<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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
(714) 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: / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 per
share(3).................................. 3,620,300 shares $43.72 $158,279,516 $46,693
</TABLE>
(1) Represents the estimated maximum number of shares of Common Stock of
Registrant to be issued upon consummation of the Merger described herein.
(2) Estimated pursuant to Rules 457(f)(1) and 457(c) solely for the purpose of
computing the registration fee, and based on the average of the high and low
prices of the Common Stock as reported on April 6, 1998 on The New York
Stock Exchange, Inc. and the estimated maximum number of shares (15,441,887)
that may be exchanged for the securities being registered.
(3) Each share of Common Stock includes a right to purchase one one-hundredth of
a share of Fleetwood's Series A Junior Participating Preferred Stock.
------------------------
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
APRIL 9, 1998
HOMEUSA, INC.
THREE RIVERWAY, SUITE 555
HOUSTON, TEXAS 77056
May 27, 1998
Dear Stockholder:
A Special Meeting of Stockholders of HomeUSA, Inc. (the "HomeUSA Special
Meeting") will be held on Thursday, June 25, 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 June 16, 1998 (I.E., the tenth
day prior to the anticipated closing date of the Merger, June 26, 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 JUNE 17, 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 JUNE
22, 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 JUNE 25, 1998
------------------------
A Special Meeting of Stockholders (the "HomeUSA Special Meeting") of
HomeUSA, Inc., a Delaware corporation ("HomeUSA"), will be held on Thursday,
June 25, 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 June 16, 1998 (I.E., the tenth day prior to the
anticipated closing date of the Merger, June 26, 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 April 7, 1998, 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
May 27, 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. 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.
<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 APRIL 9, 1998.
HOMEUSA, INC.
PROXY STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
JUNE 25, 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 June 25, 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, 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 June 16, 1998 (I.E., the tenth
day prior to the anticipated closing date of the Merger, June 26, 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. AN
ELECTION FORM IS ENCLOSED WITH THIS PROXY STATEMENT/PROSPECTUS AND MUST BE FILED
WITH THE EXCHANGE AGENT ON OR BEFORE JUNE 22, 1998. On or about June 17, 1998,
HomeUSA will issue a press release advising its stockholders of the Valuation
Period Stock Price and the Exchange Ratio resulting therefrom. On May , 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 $ . If the Valuation Period Stock Price were $ per share,
each share of HomeUSA Common Stock subject to a Stock Election (defined herein)
would be converted into the right to receive 0. 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 May 27, 1998.
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 17.
---------------------
The date of this Proxy Statement/Prospectus is May , 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............................................... 15
RISK FACTORS.......................................................................... 17
Risks Relating to the Merger.......................................................... 17
Risks Relating to the Companies' Businesses........................................... 18
Other Risks Related to an Investment in Fleetwood Common Stock........................ 21
SPECIAL MEETING OF HOMEUSA STOCKHOLDERS............................................... 22
General............................................................................... 22
Matters to be Considered at the Meeting............................................... 22
Record Date; Shares Entitled to Vote; Vote Required................................... 22
Proxies; Proxy Solicitation........................................................... 23
BACKGROUND OF AND REASONS FOR THE MERGER.............................................. 25
Background of the Merger.............................................................. 25
Fleetwood's Reasons for the Merger.................................................... 29
Recommendation of the HomeUSA Board; HomeUSA's Reasons for the Merger................. 30
Opinion of BT Alex. Brown, Financial Advisor to HomeUSA............................... 33
Interests of Certain Persons in the Merger............................................ 39
THE MERGER............................................................................ 42
General............................................................................... 42
Merger Consideration.................................................................. 42
Exchange of HomeUSA Common Stock and HomeUSA Options.................................. 45
Stock Exchange Listing................................................................ 45
Certain Representations and Warranties................................................ 45
Certain Covenants and Agreements...................................................... 46
Conditions to the Merger.............................................................. 51
Termination, Amendment and Waiver..................................................... 52
Fees and Expenses..................................................................... 52
Management and Operations After the Merger............................................ 53
Certain Federal Income Tax Considerations............................................. 54
Certain Federal Securities Laws Consequences.......................................... 57
Accounting Treatment.................................................................. 58
Regulatory Approvals.................................................................. 58
Financing the Merger.................................................................. 58
No Appraisal Rights................................................................... 58
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
BUSINESS OF FLEETWOOD................................................................. 59
General............................................................................... 59
Industry Overview..................................................................... 60
Competitive Advantages................................................................ 62
Business Strategy..................................................................... 63
Sales and Distribution................................................................ 64
Engineering and Product Development................................................... 65
Component Suppliers and Sources....................................................... 65
Product Financing..................................................................... 65
BUSINESS OF ACQUISITION SUB........................................................... 66
BUSINESS OF HOMEUSA................................................................... 67
Introduction.......................................................................... 67
Product Overview...................................................................... 67
Industry Overview..................................................................... 67
