Directors shall be elected by a plurality of votes cast at a meeting
of the stockholders by the stockholders entitled to vote in the elections.
Neither holders of Fleetwood Common Stock nor holders of HomeUSA Common Stock
have preemptive rights.
PAYMENT OF DIVIDENDS. The DGCL permits the payment of dividends out of a
corporation's surplus. Dividends may, in certain cases, also be paid out of net
profits for the fiscal year in which declared or out of net profits for the
preceding fiscal year. Neither Fleetwood's nor HomeUSA's Charter or Bylaws
contain provisions limiting the payment of dividends.
DIRECTORS. The DGCL permits the certificate of incorporation or the bylaws
of a corporation to contain provisions governing the number and qualification of
directors. The Fleetwood Charter provides for a board of directors divided into
three classes, with approximately one-third of the directors elected annually
for a three-year term. The Fleetwood Bylaws provide for eight directors. The
HomeUSA Certificate also classifies the board of directors into three classes,
with approximately one-third of the directors elected annually for a three-year
term. The HomeUSA Bylaws provide for the number of directors to be fixed from
time to time by resolution passed by a majority of the HomeUSA Board. HomeUSA
currently has 13 directors.
Under the DGCL, unless the board of directors is classified or the
certificate of incorporation provides for cumulative voting, any director may be
removed with or without cause by the holders of a majority of shares entitled to
vote for the election of directors. Unless the certificate of incorporation
provides otherwise, in the case of a corporation whose board is classified,
stockholders may effect such removal only for cause and, in the case of a
corporation having cumulative voting, if less than the entire board is to be
removed, no director may be removed without cause if the votes cast against his
removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors, or, if there are classes of
directors, at an election of the class of directors of which he is a part. The
Fleetwood Charter provides for a classified board of directors and cumulative
voting and contains no provisions regarding the removal of a director.
Therefore, a director may only be removed by stockholders for cause. The HomeUSA
Charter provides that no director may be removed from office by a vote of the
stockholders at any time except for cause. The HomeUSA Bylaws provide that any
director may be removed at any time by the holders of outstanding shares of
HomeUSA Common Stock entitled to vote for the election of directors.
Under the DGCL, vacancies and newly created directorships may be filled by a
majority of the directors then in office or by a sole remaining director (even
though less than a quorum) unless otherwise provided in the certificate of
incorporation or bylaws. The Fleetwood Bylaws provide that vacancies may be
filled by a vote of the majority of the remaining directors, although less than
a quorum. The HomeUSA Charter and the HomeUSA Bylaws provide for vacancies on
the board to be filled by a majority of the remaining board members, although
less than a quorum, except that those vacancies resulting from removal from
office by a vote of the stockholders may be filled by a vote of the stockholders
at the same meeting at which such removal occurs.
SPECIAL STOCKHOLDER MEETINGS. The DGCL provides that a special meeting of
stockholders may be called by the board of directors or by such person or
persons as may be authorized by a corporation's certificate of incorporation or
bylaws. The Fleetwood Charter and the Fleetwood Bylaws provide that
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<PAGE>
special meetings of stockholders may be called at any time by the Fleetwood
Board or by a committee of the Fleetwood Board whose power and authority include
the power to call such meetings. The HomeUSA Bylaws provide that a special
meeting of stockholders may be called only by the Chief Executive Officer, by a
majority of the HomeUSA Board or by a majority of the executive committee of the
HomeUSA Board, if any.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS. The DGCL provides that a
corporation's certificate of incorporation may include a provision limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. However, no such
provision can limit the liability of a director for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of the law; (iii) for dividend payments or stock purchases or
redemptions illegal under the DGCL; (iv) any transaction from which the director
derived an improper personal benefit; or (v) any act or omission prior to the
adoption of such a provision in the certificate of incorporation. The Fleetwood
Charter exempts directors from personal liability to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director to
the full extent permitted by the DGCL. The HomeUSA Charter exempts directors
from personal liability to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability in
connection with a breach of the duty of loyalty, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, for dividend payments or stock purchases or redemptions illegal under the
DGCL or for any transaction from which the director derived an improper personal
benefit.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. Under the DGCL, a corporation
may indemnify any person who 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 or criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation 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 such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
DGCL permits similar indemnification in the case of derivative actions, except
that no indemnification may be made in respect to any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
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 of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
The Fleetwood Charter contains no provisions regarding indemnification of
officers and directors. The Fleetwood Bylaws provide that the corporation shall,
to the fullest extent permitted by law, indemnify any person who 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 (including a derivative action) by reason of the fact that he is
or was a director or officer of Fleetwood, or is or was serving at the request
of the corporation 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 him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Fleetwood Bylaws
authorize the advance of expenses in certain circumstances. The Fleetwood Bylaws
also authorize the corporation to purchase and maintain insurance on behalf of a
director, officer, employee, agent of the corporation or a person
103
<PAGE>
acting at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body against any liability
incurred by him in any such capacity whether or not the corporation would have
the power to indemnify him.
The HomeUSA Charter provides that directors and officers of HomeUSA shall be
indemnified by the corporation to the fullest extent permitted by the DGCL. The
HomeUSA Bylaws provide that the corporation shall indemnify any person who 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 (including a derivative action) by reason of the fact that he is
or was or has agreed to become a director or officer of the Corporation, or is
or was serving or has agreed to serve at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding and any appeal
therefrom if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful, except that in the case of a derivative action, such
indemnification is limited to expenses (including attorneys' fees) actually and
reasonably incurred by him in the defense or settlement of the action or suit,
and no indemnification shall be made in respect to any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
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 of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
AMENDMENT OF CERTIFICATE OF INCORPORATION. Under the DGCL, a proposed
amendment to a corporation's certificate of incorporation requires a resolution
adopted by the board of directors and, unless a greater percentage is required
in the certificate of incorporation, the affirmative vote of the holders of a
majority of the outstanding stock entitled to vote thereon and, if applicable,
the affirmative vote of the holders of a majority of the outstanding stock of
each class entitled to vote thereon as a class. If any such amendment would
adversely affect the rights of any holders of shares of a class or series of
stock, the vote of the holders of a majority of all outstanding shares of the
class or series, voting as a class, is also necessary to authorize the
amendment. The Fleetwood Charter provides that the provisions dealing with the
alteration of bylaws by stockholders, the classified board, the prohibition
against stockholder actions without meetings, cumulative voting, the 80% vote of
stockholders required for certain mergers, appraisal rights of stockholders and
the regulation of certain transactions may not be repealed or amended unless
approved by the affirmative vote of the holders of not less than 80% of the
total voting power of all outstanding shares of the voting stock of Fleetwood.
The HomeUSA Charter provides that unless such action has been approved by a
majority of the vote of the full board of directors, the affirmative vote of
66 2/3% of the votes which all stockholders of the then outstanding shares of
capital stock of the corporation would be entitled to cast thereon, voting
together as a single class, shall be required to amend or repeal the provisions
governing the classification, election, removal and vacancies of the board of
directors, the power to make, alter or repeal bylaws, and the amendment and
repeal of these provisions of the HomeUSA Charter, or to adopt any inconsistent
provision. With such prior board approval, the affirmative vote of a majority of
the outstanding stock entitled to vote thereon is sufficient to amend these
provisions.
AMENDMENT OF BYLAWS. Under the DGCL, the power to adopt, amend or repeal a
corporation's bylaws resides with the stockholders entitled to vote thereon, and
with the directors of such corporation if such power is conferred upon the board
of directors in the certificate of incorporation. The Fleetwood Charter provides
that the board of directors is authorized to make, repeal, alter, amend and
rescind the bylaws of the corporation and that the bylaws shall not be made,
repealed, altered, amended or rescinded by the stockholders except by the vote
of the holders of not less than 80% of the total voting power of all
104
<PAGE>
outstanding shares of voting stock of the corporation. The Fleetwood Bylaws
provide that a majority of the directors in office, or 80% of the total voting
power of all outstanding shares of voting stock may alter, amend or repeal the
bylaws. The HomeUSA Charter and the HomeUSA Bylaws provide that the board of
directors is authorized to make, alter and repeal the bylaws of the corporation.
The HomeUSA Bylaws provide that unless a different percentage is specified in a
particular provision of the bylaws, any amendment or repeal of the bylaws by the
stockholders shall be by a vote of the holders of at least 66-2/3% of the total
votes eligible to be cast by holders of voting stock. The HomeUSA Bylaws also
provide that notwithstanding any other provision in the HomeUSA Charter to the
contrary, the provisions in the bylaws governing notice of stockholder business
and nominations may not be altered, amended or repealed, nor may any
inconsistent provision be adopted, unless approved by the affirmative vote of at
least 80% of the combined voting power of the then outstanding shares of the
corporation's stock entitled to vote generally at elections of directors voting
together as a single class, and at least 80% of each class, series and issuance
of combined voting power of the then outstanding shares of HomeUSA's stock
entitled to vote generally at elections of directors voting together as a class,
series or issuance.
BUSINESS COMBINATIONS WITH RELATED CORPORATIONS AND AFFILIATES. The
Fleetwood Charter provides that, subject to certain exceptions, the affirmative
vote of the holders of not less than 80% of the total voting power of all
outstanding shares of voting stock shall be required for the approval of any
proposal that (i) Fleetwood merge or consolidate with any other corporation or
affiliate of that corporation that singly or together are the beneficial owners
of more than 5% of the outstanding shares of voting stock of Fleetwood, (ii)
Fleetwood sell or exchange all or substantially all of its assets or business to
such corporation or affiliate, or (iii) Fleetwood issue or deliver any stock or
other securities of its issue in exchange of or payment for any properties or
assets of such corporation or affiliate, or in a merger of any other affiliate
of Fleetwood with and into such corporation or affiliate, and to effect such
transaction the approval of the stockholders is required by law or by agreement
between Fleetwood and any national securities exchange. The HomeUSA Charter
contains no provision regarding stockholder approval for certain business
combinations.
INTERESTED STOCKHOLDER TRANSACTIONS. The Fleetwood Charter provides that
any direct or indirect purchase by the corporation of shares of voting stock
from an interested stockholder (generally defined as the beneficial owner of 5%
or more of the voting power of the outstanding voting stock who became such a
beneficial owner within two years prior to the date of the interested
stockholder transaction, or an affiliate of the corporation who beneficially
owned 5% or more of the voting power of the outstanding voting stock at any time
within a two-year period prior to the date of the transaction, or certain
assignees of an interested stockholder), other than pursuant to an offer to the
holders of all outstanding shares of the same class of voting stock, at a per
share price in excess of market price must be approved by the affirmative vote
of the holders of that amount of voting power of the voting stock equal to the
sum of (i) the voting power of the shares of voting stock of which the
interested stockholder is the beneficial owner and (ii) a majority of the voting
power of the remaining outstanding shares of voting stock, voting together as a
single class. The HomeUSA Charter and the HomeUSA Bylaws contain no provision
governing interested stockholder transactions.
ANTI-TAKEOVER PROTECTION. Section 203 of the DGCL, "Business Combinations
with Interested Stockholders," prohibits a corporation that does not opt out of
its provisions from entering into certain business combination transactions with
"interested stockholders" (generally defined to include persons beneficially
owning 15% or more of the corporation's outstanding capital stock) for a period
of three years following the date such person became an interested stockholder
unless prior to that date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder or unless certain super-majority votes are obtained from
the stockholders. Neither Fleetwood nor HomeUSA has opted out of Section 203.
APPRAISAL RIGHTS. Generally, no appraisal rights are available under the
DGCL for shares of any class of stock that are (i) listed on a national
securities exchange or designated as a national market system
105
<PAGE>
security on an inter-dealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders.
Further, under the DGCL, stockholders of corporations being acquired pursuant to
a merger have the right to serve upon the corporation a written demand for
appraisal of their shares when the stockholders receive any form of
consideration for their shares other than (a) shares of the surviving
corporation, (b) shares of any other corporation (x) listed on a national
securities exchange or designated as a national market system security on an
inter-dealer quotation system by the National Association of Securities Dealers,
Inc. or (y) held of record by more than 2,000 holders, (c) cash in lieu of
fractional shares, or (d) any combination thereof. Stockholders entitled to
appraisal rights subsequently receive cash from the corporation equal to the
value of their shares as established by judicial appraisal. Corporations may
enlarge these statutory rights by including in their certificate of
incorporation a provision allowing appraisal rights in any merger in which the
corporation is a constituent corporation. The Fleetwood Charter provides that to
the maximum extent permissible under DGCL provisions dealing with appraisal
rights, the stockholders of the corporation are entitled to the statutory
appraisal rights contained in those provisions, notwithstanding any exception
otherwise provided therein, with respect to any business combination involving
Fleetwood and any related corporation which requires the affirmative vote of
holders of not less than 80% of the total voting power of all outstanding shares
of voting stock of the corporation under the provisions in the Fleetwood Charter
governing stockholder approval of certain mergers. The HomeUSA Charter contains
no appraisal provisions.
LEGAL MATTERS
The validity of the Fleetwood Common Stock to be issued in connection with
the Merger and certain tax matters relating to the Merger are being passed upon
for Fleetwood by Gibson, Dunn & Crutcher LLP, Orange County, California. Certain
tax matters relating to the Merger are being passed upon for HomeUSA by Arthur
Andersen LLP, independent public accountants.
EXPERTS
The audited financial statements of Fleetwood and HomeUSA included or
incorporated by reference in this Proxy Statement/Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included or incorporated herein in
reliance upon the authority of said firm as experts in giving said reports.
With respect to the unaudited interim financial information for the quarters
ended July 27, 1997, October 26, 1997 and January 25, 1998, Arthur Andersen LLP
has applied limited procedures in accordance with professional standards for a
review of that information. However, its separate reports thereon state that
they did not audit and they do not express an opinion of the interim financial
information. Accordingly, the degree of reliance on its reports on that
information should be restricted in light of the limited nature of the review
procedures applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act for their reports on
the unaudited interim financial information because those reports are not
"reports" or a "part" of this Registration Statement prepared or certified by
the accountants within the meaning of Section 7 and 11 of that Act.
The financial statements of McDonald Mobile included elsewhere in this Proxy
Statement/Prospectus have been included herein in reliance upon the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in giving said report.
It is expected that representatives of Arthur Andersen LLP, Fleetwood's and
HomeUSA's independent auditors, will be present at the HomeUSA Special Meeting,
where they will have an opportunity to respond to appropriate questions of
stockholders and to make a statement if they so desire.
106
<PAGE>
STOCKHOLDER PROPOSALS
If the Merger is not consummated, the 1998 annual meeting of the
stockholders of HomeUSA is expected to be held in September 1998. If any HomeUSA
stockholder intends to present a proposal at such meeting and wishes to have
such proposal considered for inclusion in the proxy materials therefor, such
stockholder must submit the proposal to the Secretary of HomeUSA in writing so
as to be received at the executive offices of HomeUSA by July 15, 1998. Such
proposal must also meet the other requirements of the rules of the Commission
relating to stockholders' proposals.
107
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
AAA Homes..................................... 3
Acquiring Party............................... 8
Acquisition Sub............................... cover
Adjusted Value................................ 37
Adverse Person................................ 97
Antitrust Division............................ 10
Associates.................................... 69
Bargain Homes................................. 79
BT Alex. Brown................................ 8
BT Alex. Brown Opinion........................ 8
CAGR.......................................... 3
Cash Election................................. 5
Cash Election Shares.......................... 6
Cavco......................................... 27
Certificates.................................. 45
Champion...................................... 27
Class A....................................... 65
Class C....................................... 65
Clayton....................................... 37
Closing Date.................................. 45
Code.......................................... 9
Commission.................................... cover
Competing Bidders............................. 27
Complaint..................................... 75
Confidentiality Agreement..................... 53
Cooper's...................................... 3
CPI........................................... 77
CPSC.......................................... 74
Credit Facility............................... 84
D&O Insurance................................. 52
DGCL.......................................... 4
EBIT.......................................... 37
EBITDA........................................ 37
Effective Time................................ 4
Election Deadline............................. 5
Election Form................................. 5
Election Form Record Date..................... 5
EPS........................................... 37
Equity Value.................................. 37
Exchange Act.................................. 1
Exchange Agent................................ 5
Exchange Fund................................. 48
Exchange Ratio................................ 4
Exchanged Option.............................. 7
Expression Homes.............................. 27
FCC........................................... 11
First American................................ 3
Fleetwood..................................... cover
Fleetwood Board............................... 15
Fleetwood Bylaws.............................. 23
Fleetwood Charter............................. 23
Fleetwood Common Stock........................ cover
Fleetwood Convertible Subordinated
Debentures.................................. 99
Fleetwood Reports............................. 2
Fleetwood Rights Agreement.................... cover
Fleetwood Trust............................... 99
Fleetwood Trust Common Securities............. 99
Fleetwood Trust Preferred Securities.......... 99
Fleetwood Trust Securities.................... 99
Form S-8...................................... 53
Founding Companies............................ 3
FTC........................................... 10
Green Tree.................................... 64
Home Folks.................................... 3
HomeUSA....................................... cover
HomeUSA Affiliates............................ 54
HomeUSA Board................................. 4
HomeUSA Bylaws................................ 4
HomeUSA Charter............................... 101
HomeUSA Common Stock.......................... cover
HomeUSA IPO................................... 27
HomeUSA IPO Date.............................. 35
HomeUSA Option................................ 7
HomeUSA Special Meeting....................... 3
HomeUSA Stockholder Approval.................. 3
HSR Act....................................... 10
HUD........................................... 21
HUD Code...................................... 74
IBES.......................................... 37
Indemnified Parties........................... 52
Letter of Transmittal......................... 5
LTM........................................... 37
Mailing Date.................................. 5
Maximum Cash Merger Consideration............. 6
Maximum Premium............................... 52
McDonald Mobile............................... 3
Merger........................................ cover
Merger Agreement.............................. 3
Merger Consideration.......................... 5
Mixed Election................................ 5
Mixed Election Cash Shares.................... 6
Mobile World.................................. 3
Named Director................................ 86
Non-Election.................................. 5
Notre......................................... 36
NYSE.......................................... cover
P/E........................................... 37
P/E to Growth Rate............................ 37
PaineWebber................................... 28
Palm Harbor................................... 27
Patrick Home.................................. 3
Per Share Cash Amount......................... cover
Premium Transactions.......................... 39
Pulte......................................... 27
Record Date................................... 4
Registration Statement........................ cover
Representative................................ 46
Rights........................................ cover
RV............................................ 3
Scenario 1.................................... 40
Scenario 2.................................... 40
Securities Act................................ cover
Selected Automobile Retailers................. 37
Selected Industry Consolidators............... 37
Selected Manufactured Home Transactions....... 38
Selected Manufactured Housing Manufacturers... 37
Selected Other Automobile Retailing
Transactions................................ 38
</TABLE>
108
<PAGE>
<TABLE>
<S> <C>
Selected Republic Automobile Retailing
Transactions................................ 38
Service....................................... 58
South Atlantic................................ 85
Southern Lifestyle............................ 85
Stock Election................................ 5
Superior Proposal............................. 51
Takeover Proposal............................. 50
Termination Date.............................. 55
Termination Fee............................... 8
Universal..................................... 3
Valuation Period.............................. 4
Valuation Period Stock Price.................. cover
WillMax....................................... 3
</TABLE>
109
<PAGE>
INDEX TO HOMEUSA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements for the Quarter Ended March 31, 1998
Consolidated Balance Sheets--March 31, 1998 (unaudited) and December 31, 1997.......................... F-3
Consolidated Statements of Operations (unaudited)--Three Months Ended March 31, 1998 and 1997.......... F-4
Consolidated Statements of Cash Flows (unaudited)--Three Months Ended March 31, 1998 and 1997.......... F-5
Condensed Notes to Consolidated Financial Statements (unaudited)....................................... F-6
Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 1997....................... F-10
Consolidated Financial Statements for the Year Ended December 31, 1997
Report of Independent Public Accountants............................................................... F-13
Consolidated Balance Sheets............................................................................ F-14
Consolidated Statements of Operations.................................................................. F-15
Consolidated Statements of Stockholders' Equity........................................................ F-16
Consolidated Statements of Cash Flows.................................................................. F-17
Notes to Consolidated Financial Statements............................................................. F-18
Founding Company Financial Statements for the Nine Months Ended September 30, 1997
AAA Homes Group
Report of Independent Public Accountants............................................................... F-31
Combined Balance Sheets................................................................................ F-32
Combined Statements of Operations...................................................................... F-33
Combined Statements of Shareholders' Equity............................................................ F-34
Combined Statements of Cash Flows...................................................................... F-35
Notes to Combined Financial Statements................................................................. F-36
McDonald Mobile Homes, Inc.