Seasonality and Cyclicality........................................................... 67
HomeUSA's Retail Operations........................................................... 67
Value-Added Services Provided......................................................... 68
Products and Product Sourcing......................................................... 69
Management Information Systems........................................................ 69
Competition........................................................................... 70
Regulation............................................................................ 70
Employees............................................................................. 71
Properties............................................................................ 71
Legal Proceedings..................................................................... 71
Certain Relationships and Related Transactions........................................ 72
SELECTED FINANCIAL DATA OF HOMEUSA.................................................... 76
HOMEUSA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 77
Overview.............................................................................. 77
Selected Consolidated Financial Data.................................................. 77
Historical Results for 1997 Compared to 1996.......................................... 78
Historical Results for 1996 Compared to 1995.......................................... 79
Liquidity and Capital Resources....................................................... 79
Year 2000 Issue....................................................................... 80
PRINCIPAL STOCKHOLDERS OF HOMEUSA..................................................... 81
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION........................... 82
Fleetwood............................................................................. 82
HomeUSA............................................................................... 83
CAPITALIZATION........................................................................ 84
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................... 85
DESCRIPTION OF FLEETWOOD CAPITAL STOCK................................................ 93
Fleetwood Common Stock and Preferred Stock............................................ 93
Rights................................................................................ 93
Fleetwood Trust Preferred Securities.................................................. 94
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
COMPARATIVE RIGHTS OF HOMEUSA AND FLEETWOOD STOCKHOLDERS.............................. 96
LEGAL MATTERS......................................................................... 101
EXPERTS............................................................................... 101
STOCKHOLDER PROPOSALS................................................................. 101
INDEX OF DEFINED TERMS................................................................ 102
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. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF FLEETWOOD OR HOMEUSA SINCE THE DATE HEREOF OR THAT THE INFORMATION IN
THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES THEREOF.
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;
2. Proxy Statement on Schedule 14A for the fiscal year ended April 27,
1997;
3. Quarterly Reports on Form 10-Q for the fiscal quarters ended July
27, 1997, October 26, 1997, and January 25, 1998; and
4. Current Reports on Form 8-K dated October 8, 1997, January 14, 1998,
January 23, 1998, and February 19, 1998.
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 JUNE 18, 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 JUNE 18, 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 June 25, 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 Thursday, June 25,
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
shares ( percent ( %)) were held 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 April 7, 1998, 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 June 16, 1998 (I.E., the tenth day
immediately prior to the anticipated closing date of the Merger, June 26, 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
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cash equal to the Per Share Cash Amount (the "Merger Consideration"). On or
about June 17, 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 May 27, 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 June 22, 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, NA. 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 JUNE 22, 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 "tax-free 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 such 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 each Cash Election Share and each Mixed
Election Cash Share will be converted into the right to receive a combination of
cash and Fleetwood Common Stock calculated 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, June 26, 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 MAY , 1998, THE CLOSING SALES PRICE OF FLEETWOOD
COMMON STOCK ON THE NYSE WAS $ 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. SHARES OF FLEETWOOD COMMON STOCK ($10.25/$ ). PROMPTLY AFTER
DETERMINATION OF THE VALUATION PERIOD STOCK PRICE AND THE EXCHANGE RATIO
RESULTING THEREFROM, HOMEUSA WILL ISSUE A PRESS RELEASE ADVISING ITS
STOCKHOLDERS OF THE SAME. HOMEUSA
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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 persons making such
requests (to the extent practicable), takeover proposals and inquiries and all
the
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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 set forth therein and does not
constitute a recommendation to any HomeUSA stockholder as to how such
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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 shares of HomeUSA Common
Stock and held HomeUSA Options to acquire an aggregate of 690,000 shares of
HomeUSA Common Stock, exercisable at $8.00 per share. Assuming a Valuation
Period Stock Price of $ (the average of the NYSE closing sales prices for
Fleetwood Common Stock for the ten consecutive trading day period ending May ,
1998), 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 $ , representing approximately
% 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.
Proceeds from the preferred securities not required for the share repurchase
will be used to fund Fleetwood's entry into the manufactured housing retail
business, including the Merger.
HOMEUSA HISTORICAL FINANCIAL DATA
(in millions, except per share data)
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED DECEMBER 31
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................................... $ 63.9 $ 51.3 $ 55.8 $ 48.4 $ 39.1
Income from operations............................................. 4.3 2.6 3.1 2.8 2.0
Net income......................................................... 3.4 2.4 3.0 2.5 2.1
Weighted average shares outstanding................................ 3.7 2.3 2.3 2.3 2.3
Earnings per share-basic and diluted............................... $ 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....................................................... $ 139.9 $ 19.3 $ 14.4 $ 12.8 $ 11.5
Long-term debt, less current maturities............................ -- -- -- -- --
Shareholders' equity............................................... 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.
Proceeds from the preferred securities not required for the share repurchase
will be used to fund Fleetwood's entry into the manufactured housing retail
business, including the Merger.
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 FISCAL
AT OR FOR NINE MONTHS YEAR ENDED APRIL
ENDED JANUARY 25, 1998 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
<CAPTION>
AT OR FOR THE YEAR
ENDED DECEMBER 31, 1997
-----------------------
<S> <C> <C>
HISTORICAL--HOMEUSA:
Earnings per share-basic and diluted............................. $ 0.91
Cash dividends per share......................................... --
Book value per share(1).......................................... 5.02
<CAPTION>
AT OR FOR FISCAL
AT OR FOR NINE MONTHS YEAR ENDED APRIL
ENDED JANUARY 25, 1998 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(3)(4)....................................... 13.00
</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 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.
Proceeds from the preferred securities not required for the share repurchase
will be used to fund Fleetwood's entry into the manufactured housing retail
business, including the Merger.
(3) 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.
(4) 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.
14
<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 (through April 7, 1998)......................................... 48.000 39.375 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 May , 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 $ . On that date,
there were approximately 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."
15
<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 April 7, 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 May , 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 $ . On that date, there were
approximately 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."
16
<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 shares of Fleetwood
Common Stock (assuming a Valuation Period Stock Price of $ (the average of
the NYSE closing sales prices for Fleetwood Common Stock for the ten consecutive
trading day period ending May , 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, 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."
17
<PAGE>
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
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.
Although the Merger and other retail initiatives by Fleetwood are expected to
mitigate the impact of these acquisitions, 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
18
<PAGE>
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. Although
Fleetwood believes that its products liability insurance coverage is adequate,
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 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. Although HomeUSA
believes that its products liability insurance coverage is adequate, 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). Although losses with respect to these contingent
repurchase obligations have not been significant, 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
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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. Although
Fleetwood attempts to offset the effect of any escalation in components and
labor costs by increasing the sales prices of its products, 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.
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 Thursday, June 25, 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 May 27, 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 June 17, 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
shares ( percent ( %)) were held 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 April 7, 1998, have informed
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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.
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.
It is not expected that any matter not referred to herein will be presented
for action at the HomeUSA Special Meeting. If any other matters are properly
brought before the HomeUSA Special Meeting and any adjournments or postponements
thereof, the persons named in the proxies will have discretion to vote on such
matters in accordance with their best judgment. The grant of a proxy will also
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.
A HomeUSA stockholder may revoke his proxy at any time prior to its use by
delivering to he 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.
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 brokerage houses and other custodians, nominees
and fiduciaries to send proxy material to beneficial
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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 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. Subject only to the foregoing, the HomeUSA Board approved the
Merger Agreement and the Merger, authorized
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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, 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.
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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.
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
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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 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.
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
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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 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
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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.
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. 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
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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 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.
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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 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
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Selected Automobile Retailers and the Selected Industry Consolidators. 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 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 14.3x, 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. 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
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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
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
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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 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 modestly
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.
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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.
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
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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 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
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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
shares of HomeUSA Common Stock and held HomeUSA Options to acquire an aggregate
of 690,000 shares of HomeUSA Common Stock, exercisable at $8.00 per share.
Assuming a Valuation Period Stock Price of $ (the average of the NYSE closing
sales prices for Fleetwood Common Stock for the ten consecutive trading day
period ending May , 1998), 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
$ , representing approximately % of the aggregate Merger Consideration
to be received by all holders of HomeUSA Common Stock.
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THE MERGER
THE DESCRIPTION OF THE MERGER AGREEMENT SET FORTH BELOW 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 June
16, 1998 (I.E., the tenth day immediately prior to the anticipated Closing Date,
June 26, 1998). On or about June 17, 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 certificates and cash, in each case in accordance with the
allocation procedures described below in
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"-- 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 June 22, 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
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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 "tax-free 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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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,
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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
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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
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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 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 significantly from the
allocation reflected in the Unaudited Pro Forma Combined Condensed Financial
Statements.
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
United States Department of Housing and Urban Development ("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
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 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
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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.
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
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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; (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
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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.
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
85.6% in its fiscal year ended April 1991 to 90.5% 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 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
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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, 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,
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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-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
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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
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
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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. 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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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
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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
COMPANY 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.
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. 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
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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 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.
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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.
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.