Report of Independent Public Accountants............................................................... F-45
Balance Sheets......................................................................................... F-46
Statements of Operations............................................................................... F-47
Statements of Shareholders' Equity..................................................................... F-48
Statements of Cash Flows............................................................................... F-49
Notes to Financial Statements.......................................................................... F-50
Patrick Home Center, Inc.
Report of Independent Public Accountants............................................................... F-57
Balance Sheets......................................................................................... F-58
Statements of Operations............................................................................... F-59
Statements of Shareholders' Equity..................................................................... F-60
Statements of Cash Flows............................................................................... F-61
Notes to Financial Statements.......................................................................... F-62
Mobile World Group
Report of Independent Public Accountants............................................................... F-71
Combined Balance Sheets................................................................................ F-72
Combined Statements of Operations...................................................................... F-73
Combined Statements of Shareholder's Equity............................................................ F-74
Combined Statements of Cash Flows...................................................................... F-75
Notes to Combined Financial Statements................................................................. F-76
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
First American Homes Group
Report of Independent Public Accountants............................................................... F-84
Combined Balance Sheets................................................................................ F-85
Combined Statements of Operations...................................................................... F-86
Combined Statements of Shareholders' Equity............................................................ F-87
Combined Statements of Cash Flows...................................................................... F-88
Notes to Combined Financial Statements................................................................. F-89
Cooper's Mobile Homes Group
Report of Independent Public Accountants............................................................... F-97
Combined Balance Sheets................................................................................ F-98
Combined Statements of Operations...................................................................... F-99
Combined Statements of Shareholders' Equity............................................................ F-100
Combined Statements of Cash Flows...................................................................... F-101
Notes to Combined Financial Statements................................................................. F-102
Home Folks Housing Center, Inc.
Report of Independent Public Accountants............................................................... F-111
Balance Sheets......................................................................................... F-112
Statements of Operations............................................................................... F-113
Statements of Shareholder's Equity..................................................................... F-114
Statements of Cash Flows............................................................................... F-115
Notes to Financial Statements.......................................................................... F-116
Willmax Homes of Colorado LLC
Report of Independent Public Accountants............................................................... F-122
Balance Sheets......................................................................................... F-123
Statements of Operations............................................................................... F-124
Statements of Members' Equity.......................................................................... F-125
Statements of Cash Flows............................................................................... F-126
Notes to Financial Statements.......................................................................... F-127
HomeUSA, Inc.
Report of Independent Public Accountants............................................................... F-133
Balance Sheets......................................................................................... F-134
Statement of Operations................................................................................ F-135
Statements of Stockholders' Equity..................................................................... F-136
Statements of Cash Flows............................................................................... F-137
Notes to Financial Statements.......................................................................... F-138
</TABLE>
F-2
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
MARCH 31, ------------
1998
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................... $ 11,655 $ 16,758
Accounts receivable, net............................................................ 9,910 7,421
Related party receivables........................................................... 823 1,140
Inventories......................................................................... 45,840 45,481
Other current assets................................................................ 1,606 1,268
----------- ------------
Total current assets.............................................................. 69,834 72,068
Property and Equipment, net........................................................... 7,148 6,624
Goodwill, net......................................................................... 61,238 60,323
Other Assets.......................................................................... 2,272 829
----------- ------------
Total Assets.......................................................................... $ 140,492 $ 139,844
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses............................................... $ 10,134 $ 9,116
Related party payables.............................................................. 4,421 4,601
Floor plan payable.................................................................. 46,001 45,007
Current maturities of long-term debt................................................ 215 2,110
Deferred tax liability.............................................................. 95 85
----------- ------------
Total current liabilities......................................................... 60,866 60,919
----------- ------------
Deferred Tax Liability................................................................ 1,415 1,419
----------- ------------
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 shares
issued and outstanding............................................................ 154 154
Additional paid-in capital.......................................................... 73,900 73,900
Retained earnings................................................................... 4,157 3,452
----------- ------------
Total stockholders' equity........................................................ 78,211 77,506
----------- ------------
Total Liabilities and Stockholders' Equity............................................ $ 140,492 $ 139,844
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
(NOTE 1)
<S> <C> <C>
Revenue:
Home sales................................................................................. $ 48,852 $ 9,625
Other revenue.............................................................................. 1,511 18
--------- ---------
Total revenue............................................................................ 50,363 9,643
Cost of sales................................................................................ 38,703 7,601
--------- ---------
Gross profit................................................................................. 11,660 2,042
Selling, general and administrative expenses................................................. 9,438 1,499
--------- ---------
Income from operations....................................................................... 2,222 543
Other income (expense):......................................................................
Interest expense........................................................................... (1,189) (151)
Other income, net.......................................................................... 187 88
--------- ---------
Income before income taxes................................................................... 1,220 480
Provision for income taxes................................................................... 515 37
--------- ---------
Net income................................................................................... $ 705 $ 443
--------- ---------
--------- ---------
Earnings per share--
Basic...................................................................................... $ .05 $ .19
Diluted.................................................................................... .05 .19
Shares used in computing earnings per share--
Basic...................................................................................... 15,442 2,299
Diluted.................................................................................... 15,572 2,299
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
(NOTE 1)
<S> <C> <C>
Cash Flows from Operating Activities
Net income................................................................................. $ 705 $ 443
Adjustments to reconcile net income to net cash provided by (used in) operating
activities--
Depreciation and amortization............................................................ 686 40
Gain on sale of assets................................................................... (3) (3)
Deferred tax provision................................................................... -- 1
Changes in assets and liabilities--
Accounts receivable...................................................................... (2,172) (60)
Inventories.............................................................................. (359) (395)
Other current assets..................................................................... (338) (104)
Other noncurrent assets.................................................................. (2,539) 1
Accounts payable and accrued expenses.................................................... 845 50
Floor plan payable....................................................................... 994 386
--------- ---------
Net cash provided by (used in) operating activities.................................... (2,181) 359
--------- ---------
Cash Flows from Investing Activities.........................................................
Purchases of property and equipment........................................................ (1,040) (27)
Proceeds from sale of equipment............................................................ 13 3
--------- ---------
Net cash used in investing activities.................................................. (1,027) (24)
--------- ---------
Cash Flows from Financing Activities
Payments on debt........................................................................... (1,895) --
Distributions to stockholders.............................................................. -- (3,000)
--------- ---------
Net cash used in financing activities.................................................. (1,895) (3,000)
--------- ---------
Decrease in Cash and Cash Equivalents........................................................ (5,103) (2,665)
Cash and Cash Equivalents, Beginning of Period............................................... 16,758 8,031
--------- ---------
Cash and Cash Equivalents, End of Period..................................................... $ 11,655 $ 5,366
--------- ---------
--------- ---------
Supplemental Cash Flow Information
Cash paid during the period for--
Interest................................................................................. $ 1,179 $ 94
Taxes.................................................................................... 371 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HOMEUSA, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
HomeUSA, Inc. a Delaware corporation ("HomeUSA" or the "Company") was
founded in July 1996 to become the leading independent national retailer of
manufactured homes and accessories, and in November 1997, completed an initial
public offering (the "IPO"). The Company acquired simultaneously with the
closing of the IPO, (the "Initial Acquisitions"), nine existing independent
retailers of manufactured homes (the "Founding Companies"). Since the IPO, the
Founding Companies have operated as subsidiaries of the Company as a single
national retailer of manufactured homes.
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 was
accounted for using the purchase method of accounting. The Consolidated
Statements of Operations reflect Universal for the three months ended March 31,
1997 and the Founding Companies and HomeUSA for the three months ended March 31,
1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
The unaudited consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"SEC"). Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. 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 consolidated financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year. These
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 filed with the SEC.
On February 17, 1998, the Company announced it had entered into a definitive
agreement to be acquired by Fleetwood Enterprises, Inc. (see Note 6).
2. BUSINESS COMBINATION AND UNAUDITED PRO FORMA INFORMATION
The Founding Companies were merged with HomeUSA effective November 30, 1997
for financial reporting purposes. The unaudited statement of operations data
presented below gives effect to the Initial Acquisitions and the IPO, including
certain pro forma adjustments further discussed below, as if they had occurred
on January 1, 1997 (dollars in thousands, except per share amount):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31, 1997
--------------
(UNAUDITED)
<S> <C>
Revenues...................................................................... $ 42,172
Gross profit.................................................................. 9,382
Net income.................................................................... 946
Earnings per share--basic and diluted......................................... .07
</TABLE>
F-6
<PAGE>
HOMEUSA, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. BUSINESS COMBINATION AND UNAUDITED PRO FORMA INFORMATION (CONTINUED)
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 period presented, as assumed,
or to project the Company's results of operations for any future period or the
future results of the Founding Companies.
The computation of unaudited pro forma earnings per share for the three
months ended March 31, 1997 is based upon (i) 10,441,887 shares issued to the
Founding Companies, management and Notre Capital Ventures II, L.L.C., and (ii)
3,468,199 of the 5,000,000 shares sold in the IPO necessary to pay the cash
portion of the purchase price of the Founding Companies and the expenses of the
IPO.
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"), which was adopted by the Company effective 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 reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted
into common stock. The computation of earnings per share for the three months
ended March 31, 1997 is based upon 2,299,311 shares issued to Universal in
connection with the IPO.
4. 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. Prior to the IPO, 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 based 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 under Subchapter C of the Internal Revenue Code.
5. CREDIT FACILITIES AND FLOOR PLAN FINANCING
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
F-7
<PAGE>
HOMEUSA, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. CREDIT FACILITIES AND FLOOR PLAN FINANCING (CONTINUED)
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.
Floor plan payables are due upon receipt of sales 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.
6. COMMITMENTS AND CONTINGENCIES
On February 17, 1998 the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Fleetwood Enterprises, Inc. ("Fleetwood")
and HUSA Acquisition Company. Pursuant to the Merger Agreement, subject to the
conditions set forth therein, the Company will merge with and into a
wholly-owned subsidiary of Fleetwood (the "Merger") and will become a
wholly-owned subsidiary of Fleetwood. The Merger Agreement is more fully
described in "Item I. Business" of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997. The Company anticipates that stockholders will
receive proxy materials relating to the proposed Merger in late May or early
June 1998, and that a special meeting to consider and vote upon the proposed
merger will be held in late June or early July 1998. The Merger Agreement
requires the Company to pay a $6 million termination fee if, under certain
prescribed conditions, the Merger Agreement is terminated.
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 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 common stock. The suit seeks certification as a class
action. The Complaint alleges, among other things, that by entering into the
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 Merger and seeks
rescissory and/or compensatory damages, attorneys' fees and other relief.
The Company is also 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.
F-8
<PAGE>
HOMEUSA, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted 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. The Company reported no such changes in equity for the three months
ended March 31, 1998 or 1997.
Also effective January 1, 1998, the Company adopted 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's wholly-owned subsidiaries operate as
a single national retailer of manufactured homes; therefore, the Company does
not report multiple segments with respect to business lines or geographic areas.
F-9
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
BASIS OF PRESENTATION
The following unaudited pro forma statement of operations 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 on November 21, 1997 and were accounted for using the
purchase method of accounting with Universal, one of the Founding Companies, as
the accounting acquiror. The unaudited pro forma statement of operations gives
effect to the Initial Acquisitions and the IPO as if they had occurred on
January 1, 1997. The "Historical" column in this unaudited pro forma statement
of operations reflects Universal prior to November 30, 1997 and HomeUSA and the
Founding Companies on that date and thereafter. The "Pre-acquisition" column
reflects the results of operations of HomeUSA and the Founding Companies other
than Universal prior to November 30, 1997, when the Founding Companies were not
under common control.
HomeUSA has preliminarily analyzed the benefits that it expects to be
realized from reductions in salaries and certain benefits to the owners. To the
extent the owners of the Founding Companies have agreed prospectively to
reductions in salary, bonuses and benefits, these reductions have been reflected
in the pro forma statement of operations. It is anticipated that these benefits
will be offset by costs related to HomeUSA's new corporate management and by the
costs associated with being a public company. However, because these costs
cannot be accurately quantified at this time, they have not been included in
this pro forma statement of operations of HomeUSA.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The unaudited pro forma statement of operations data presented herein
do not purport to represent what the Company's financial position or results of
operations would have actually been had such events occurred at the beginning of
the period presented, as assumed, or to project the Company's financial position
or results of operations for any future period or the future results of the
Founding Companies. The unaudited pro forma statement of operations should be
read in conjunction with the historical financial statements and notes thereto
included elsewhere in this Registration Statement. Also see "Risk Factors"
included elsewhere herein.
F-10
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRE-ACQUISITION TOTAL ADJUSTMENTS PRO FORMA
----------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Home sales.................................... $ 62,636 $ 137,749 $ 200,385 $ (891) $ 199,494
Other revenue................................. 1,316 3,624 4,940 679 5,619
----------- -------------- ---------- ----------- -----------
Total revenue................................. 63,952 141,373 205,325 (212) 205,113
Cost of sales................................... 50,012 109,790 159,802 (1,156) 158,646
----------- -------------- ---------- ----------- -----------
Gross profit.................................. 13,940 31,583 45,523 944 46,467
Selling, general and administrative expenses.... 9,565 33,034 42,599 (8,408) 34,191
----------- -------------- ---------- ----------- -----------
Income (loss) from operations................. 4,375 (1,451) 2,924 9,352 12,276
Other income (expense)
Interest expense.............................. (1,098) (3,492) (4,590) 1,381 (3,209)
Other income, net............................. 396 367 763 (69) 694
----------- -------------- ---------- ----------- -----------
Income (loss) before income taxes............... 3,673 (4,576) (903) 10,664 9,761
Provision for income taxes...................... 276 854 1,130 3,153 4,283
----------- -------------- ---------- ----------- -----------
Net income (loss)............................... $ 3,397 $ (5,430) $ (2,033) $ 7,511 $ 5,478
----------- -------------- ---------- ----------- -----------
----------- -------------- ---------- ----------- -----------
Net income per share............................ $ 0.39
-----------
-----------
Shares used in computing pro forma net income
per share...................................... 14,018
-----------
-----------
</TABLE>
See accompanying notes to unaudited pro forma statement of operations
F-11
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
NOTE TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
1. NOTE TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G) (H)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Home sales............................... $ (3,049) $ 2,158 $ -- $ -- $ -- $ -- $ -- $ --
Other revenue............................ -- -- 6 -- -- -- -- 673
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue............................ (3,049) 2,158 6 -- -- -- -- 673
Cost of sales.............................. (2,396) 1,743 (285) -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............................. (653) 415 291 -- -- -- -- 673
Selling, general and administrative
expenses.................................. (648) 303 (521) (8,881) 1,339 -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations............ (5) 112 812 8,881 (1,339) -- -- 673
Other income (expense)
Interest expense......................... 140 (57) (4) -- -- 1,302 -- --
Other income, net........................ (15) (8) (46) -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes.......... 120 47 762 8,881 (1,339) 1,302 -- 673
Provision for income taxes................. (35) -- -- -- -- -- 3,188 --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss).......................... $ 155 $ 47 $ 762 $ 8,881 $ (1,339) $ 1,302 $ (3,188) $ 673
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
PRO FORMA
(I) ADJUSTMENTS
--------- -------------
<S> <C> <C>
Revenue:
Home sales............................... $ -- $ (891)
Other revenue............................ -- 679
--------- -------------
Total revenue............................ -- (212)
Cost of sales.............................. (218) (1,156)
--------- -------------
Gross profit............................. 218 944
Selling, general and administrative
expenses.................................. -- (8,408)
--------- -------------
Income (loss) from operations............ 218 9,352
Other income (expense)
Interest expense......................... -- 1,381
Other income, net........................ -- (69)
--------- -------------
Income (loss) before income taxes.......... 218 10,664
Provision for income taxes................. -- 3,153
--------- -------------
Net income (loss).......................... $ 218 $ 7,511
--------- -------------
--------- -------------
</TABLE>
(a) Reflects the operations of sales centers of certain Founding Companies which
were not acquired in the mergers.
(b) Reflects the pre-acquisition historical results of operations from sales
centers acquired by one of the Founding Companies in April 1997.
(c) Reflects the distribution of certain non-operating assets and liabilities
which will not be acquired in the mergers.
(d) Reflects the $0.9 million reduction in salaries, bonuses and benefits to the
owners of the Founding Companies to which they have agreed prospectively in
connection with the mergers and the reversal of the $8.5 million non-cash
compensation charge related to the issuance of 1,331,120 shares of common
stock to management of and consultants to the Company offset by a $0.5
million charge for the recurring portion of salary expenses of management.
(e) Reflects the amortization of goodwill recorded as a result of these mergers
over a 40-year estimated life.
(f) Reflects the reduction in interest expense due to refinancing of the floor
plan payable through recent credit facilities obtained from financial
institutions which commenced upon the consummation of the mergers.
(g) Reflects the incremental provision for federal and state income taxes
relating to the statement of operations adjustments and to reflect income
taxes on S corporation and LLC income as if these entities had been taxable
as C corporations during the period presented.
(h) Reflects the increase in finance income from new agreements with financial
institutions whereby the Company was able to negotiate higher fees as a
combined group for its fees earned in placing a customer's loan with the
financial institution. This increase has no impact on the Company's revenues
as finance income is not passed through to the customer.
(i) Reflects the increase in rebates on purchases from Fleetwood based on the
combined purchases of the Founding Companies under the Founding Companies
existing rebate agreements during the year. This increase has no impact on
the Company's revenues as these rebates are not passed on to the customer.
F-12
<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
F-13
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
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
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<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.
F-16
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<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.
F-18
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
F-19
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
F-20
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. BUSINESS COMBINATION AND UNAUDITED PRO FORMA INFORMATION (CONTINUED)
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Revenues.............................................................. $ 205,113 $ 202,693
Net income............................................................ 5,478 7,014
Earnings per share--basic and diluted................................. 0.39 0.50
</TABLE>
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.
F-21
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. EARNINGS PER SHARE (CONTINUED)
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.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1997 1996
----------------- --------- ---------
<S> <C> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
F-22
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (CONTINUED)
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
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 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
F-23
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. FLOOR PLAN FINANCING AND CREDIT FACILITIES (CONTINUED)
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.
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
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
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-24
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
9. INCOME TAXES (CONTINUED)
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
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
--------- --------- ---------
--------- --------- ---------
</TABLE>
The significant items giving rise to the deferred tax assets and liabilities
as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
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)
--------- ---
--------- ---
</TABLE>
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
F-25
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
10. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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
F-26
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. STOCK OPTIONS (CONTINUED)
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:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
SHARES PRICE PRICE
----------- ----------- -----------
<S> <C> <C> <C>
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
</TABLE>
At December 31, 1997, no options were exercisable. Unexercised options
expire on November 19, 2007.
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):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Net Income:
As Reported.............................................................. $ 3,397
Pro Forma................................................................ $ 3,342
Earnings Per Share--basic and diluted:
As Reported.............................................................. $ 0.91
Pro Forma................................................................ $ 0.89
</TABLE>
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.
F-27
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. STOCK OPTIONS (CONTINUED)
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.
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.
F-28
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
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:
<TABLE>
<S> <C>
Year ending December 31--
1998............................................................ $ 1,689
1999............................................................ 1,355
2000............................................................ 882
2001............................................................ 707
2002............................................................ 585
Thereafter...................................................... 1,510
---------
Total......................................................... $ 6,728
---------
---------
</TABLE>
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.
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
F-29
<PAGE>
HOMEUSA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
15. SUBSEQUENT EVENTS (CONTINUED)
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. The Fleetwood Merger
Agreement provides that HomeUSA will pay to Fleetwood $6 million (the
"Termination Fee") upon demand if (i) HomeUSA or Fleetwood terminates the
Fleetwood Merger Agreement because the HomeUSA Board approved or recommended a
superior proposal; or (ii) HomeUSA or Fleetwood terminates the Fleetwood Merger
Agreement because HomeUSA stockholder approval was not obtained.
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.
F-30
<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-31
<PAGE>
AAA HOMES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
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
--------- --------- -------------
--------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<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-33
<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-34
<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 1997
--------- --------- --------- 1996 ---------
-----------
(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-35
<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.
F-36
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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
F-37
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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
F-38
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31
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>
F-39
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: (CONTINUED)
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>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Accounts payable, trade.................................... $ 601 $ 807 $ 950
Accrued compensation....................................... 219 298 180
Other accrued expenses..................................... 619 577 543
--------- --------- ------
$ 1,439 $ 1,682 $ 1,673
--------- --------- ------
--------- --------- ------
</TABLE>
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
F-40
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT: (CONTINUED)
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.
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
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
--------- --------- -----
--------- --------- -----
</TABLE>
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.
F-41
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT: (CONTINUED)
The aggregate maturities of long-term debt as of September 30, 1997 are as
follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31--
1997............................................................. $ 102
1998............................................................. 128
1999............................................................. 108
2000............................................................. 43
2001............................................................. 39
Thereafter....................................................... 27
---------
$ 447
---------
---------
</TABLE>
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.............................................. $ 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
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
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>
F-42
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
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):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
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)
--------- --------- -----
--------- --------- -----
</TABLE>
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-43
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments for operating leases at September 30, 1997 are
as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31--
1997............................................................. $ 116
1998............................................................. 380
1999............................................................. 266
2000............................................................. 47
2001............................................................. 12
Thereafter....................................................... --
---------
Total.......................................................... $ 821
---------
---------
</TABLE>
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-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of McDonald Mobile Homes, Inc.:
We have audited the accompanying balance sheets of McDonald Mobile Homes,
Inc. as of 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-45
<PAGE>
MCDONALD MOBILE HOMES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
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
--------- --------- ------
--------- --------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
MCDONALD MOBILE HOMES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30,
------------------------------- ----------------------
1994 1995 1996 1997
--------- --------- --------- 1996 ---------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Home sales............................................ $ 20,480 $ 30,626 $ 29,451 $ 22,731 $ 22,217
Other revenue......................................... 193 236 396 284 559
--------- --------- --------- ----------- ---------
Total revenue....................................... 20,673 30,862 29,847 23,015 22,776
Cost of sales........................................... 16,819 25,214 24,329 18,483 18,220
--------- --------- --------- ----------- ---------
Gross profit............................................ 3,854 5,648 5,518 4,532 4,556
Selling, general and administrative expenses............ 2,724 4,206 3,925 2,835 3,209
--------- --------- --------- ----------- ---------
Income from operations.................................. 1,130 1,442 1,593 1,697 1,347
Other income (expense):
Interest expense, net............................... (422) (824) (808) (585) (577)
Other income, net................................... 101 59 58 17 49
--------- --------- --------- ----------- ---------
Income before income taxes.............................. 809 677 843 1,129 819
Provision for income taxes.............................. 302 253 314 418 336
--------- --------- --------- ----------- ---------
Net income.............................................. $ 507 $ 424 $ 529 $ 711 $ 483
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
MCDONALD MOBILE HOMES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TREASURY
COMMON PAID-IN STOCK, AT RETAINED
STOCK CAPITAL 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-48
<PAGE>
MCDONALD MOBILE HOMES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
------------------------------- ----------------------
1994 1995 1996 1997
--------- --------- --------- 1996 ---------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 507 $ 424 $ 529 $ 711 $ 483
Adjustments to reconcile net income to cash provided by
(used in) operating activities--
Depreciation.......................................... 40 65 77 58 73
Deferred income tax provision......................... 199 149 (148) (111) (2)
Noncash compensation on stock issuance................ -- -- 11 11 --
Changes in operating assets and liabilities--
Accounts receivable................................... (257) (189) 155 55 (483)
Inventories........................................... (1,858) (3,649) 608 1,038 1,380
Other assets, net..................................... (4) (183) 183 132 (186)
Accounts payable and accrued expenses................. 147 243 (319) (108) 236
Floor plan payable.................................... 2,150 3,257 (1,099) (793) (899)
--------- --------- --------- ----------- ---------
Net cash provided by (used in) operating
activities........................................ 924 117 (3) 993 602
--------- --------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemptions of (investments in) certificates of
deposit............................................... (20) (1) (54) -- 50
Purchases of property and equipment..................... (169) (552) (133) (175) (1,014)
Proceeds from sale of assets............................ 31 47 31 32 92
--------- --------- --------- ----------- ---------
Net cash used in investing activities............... (158) (506) (156) (143) (872)
--------- --------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................ -- 195 54 43 511
Repayments of long-term debt............................ (51) (52) (63) (173) (83)
Proceeds from issuance of stock......................... -- -- -- -- 165
Repurchase of common stock.............................. -- -- -- -- (152)
--------- --------- --------- ----------- ---------
Net cash provided by (used in) financing
activities........................................ (51) 143 (9) (130) 441
--------- --------- --------- ----------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents...... 715 (246) (168) 720 171
Cash and Cash Equivalents, Beginning of Period............ 176 891 645 645 477
--------- --------- --------- ----------- ---------
Cash and Cash Equivalents, End of Period.................. $ 891 $ 645 $ 477 $ 1,365 $ 648
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--
Interest.............................................. $ 399 $ 807 $ 806 $ 594 $ 573
Income taxes.......................................... 75 135 118 113 369
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The principal operations of McDonald Mobile Homes (the Company) consist of
the sale and installation of manufactured homes in the states of Arkansas,
Kansas, Missouri and Oklahoma. The Company began operations in January 1987. The
Company has operated under the names of Affordable Mobile Homes, All American
Home Center, Budget Mobile Homes, Coffeyville Mobile Homes, Granny's Mobile
Homes, Granny's II, Harrison Home Center and Mobile Home Supercenter.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements 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
F-50
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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.
F-51
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO 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>
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>
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>
Amounts due from manufacturers............................. $ 725 $ 608 $ 397
Due from finance companies................................. 160 109 663
Other...................................................... 39 52 192
--------- --------- ------
$ 924 $ 769 $ 1,252
--------- --------- ------
--------- --------- ------
</TABLE>
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------------
<S> <C> <C> <C>
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
--------- --------- ------
--------- --------- ------
</TABLE>
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).
F-52
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------------
<S> <C> <C> <C>
Accounts payable, trade................................ 665 $ 309 $ 471
Customer deposits...................................... 92 114 51
Other accrued expenses................................. 454 469 552
--------- --------- ------
$ 1,211 $ 892 $ 1,074
--------- --------- ------
--------- --------- ------
</TABLE>
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-53
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT: (CONTINUED)
LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
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
--------- --------- -----
--------- --------- -----
</TABLE>
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):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current............................................................... $ 103 $ 104 $ 462
Deferred.............................................................. 199 149 (148)
--------- --------- ---------
$ 302 $ 253 $ 314
--------- --------- ---------
--------- --------- ---------
</TABLE>
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):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax at statutory rates................................. $ 275 $ 230 $ 287
State income tax...................................................... 32 27 27
Other................................................................. (5) (4) --
--------- --------- ---------
$ 302 $ 253 $ 314
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-54
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
Deferred tax liabilities at December 31, 1995 and 1996 are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax liabilities--
Accrued income.............................................................. $ 270 $ 226
Inventories................................................................. 126 --
Depreciation of property and equipment...................................... 42 64
--------- ---------
Total deferred tax liability.............................................. $ 438 $ 290
--------- ---------
--------- ---------
</TABLE>
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.
F-55
<PAGE>
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.
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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
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
-----
-----
</TABLE>
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-56
<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-57
<PAGE>
PATRICK HOME CENTER, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
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
--------- --------- ------
--------- --------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
PATRICK HOME CENTER, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------------- ----------------------
1994 1995 1996 1997
--------- --------- --------- 1996 ---------
-----------
(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-59
<PAGE>
PATRICK HOME CENTER, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TREASURY
COMMON RETAINED STOCK AT
STOCK EARNINGS 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-60
<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 1997
--------- --------- --------- 1996 ---------
-----------
(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-61
<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
F-62
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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.
F-63
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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):
<TABLE>
<S> <C>
Fair value of assets................................................. $ 859
Liabilities.......................................................... (620)
---------
Value of treasury stock.............................................. $ 239
---------
---------
</TABLE>
F-64
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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>
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 manufacturers..................................... $ 508 $ 471 $ 429
Due from finance companies................................. 455 546 170
Other...................................................... 91 99 116
--------- --------- ------
$ 1,054 $ 1,116 $ 715
--------- --------- ------
--------- --------- ------
</TABLE>
F-65
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: (CONTINUED)
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.................. $ 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
--------- --------- ------
--------- --------- ------
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
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
--------- --------- ------
--------- --------- ------
</TABLE>
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-66
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT: (CONTINUED)
LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
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
--------- --------- -----
--------- --------- -----
</TABLE>
The aggregate maturities of long-term debt as of September 30, 1997, are as
follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31--
1997............................................................. $ 75
1998............................................................. 125
1999............................................................. 81
2000............................................................. 104
2001............................................................. 42
---------
$ 427
---------
---------
</TABLE>
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-67
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (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):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
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)
--------- --- ---
--------- --- ---
</TABLE>
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
F-68
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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):
<TABLE>
<S> <C>
Year ending December 31--
1997............................................................. $ 56
1998............................................................. 207
1999............................................................. 152
2000............................................................. 77
---------
Total........................................................ $ 492
---------
---------
</TABLE>
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.
F-69
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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-70
<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-71
<PAGE>
MOBILE WORLD GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
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
--------- --------- ------
--------- --------- ------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-72
<PAGE>
MOBILE WORLD GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
-------------------- ----------------------
1995 1996 1997
--------- --------- 1996 ---------
-----------
(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-73
<PAGE>
MOBILE WORLD GROUP
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
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
----- ----- ---------
----- ----- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-74
<PAGE>
MOBILE WORLD GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
-------------------- ----------------------
1995 1996 1997
--------- --------- 1996 ---------
-----------
(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-75
<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
F-76
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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.
F-77
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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.
F-78
<PAGE>
MOBILE WORLD 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 IN -------------------- SEPTEMBER 30,
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):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
Due from manufacturers......................................... $ 106 $ 188 $ 118
Due from finance companies..................................... 205 191 148
Other.......................................................... 11 49 86
--------- --------- -----
$ 322 $ 428 $ 352
--------- --------- -----
--------- --------- -----
</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.................. $ 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
--------- --------- ------
--------- --------- ------
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
Accounts payable, trade...................................... $ 107 $ 114 $ 382
Other accrued expenses....................................... 671 729 96
Income tax payable........................................... 213 357 173
--------- --------- -----
$ 991 $ 1,200 $ 651
--------- --------- -----
--------- --------- -----
</TABLE>
F-79
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
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 $ --
--------- --------- -----
--------- --------- -----
</TABLE>
F-80
<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):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
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
--------- --------- -----
--------- --------- -----
</TABLE>
The provision for income taxes differs from an amount computed at the
statutory rates as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
Federal income tax at statutory rates.......................... $ 97 $ 80 $ 64
State income taxes............................................. 8 7 5
Nondeductible expenses......................................... 2 1 1
--------- --------- -----
$ 107 $ 88 $ 70
--------- --------- -----
--------- --------- -----
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
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)
--------- --------- -----
--------- --------- -----
</TABLE>
F-81
<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):
<TABLE>
<S> <C>
Year ending December 31--
1997................................................................ $ 8
1998................................................................ 8
1999................................................................ 1
---
Total............................................................. $ 17
---
---
</TABLE>
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.
F-82
<PAGE>
MOBILE WORLD 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.
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-83
<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-84
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
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
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-85
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
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
------------ --------- ---------
------------ --------- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-86
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT TOTAL
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
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
--- --- --- ---
--- --- --- ---
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-87
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-88
<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.
F-89
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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.
F-90
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a concentration
of credit risk consist principally of cash deposits and accounts receivable. The
Group maintains cash balances at financial institutions which may at times be in
excess of federally insured levels. The Group has not incurred losses related to
these balances to date.
MAJOR SUPPLIERS
The Group purchases 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. 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.
F-91
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1996
------------- ------------- SEPTEMBER 30,
1997
---------------
(UNAUDITED)
<S> <C> <C> <C>
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
----- -----
----- -----
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------- SEPTEMBER 30,
1997
---------------
(UNAUDITED)
<S> <C> <C>
Accounts receivable, trade...................................... $ 201 $ 147
Due from manufacturers.......................................... 113 189
Due from finance companies...................................... 32 38
Other........................................................... 56 44
----- -----
$ 402 $ 418
----- -----
----- -----
</TABLE>
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
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
------ ------
------ ------
</TABLE>
F-92
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
Accounts payable, trade......................................... $ 319 $ 359
Customer deposits............................................... 28 41
Other accrued expenses.......................................... 238 135
Contingent liability............................................ -- 100
------ ------
$ 585 $ 635
------ ------
------ ------
</TABLE>
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-93
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT: (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-------------
SEPTEMBER 30,
1997
---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
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
----- -----
----- -----
</TABLE>
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31--
1997............................................................. $ 75
1998............................................................. 242
1999............................................................. 27
2000............................................................. 24
2001............................................................. 4
---------
$ 372
---------
---------
</TABLE>
F-94
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES:
The components of the provision for income taxes are as follows at December
31, 1996 (in thousands):
<TABLE>
<S> <C>
Federal--
Current............................................................ $ (27)
Deferred........................................................... 29
---------
2
---------
State--
Current............................................................ (4)
Deferred........................................................... 4
---------
--
Total provision.................................................. $ 2
---------
---------
</TABLE>
The provision for income taxes at December 31, 1996, differs from an amount
computed at the statutory rates as follows (in thousands):
<TABLE>
<S> <C>
Federal income tax at statutory rates................................ $ (17)
State income taxes................................................... --
Effect of S corporation losses....................................... 19
---------
$ 2
---------
---------
</TABLE>
The significant items giving rise to the deferred tax assets and liabilities
as of December 31, 1996, are as follows (in thousands):
<TABLE>
<S> <C>
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)
---------
---------
</TABLE>
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.
F-95
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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.