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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 YEAR ENDED DECEMBER 31
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue...................................................... $ 63.9 $ 51.3 $ 55.8 $ 48.4 $ 39.1
Cost of sales...................................................... 50.0 39.4 42.6 37.8 30.7
--------- --------- --------- --------- ---------
Gross profit....................................................... 13.9 11.9 13.2 10.6 8.4
Selling, general and administrative expenses....................... 9.6 9.3 10.1 7.8 6.4
--------- --------- --------- --------- ---------
Operating income................................................... 4.3 2.6 3.1 2.8 2.0
Other (income) expense, net........................................ 0.7 -- (0.1) 0.2 (0.1)
--------- --------- --------- --------- ---------
Income before income taxes......................................... 3.6 2.6 3.2 2.6 2.1
Provision for income taxes......................................... 0.2 0.2 0.2 0.1 --
--------- --------- --------- --------- ---------
Net income......................................................... $ 3.4 $ 2.4 $ 3.0 $ 2.5 $ 2.1
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share-basic and diluted............................... $ 0.91 $ 1.04 $ 1.28 $ 1.09 $ 0.90
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing basic and diluted earnings per share...... 3.7 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.................................................... $ 11.1 $ 9.3 $ 10.2 $ 8.2 $ 5.4
Total assets....................................................... 139.9 19.3 14.4 12.8 11.5
Long-term debt, less current maturities............................ -- -- -- -- --
Shareholders' equity............................................... 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.
76
<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.
77
<PAGE>
HOMEUSA CONSOLIDATED FINANCIAL DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales............................... $ 62.6 97.9% $ 50.9 99.3% $ 55.6 99.6%
Other revenue............................ 1.3 2.1 0.4 0.7 0.2 0.4
--------- --------- --------- --------- --------- ---------
Total revenue.............................. 63.9 100.0 51.3 100.0 55.8 100.0
Cost of sales.............................. 50.0 78.2 39.4 76.8 42.6 76.3
--------- --------- --------- --------- --------- ---------
Gross profit............................... 13.9 21.8 11.9 23.2 13.2 23.7
Selling, general and administrative
expenses................................. 9.6 15.0 9.3 18.2 10.1 18.2
--------- --------- --------- --------- --------- ---------
Income from operations..................... 4.3 6.8 2.6 5.0 3.1 5.5
Interest and other (income) expense, net... 0.7 1.1 -- 0.0 (0.1) (0.1)
--------- --------- --------- --------- --------- ---------
Income before income taxes................. 3.6 5.7 2.6 5.0 3.2 5.6
Provision for income taxes................. 0.2 0.4 0.2 0.3 0.2 0.3
--------- --------- --------- --------- --------- ---------
Net income................................. $ 3.4 5.3% $ 2.4 4.7% $ 3.0 5.3%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
OPERATING DATA:
Period end sales centers................... 65 15 15
Homes sold................................. 2,168 1,807 2,060
Multi-section home sales................... 71% 62% 56%
Average home sale price.................... $ 28,891 $ 28,148 $ 26,998
</TABLE>
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.
78
<PAGE>
INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income)
expense, net increased $0.7 million, from less than $0.1 million of income in
1996 to $0.7 million of expense in 1997. Approximately $0.2 million of the
increase was attributable to the acquisition of the Founding Companies effective
November 30, 1997. The remaining increase was primarily a result of increased
interest expense associated with maintaining higher floor plan balances during
1997.
HISTORICAL RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales decreased $4.7 million, or 8.5%, from $55.6 million
in 1995 to $50.9 million in 1996, resulting primarily from a 14% decline in
homes sold at centers open for all of both periods, partially offset by a 4%
increase in the average price per home. The 4% increase in the average price per
home was due to the increase in multi-section homes sold as a percentage of
total homes sold.
OTHER REVENUE. Other revenue increased $0.2 million, or 71.4%, from $0.2
million in 1995 to $0.4 million in 1996.
GROSS PROFIT. Gross profit decreased $1.3 million, or 10.2%, from $13.2
million in 1995 to $11.9 million in 1996. As a percentage of total revenue,
gross margin decreased from 23.7% in 1995 to 23.2% in 1996. This decrease was
due to higher costs associated with delivery of multi-section homes and certain
inventory sold at lower margins.
SELLING, GENERAL AND ADMINISTRATIVE 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 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
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
79
<PAGE>
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 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.