Future minimum lease payments for operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
Year ending December 31--
1997............................................................... $ 173
1998............................................................... 169
1999............................................................... 117
2000............................................................... 38
---------
Total............................................................ $ 497
---------
---------
</TABLE>
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-96
<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-97
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
--------- --------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
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
--------- --------- ------
--------- --------- ------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-98
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30
DECEMBER 31
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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-99
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
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
----- ----- ---------
----- ----- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-100
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30
DECEMBER 31
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $ 181 $ (17) $ 271 $ 166 $ 26
Adjustments to reconcile net income (loss) to net cash provided by
operating activities--
Depreciation and amortization................................... 139 73 106 85 86
Deferred income tax provision (benefit)......................... -- 238 112 169 (147)
Changes in assets and liabilities--
Accounts receivable........................................... 248 (86) (33) (450) (563)
Related-party receivable...................................... 7 (382) (256) 19 (14)
Inventories................................................... (533) (458) (685) 39 (862)
Other current assets.......................................... (20) 5 (26) -- 11
Related-party receivable, noncurrent.......................... 1 24 30 (136) 9
Other noncurrent assets, net.................................. -- -- (99) (10) 85
Accounts payable and accrued expenses......................... (281) (100) 189 195 338
Floor plan payable............................................ 435 1,005 518 (12) 1,392
--------- --------- --------- --------- ---------
Net cash provided by operating activities................... 177 302 127 65 361
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................... (79) (154) (547) (413) (377)
--------- --------- --------- --------- ---------
Net cash used in investing activities....................... (79) (154) (547) (413) (377)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) short-term debt....................... 17 (16) 160 180 141
Proceeds from issuance of common stock............................ -- -- 6 -- --
Proceeds from (payments on) long-term debt........................ (11) (64) 201 181 (73)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities......... 6 (80) 367 361 68
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Cash..................................... 104 68 (53) 13 52
Cash, beginning of period........................................... 306 410 478 478 425
--------- --------- --------- --------- ---------
Cash, end of period................................................. $ 410 $ 478 $ 425 $ 491 $ 477
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--
Interest........................................................ $ 275 $ 395 $ 365 $ 284 $ 485
Taxes........................................................... 182 -- 69 -- 126
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-101
<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.
F-102
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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.
F-103
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SHAREHOLDERS' EQUITY
Shareholders' equity of the Group includes the following shares of common
stock which were issued and outstanding at December 31, 1996 and September 30,
1997 (unaudited): 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 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.
F-104
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 --------------------
IN YEARS 1995 1996
------------- --------- --------- SEPTEMBER 30,
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):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
--------- --------- SEPTEMBER 30,
1997
-------------------
(UNAUDITED)
<S> <C> <C> <C>
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
--------- --------- ------
--------- --------- ------
</TABLE>
F-105
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: (CONTINUED)
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
--------- --------- SEPTEMBER 30,
1997
-------------------
(UNAUDITED)
<S> <C> <C> <C>
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
--------- --------- ------
--------- --------- ------
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
--------- --------- SEPTEMBER 30,
1997
---------------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable, trade................................... $ 251 $ 165 $ 163
Customer deposits......................................... 20 140 224
Other accrued expenses.................................... 173 328 584
--------- --------- -----
$ 444 $ 633 $ 971
--------- --------- -----
--------- --------- -----
</TABLE>
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.
F-106
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT: (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1996
--------- ---------
SEPTEMBER 30,
1997
---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
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
</TABLE>
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31--
1997............................................................... $ 224
1998............................................................... 105
1999............................................................... 105
2000............................................................... 5
2001............................................................... 5
---------
$ 444
---------
---------
</TABLE>
6. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal--
Current.............................................................. $ 101 $ 61 $ 165
Deferred............................................................. (4) (69) 112
--------- --- ---------
$ 97 $ (8) $ 277
--------- --- ---------
--------- --- ---------
</TABLE>
F-107
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
The provision (benefit) for income taxes differs from an amount computed at
the statutory rates as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------
1994 1995 1996
----- ----- ---------
<S> <C> <C> <C>
Federal income tax at statutory rates................................... $ 97 $ (9) $ 192
Nondeductible expenses.................................................. -- 1 13
Valuation allowance..................................................... -- -- 72
--
--- ---------
$ 97 $ (8) $ 277
--
--
--- ---------
--- ---------
</TABLE>
The significant items giving rise to the deferred tax assets and liabilities
as of December 31, 1995 and 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
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)
</TABLE>
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-108
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED-PARTY TRANSACTIONS: (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):
<TABLE>
<S> <C>
Year ending December 31--
1997.............................................................. $ 207
1998.............................................................. 201
1999.............................................................. 189
2000.............................................................. 149
2001.............................................................. 140
Thereafter........................................................ 482
---------
Total........................................................... $ 1,368
---------
---------
</TABLE>
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.
F-109
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
9. 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-110
<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-111
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
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
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-112
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
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
------ --------- ---------
------ --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-113
<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-114
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-115
<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.
F-116
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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.
F-117
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (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.
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.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1996
--------------- ------------- SEPTEMBER 30,
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):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------- SEPTEMBER 30,
1997
---------------
(UNAUDITED)
<S> <C> <C>
Due from manufacturers.............................................................. $ 54 $ 139
Due from finance companies.......................................................... 79 290
----- -----
$ 133 $ 429
----- -----
----- -----
</TABLE>
F-118
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: (CONTINUED)
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
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
------ ------
------ ------
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------- SEPTEMBER 30,
1997
---------------
(UNAUDITED)
<S> <C> <C>
Accounts payable, trade............................................................. $ 241 $ 125
Customer deposits................................................................... 26 60
Other accrued expenses.............................................................. 92 167
----- -----
$ 359 $ 352
----- -----
----- -----
</TABLE>
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 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.
F-119
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT: (CONTINUED)
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):
<TABLE>
<S> <C>
Year ending December 31--
1997............................................................. $ 80
1998............................................................. 80
1999............................................................. 80
2000............................................................. 78
2001............................................................. 78
Thereafter....................................................... 377
---------
Total........................................................ $ 773
---------
---------
</TABLE>
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.
F-120
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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-121
<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-122
<PAGE>
WILLMAX HOMES OF COLORADO LLC
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
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
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-123
<PAGE>
WILLMAX HOMES OF COLORADO LLC
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEAR ENDED
DECEMBER 31, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
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
------ --------- ---------
------ --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-124
<PAGE>
WILLMAX HOMES OF COLORADO LLC
STATEMENTS OF MEMBERS' EQUITY
(IN THOUSANDS)
<TABLE>
<S> <C>
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
---
---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-125
<PAGE>
WILLMAX HOMES OF COLORADO LLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
--------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-126
<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.
F-127
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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
F-128
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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. 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):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1996
----------------- --------------- SEPTEMBER 30,
1997
---------------
(UNAUDITED)
<S> <C> <C> <C>
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
--- ---
--- ---
</TABLE>
F-129
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------- SEPTEMBER 30,
1997
---------------
(UNAUDITED)
<S> <C> <C>
Due from manufacturers.......................................... $ 47 $ 58
Due from finance companies...................................... 55 101
Other........................................................... 51 138
----- -----
$ 153 $ 297
----- -----
----- -----
</TABLE>
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------- SEPTEMBER 30,
1997
---------------
(UNAUDITED)
<S> <C> <C>
New homes, net of unearned volume rebates....................... $ 1,043 $ 764
Pre-owned homes................................................. 14 16
------ -----
$ 1,057 $ 780
------ -----
------ -----
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------- SEPTEMBER 30,
1997
---------------
(UNAUDITED)
<S> <C> <C>
Accounts payable, trade......................................... $ 46 $ 44
Accrued compensation............................................ 24 --
Customer deposits............................................... 55 120
Other accrued expenses.......................................... 53 162
----- -----
$ 178 $ 326
----- -----
----- -----
</TABLE>
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
F-130
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FLOOR PLAN PAYABLE AND DEBT: (CONTINUED)
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.
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):
<TABLE>
<S> <C>
Year ending December 31--
1997................................................................ $ 32
1998................................................................ 26
---
Total............................................................. $ 58
---
---
</TABLE>
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.
F-131
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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-132
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HomeUSA, Inc.:
We have audited the accompanying balance sheet of HomeUSA, Inc., as of
December 31, 1996, and the related statement of stockholders' equity for the
period from inception (July 3, 1996) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HomeUSA, Inc., as of
December 31, 1996, and for the period from inception (July 3, 1996) to December
31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
September 10, 1997
F-133
<PAGE>
HOMEUSA, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
----------------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................... $ 1 $ 14
Deferred offering costs............................................................. 26 3,159
--- -------------
Total assets.................................................................. $ 27 $ 3,173
--- -------------
--- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities and amounts due to stockholders................................. $ 8 $ 3,141
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued and
outstanding..................................................................... -- --
Common stock, $.01 par value, 50,000,000 shares authorized, 1,843,823 and
3,174,943 shares issued and outstanding......................................... 19 32
Additional paid-in capital........................................................ -- 8,519
Retained deficit.................................................................. -- (8,519)
--- -------------
Total stockholders' equity.................................................... 19 32
--- -------------
Total liabilities and stockholders' equity.................................... $ 27 $ 3,173
--- -------------
--- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-134
<PAGE>
HOMEUSA, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
Revenues........................................................................................... $ --
Compensation expense relating to issuance of common stock to management and consultants............ 8,519
-------------
Loss before income taxes........................................................................... (8,519)
Income tax benefit................................................................................. --
-------------
Net loss........................................................................................... $ (8,519)
-------------
-------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-135
<PAGE>
HOMEUSA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Initial capitalization (July 3, 1996)................. 90,713 $ 1 $ -- $ -- $ 1
Issuance of shares to Notre......................... 1,753,110 18 -- -- 18
---------- --- ----------- --------- ------------
Balance, December 31, 1996............................ 1,843,823 19 -- -- 19
Issuance of management and consultant shares
(unaudited)....................................... 1,331,120 13 8,519 -- 8,532
Net loss (unaudited)................................ -- -- -- (8,519) (8,519)
---------- --- ----------- --------- ------------
Balance, September 30, 1997 (unaudited)............... 3,174,943 $ 32 $ 8,519 $ (8,519) $ 32
---------- --- ----------- --------- ------------
---------- --- ----------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-136
<PAGE>
HOMEUSA, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................................... $ (8,519)
Adjustments to reconcile net loss to net cash provided by operating activities--
Compensation expense related to issuance of common stock to management and consultants......... 8,519
Changes in assets and liabilities--
Increase in deferred offering costs.......................................................... (3,133)
Increase in accrued liabilities and amounts due to stockholders.............................. 3,133
-------------
Net cash provided by operating activities.................................................. --
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock................................................................................ 13
-------------
Net cash provided by financing activities.................................................. 13
-------------
Net increase....................................................................................... 13
Cash, beginning of period.......................................................................... 1
-------------
Cash, end of period................................................................................ $ 14
-------------
-------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-137
<PAGE>
HOMEUSA, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
HomeUSA, Inc., a Delaware corporation (HomeUSA or the Company), was founded
in July 1996 to become a leading national retailer of manufactured homes and
accessories. HomeUSA intends to acquire nine businesses (the Mergers), complete
an initial public offering (the IPO) of its common stock and, subsequent to the
Offering, continue to acquire through merger or purchase, similar companies to
expand its national operations. The accompanying financial statements reflect
the activities of HomeUSA, Inc. prior to the acquisitions of the Founding
Companies and the IPO. Reference is made to the consolidated financial
statements of HomeUSA, Inc. and subsidiaries included elsewhere herein.
HomeUSA has not conducted any operations, and all activities to date have
related to the Offering and the Mergers. All expenditures to date have been
funded by the majority stockholder, Notre Capital Ventures II, L.L.C. (Notre),
on behalf of the Company. Notre has committed to fund the organization expenses
and offering costs. As of December 31, 1996, and September 30, 1997, costs of
approximately $26,000 and $3.2 million (unaudited), respectively, have been
incurred by Notre in connection with the IPO. HomeUSA has treated these costs as
deferred offering costs. There is no assurance that the pending Mergers
discussed below will be completed or that HomeUSA will be able to generate
future operating revenues.
The Company has an absence of a combined operating history and HomeUSA's
future success is dependent upon a number of factors which include, among
others, the ability to integrate operations, reliance on the identification and
integration of satisfactory acquisition candidates, reliance on acquisition
financing, the ability to manage growth, and attract and retain qualified
management and sales personnel as well as the need for additional capital and
the availability and cost of floor plan financing. Other factors include the
availability of sites for manufactured homes, dependence on key manufacturers,
availability of product, the availability of customer financing, risks
associated with increased regulation and competition, and the cyclical nature of
the manufactured housing industry.
2. INTERIM FINANCIAL INFORMATION:
The interim financial statements as of September 30, 1997, and for the nine
months then ended are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim period are not necessarily indicative
of the results for the entire fiscal year.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-138
<PAGE>
HOMEUSA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY
COMMON STOCK AND PREFERRED STOCK
HomeUSA effected a 90.7127-for-one stock dividend on August 1, 1997, for
each share of common stock of the Company (Common Stock) then outstanding. In
addition, the Company increased the number of authorized shares of Common Stock
to 50,000,000 and authorized 5,000,000 shares of $.01 par value preferred stock.
The effects of the Common Stock dividend have been retroactively reflected on
the balance sheet and in the accompanying notes.
In connection with the organization and initial capitalization of HomeUSA,
the Company issued 90,713 shares of common stock at $.01 per share to Notre.
Notre incurred $18,000 of expenses on behalf of the Company for which the
Company issued 1,753,110 shares to Notre in October 1996.
In 1997, the Company issued a total of 1,331,120 shares of Common Stock to
management and consultants to the Company at a price of $.01 per share. As a
result, the Company recorded a nonrecurring, noncash compensation charge of $8.5
million (unaudited) in the first nine months of 1997 representing the difference
between the amount paid for the shares and an estimated fair value of the shares
on the date of sale as if the Founding Companies were combined.
RESTRICTED COMMON STOCK
In August 1997, the Company authorized 5,000,000 shares of $.01 par value
restricted common stock and the primary stockholder exchanged 1,718,823 of its
shares of Common Stock for an equal number of shares of restricted voting common
stock (Restricted Common Stock). The holder of Restricted Common Stock is
entitled to elect one member of the Company's board of directors and to .25 of
one vote for each share on all other matters on which they are entitled to vote.
Holders of Restricted Common Stock are not entitled to vote on the election of
any other directors.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holders (as defined in Sections 267, 707,
318 and/or 4946 of the Internal Revenue Code of 1986, as amended), (ii) in the
event any person acquires beneficial ownership of 15 percent or more of the
total number of outstanding shares of Common Stock of the Company or (iii) in
the event any person offers to acquire 15 percent or more of the total number of
outstanding shares of Common Stock of the Company. After October 1, 1998, the
board of directors may elect to convert any remaining shares of Restricted
Common Stock into shares of Common Stock in the event 80 percent or more of the
originally outstanding shares of Restricted Common Stock have been previously
converted into shares of Common Stock.
LONG-TERM INCENTIVE PLAN
In July 1997, the Company's stockholders approved the Company's 1997
Long-Term Incentive Plan (the Plan), which provides for the granting or awarding
of incentive or nonqualified stock options, stock appreciation rights,
restricted or deferred stock, dividend equivalents and other incentive awards to
directors, officers, key employees and consultants to the Company. The number of
shares authorized and reserved for issuance under the Plan is the greater of
2,000,000 shares or 15 percent of the aggregate number of shares of Common Stock
outstanding. The terms of the option awards will be established by the
F-139
<PAGE>
HOMEUSA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
compensation committee of the Company's board of directors. The Company intends
to file a registration statement registering the issuance of shares upon
exercise of options granted under this Plan. The Company expects to grant
nonqualified stock options to purchase a total of 650,000 shares of Common Stock
to key employees of the Company at the initial public offering price upon
consummation of the Offering. In addition, the Company expects to grant options
to purchase a total of 952,483 shares of Common Stock to certain employees of
the Founding Companies at the initial public offering price per share. These
options will vest at the rate of 20 percent per year, commencing on the first
anniversary of the IPO and will expire seven years from the date of grant or
three months following termination of employment.
NONEMPLOYEE DIRECTORS' STOCK PLAN
In July 1997, the Company's stockholders approved the 1997 Nonemployee
Directors' Stock Plan (the Directors' Plan), which provides for the granting or
awarding of stock options and stock appreciation rights to nonemployees. The
number of shares authorized and reserved for issuance under the Stock Plan is
275,000 shares. The Directors' Plan provides for the automatic grant of options
to purchase 10,000 shares to each nonemployee director serving at the
commencement of the IPO.
Each nonemployee director will be granted options to purchase an additional
10,000 shares at the time of the initial election. In addition, each director
will be automatically granted options to purchase 5,000 shares at each annual
meeting of the stockholders occurring more than two months after the date of the
directors' initial election. All options will be exercised at the fair market
value at the date of grant and are immediately vested upon grant.
Options will be granted to each of three future and one current member of
the board of directors to purchase 10,000 shares of Common Stock at the initial
public offering price per share effective upon the consummation of the IPO.
These options will expire the earlier of 10 years from the date of grant or one
year after termination of service as a director.
The Directors' Plan allows nonemployee directors to receive shares (deferred
shares) at future settlement dates in lieu of cash. The number of deferred
shares will have an aggregate fair market value equal to the fees payable to the
directors.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a new fair-value
based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25). Entities
electing to remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting had been applied. The Company will provide pro forma disclosure of
net income and earnings per share, as applicable, in the notes to future
consolidated financial statements.
4. EVENTS SUBSEQUENT TO THE DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
Wholly owned subsidiaries of HomeUSA have acquired by merger or share
exchange nine companies (Founding Companies). The companies are the Universal
Housing Group, the AAA Homes Group, McDonald Mobile Homes, Inc., Patrick Home
Center, Inc., the Mobile World Group, the First American
F-140
<PAGE>
HOMEUSA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. EVENTS SUBSEQUENT TO THE DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED): (CONTINUED)
Homes Group, the Cooper's Mobile Homes Group, Home Folks Housing Center, Inc.
and WillMax Homes of Colorado, LLC. HomeUSA acquired the Founding Companies for
cash and 7.3 million shares of Common Stock.
The Company has recently received commitment letters to provide credit
facilities which were available upon the closing of the IPO. According to the
terms the Company has revolving credit facilities of $125 million for
refinancing of floor plan debt. Such facilities 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 constitutes an event of default under the
proposed facility.
In November 1997, HomeUSA completed the IPO, which involved the sale of
5,000,000 shares of its common stock, resulting in net proceeds of approximately
$31.2 million.
F-141
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 17, 1998
AMONG
FLEETWOOD ENTERPRISES, INC.,
HUSA ACQUISITION COMPANY,
AND
HOMEUSA, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<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 $.01 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.
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
A-2
<PAGE>
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.
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 6.01) closing sale prices for the Parent Common Stock (as
reported in THE WALL STREET JOURNAL or, in the absence
A-3
<PAGE>
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. 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
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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 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 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 $.01 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.
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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 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
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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.
(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
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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 II, deliverable in respect thereof
pursuant to this Agreement
(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
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defined in Section 3.01(f)) filed and publicly available prior to the date of
this 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) 13,723,064 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
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
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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
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
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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 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.
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(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 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
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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.
(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.
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(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 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.
(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
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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.
(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
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<PAGE>
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.