80
<PAGE>
PRINCIPAL STOCKHOLDERS OF HOMEUSA
The following table sets forth information regarding the beneficial
ownership of HomeUSA Common Stock as of May , 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>
Notre Capital Ventures II, L.L.C........................................... 1,843,823 11.9%
Steven S. Harter(1)........................................................ 1,853,823 12.0
Cary N. Vollintine(2)...................................................... 430,226 2.8
Michael F. Loy(3).......................................................... 116,250 *
Frank W. Montfort.......................................................... 121,000 *
Philip deMena.............................................................. 110,000 *
Philip E. Campbell......................................................... 55,000 *
Don A. Palmour............................................................. 50,000 *
Donald D. Moseley.......................................................... 50,000 *
Larry T. Shaffer(4)........................................................ 2,271,915 14.7
Gary W. Fordham............................................................ 600,000 3.9
David E. Thompson.......................................................... 565,901 3.7
Frank C. McDonald.......................................................... 610,416 4.0
Harold K. Patrick(5)....................................................... 936,058 6.1
Stanley Poisso(6).......................................................... 521,101 3.4
Randle C. Cooper........................................................... 691,308 4.5
Thomas N. Amonett(7)....................................................... 21,000 *
James J. Blosser(7)........................................................ 30,000 *
Stephen F. Smith(7)........................................................ 30,000 *
All executive officers and directors as a group (18 persons)............... 8,448,610 54.7
</TABLE>
- --------------------------
* Less than 1%.
(1) Includes 10,000 shares of HomeUSA Common Stock issuable upon the exercise of
options granted under HomeUSA's Directors' Plan and 1,843,823 shares of
HomeUSA Common Stock issued to Notre. Mr. Harter is the President of Notre.
(2) Includes 50,000 shares of HomeUSA Common Stock issuable on conversion of a
convertible note issued by Notre that is convertible into HomeUSA Common
Stock owned by Notre.
(3) Includes 6,250 shares of HomeUSA Common Stock issuable on conversion of a
convertible note issued by Notre that is convertible into HomeUSA Common
Stock owned by Notre.
(4) 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.
(5) 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.
(6) 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.
(7) Includes 10,000 shares of HomeUSA Common Stock issuable upon the exercise of
options granted under HomeUSA's Directors' Plan.
81
<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 (through April 7, 1998)......................................... 48.000 39.375 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 May , 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 $ . On that date,
there were approximately 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.
82
<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 April 7, 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 May , 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 $ . On that date, there were
approximately 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.
83
<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. Proceeds from the preferred securities not required for the
share repurchase are expected to be used to fund the Company's planned entry
into the manufactured housing retail business. The effect of these
transactions was to increase total capitalization by approximately $110
million. See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
84
<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.
85
<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 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.
(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
and 1.7 million HomeUSA Options for $83.4 million in cash and $82.6
million in Fleetwood Common Stock.
(4) To eliminate HomeUSA book equity and record the excess of the purchase
price over the fair value of net assets acquired as goodwill.
86
<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>
87
<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.
88
<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>
89
<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>
90
<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.
91
<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>
92
<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, NA 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
93
<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
94
<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.
95
<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 certain 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
certain 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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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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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
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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
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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
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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.
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.
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.
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INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
AAA Homes..................................... 3
Acquiring Party............................... 8
Acquisition Sub............................... cover
Adjusted Value................................ 35
Adverse Person................................ 93
Antitrust Division............................ 10
Associates.................................... 66
Bargain Homes................................. 75
BT Alex. Brown................................ 8
BT Alex. Brown Opinion........................ 8
CAGR.......................................... 3
Cash Election................................. 5
Cash Election Shares.......................... 6
Cavco......................................... 25
Certificates.................................. 42
Champion...................................... 25
Class A....................................... 60
Class C....................................... 60
Clayton....................................... 34
Closing Date.................................. 42
Code.......................................... 9
Commission.................................... cover
Competing Bidders............................. 25
Complaint..................................... 71
Confidentiality Agreement..................... 50
Cooper's...................................... 3
CPI........................................... 73
CPSC.......................................... 70
Credit Facility............................... 79
D&O Insurance................................. 49
DGCL.......................................... 4
EBIT.......................................... 35
EBITDA........................................ 35
Effective Time................................ 4
Election Deadline............................. 5
Election Form................................. 5
Election Form Record Date..................... 5
EPS........................................... 35
Equity Value.................................. 35
Exchange Act.................................. 1
Exchange Agent................................ 5
Exchange Fund................................. 45
Exchange Ratio................................ 4
Exchanged Option.............................. 7
Expression Homes.............................. 25
FCC........................................... 11
First American................................ 3
Fleetwood..................................... cover
Fleetwood Board............................... 15
Fleetwood Bylaws.............................. 21
Fleetwood Charter............................. 21
Fleetwood Common Stock........................ cover
Fleetwood Convertible Subordinated
Debentures.................................. 94
Fleetwood Reports............................. 2
Fleetwood Rights Agreement.................... cover
Fleetwood Trust............................... 94
Fleetwood Trust Common Securities............. 94
Fleetwood Trust Preferred Securities.......... 94
Fleetwood Trust Securities.................... 94
Form S-8...................................... 50
Founding Companies............................ 3
FTC........................................... 10
Green Tree.................................... 66
Home Folks.................................... 3
HomeUSA....................................... cover
HomeUSA Affiliates............................ 51
HomeUSA Board................................. 4
HomeUSA Bylaws................................ 4
HomeUSA Charter............................... 96
HomeUSA Common Stock.......................... cover
HomeUSA IPO................................... 25
HomeUSA IPO Date.............................. 34
HomeUSA Option................................ 7
HomeUSA Special Meeting....................... 3
HomeUSA Stockholder Approval.................. 3
HSR Act....................................... 10
HUD........................................... 59
HUD Code...................................... 70
IBES.......................................... 35
Indemnified Parties........................... 49
Letter of Transmittal......................... 5
LTM........................................... 35
Mailing Date.................................. 5
Maximum Cash Merger Consideration............. 6
Maximum Premium............................... 49
McDonald Mobile............................... 3
Merger........................................ cover
Merger Agreement.............................. 3
Merger Consideration.......................... 5
Mixed Election................................ 5
Mixed Election Cash Shares.................... 6
Mobile World.................................. 3
Named Director................................ 81
Non-Election.................................. 5
Notre......................................... 26
NYSE.......................................... cover
P/E........................................... 35
P/E to Growth Rate............................ 35
PaineWebber................................... 26
Palm Harbor................................... 25
Patrick Home.................................. 3
Per Share Cash Amount......................... cover
Premium Transactions.......................... 36
Pulte......................................... 25
Record Date................................... 4
Registration Statement........................ cover
Representative................................ 43
Rights........................................ cover
RV............................................ 3
Scenario 1.................................... 37
Scenario 2.................................... 37
Securities Act................................ cover
Selected Automobile Retailers................. 35
Selected Industry Consolidators............... 35
Selected Manufactured Home Transactions....... 36
Selected Manufactured Housing Manufacturers... 34
Selected Other Automobile Retailing
Transactions................................ 36
</TABLE>
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<TABLE>
<S> <C>
Selected Republic Automobile Retailing
Transactions................................ 36
Service....................................... 55
South Atlantic................................ 80
Southern Lifestyle............................ 80
Stock Election................................ 5
Superior Proposal............................. 48
Takeover Proposal............................. 47
Termination Date.............................. 52
Termination Fee............................... 8
Universal..................................... 3
Valuation Period.............................. 4
Valuation Period Stock Price.................. cover
WillMax....................................... 3
</TABLE>
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INDEX TO HOMEUSA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 1997......................... F-3
Report of Independent Accountants........................................................................ F-6
Consolidated Balance Sheets.............................................................................. F-7
Consolidated Statements of Operations.................................................................... F-8
Consolidated Statements of Stockholders' Equity.......................................................... F-9
Consolidated Statements of Cash Flows.................................................................... F-10
Notes to Consolidated Financial Statements............................................................... F-11
AAA Homes Group
Report of Independent Public Accountants............................................................... F-24
Combined Balance Sheets................................................................................ F-25
Combined Statements of Operations...................................................................... F-26
Combined Statements of Shareholders' Equity............................................................ F-27
Combined Statements of Cash Flows...................................................................... F-28
Notes to Combined Financial Statements................................................................. F-29
McDonald Mobile Homes, Inc.
Report of Independent Public Accountants............................................................... F-38
Balance Sheets......................................................................................... F-39
Statements of Operations............................................................................... F-40
Statements of Shareholders' Equity..................................................................... F-41
Statements of Cash Flows............................................................................... F-42
Notes to Financial Statements.......................................................................... F-43
Patrick Home Center, Inc.
Report of Independent Public Accountants............................................................... F-50
Balance Sheets......................................................................................... F-51
Statements of Operations............................................................................... F-52
Statements of Shareholders' Equity..................................................................... F-53
Statements of Cash Flows............................................................................... F-54
Notes to Financial Statements.......................................................................... F-55
Mobile World Group
Report of Independent Public Accountants............................................................... F-64
Combined Balance Sheets................................................................................ F-65
Combined Statements of Operations...................................................................... F-66
Combined Statements of Shareholder's Equity............................................................ F-67
Combined Statements of Cash Flows...................................................................... F-68
Notes to Combined Financial Statements................................................................. F-69
First American Homes Group
Report of Independent Public Accountants............................................................... F-77
Combined Balance Sheets................................................................................ F-78
Combined Statements of Operations...................................................................... F-79
Combined Statements of Shareholders' Equity............................................................ F-80
Combined Statements of Cash Flows...................................................................... F-81
Notes to Combined Financial Statements................................................................. F-82
Cooper's Mobile Homes Group
Report of Independent Public Accountants............................................................... F-90
Combined Balance Sheets................................................................................ F-91
Combined Statements of Operations...................................................................... F-92
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Combined Statements of Shareholders' Equity............................................................ F-93
Combined Statements of Cash Flows...................................................................... F-94
Notes to Combined Financial Statements................................................................. F-95
Home Folks Housing Center, Inc.