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 fully 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
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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 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, fully 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 $.01 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
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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 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 (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
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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 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
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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 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
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transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent or Sub
(l) 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. 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
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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.
(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
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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;
(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
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
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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 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
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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.
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
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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 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
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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 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 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
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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 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
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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 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.
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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 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.
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(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) 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 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.
(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.
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(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 "Termination Date"), 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 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
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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 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.
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(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.
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.
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(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
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 (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.
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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. If 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.
A-36
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.
<TABLE>
<S> <C> <C>
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
</TABLE>
A-37
<PAGE>
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 "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.
A-38
<PAGE>
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 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
A-39
<PAGE>
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:
A-40
<PAGE>
APPENDIX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FAIRNESS OPINION OF BT ALEX. BROWN INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-1
<PAGE>
[LOGO]
[LOGO]
February 17, 1998
Board of Directors
HomeUSA, Inc.
3 Riverway, Suite 555
Houston, Texas 77056
Dear Sirs:
HomeUSA, Inc. ("HomeUSA" or the "Company"), Fleetwood Enterprises, Inc.
("Buyer" or "Fleetwood") and HUSA Acquisition Company, a Delaware Corporation
and a wholly owned subsidiary of Fleetwood (the "Merger Sub"), have entered into
an Agreement and Plan of Merger dated as of February 17, 1998 (the "Agreement").
Pursuant to the Agreement, the implementation of which is contingent on
stockholder approval by HomeUSA stockholders, the Company will merge with and
into the Merger Sub (the "Merger"), and each share of HomeUSA common stock
issued and outstanding, par value $0.01 per share and each issued and
outstanding share of HomeUSA's restricted voting common stock, par value $0.01
per share (collectively, the "Company Common Stock") immediately prior to the
effective time of the Merger will be converted into the right to receive (i)
$10.25 in cash (the "Per Share Cash Amount"), without interest, or (ii) a number
of shares of common stock, $1.00 par value, of Fleetwood, including associated
rights (the "Buyer Common Stock"), equal to the Per Share Cash Amount divided by
the average of the closing price on the New York Stock Exchange of the shares of
Buyer Common Stock for the ten consecutive trading-day period ending on the
tenth day immediately prior to the anticipated closing date, or (iii) a
combination of shares of Buyer Common Stock and cash determined in accordance
with the Merger Agreement. The term "Aggregate Merger Consideration" means the
aggregate amount of shares of Buyer Common Stock and cash to be received by
holders of shares of Company Common Stock pursuant to the Merger Agreement as
set forth in clauses (i), (ii), and (iii) in the immediately preceding sentence.
The Merger Agreement provides that the number of shares of Company Common Stock
to be converted into the right to receive cash multiplied by the Per Share Cash
Amount shall not exceed 49% of the Aggregate Merger Consideration. We have
assumed, with your consent, that the Merger will qualify as a tax-free
transaction under the provisions of Section 368 of the Internal Revenue Code of
1986. You have requested our opinion as to whether the Aggregate Merger
Consideration is fair, from a financial point of view, to HomeUSA's
stockholders.
BT Alex. Brown Incorporated ("BT Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of
HomeUSA in connection with the transaction described above and will receive a
fee for our services, a portion of which is contingent upon the consummation of
the Merger. In November 1997, we also served as lead-managing underwriter in
HomeUSA's initial public offering of common stock, and currently publish regular
research reports regarding the businesses and securities of the Company. In the
ordinary course of business, BT Alex. Brown may actively trade the securities of
both the Company and the Buyer for our own account and the account of our
customers and, accordingly, may at any time hold a long or short position in
securities of the Company and the Buyer.
B-2
<PAGE>
HomeUSA, Inc.
Page 2
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning the Company and Fleetwood
and certain analysis and other information furnished to us by the Company and by
or on behalf of the Buyer. We have also held discussions with the members of the
senior managements of HomeUSA and Fleetwood regarding the businesses and
prospects of their respective companies and the joint prospects of a combined
company. In addition, we have (i) considered the potential pro forma financial
impact of the Merger on Fleetwood, (ii) reviewed the reported prices and trading
activity for the common stock of both HomeUSA and Fleetwood, (iii) compared
certain financial and stock market information for the Company and the Buyer
with similar information for certain selected companies whose securities are
publicly traded, (iv) reviewed the financial terms of certain recent business
combinations which we deemed comparable in whole or in part, (v) reviewed the
terms of the Agreement dated February 17, 1998 and attached documents, and (vi)
performed such other studies and analyses and considered such other factors as
we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of HomeUSA
and Fleetwood, we have assumed that such information reflects the best currently
available judgments and estimates of the managements of HomeUSA and Fleetwood as
to the likely future financial performances of their respective companies. In
addition, we have not made nor been provided with an independent evaluation or
appraisal of the assets of HomeUSA and Fleetwood, nor have we been furnished
with any such evaluations or appraisals. Our opinion is based on market,
economic and other conditions as they exist and can be evaluated as of the date
of this letter. In rendering our opinion, we have assumed, with your consent,
that the publicly quoted price on the New York Stock Exchange for Fleetwood
common stock fairly represents the per share value of Buyer Common Stock being
delivered in the transaction. We are not expressing any opinion as to what the
value of the shares of Buyer Common Stock actually will be when issued to the
Company's stockholders pursuant to the Merger or the prices at which such shares
of Buyer Common Stock will trade subsequent to the Merger. We have not been
requested to opine as to, and our opinion does not in any manner address, the
Company's underlying business decision to effect the Merger.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets, nor did we have discussions or negotiate with any party,
other than Fleetwood, in connection with this Merger.
Furthermore, our advisory services and the opinion expressed herein were
prepared for the use of the Board of Directors of HomeUSA and do not constitute
a recommendation to HomeUSA's stockholders as to how they should vote at the
stockholder's meeting in connection with the Merger. We hereby consent, however,
to the inclusion of this opinion as an exhibit to any proxy or registration
statement distributed in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Aggregate Merger Consideration is fair, from a
financial point of view, to HomeUSA's stockholders.
Very truly yours,
BT ALEX. BROWN INCORPORATED
B-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Fleetwood is a Delaware corporation. Section 145(a) of the DGCL provides
that a Delaware corporation may indemnify any person who 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 Fleetwood) by reason of the fact
that such person is or was a director, officer, employee or agent of Fleetwood,
or is or was serving at the request of Fleetwood as a director, officer,
employee or agent of another corporation or enterprise, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of Fleetwood, and, with respect to any
criminal action or proceeding, had no cause to believe his or her conduct was
unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who 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
Fleetwood to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if he or she acted under similar standards,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to Fleetwood
unless and only to the extent that the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to be indemnified for such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, such officer or director shall be indemnified
against expenses actually and reasonably incurred by him or her in connection
therewith; that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that Fleetwood may purchase and maintain insurance on behalf of a director
or officer of Fleetwood against any liability asserted against such officer or
director and incurred by him or her in any such capacity or arising out of his
or her status as such, whether or not Fleetwood would have the power to
indemnify him or her against such liabilities under Section 145.
The Fleetwood Charter contains no provisions regarding indemnification of
officers and directors. The Fleetwood Bylaws provide that the corporation shall,
to the fullest extent permitted by law, indemnify any person who 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 (including a derivative action) by reason of the fact that he is
or was a director or officer of the Corporation, or is or was serving at the
request of the corporation 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 him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Fleetwood Bylaws
authorize the advance of expenses in certain circumstances and authorize the
corporation to provide indemnification or advancement of expenses to any person,
by agreement or otherwise, on such terms and conditions as the board of
directors may approve. The Fleetwood Bylaws also authorize the corporation to
purchase and maintain insurance on behalf of a director, officer, employee,
agent of the corporation or a
II-1
<PAGE>
person acting at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body against any liability
incurred by him in any such capacity whether or not the corporation would have
the power to indemnify him.
In addition to the indemnification provisions in the Fleetwood Bylaws,
Fleetwood has entered into indemnity agreements with individuals serving as
officers of the corporation. Therein, Fleetwood agrees to pay on behalf of the
officer and his executors, administrators or assigns, any amount which he is or
becomes legally obligated to pay because of any act or omission or neglect or
breach of duty, including any actual or alleged error or misstatement or
misleading statement, which he commits or suffers while acting in his capacity
as officer of the corporation and solely because of his being an officer.
Fleetwood agrees to pay damages, judgments, settlements and costs, costs of
investigation, costs of defense of legal actions, claims or proceedings and
appeals therefrom, and costs of attachment or similar bonds. Fleetwood also
agrees that if it shall not pay within a set period of time after written claim,
the officer may bring suit against the corporation and shall be entitled to be
paid for prosecuting such claim. Fleetwood does not agree to pay fines or fees
imposed by law or payments which it is prohibited by applicable law form paying
as indemnity and does not agree to make any payment in connection with a claim
made against the officer for which payment was made to the officer under an
insurance policy, for which the officer is entitled to indemnity otherwise than
under the agreement, and which is based upon the officer gaining any personal
profit or advantage to which he was not legally entitled, in addition certain
other payments.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated February 17, 1998, by and among Fleetwood, HomeUSA and HUSA
Acquisition Company, a Delaware corporation+
2.2 Form of Election and Letter of Transmittal to accompany certificates representing shares of
HomeUSA Common Stock to be exchanged in the Merger
3.1 Restated Certificate of Incorporation(1)
3.2 Amendment to Restated Certificate of Incorporation(2)
3.3 Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred
Stock filed November 23, 1988(3)
3.4 Restated Bylaws(2)
4.1 Rights Agreement dated November 10, 1988, between Fleetwood and the First National Bank of
Boston used in connection with a stockholder rights plan(3)
4.2 Amended and Restated Declaration of Trust of Fleetwood Capital Trust, a statutory business
trust formed under the Delaware Business Trust Act, dated as of February 10, 1998, by and
among Fleetwood and individual trustees of the Trust+
4.3 Indenture dated as of February 10, 1998, by and between Fleetwood and The Bank of New York, as
trustee, used in connection with Fleetwood's 6% Convertible Subordinated Debentures due
2028+
4.4 Registration Rights Agreement dated February 10, 1998, by and among Fleetwood Capital Trust,
Fleetwood and PaineWebber Incorporated+
4.5 Preferred Securities Guarantee Agreement dated as of February 10, 1998, by and between
Fleetwood and The Bank of New York, as preferred guarantee trustee+
5.1 Opinion of Gibson, Dunn & Crutcher LLP as to the legality of the securities being registered+
8.1 Form of Opinion of Gibson, Dunn & Crutcher LLP as to certain tax matters+
8.2 Form of Opinion of Arthur Andersen LLP--HomeUSA as to certain tax matters
10.1 Form of Employment Agreement between Fleetwood and each of its officers(4)
10.2 Form of Indemnity Agreement between Fleetwood and each of its officers and directors+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
<C> <S>
10.3 Amended and Restated Deferred Compensation Plan(5)
10.4 Amended and Restated Supplemental Benefit Plan(5)
10.5 Amended and Restated Long-Term Incentive Compensation Plan(5)
10.6 1982 Stock Option Plan(2)
10.7 Amended and Restated Benefit Restoration Plan(5)
10.8 Dividend Equivalent Plan(6)
10.9 Amended and Restated 1992 Stock-Based Incentive Compensation Plan(5)
10.10 The 1992 Non-Employee Director Stock Option Plan(4)
10.11 Senior Executive Incentive Compensation Plan(7)
10.12 Operating Agreement between Fleetwood Enterprises, Inc. and Fleetwood Credit Corp.(8)
15 Letter from Arthur Andersen LLP regarding unaudited interim financial information+
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in legal opinion filed as Exhibit 5.1)+
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in legal opinion filed as Exhibit 8.1)+
23.3 Consent of Arthur Andersen LLP--Fleetwood
23.4 Consent of Arthur Andersen LLP--HomeUSA, Inc.
23.5 Consent of Coopers & Lybrand L.L.P.--HomeUSA, Inc.+
23.6 Consent of BT Alex. Brown+
23.7 Consent of Arthur Andersen LLP--HomeUSA (included in opinion filed as Exhibit 8.2)
24.1 Powers of Attorney (included in signature page in Part II of Registration Statement)+
99.1 Form of Proxy for HomeUSA, Inc. Special Meeting of Stockholders
</TABLE>
- ------------------------
+ Previously filed.
(1) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 28, 1985.
(2) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 26, 1987.
(3) Incorporated by reference to Fleetwood's Current Report on Form 8-K filed
on November 10, 1988.
(4) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 26, 1992.
(5) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 28, 1996.
(6) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 29, 1990.
(7) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 24, 1994.
(8) Incorporated by reference to Fleetwood's Current Report on Form 8-K filed
June 7, 1996.
(b) Financial Statement Schedules
None
(c) Report, Opinion or Appraisal
See Appendix B to Proxy Statement/Prospectus
The Registrant hereby agrees to furnish to the Commission supplementally a
copy of any omitted schedule or exhibit upon request.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period, in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information
II-3
<PAGE>
set forth in the Registration Statement, and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Fleetwood has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Riverside, State
of California, on the 9th day of June, 1998.
<TABLE>
<S> <C> <C>
By: *
-----------------------------------------
Glenn F. Kummer
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board and
* Chief Executive Officer
- ------------------------------ (Principal Executive June 9, 1998
Glenn F. Kummer Officer)
*
- ------------------------------ President, Chief Operating June 9, 1998
Nelson W. Potter Officer and Director
Senior Vice President--
* Finance and Chief
- ------------------------------ Financial Officer June 9, 1998
Paul M. Bingham (Principal Financial
Officer)
/s/ WILLIAM H. LEAR Senior Vice President--
- ------------------------------ General Counsel and June 9, 1998
William H. Lear Secretary
*
- ------------------------------ Vice Chairman of the Board June 9, 1998
William W. Weide
*
- ------------------------------ Director June 9, 1998
Andrew Crean
*
- ------------------------------ Director June 9, 1998
Dr. Douglas M. Lawson
II-5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Director June 9, 1998
Thomas A. Fuentes
*
- ------------------------------ Director June 9, 1998
Walter F. Beran
*
- ------------------------------ Director June 9, 1998
Dr. James L. Doti
*By: /s/ WILLIAM H. LEAR
-------------------------
William H. Lear June 9, 1998
ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated February 17, 1998, by and among Fleetwood, HomeUSA and
HUSA Acquisition Company, a Delaware corporation+
2.2 Form of Election and Letter of Transmittal to accompany certificates representing shares of
HomeUSA Common Stock to be exchanged in the Merger
3.1 Restated Certificate of Incorporation(1)
3.2 Amendment to Restated Certificate of Incorporation(2)
3.3 Certificate of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock filed November 23, 1988(3)
3.4 Restated Bylaws(2)
4.1 Rights Agreement dated November 10, 1988, between Fleetwood and the First National Bank of
Boston used in connection with a stockholder rights plan(3)
4.2 Amended and Restated Declaration of Trust of Fleetwood Capital Trust, a statutory business
trust formed under the Delaware Business Trust Act, dated as of February 10, 1998, by and
among Fleetwood and individual trustees of the Trust+
4.3 Indenture dated as of February 10, 1998, by and between Fleetwood and The Bank of New York,
as trustee, used in connection with Fleetwood's 6% Convertible Subordinated Debentures
due 2028+
4.4 Registration Rights Agreement dated February 10, 1998, by and among Fleetwood Capital
Trust, Fleetwood and PaineWebber Incorporated+
4.5 Preferred Securities Guarantee Agreement dated as of February 10, 1998, by and between
Fleetwood and The Bank of New York, as preferred guarantee trustee+
5.1 Opinion of Gibson, Dunn & Crutcher LLP as to the legality of the securities being
registered+
8.1 Form of Opinion of Gibson, Dunn & Crutcher LLP as to certain tax matters+
8.2 Form of Opinion of Arthur Andersen LLP--HomeUSA as to certain tax matters
10.1 Form of Employment Agreement between Fleetwood and each of its officers(4)
10.2 Form of Indemnity Agreement between Fleetwood and each of its officers and directors+
10.3 Amended and Restated Deferred Compensation Plan(5)
10.4 Amended and Restated Supplemental Benefit Plan(5)
10.5 Amended and Restated Long-Term Incentive Compensation Plan(5)
10.6 1982 Stock Option Plan(2)
10.7 Amended and Restated Benefit Restoration Plan(5)
10.8 Dividend Equivalent Plan(6)
10.9 Amended and Restated 1992 Stock-Based Incentive Compensation Plan(5)
10.10 The 1992 Non-Employee Director Stock Option Plan(4)
10.11 Senior Executive Incentive Compensation Plan(7)
10.12 Operating Agreement between Fleetwood Enterprises, Inc. and Fleetwood Credit Corp.(8)
15 Letter from Arthur Andersen LLP regarding unaudited interim financial information+
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in legal opinion filed as Exhibit 5.1)+
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in legal opinion filed as Exhibit 8.1)+
23.3 Consent of Arthur Andersen LLP--Fleetwood
23.4 Consent of Arthur Andersen LLP--HomeUSA, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S> <C>
23.5 Consent of Coopers & Lybrand L.L.P.--HomeUSA, Inc.+
23.6 Consent of BT Alex. Brown+
23.7 Consent of Arthur Andersen LLP--HomeUSA (included in opinion filed as Exhibit 8.2)
24.1 Powers of Attorney (included in signature page in Part II of Registration Statement)+
99.1 Form of Proxy for HomeUSA, Inc. Special Meeting of Stockholders
</TABLE>
- ------------------------
+ Previously filed.
(1) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 28, 1985.
(2) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 26, 1987.
(3) Incorporated by reference to Fleetwood's Current Report on Form 8-K filed
on November 10, 1988.
(4) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 26, 1992.
(5) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 28, 1996.
(6) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 29, 1990.
(7) Incorporated by reference to Fleetwood's Annual Report on Form 10-K for
the year ended April 24, 1994.
(8) Incorporated by reference to Fleetwood's Current Report on Form 8-K filed
June 7, 1996.
<PAGE>
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS AND THE
PROXY STATEMENT/PROSPECTUS PRIOR TO MAKING ANY ELECTION
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
BOX A: DESCRIPTION OF HOMEUSA CERTIFICATE(S) ENCLOSED
(ATTACH ADDITIONAL SHEETS IF NECESSARY.)
SEE INSTRUCTION 1.
----------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS OF REGISTERED HOMEUSA HOLDER(S)
(PLEASE FILL IN EXACTLY AS NAME(S) APPEAR(S) ON
CERTIFICATE(S)
(PLEASE PRINT)* CERTIFICATES ENCLOSED
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
NUMBER OF SHARES
CERTIFICATE REPRESENTED BY
NUMBER CERTIFICATE
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
TOTAL SHARES
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Only HomeUSA Certificates registered in a single form may be deposited with
this Form of Election and Letter of Transmittal. If HomeUSA Certificates are
registered in different forms (e.g., John R. Doe and J.R. Doe), it will be
necessary to fill in, sign and submit as many separate Forms of Election and
Letters of Transmittal as there are different registrations of HomeUSA
Certificates. Additional copies of this Form of Election and Letter of
Transmittal may be obtained from the Exchange Agent at the address and
telephone number shown below.
/ / Check here if your HomeUSA Certificate(s) has (have) been lost, stolen or
destroyed and contact the Information Agent immediately. See Instruction 13.
FORM OF ELECTION
AND LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK OF
HOMEUSA, INC.
IN CONNECTION WITH THE PROPOSED MERGER OF HOMEUSA, INC. WITH AND INTO
HUSA ACQUISITION COMPANY, A WHOLLY OWNED SUBSIDIARY OF
FLEETWOOD ENTERPRISES, INC.
This Form of Election and Letter of Transmittal is being delivered to you in
connection with the proposed merger (the "MERGER") of HomeUSA, Inc. ("HOMEUSA")
with and into HUSA Acquisition Company ("ACQUISITION SUB"), a wholly owned
subsidiary of Fleetwood Enterprises, Inc. ("FLEETWOOD"), pursuant to that
certain Agreement and Plan of Merger dated as of February 17, 1998 (the "MERGER
AGREEMENT"), by and among Fleetwood, Acquisition Sub and HomeUSA. This Form of
Election and Letter of Transmittal must be completed by registered holders of
shares of HomeUSA common stock, par value $0.01 per share (the "SHARES" or the
"HOMEUSA COMMON STOCK"), that wish to make an election (an "ELECTION") as to the
form of Merger Consideration (as defined below) into which such holder's Shares
will be converted upon consummation of the Merger.
For an Election to be effective, this Form of Election and Letter of
Transmittal, properly completed, together with the certificate(s) representing
shares of HomeUSA Common Stock (each such certificate, a "HOMEUSA CERTIFICATE")
as to which an Election is being made (or guarantee of delivery as provided
herein or affidavit and indemnification regarding the loss, theft or destruction
of such HomeUSA Certificate(s) reasonably acceptable to Fleetwood in accordance
with Instruction 13 below), or the Shares delivered by book-entry transfer to
the Exchange Agent's account at a Book-Entry Transfer Facility (as defined
below), and all other required documents, must be received by the Exchange Agent
prior to 5:00 p.m., New York City time, on July 13, 1998 (the "ELECTION
DEADLINE"). Such Election is subject to the terms, conditions and limitations
set forth in (i) the Merger Agreement, which is
<PAGE>
attached as Appendix A to the Proxy Statement/Prospectus, dated June 16, 1998,
relating to the Merger (the "PROXY STATEMENT/PROSPECTUS") and (ii) the
instructions accompanying this Form of Election and Letter of Transmittal (the
"INSTRUCTIONS").
- --------------------------------------------------------------------------------
5:00 P.M., NEW YORK CITY TIME, ON JULY 13, 1998, IS THE ELECTION DEADLINE BY
WHICH DATE A COMPLETED FORM OF ELECTION AND LETTER OF TRANSMITTAL, TOGETHER
WITH ALL REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT IN
ORDER FOR ANY ELECTION CONTAINED HEREIN TO BE VALID.
- --------------------------------------------------------------------------------
The tax consequences to holders of HomeUSA Common Stock of the receipt of
different forms of Merger Consideration (as defined below) will differ. For
information as to the federal income tax consequences of the receipt of
different forms of Merger Consideration, see "THE MERGER--Certain Federal Income
Tax Considerations" in the Proxy Statement/Prospectus. Holders of HomeUSA Common
Stock also are urged to consult their tax advisors regarding the tax
consequences to them of the Merger and of the receipt of different forms of
Merger Consideration.
IF YOUR HOMEUSA CERTIFICATE(S) HAS (HAVE) BEEN LOST, STOLEN OR DESTROYED AND
YOU REQUIRE ASSISTANCE IN REPLACING IT (THEM), SEE INSTRUCTION 13 TO THIS FORM
OF ELECTION AND LETTER OF TRANSMITTAL. YOU CANNOT SUBMIT AN EFFECTIVE FORM OF
ELECTION AND LETTER OF TRANSMITTAL WITHOUT ATTACHING YOUR HOMEUSA CERTIFICATE(S)
TO THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL OR, ALTERNATIVELY, (1)
DELIVERING THE SHARES BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT
A BOOK-ENTRY TRANSFER FACILITY, (2) SUBMITTING A GUARANTEE OF DELIVERY AS
PROVIDED HEREIN OR (3) SUBMITTING AN AFFIDAVIT AND INDEMNIFICATION REGARDING THE
LOSS, THEFT OR DESTRUCTION OF SUCH HOMEUSA CERTIFICATE(S) REASONABLY ACCEPTABLE
TO FLEETWOOD.
Questions and requests for assistance or additional copies of the Proxy
Statement/Prospectus or this Form of Election and Letter of Transmittal may be
directed to the Information Agent at the address set forth below.
THE INFORMATION AGENT IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
450 W. 33rd Street, 14th Floor
New York, New York, 10001
Bankers & Brokers Call Collect at (212) 273-8080
All Others Call (800) 774-5469
THE EXCHANGE AGENT IS:
BANKBOSTON, N.A.
<TABLE>
<S> <C>
BY MAIL: BY OVERNIGHT DELIVERY:
BankBoston, N.A. BankBoston, N.A.
Corporate Agency and Corporate Agency and
Reorganization Reorganization
Post Office Box 8029 150 Royall Street
Mail Stop 45-81-40 Mail Stop 45-01-40
Boston, Massachusetts 02266-8029 Canton, Massachusetts 02021
BY HAND DELIVERY: BY FACSIMILE TRANSMISSION:
Securities Transfer & Reporting Services, Inc. (For Eligible Institutions Only)
(STARS) (781) 575-2233 or 2232
1 Exchange Plaza
55 Broadway, 3rd Floor CONFIRM BY TELEPHONE:
New York, New York 10006 (781) 575-3400
</TABLE>
TELEPHONIC INQUIRIES/REQUESTS FOR ASSISTANCE:
(781) 575-3400
2
<PAGE>
In connection with the Merger, and pursuant to the Merger Agreement, the
undersigned hereby makes the Election set forth herein and surrenders to you, as
exchange agent (the "EXCHANGE AGENT"), for cancellation HomeUSA Certificates
representing each share of the undersigned's HomeUSA Common Stock listed above
in Box A, in exchange for the right to receive (i) a number of shares of
Fleetwood common stock, par value $1.00 per share (including the associated
Series A Junior Participating Preferred Stock Purchase Rights issued pursuant to
the Rights Agreement dated as of November 10, 1988, by and between Fleetwood and
BankBoston, NA, as rights agent) ("FLEETWOOD COMMON STOCK"), determined by
dividing $10.25 (the "PER SHARE CASH AMOUNT") by the average (the "VALUATION
PERIOD STOCK PRICE") of the closing sale prices for a share of Fleetwood Common
Stock on the New York Stock Exchange, Inc. (the "NYSE") for the ten trading day
period ending on July 6, 1998 (i.e., the tenth day prior to the anticipated
closing date of the Merger, July 16, 1998); (ii) in cash, without interest, the
Per Share Cash Amount; or (iii) a combination of shares of Fleetwood Common
Stock and cash equal to the Per Share Cash Amount. Such Election may be to
receive only shares of Fleetwood Common Stock (a "STOCK ELECTION"), only cash (a
"CASH ELECTION"), or a combination of cash and shares of Fleetwood Common Stock
(a "MIXED ELECTION"), in each case subject to the allocation and proration
procedures set forth in the Merger Agreement. Alternatively, the holder may
indicate that such holder has no preference as to the receipt of cash or
Fleetwood Common Stock for such holder's Shares (a "NON-ELECTION"). In addition,
the undersigned understands that Fleetwood will pay cash in lieu of any
fractional shares of Fleetwood Common Stock otherwise issuable in connection
with the Merger, as specified herein. The consideration to be provided in
exchange for each share of HomeUSA Common Stock herein is referred to as "MERGER
CONSIDERATION."
The undersigned understands that the undersigned's Election is subject to
certain terms, conditions and limitations that have been set forth in (i) the
Merger Agreement included as Appendix A to, and described in, the Proxy
Statement/Prospectus (including, but not limited to, the fact that because the
aggregate amount of cash (other than cash paid in lieu of fractional shares of
Fleetwood Common Stock) to be paid in the Merger is limited, a HomeUSA Holder
(as defined below) may not receive exactly the consideration elected in this
Form of Election and Letter of Transmittal) and (ii) the Instructions. Extra
copies of this Form of Election and Letter of Transmittal and the Proxy
Statement/Prospectus may be requested from the Information Agent, at the address
or phone numbers shown above. The filing of this Form of Election and Letter of
Transmittal with the Exchange Agent will constitute acknowledgment of the
undersigned's receipt of the Proxy Statement/Prospectus.
The undersigned hereby represents and warrants that the undersigned is the
registered holder of the Shares represented by the HomeUSA Certificate(s)
surrendered herewith, with good title to the Shares described in Box A above and
full power and authority to sell, assign and transfer such Shares, free and
clear of all liens, claims and encumbrances, and not subject to any adverse
claims (a "HOMEUSA HOLDER").
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
such HomeUSA Certificate(s) to Fleetwood and receive on behalf of the
undersigned, in exchange for the shares of HomeUSA Common Stock represented
thereby, any check for cash or any certificate for shares of Fleetwood Common
Stock issuable in the Merger pursuant to the Merger Agreement. If the HomeUSA
Certificate(s) is (are) not delivered herewith or by book-entry transfer, there
is furnished herewith (i) a guarantee of delivery of such HomeUSA Certificate(s)
from a member of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company having an office in the United States (provided below) in accordance
with Instruction 6 or (ii) an affidavit and indemnification regarding the loss,
theft or destruction of such HomeUSA Certificate(s) reasonably acceptable to
Fleetwood in accordance with Instruction 13.
The undersigned understands and acknowledges that all questions as to the
validity, form and eligibility of any Election and surrender of the Shares
hereunder shall be reasonably determined by the Exchange Agent, and such
determination shall be final and binding.
Unless otherwise indicated under "Special Issuance and Payment Instructions"
below, please issue any check and/ or any certificate for shares of Fleetwood
Common Stock issuable in exchange for the Shares represented by the HomeUSA
Certificate(s) submitted hereby in the name of the HomeUSA Holder(s). Similarly,
unless otherwise indicated under "Special Delivery Instructions" below, please
mail any check and/or any certificate for shares of Fleetwood Common Stock
issuable in exchange for the Shares represented by the HomeUSA Certificate(s)
submitted hereby to the registered holder(s) of the Shares at the address shown
above in Box A.
The undersigned will, upon request, execute any additional documents
necessary or desirable to complete the surrender and exchange of such Shares. In
addition, subject to the consummation of the Merger, the undersigned hereby
irrevocably appoints the Exchange Agent as attorney-in-fact for the undersigned
to exercise all authority conferred in this Form of Election and Letter of
Transmittal for the purposes contemplated in the Merger Agreement, and such
authority will be binding on successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and will survive the
death or incapacity of the undersigned.
3
<PAGE>
ELECTION
The appropriate box below must be checked in order to make a Stock Election,
a Cash Election, a Mixed Election or a Non-Election (each as defined above).
FAILURE TO CHECK ANY BOX WILL BE DEEMED A NON-ELECTION.
Because the Merger Agreement requires that at least 51% of the aggregate
Merger Consideration consist of shares of Fleetwood Common Stock, a HomeUSA
Holder may not receive exactly the consideration elected in Box B below. The
determination of whether cash has been oversubscribed and the exact composition
of the Merger Consideration to be received by each HomeUSA Holder will be made
on a date that is within five days before the anticipated closing date of the
Merger (the "CLOSING DATE"), July 16, 1998. The amount of cash and/or the number
of shares of Fleetwood Common Stock that a HomeUSA Holder will receive will
depend on (i) the stated preferences of all HomeUSA Holders on the Forms of
Election and Letters of Transmittal and (ii) the allocation and proration
procedures to be applied under the Merger Agreement if the aggregate number of
shares covered by Cash Elections and the aggregate number of shares covered by
Mixed Elections to be acquired for cash exceed 49% of the aggregate Merger
Consideration (the "MAXIMUM CASH MERGER CONSIDERATION").
HOMEUSA HOLDERS WILL KNOW THE EXACT COMPOSITION OF THE MERGER CONSIDERATION
PAID FOR THEIR SHARES OF HOMEUSA COMMON STOCK ONLY UPON RECEIPT OF THE MERGER
CONSIDERATION PAYABLE TO THEM, WHICH PAYMENT WILL BE ACCOMPANIED BY A BRIEF
EXPLANATION OF THE APPLICATION OF THE ALLOCATION AND PRORATION MECHANISMS
PROVIDED IN THE MERGER AGREEMENT. ABSENT MANIFEST ERROR, ALL DECISIONS BY THE
EXCHANGE AGENT WITH RESPECT TO SUCH PROCESS SHALL BE FINAL AND BINDING.
ALL HOLDERS OF SHARES OF HOMEUSA COMMON STOCK WISHING TO MAKE A STOCK
ELECTION, A CASH ELECTION OR A MIXED ELECTION MUST DELIVER TO THE EXCHANGE AGENT
A PROPERLY COMPLETED FORM OF ELECTION AND LETTER OF TRANSMITTAL AND THE HOMEUSA
CERTIFICATE(S) AS TO WHICH SUCH ELECTION IS BEING MADE (OR GUARANTEE OF DELIVERY
AS PROVIDED HEREIN OR AFFIDAVIT AND INDEMNIFICATION REGARDING THE LOSS, THEFT OR
DESTRUCTION OF SUCH HOMEUSA CERTIFICATES REASONABLY ACCEPTABLE TO FLEETWOOD), OR
DELIVERY OF SUCH CERTIFICATE(S) BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT'S
ACCOUNT AT A BOOK-ENTRY TRANSFER FACILITY, AND ALL OTHER REQUIRED DOCUMENTS
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON JULY 13, 1998. ALL HOLDERS OF SHARES
OF HOMEUSA COMMON STOCK SUBMITTING A FORM OF ELECTION AND LETTER OF TRANSMITTAL
AFTER SUCH ELECTION DEADLINE WILL BE DEEMED TO HAVE MADE A NON-ELECTION,
REGARDLESS OF THE ELECTION SPECIFIED IN BOX B.
<TABLE>
<CAPTION>
<S> <C>
BOX B: ELECTION COMPLETE ONE BOX ONLY*
/ / STOCK ELECTION
/ / CASH ELECTION
/ / MIXED ELECTION**
(a) Total Shares Owned (see Box A):______
(b) Number of Shares to be Exchanged for Fleetwood
Common Stock: _______
(c) Number of Shares to be Exchanged for Cash:_______
----------------------------
** Whole Shares only. The sum of the number of Shares identified in
(b) and (c) must equal the total Shares identified in (a).
/ / NON-ELECTION
-------------------------------------------------------------------
</TABLE>
* Nominees must use a separate Form of Election and Letter of Transmittal to
make an Election for themselves and on behalf of each beneficial owner of
shares of HomeUSA Common Stock. See the Instructions below.
4
<PAGE>
- --------------------------------------------------------------------------------
DELIVERY BY BOOK-ENTRY TRANSFER
See Instruction 1.
/ / Check here if Shares are being delivered by book-entry transfer to the
Exchange Agent's account on one of the book-entry transfer facilities (each,
a "BOOK-ENTRY TRANSFER FACILITY") and complete the following:
Check the box of the applicable Book-Entry Transfer Facility:
/ / The Depository Trust Company
/ / Philadelphia Depository Trust Company
Account Number:__________________________________
Transaction Code Number:___________
----------------------------------------------------------------------------
YOU WILL BE DEEMED TO HAVE MADE A NON-ELECTION IF:
A. YOU CHECK THE BOX INDICATING A NON-ELECTION ABOVE;
B. NO CHOICE IS INDICATED ABOVE;
C. YOU FAIL TO FOLLOW THE INSTRUCTIONS ON THIS FORM OF ELECTION AND LETTER OF
TRANSMITTAL (INCLUDING THE FAILURE TO SUBMIT YOUR HOMEUSA CERTIFICATE(S)) OR
OTHERWISE FAIL TO PROPERLY MAKE AN ELECTION; OR
D. A COMPLETED FORM OF ELECTION AND LETTER OF TRANSMITTAL (INCLUDING SUBMISSION
OF YOUR HOMEUSA CERTIFICATE(S)) IS NOT ACTUALLY RECEIVED BY THE ELECTION
DEADLINE.
In order to receive Merger Consideration, this Form of Election and Letter
of Transmittal must be (i) completed and signed in the space provided in Box C
below and on the Substitute Form W-9 and (ii) mailed or delivered with your
HomeUSA Certificate(s) (or a guarantee of delivery as provided herein or an
affidavit and indemnification regarding the loss, theft or destruction of such
HomeUSA Certificate(s) reasonably acceptable to Fleetwood in accordance with
Instruction 13) to the Exchange Agent at any of the addresses set forth above,
or delivered by book-entry transfer to the Exchange Agent's account at a
Book-Entry Transfer Facility. In order to properly make a Stock Election, a Cash
Election or a Mixed Election, these actions must be taken in a timely fashion
such that the Form of Election and Letter of Transmittal is received by the
Exchange Agent prior to the Election Deadline.
The method of delivery of the Form of Election and Letter of Transmittal,
the HomeUSA Certificate(s) and any other required document is at the election
and risk of the HomeUSA Holder and delivery will be deemed made only when
actually received by the Exchange Agent. The risk of loss of such Shares will
pass only after the Exchange Agent has actually received the Shares. If the
HomeUSA Certificate(s) is (are) sent by mail, it is recommended that it (they)
be sent by registered mail, appropriately insured, with return receipt
requested. In all cases, sufficient time for delivery should be allowed to
ensure timely delivery.