Report of Independent Public Accountants............................................................... F-104
Balance Sheets......................................................................................... F-105
Statements of Operations............................................................................... F-106
Statements of Shareholder's Equity..................................................................... F-107
Statements of Cash Flows............................................................................... F-108
Notes to Financial Statements.......................................................................... F-109
Willmax Homes of Colorado LLC
Report of Independent Public Accountants............................................................... F-115
Balance Sheets......................................................................................... F-116
Statements of Operations............................................................................... F-117
Statements of Members' Equity.......................................................................... F-118
Statements of Cash Flows............................................................................... F-119
Notes to Financial Statements.......................................................................... F-120
HomeUSA, Inc.
Report of Independent Public Accountants............................................................... F-126
Balance Sheets......................................................................................... F-127
Statement of Operations................................................................................ F-128
Statements of Stockholders' Equity..................................................................... F-129
Statements of Cash Flows............................................................................... F-130
Notes to Financial Statements.......................................................................... F-131
</TABLE>
F-2
<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-3
<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-4
<PAGE>
HOMEUSA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
1. NOTES 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 negotiated with
financial institutions whereby the Company earns a fee for placing a
customer's loan with the financial institution.
(i) Reflects the increase in rebates on purchases from Fleetwood based on the
combined purchases of the Founding Companies during the year.
F-5
<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-6
<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-7
<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-8
<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-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<PAGE>
AAA HOMES GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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-63
<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-64
<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-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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-79
<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-80
<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-81
<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-82
<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-83
<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-84
<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-85
<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-86
<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-87
<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-88
<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-89
<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-90
<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-91
<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-92
<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-93
<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-94
<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-95
<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-96
<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-97
<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-98
<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-99
<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-100
<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-101
<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-102
<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-103
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Home Folks Housing Center, Inc.:
We have audited the accompanying balance sheet of Home Folks Housing Center,
Inc., as of December 31, 1996, and the related statements of operations,
shareholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-104
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<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-105
<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-106
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TREASURY
COMMON PAID-IN RETAINED STOCK
STOCK CAPITAL EARNINGS AT COST TOTAL
------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995.................................. $ 32 $ 3 $ 319 $ (17) $ 337
Net income................................................ -- -- 253 -- 253
--- ----- ----- ----- ---------
Balance, December 31, 1996.................................. 32 3 572 (17) 590
Dividend paid............................................. -- -- (200) -- (200)
Net income (unaudited).................................... -- -- 616 -- 616
--- ----- ----- ----- ---------
Balance, September 30, 1997 (unaudited)..................... $ 32 $ 3 $ 988 $ (17) $ 1,006
--- ----- ----- ----- ---------
--- ----- ----- ----- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<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-108
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Home Folks Housing Center, Inc. (the Company) and its sole shareholder
intend to enter into a definitive agreement with HomeUSA, Inc. (HomeUSA),
pursuant to which all outstanding shares of the Company's common stock will be
exchanged for cash and shares of HomeUSA's common stock concurrently with the
consummation of an initial public offering (the 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-109
<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-110
<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-111
<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-112
<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-113
<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-114
<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-115
<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-116
<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-117
<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-118
<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-119
<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-120
<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-121
<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-122
<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-123
<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-124
<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-125
<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-126
<PAGE>
HOMEUSA, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
DECEMBER 31, -------------
1996
----------------- (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-127
<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-128
<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-129
<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-130
<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-131
<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
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<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-133
<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-134
<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
A-4
<PAGE>
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.
A-5
<PAGE>
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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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 frilly paid and
nonassessable and are owned by Parent, free and clear of all Liens, and
excluding the outstanding shares of Expression Homes Corporation which is
49% owned by the Company.
(c) CAPITAL STRUCTURE.
(i) As of the date of this Agreement, the authorized capital stock
of Parent consists of 75,000,000 shares of Common Stock, par value $1.00
per share (the "Parent Common Stock"), and 10,000,000 shares of Preferred
Stock, par value $1.00 per share ("Parent Preferred Stock") of which
50,000 shares are designated as Series A Junior Participating Preferred
Stock. At the close
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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, frilly paid and nonassessable
and not subject to preemptive rights. As of the date of this Agreement,
except for the Parent's 6% Convertible Subordinated Debentures due
February 15, 2028, there are no bonds, debentures, notes or other
indebtedness of Parent having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which stockholders of Parent may vote.