CONSUMMATION OF THE MERGER IS SUBJECT TO APPROVAL BY THE STOCKHOLDERS OF
HOMEUSA AND TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS SET FORTH IN THE
MERGER AGREEMENT. NO PAYMENTS RELATED TO ANY SURRENDER OF HOMEUSA CERTIFICATES
WILL BE MADE PRIOR TO THE EFFECTIVE TIME. IN THE EVENT THAT THE MERGER AGREEMENT
IS TERMINATED, THE EXCHANGE AGENT WILL PROMPTLY RETURN TO YOU THE HOMEUSA
CERTIFICATE(S) PREVIOUSLY SUBMITTED WITH THIS FORM OF ELECTION AND LETTER OF
TRANSMITTAL OR DELIVERED TO THE EXCHANGE AGENT BY GUARANTEE OF DELIVERY OR BY
BOOK-ENTRY TRANSFER.
5
<PAGE>
- --------------------------------------------------------------------------------
GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH)
See Instructions 1 and 6.
The undersigned is a member of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company in the United States; and guarantees to deliver to the
Exchange Agent the certificate(s) for shares of HomeUSA Common Stock to which
this Form of Election and Letter of Transmittal relates, duly endorsed in blank
or otherwise in form acceptable for transfer on the books of HomeUSA, no later
than 5:00 p.m., New York City time, on the earlier of (i) the third day after
the Election Deadline and (ii) the eighth NYSE trading day after the date of
execution of such guarantee of delivery. IF YOU COMPLETE THIS GUARANTEE OF
DELIVERY, YOU WILL NEED A SIGNATURE GUARANTEE BY AN ELIGIBLE INSTITUTION. SEE
INSTRUCTION 6.
<TABLE>
<S> <C>
Dated: ________________
(Firm--Please Print)
Number of Shares:
Check applicable box if Shares will be delivered ________________
by book-entry transfer: (Authorized Signature)
/ / The Depository Trust Company ________________
/ / Philadelphia Depository Trust Company ________________
(Address)
Account Number: ________________
(Area Code and Telephone Number)
Transaction Code Number:________________
- ------------------------------------------------
</TABLE>
NOTICE OF DELIVERY UNDER GUARANTEE
(TO BE COMPLETED UPON DELIVERY OF SHARES PURSUANT TO A GUARANTEE OF DELIVERY)
Name(s) of Registered Holder(s):________________
Window Ticket No. (if any):________________
Date of Execution of Guarantee of Delivery:________________
Name of Institution that Provided Guarantee of Delivery:________________
If delivered by Book-Entry Transfer (assuming such procedure is
available), Check Box of Applicable Book-Entry Transfer Facility:
/ / The Depository Trust Company
/ / Philadelphia Depository Trust Company
Account Number:_____________________ Transaction Code Number:________________
------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE AND PAYMENT INSTRUCTIONS
See Instructions 1, 5, 6, 11 and 12.
To be completed ONLY if the certificate representing shares of Fleetwood
Common Stock or the check representing cash or the cash in lieu of fractional
shares, as the case may be, is to be issued in the name of and mailed to someone
other than the undersigned. NOTE: THE PERSON NAMED IN THESE SPECIAL ISSUANCE AND
PAYMENT INSTRUCTIONS MUST BE THE PERSON WHO COMPLETES THE SUBSTITUTE FORM W-9.
IF YOU COMPLETE THIS BOX, YOU WILL NEED A SIGNATURE GUARANTEE BY AN ELIGIBLE
INSTITUTION. SEE INSTRUCTION 6.
Issue the Merger Consideration in the name of and to:
Name: _________________________________________________________________________
(Please Print)
Address: ______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
See Instructions 1, 5 and 11.
To be completed ONLY if the certificate representing shares of Fleetwood
Common Stock or the check representing cash or the cash in lieu of fractional
shares, as the case may be, issued in the name of the undersigned is to be sent
to someone other than the undersigned or to the undersigned at an address other
than that shown in Box A above.
Mail the Merger Consideration to:
Name: _________________________________________________________________________
(Please Print)
Address: ______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
CHECK THIS BOX / / IF THIS IS A PERMANENT CHANGE OF ADDRESS.
- --------------------------------------------------------------------------------
7
<PAGE>
BOX C MUST BE COMPLETED. SEE INSTRUCTION 1.
- --------------------------------------------------------------------------------
BOX C: SIGNATURE(S)
The undersigned represents and warrants that the undersigned has full power
and authority to transfer the shares of HomeUSA Common Stock surrendered hereby
and that the transferee will acquire good and unencumbered title thereto, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim when such Shares are accepted for exchange by the Exchange
Agent. The undersigned will, upon request, execute and deliver any additional
documents deemed by Fleetwood or the Exchange Agent to be necessary and
desirable to complete the transfer of the Shares surrendered hereby.
Date: ________________________
PLEASE SIGN HERE
Signature: ____________________________________________________________________
Signature: ____________________________________________________________________
Signature: ____________________________________________________________________
Signature(s) of registered holder(s) must be EXACTLY as name(s) appear(s) in Box
A above or on the assignment authorizing transfer.
If signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, the capacity of the person signing should be indicated. (See
Instruction 9.)
Dated: ________________________
Name(s): ______________________________________________________________________
(Please Print)
Capacity: _____________________________________________________________________
Daytime Area Code and
Telephone Number: _____________________________________________________________
THE EXCHANGE AGENT HAS BEEN INSTRUCTED NOT TO MAKE ANY EXCHANGE OF YOUR SHARES
UNTIL THIS FORM OF ELECTION AND LETTER OF TRANSMITTAL HAS BEEN EXECUTED AND
DELIVERED TO THE EXCHANGE AGENT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEE
(REQUIRED ONLY IN CASES SPECIFIED IN INSTRUCTION 6.)
The undersigned hereby guarantees the signature(s) that appear(s) on this Letter
of Transmittal.
Dated: ________________________
________________________________________________________________________________
(Name of Firm Issuing Guarantee)
(Please Print)
________________________________________________________________________________
(Fix Medallion Stamp Above)
- --------------------------------------------------------------------------------
8
<PAGE>
<TABLE>
<C> <S> <C>
- -------------------------------------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER
SUBSTITUTE FORM W-9
- -------------------------------------------------------------------------------------------
PAYER'S NAME: BANKBOSTON, NA
- -------------------------------------------------------------------------------------------------------------
Name(s) as shown on HomeUSA
Certificate(s) (if joint ownership, list first
and circle the name of the person or entity
whose number is entered in Part I below).
- -------------------------------------------------------------------------------------------------------------
Address (if HomeUSA Holder does not
complete, signature in Part I will
constitute
a certification that the address
listed in
Box A is correct).
------------------------------------------------------------------------------------------------------------
PART I--PLEASE PROVIDE YOUR TIN IN
</TABLE>
SUBSTITUTE
<TABLE>
<C> <S> <C>
THE BOX AT RIGHT AND CERTIFY BY SOCIAL SECURITY NUMBER
SIGNING AND DATING. See the
enclosed
</TABLE>
FORM W-9
<TABLE>
<C> <S> <C>
"Guidelines for Certification of OR ------------------------
Taxpayer
</TABLE>
(See Instruction 12)
<TABLE>
<C> <S> <C>
Identification Number on EMPLOYER IDENTIFICATION NUMBER
Substitute Form W-9" for
instructions.
-----------------------------------------------------------------------Department
of the Treasury
PART II--Exempt Payees / /
</TABLE>
Internal Revenue Service
<TABLE>
<C> <S> <C>
I am a payee exempt from information and backup withholding.
-----------------------------------------------------------------------
PART III--Awaiting TIN / /
</TABLE>
PAYER'S REQUEST FOR TAXPAYER
<TABLE>
<C> <S> <C>
You must also complete the Certificate of Awaiting Taxpayer
Identification Number if you
</TABLE>
IDENTIFICATION NUMBER (TIN)
<TABLE>
<C> <S> <C>
check this box.
------------------------------------------------------------------------------------------------------------
CERTIFICATION--UNDER PENALTY OF PERJURY, I CERTIFY THAT:
(1)--The number shown on the form is my correct Taxpayer Identification Number (or I am waiting for a number
to be issued to me), and
(2)--I am not subject to backup withholding because: (a) I am exempt from backup withholding, (b) I have not
been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you
are subject to backup withholding because of underreporting interest or dividends on your tax return.
However, if after being notified by the IRS that you are subject to backup withholding you received another
notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2).
If you are exempt from backup withholding, check the box in Part II above. (Also see the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.")
Signature ------------------------------------------------------------------------- Date
----------------------
- -------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalty of perjury that a taxpayer identification number has not been issued to me and
either (a) I have mailed or delivered an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that, notwithstanding that I have checked the box
in Part III (and have completed this Certificate of Awaiting Taxpayer Identification Number), 31% of all
reportable payments made to me will be withheld until I provide a properly certified taxpayer identification
number to the Exchange Agent.
Signature ------------------------------------------------------------------------- Date
----------------------
- -------------------------------------------------------------------------------------------------------------
CERTIFICATE FOR FOREIGN HOLDERS
I certify under penalty of perjury that I am not a United States citizen or resident of the United
States.
Signature ------------------------------------------------------------------------- Date
----------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM OF ELECTION AND LETTER OF
TRANSMITTAL, INCLUDING THE SUBSTITUTE FORM W-9 CONTAINED HEREIN, MAY
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU
PURSUANT TO THE MERGER OR WITH RESPECT TO ANY SUBSEQUENT DIVIDEND
PAYMENTS MADE BY FLEETWOOD. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
- --------------------------------------------------------------------------------
9
<PAGE>
INSTRUCTIONS
This Form of Election and Letter of Transmittal must be completed and
submitted to the Exchange Agent prior to the Election Deadline, which is 5:00
p.m., New York City time, on July 13, 1998, by any HomeUSA Holder desiring to
make an Election other than a Non-Election. It must also be used as a letter of
transmittal for HomeUSA Holders not making an effective Election to receive the
Merger Consideration. Until a record holder's HomeUSA Certificates are received
by the Exchange Agent at one of the addresses set forth above (or affidavit and
indemnification regarding the loss, theft or destruction of such HomeUSA
Certificate reasonably acceptable to Fleetwood), together with this Form of
Election and Letter of Transmittal and such other documents as the Exchange
Agent may require, and until the same are processed for exchange by the Exchange
Agent, such holders will not receive (i) any certificates representing shares of
Fleetwood Common Stock or any check representing cash consideration or the cash
in lieu of fractional shares (if any) in exchange for their HomeUSA Certificates
or (ii) any dividends or other distributions payable on shares of Fleetwood
Common Stock to be received by such holders. No interest will accrue on any cash
consideration, cash in lieu of fractional shares or such dividends. No such
dividends or other distributions will be reinvested pursuant to any plan. If
your HomeUSA Certificate(s) is (are) lost, stolen or destroyed, please contact
the Exchange Agent immediately. See Instruction 13 below.
Each HomeUSA Holder is entitled to make an Election and submit a Form of
Election and Letter of Transmittal covering all shares of HomeUSA Common Stock
actually held of record by such holder. HOWEVER, THE HOLDER MUST CHECK ONLY ONE
BOX IN BOX B ABOVE TO MAKE AN EFFECTIVE ELECTION. Nominee record holders, which
include nominees, trustees or any other person that holds shares of HomeUSA
Common Stock in any capacity whatsoever on behalf of more than one person or
entity ("NOMINEES"), are entitled to make an Election for themselves, as well as
an Election on behalf of each beneficial owner of shares of HomeUSA Common Stock
held through such nominee record holders, but each such Election must be made on
a separate Form of Election and Letter of Transmittal. Beneficial owners who are
not record holders are not entitled to submit a Form of Election and Letter of
Transmittal. Nominees submitting a Form of Election and Letter of Transmittal on
behalf of a registered stockholder as trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or acting in another
fiduciary or representative capacity should refer to Instruction 9 below.
Each Election is subject to certain terms, conditions and limitations that
have been set out in the Merger Agreement (and as described in the Proxy
Statement/Prospectus) and these Instructions. The Merger Agreement is included
as Appendix A to the Proxy Statement/Prospectus. Extra copies of the Proxy
Statement/Prospectus may be requested from the Information Agent at the address
or phone numbers shown above. The filing of this Form of Election and Letter of
Transmittal with the Exchange Agent will constitute acknowledgment of the
receipt of the Proxy Statement/Prospectus.
1. ELECTION DEADLINE. Each HomeUSA Holder is entitled to make an Election.
For any Election contained herein to be effective, this Form of Election and
Letter of Transmittal, properly completed, and the related HomeUSA
Certificate(s) must be received by the Exchange Agent at one of the addresses
shown above no later than THE ELECTION DEADLINE OF 5:00 P.M., NEW YORK CITY
TIME, ON JULY 13, 1998. Even if a HomeUSA Holder makes a Non-Election, does not
make an effective Election or fails to submit a Form of Election and Letter of
Transmittal by the Election Deadline, such HomeUSA Holder must properly complete
Box A, Box C and the remaining applicable sections (other than Box B) of this
Form of Election and Letter of Transmittal and deliver this Form of Election and
Letter of Transmittal, together with the certificate(s) representing the shares
of HomeUSA Common Stock (or a duly signed guarantee of delivery of such
certificate(s) or affidavit and indemnification regarding the loss, theft or
destruction of such HomeUSA Certificate(s) reasonably acceptable to Fleetwood),
or arrange for delivery of such Shares by book-entry transfer to the Exchange
Agent's account at a Book-Entry Transfer Facility, in order to receive Merger
Consideration. To properly complete Box A, the number of each HomeUSA
Certificate surrendered herewith must be written in the column under the heading
"Certificate Number."
HomeUSA Holders whose stock certificate(s) is (are) not immediately
available or HomeUSA Holders who cannot complete the procedure for delivery by
book-entry transfer on a timely basis may deliver their Shares and may also make
an effective Election by (a) completing Boxes A, B and C herein, having the Box
entitled "Guarantee of Delivery" herein properly completed and duly executed
with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message) and delivering such documents to the Exchange
Agent prior to the Election Deadline; and (b) delivering their HomeUSA
Certificates, in proper form for transfer, or a confirmation of a book-entry
transfer of such Shares, if such procedure is available, into the Exchange
Agent's account at one of the Book-Entry Transfer Facilities on the NYSE trading
day after the date of execution of such guarantee of delivery). In addition, at
the time the HomeUSA Certificate(s) (or the Shares pursuant to a book-entry
transfer) are delivered pursuant to the Guarantee of Delivery, the guarantor
must submit to the Exchange Agent another Form of Election
10
<PAGE>
and Letter of Transmittal with only the section entitled "Notice of Delivery
Under Guarantee" properly completed (or must otherwise provide such information
to the Exchange Agent). If the guarantor fails to deliver the HomeUSA
Certificate(s) (or the Shares by book-entry transfer) in accordance with the
guaranteed delivery procedures contained herein, without limitation of any other
recourse, any purported Election with respect to the Shares subject to such
guarantee will be void. The term "AGENT'S MESSAGE" means a message, transmitted
by a Book-Entry Transfer Facility to, and received by, the Exchange Agent and
forming a part of a book-entry confirmation, which states that such Book-Entry
Transfer Facility has received an express acknowledgment from the participant in
such Book-Entry Transfer Facility delivering the Shares, that such participant
has received and agrees to be bound by the terms of this Form of Election and
Letter of Transmittal and that Fleetwood may enforce such agreement against the
participant.
The Exchange Agent will determine whether any Form of Election and Letter of
Transmittal or any other required document is received on a timely basis and
whether any Form of Election and Letter of Transmittal or any other required
document has been properly completed. Any such determinations shall be
conclusive and binding. IF A HOMEUSA HOLDER DOES NOT MAKE AN EFFECTIVE ELECTION
BY THE ELECTION DEADLINE, SUCH HOLDER SHALL BE DEEMED TO HAVE MADE A
NON-ELECTION. For lost, stolen or destroyed HomeUSA Certificate(s), see
Instruction 13.
2. REVOCATION OR CHANGE OF ELECTION FORM AND LETTER OF TRANSMITTAL. Any
Form of Election and Letter of Transmittal may be revoked or changed by written
notice duly executed to the Exchange Agent from the person submitting such Form
of Election and Letter of Transmittal, but to be effective such notice must be
received by the Exchange Agent at or prior to the Election Deadline of 5:00
p.m., New York City Time, on July 13, 1998. Such notice must specify the person
in whose name the shares of HomeUSA Common Stock to be withdrawn had been
deposited, the name of the registered holder thereof, and the serial numbers
shown on the certificate(s) representing the Shares to be withdrawn. The
Exchange Agent will have reasonable discretion to determine whether any
revocation or change is received on a timely basis and whether any such
revocation or change has been properly made. If a Form of Election and Letter of
Transmittal is revoked, and the HomeUSA Certificate(s) withdrawn, the HomeUSA
Certificate(s) submitted therewith will be promptly returned by the Exchange
Agent to the person that submitted such certificate(s). Upon any such
revocation, unless a duly completed Form of Election and Letter of Transmittal
is thereafter submitted before the Election Deadline, such holder will be deemed
to have made a Non-Election.
3. TERMINATION OF MERGER AGREEMENT. If for any reason the Merger is not
consummated or is abandoned, all Forms of Election and Letters of Transmittal
will be void and of no effect whatsoever, and all HomeUSA Certificates
previously received by the Exchange Agent and thereafter held by the Exchange
Agent will be returned promptly by the Exchange Agent to the person who
submitted such certificate(s).
4. ELECTION PROCEDURES/ALLOCATION. As set forth in the Proxy
Statement/Prospectus and as described above, because the Merger Agreement
requires that at least 51% of the aggregate Merger Consideration consist of
shares of Fleetwood Common Stock, a HomeUSA Holder may not receive exactly the
consideration elected above in Box B. If too many HomeUSA Holders elect cash,
the allocation and proration procedures set forth in the Merger Agreement and
described in the Proxy Statement/Prospectus will be followed by the Exchange
Agent. THUS, AN ELECTION MADE BY YOU MAY NOT BE HONORED UNDER CERTAIN
CIRCUMSTANCES. See "THE MERGER--Merger Consideration" in the Proxy
Statement/Prospectus.
5. NO FRACTIONAL SHARES. No certificate representing a fraction of a full
share of Fleetwood Common Stock will be issued. In lieu thereof, the Exchange
Agent will remit on Fleetwood's behalf cash, without interest, equal to the
product of such fractional amount and the closing sale price of one share of
Fleetwood Common Stock on the NYSE (as reported in the WALL STREET JOURNAL or,
if not reported thereby, any other authoritative source) on the trading day
immediately preceding the Closing Date. No HomeUSA Holder shall be entitled to
dividends, voting rights or any other rights in respect to any fractional share.
6. GUARANTEE OF SIGNATURES. Signatures on this Form of Election and Letter
of Transmittal need not be guaranteed unless the "Special Issuance and Payment
Instructions" section or the "Guarantee of Delivery" section has been completed.
In such event, signatures on this Form of Election and Letter of Transmittal
must be guaranteed by an eligible guarantor institution (an "ELIGIBLE
INSTITUTION") pursuant to Rule 17Ad-15 promulgated under the Securities Exchange
Act of 1934, as amended. PUBLIC NOTARIES CANNOT EXECUTE ACCEPTABLE GUARANTEES OF
SIGNATURES.
7. METHOD OF DELIVERY. THE METHOD OF DELIVERY OF THE HOMEUSA
CERTIFICATE(S) AND ANY OTHER REQUIRED DOCUMENT IS AT THE ELECTION AND RISK OF
THE HOMEUSA HOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE EXCHANGE AGENT. THE RISK OF LOSS OF SUCH SHARES WILL PASS ONLY AFTER THE
EXCHANGE AGENT HAS ACTUALLY RECEIVED THE SHARES. IF SUCH CERTIFICATE(S) IS (ARE)
SENT BY MAIL, IT IS RECOMMENDED THAT IT (THEY) BE SENT BY REGISTERED MAIL,
APPROPRIATELY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT
TIME FOR DELIVERY SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. For lost, stolen
or destroyed certificates, see Instruction 13.
11
<PAGE>
8. INADEQUATE SPACE. If the space provided herein is inadequate, the stock
certificate numbers and the number of shares of HomeUSA Common Stock represented
thereby should be listed on additional sheets and attached hereto.
9. SIGNATURES ON FORM OF ELECTION AND LETTER OF TRANSMITTAL, STOCK POWERS
AND ENDORSEMENTS.
(a) All signatures must correspond exactly with the name written on the
face of the HomeUSA Certificate(s) surrendered herewith without any
alteration, variation or change whatsoever.
(b) If the HomeUSA Certificate(s) surrendered is (are) held of record by
two or more joint owners, all such owners must sign this Form of Election
and Letter of Transmittal.
(c) If any surrendered shares of HomeUSA Common Stock are registered in
different names on several HomeUSA Certificates, it will be necessary to
complete, sign and submit as many separate copies of this Form of Election
and Letter of Transmittal as there are different registrations of HomeUSA
Certificates.
(d) If this Form of Election and Letter of Transmittal is signed by a
person(s) other than the record holder(s) of the HomeUSA Certificate(s)
listed in Box A above (other than as set forth in paragraph (e) below), such
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the record holder(s) appears on
such certificate(s).
(e) If this Form of Election and Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity
and such person is not the record holder of the accompanying HomeUSA
Certificates, he or she must indicate the capacity when signing and must
submit proper evidence of his or her authority to act.
10. STOCK TRANSFER TAXES. In the event that any transfer or other taxes
become payable by reason of the issuance of the Merger Consideration in any name
other than that of the HomeUSA Holder, such transferee or assignee must pay such
tax to the Exchange Agent or must establish to the satisfaction of the Exchange
Agent that such tax has been paid.
11. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Indicate the name and/or
address of the person(s) in whose name and to whom the Merger Consideration is
to be issued and sent, respectively, if different from the name and/or address
of the person(s) signing this Form of Election and Letter of Transmittal.
Signatures must be guaranteed if the "Special Issuance and Payment Instructions"
section has been completed. See Instruction 6.
12. WITHHOLDING. Each HomeUSA Holder surrendering certificates
representing shares of HomeUSA Common Stock is required to provide the Exchange
Agent with such holder's correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 and to certify whether such holder is subject to backup
withholding. The TIN that must be provided is that of the HomeUSA Holder with
respect to the HomeUSA Certificate(s) surrendered herewith or of the last
transferee appearing on the transfers attached to or endorsed on such
certificate(s) (or, if a check is made payable to another person as provided in
the Box entitled "Special Issuance and Payment Instructions," then the TIN of
such person). Failure to provide the information on the Substitute Form W-9 may
subject the HomeUSA Holder to 31% federal income tax withholding on payments
made to such holder with respect to the shares of HomeUSA Common Stock and on
future dividends paid by Fleetwood. A HomeUSA Holder must cross out item (2) in
the Certification Box of the Substitute Form W-9 if such holder has been
notified by the Internal Revenue Service ("IRS") that such holder is currently
subject to backup withholding. The Box in Part III of the Substitute Form W-9
should be checked if the surrendering HomeUSA Holder has not been issued a TIN
and has applied for a TIN or intends to apply for a TIN in the near future. If
the Box in Part III is checked and the Exchange Agent is not provided with a TIN
within 60 days thereafter, Fleetwood will withhold 31% of all such payments and
dividends until a TIN is provided to the Exchange Agent. Foreign investors
should consult their tax advisors regarding the need to complete IRS Form W-8
and any other forms that may be required.
13. LOST, STOLEN, OR DESTROYED CERTIFICATES. If your HomeUSA
Certificate(s) has (have) been lost, stolen or destroyed, please check the box
directly below Box A. You should then contact the Information Agent, which will
instruct you as to the steps you must take in order to surrender your HomeUSA
Certificate(s) for exchange. At the sole discretion of the Exchange Agent, you
may, as an alternative to submitting your HomeUSA Certificate(s), submit an
affidavit and indemnification regarding the loss, theft or destruction of your
HomeUSA Certificate(s) that is in form and substance reasonably acceptable to
Fleetwood.
14. MISCELLANEOUS. NEITHER FLEETWOOD NOR THE EXCHANGE AGENT IS UNDER ANY
DUTY TO GIVE ANY HOMEUSA HOLDER NOTICE OF DEFECTS IN ANY FORM OF ELECTION AND
LETTER OF TRANSMITTAL. FLEETWOOD AND THE EXCHANGE ACT SHALL NOT INCUR ANY
LIABILITY FOR FAILURE TO GIVE SUCH NOTIFICATION, AND EACH OF FLEETWOOD AND THE
EXCHANGE AGENT HAS THE ABSOLUTE RIGHT TO
12
<PAGE>
REJECT ANY AND ALL FORMS OF ELECTION AND LETTERS OF TRANSMITTAL NOT PROPERLY
COMPLETED OR TO WAIVE ANY IRREGULARITIES IN ANY FORM OF ELECTION AND LETTER OF
TRANSMITTAL.
15. INFORMATION AND ADDITIONAL COPIES. Information and additional copies
of this Form of Election and Letter of Transmittal may be obtained by
telephoning the Information Agent at (800) 774-5469.
IMPORTANT TAX INFORMATION
Under federal income tax law, each registered holder of shares of HomeUSA
Common Stock receiving cash pursuant to the Merger is required to provide the
Exchange Agent, as Payer, with such holder's correct TIN on the Substitute Form
W-9 above. If such holder is an individual, the TIN is his or her social
security number. If the Exchange Agent is not provided with the correct TIN, the
HomeUSA Holder may be subject to a $50 penalty imposed by the IRS. In addition,
payments that are made to such holder may be subject to federal income tax
backup withholding at a rate of 31%.
Certain HomeUSA Holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that holder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. This may be accomplished
by executing the certification for foreign holders at the bottom of the
Substitute Form W-9 above. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional
instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the HomeUSA Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
FOR INFORMATION AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE RECEIPT OF
DIFFERENT FORMS OF MERGER CONSIDERATION, SEE "THE MERGER--CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS" IN THE PROXY STATEMENT/ PROSPECTUS. IN ADDITION, HOMEUSA
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE RECEIPT OF DIFFERENT FORMS OF MERGER
CONSIDERATION IN THE MERGER, AS WELL AS REGARDING THEIR ELIGIBILITY TO CLAIM AN
EXEMPTION FROM BACKUP WITHHOLDING.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a HomeUSA Holder,
the holder is required to notify the Exchange Agent of his, her or its correct
TIN by completing the form above certifying that the TIN provided on Substitute
Form W-9 is correct (or that such holder is awaiting a TIN) and that (1) the
HomeUSA Holder has not been notified by the IRS that he or she is subject to
backup withholding as a result of the failure to report all interest or
dividends or (2) the IRS has notified the HomeUSA Holder that he or she is no
longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each HomeUSA Holder is required to give the Exchange Agent his, her or its
social security number or employer identification number. If the HomeUSA
Certificate(s) is (are) in more than one name or are not in the name of the
actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report. A HomeUSA Holder who does not have a TIN should check the Box
in Part III of the Substitute Form W-9 and complete the Certificate of Awaiting
Taxpayer Identification Number if the holder has applied for a TIN or intends to
apply for a TIN in the near future. If the Box in Part III is checked, payments
to the holder will not be subject to backup withholding for 60 days. Payments
made after 60 days will be subject to withholding unless the holder has
furnished the Exchange Agent with his, her or its TIN. A holder who checks the
Box in Part III in lieu of furnishing his or her TIN should furnish the Exchange
Agent with his or her TIN as soon as it is received.
STATUS OF HOLDER
The term "UNITED STATES PERSON" means any person who is not a Foreign
Person. The term "FOREIGN PERSON" means any person who (as to the United States,
its territories and possessions, and all areas subject to its jurisdiction) is a
foreign corporation, a non-resident alien individual, a non-resident fiduciary
of a foreign estate or trust, or a foreign partnership.
13
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens: I.E.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: I.E., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
GIVE THE
GIVE THE EMPLOYER
FOR THIS TYPE OF SOCIAL SECURITY IDENTIFICATION
ACCOUNT: NUMBER OF-- FOR THIS TYPE OF ACCOUNT: NUMBER OF--
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's The individual 8. Association, club, The organization
account religious,
charitable, or
educational
organization account
2. Two or more The actual owner of the
individuals (joint account or, if combined
account) funds, the first
individual on the
account(1)
3. Custodian account of The minor(2) 9. Partnership account The partnership
a minor (Uniform Gift held in the name of
to Minors Act) the business
4.a. The usual The grantor-trustee(1) 10. Association, club, or The organization
revocable savings other tax-exempt
trust account organization
(grantor is also
trustee)
b. So-called trust The actual owner(1) 11. A broker or The broker or nominee
account that is not a registered nominee
legal or valid trust
under State law
5. Sole proprietorship The owner(3) 12. Account with the The public entity
account Department of
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
6. A valid trust, The legal entity (Do not
estate, or pension furnish the identifying
trust number of the personal
representative or
trustee, unless the legal
entity itself is not
designated in the account
title.)(4)
7. Corporate account The corporation
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(4) List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
14
<PAGE>
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A state, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Advisors Act of
1940 who regularly acts as a broker.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
Exempt payees described above should file the Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THE SUBSTITUTE FORM W-9 WITH THE
EXCHANGE AGENT, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, CHECK THE BOX IN
PART II, AND RETURN IT TO THE EXCHANGE AGENT. IF THE PAYMENTS ARE INTEREST,
DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments
other than interest, dividends, and patronage dividends, that are not subject to
information reporting are also not subject to backup withholding. For details,
see the regulations under sections 6041, 6041(a), 6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
(such as the Exchange Agent) who must report the payments to the IRS. The IRS
15
<PAGE>
uses the numbers for identification purposes. Payers must be given the numbers
whether or not recipients are required to file tax returns. Beginning January 1,
1984, payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX ADVISOR OR THE INTERNAL REVENUE
SERVICE.
16
<PAGE>
[LETTERHEAD]
------------------------------
Arthur Andersen LLP
------------------------------
June 10, 1998 Suite 1300
711 Louisiana Street
Houston, TX 77003-2786
Mr. Michael Loy 713 237 2323
HomeUSA, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Dear Mr. Loy:
You have requested our opinion as to certain U.S. federal income tax
consequences under the Internal Revenue Code of 1986, as amended (the
"Code"), resulting from the Agreement and Plan of Merger (the "Agreement"),
dated February 17, 1998 by and among Fleetwood Enterprises, Inc., a Delaware
corporation ("Fleetwood"), HUSA Acquisition Company, a Delaware corporation
and wholly owned subsidiary of Fleetwood ("HUSA") and HomeUSA, Inc., a
Delaware corporation ("HomeUSA"). Pursuant to the terms of the Agreement and
at the Effective Time, HomeUSA will merge with and into HUSA, with HUSA
becoming the surviving corporation. At the Effective Time, each share of
HomeUSA common stock, par value $0.01 per share, will be converted into the
right to receive the Merger Consideration as more fully discussed in Article
II, Section 2.01 of the Agreement. This opinion is being rendered pursuant to
Section 6.03(c) of the Agreement.
Terms not otherwise defined herein shall have the meanings ascribed to them
in the Agreement and/or the Registration Statement of Form S-4 of Fleetwood
(the "Registration Statement"), dated May 20, 1998.
We have not considered any nonincome tax, state, local or foreign income tax
consequences, and, therefore, do not express any opinion regarding the
treatment that would be given the merger by the applicable authorities on any
nonincome tax or any state, local or foreign tax issues. We also express no
opinion on nontax issues, such as corporate law or securities law matters,
including, but not limited to, all securities law disclosure requirements.
In rendering our opinion, we have relied upon the facts, information,
assumptions and representations as contained in the Agreement and
Registration Statement, including all attachments thereto. We have also
relied on additional representations made by the management of Fleetwood,
HUSA, and HomeUSA. We have assumed that these facts, information, assumptions
and representations are complete and accurate and have not independently
audited or otherwise verified any of these facts, information, assumptions or
representations.
<PAGE>
[LETTERHEAD]
Mr. Michael Loy
Page 2
June 10, 1998
A misstatement or omission of any fact or a change or amendment in any of the
facts, information, assumptions or representations we have relied upon may
require a modification of all or a part of this opinion.
Our opinion is as of the date of the Proxy Statement/Prospectus. Pursuant to
the Agreement we will update this opinion, if necessary, as of the Closing
Date. Any change or amendment in any of the facts, information, assumptions or
representations we have relied upon as of the date of the Proxy
Statement/Prospectus may require a modification of all or a part of this
opinion as of the Closing Date.
The conclusions set forth below are based upon the Code, the Treasury
Regulations, and existing administrative and judicial interpretations thereof
as of the date of the Proxy Statement/Prospectus, all of which are subject to
change. All section references are to the Code unless otherwise stated. If
there is a change in the Code, the Treasury Regulations or public rulings
thereunder, the current Internal Revenue Service (the "Service") rulings or
releases, or in the prevailing judicial interpretation of the foregoing, the
opinion expressed herein would necessarily have to be re-evaluated in light
of any such changes. We have no responsibility to update this opinion for
events, transactions, changes in the above-listed law and authority or
circumstances occurring after the Closing Date.
This opinion is solely for the benefit of HomeUSA and its stockholders and is
not intended to be relied upon by any other parties. Although you do hereby
have our express consent to inform Fleetwood and HUSA of our opinion by
including copies of this letter as an exhibit to the Plan of Merger and as an
exhibit in the Registration Statement and by making reference to us and our
opinion in the Proxy Statement/Prospectus forming a part of the Registration
Statement, we assume no responsibility for any tax consequences to them.
Instead, each of these parties should consult and rely upon the advice of
his/her counsel, accountant or other tax advisor. Except to the extent
expressly permitted hereby, and without the prior written consent of this
firm, this letter may not be quoted in whole or in part or otherwise referred
to in any documents or delivered to any other person or entity.
We are of the opinion, based upon our interpretation of the Code, the
Treasury regulations, existing administrative and judicial interpretations
thereof and the foregoing facts, information, assumptions and
representations, all assumed to be accurate as of the date hereof, that, for
U.S. federal income tax purposes:
(i) The Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1)(A) and Section
368(a)(2)(D) of the Code.
(ii) Fleetwood, HUSA and HomeUSA will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
<PAGE>
[LETTERHEAD]
Mr. Michael Loy
Page 3
June 10, 1998
This opinion is not binding on the Service or the courts. There can be no
assurance that the Service or the courts will not take positions contrary to
the position expressed herein. The opinion expressed herein reflects our
assessment of the probable outcome of litigation and other adversarial
proceedings based solely on an analysis of the existing U.S. federal income
tax authorities relating to the issues.
Very truly yours,
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated June 23, 1997,
included in Fleetwood Enterprises, Inc.'s Form 10-K for the year ended April 27,
1997 and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Orange County, California
June 8, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
June 8, 1998
<PAGE>
HOMEUSA, INC.
THREE RIVERWAY, SUITE 555
HOUSTON, TEXAS 77056
(713) 831-2200
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF HOMEUSA, INC.
SPECIAL MEETING OF STOCKHOLDERS, JULY 15, 1998
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting and related Proxy Statement with respect to the Special Meeting of
Stockholders of HomeUSA, Inc. (the "Meeting") to be held at the Omni Houston
Hotel, Four Riverway, Houston, Texas 77056, on July 15, 1998 at 10:00 a.m.,
local time, and appoints Cary N. Vollintine and Michael F. Loy, and each of
them (with full power to act without the other), the true and lawful agents
and proxies of the undersigned, each having full power of substitution, to
represent the undersigned and to vote, as designated below, all shares of
HomeUSA Common Stock held of record by the undersigned on May 19, 1998, or
which the undersigned would be entitled to vote if personally present at the
Meeting or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED UNLESS REVOKED PRIOR TO THE VOTING THEREOF IN THE
MANNER SPECIFIED IN THE PROXY STATEMENT. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE APPROVAL OF PROPOSAL (1).
(continued and to be signed and dated on reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark your votes as indicated in this example /X/
THE BOARD OF DIRECTORS OF HOMEUSA, INC. RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.
(1) PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER DATED AS
OF FEBRUARY 17, 1998 BY AND AMONG FLEETWOOD ENTERPRISES, INC., HUSA
ACQUISITION COMPANY, AND HOMEUSA, INC. (THE "MERGER AGREEMENT") AND TO
APPROVE THE MERGER OF HOMEUSA, INC. WITH AND INTO HUSA ACQUISITION COMPANY,
A DELAWARE CORPORATION AND WHOLLY OWNED SUBSIDIARY OF FLEETWOOD ENTERPRISES,
INC., PURSUANT TO THE TERMS AND CONDITIONS OF THE MERGER AGREEMENT.
FOR / / AGAINST / / ABSTAIN / /
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof.
Please date and sign below exactly as your name(s) appear hereon, and return
this proxy promptly in the accompanying envelope. Joint owners should each
sign personally. Corporate proxies should be signed in full corporate name by
an authorized officer and attested. Partnership proxies should be signed in
full partnership name by an authorized person. Persons signing in a fiduciary
capacity should indicate such capacity.
Dated: ________________________, 1998
______________________________________
Signature
______________________________________
Signature
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