(iii) There are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any
kind, to which any Significant Subsidiary of Parent is bound, obligating
such Significant Subsidiary to issue, deliver, sell, or cause to be
issued delivered or sold, additional shares of capital stock or other
voting securities of such Significant Subsidiary, or obligating such
Significant Subsidiary to issue, grant, extend or enter into any such
security, option, warrant, call, right commitment, agreement, arrangement
or undertaking.
(iv) As of the date of this Agreement, there are no outstanding
contractual obligations of Parent or any of its Significant Subsidiaries
to repurchase, redeem or otherwise acquire any shares of capital stock of
Parent or any of its Significant Subsidiaries. As of the date of this
Agreement, the authorized capital stock of Sub consists of 1,000 shares
of common stock, par value $.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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<PAGE>
(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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<PAGE>
(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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<PAGE>
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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<PAGE>
(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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<PAGE>
(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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<PAGE>
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.
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<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>
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<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.
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<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
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<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:
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<PAGE>
APPENDIX B
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FAIRNESS OPINION OF BT ALEX. BROWN INCORPORATED
- --------------------------------------------------------------------------------
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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
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 Opinion of Gibson, Dunn & Crutcher LLP 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)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
<C> <S>
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)
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
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>
- ------------------------
* To be filed by amendment.
(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 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
II-3
<PAGE>
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 8th day of April, 1998.
<TABLE>
<S> <C> <C>
By: /s/ GLENN F. KUMMER
-----------------------------------------
Glenn F. Kummer
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
</TABLE>
POWER OF ATTORNEY
Each director and/or officer of Fleetwood whose signature appears below
hereby constitutes and appoints PAUL M. BINGHAM and WILLIAM H. LEAR as the true
and lawful attorneys-in-fact and agents for the undersigned, acting together or
alone, with full powers of substitution and resubstitution, for the undersigned
and in the undersigned's name, place and stead, in any and all capacities, to
sign and file any and all amendments (including post-effective amendments) and
exhibits to this Registration Statement on Form S-4, and any and all
applications and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, acting
together or alone, full powers and authority to do and perform each and every
act and thing requisite and necessary or desirable to be done, hereby ratifying
and confirming all that said attorneys-in-fact and agents, acting together or
alone, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
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
/s/ GLENN F. KUMMER Chief Executive Officer
- ------------------------------ (Principal Executive April 8, 1998
Glenn F. Kummer Officer)
/s/ NELSON W. POTTER
- ------------------------------ President, Chief Operating April 8, 1998
Nelson W. Potter Officer and Director
Senior Vice President--
/s/ PAUL M. BINGHAM Finance and Chief
- ------------------------------ Financial Officer April 8, 1998
Paul M. Bingham (Principal Financial
Officer)
/s/ WILLIAM H. LEAR Senior Vice President--
- ------------------------------ General Counsel and April 8, 1998
William H. Lear Secretary
II-5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ WILLIAM W. WEIDE
- ------------------------------ Vice Chairman of the Board April 8, 1998
William W. Weide
/s/ ANDREW CREAN
- ------------------------------ Director April 8, 1998
Andrew Crean
/s/ DOUGLAS M. LAWSON
- ------------------------------ Director April 8, 1998
Dr. Douglas M. Lawson
/s/ THOMAS A. FUENTES
- ------------------------------ Director April 8, 1998
Thomas A. Fuentes
/s/ WALTER F. BERAN
- ------------------------------ Director April 8, 1998
Walter F. Beran
/s/ JAMES L. DOTI
- ------------------------------ Director April 8, 1998
Dr. James L. Doti
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
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 Opinion of Gibson, Dunn & Crutcher LLP 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)
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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S> <C>
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
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>
- ------------------------
* To be filed by amendment.
(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>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 17, 1998
AMONG
FLEETWOOD ENTERPRISES, INC.,
HUSA ACQUISITION COMPANY,
AND
HOMEUSA, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
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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
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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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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 frilly paid and
nonassessable and are owned by Parent, free and clear of all Liens, and
excluding the outstanding shares of Expression Homes Corporation which is
49% owned by the Company.
(c) CAPITAL STRUCTURE.
(i) As of the date of this Agreement, the authorized capital stock
of Parent consists of 75,000,000 shares of Common Stock, par value $1.00
per share (the "Parent Common Stock"), and 10,000,000 shares of Preferred
Stock, par value $1.00 per share ("Parent Preferred Stock") of which
50,000 shares are designated as Series A Junior Participating Preferred
Stock. At the close
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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, frilly paid and nonassessable
and not subject to preemptive rights. As of the date of this Agreement,
except for the Parent's 6% Convertible Subordinated Debentures due
February 15, 2028, there are no bonds, debentures, notes or other
indebtedness of Parent having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which stockholders of Parent may vote.
(iii) There are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any
kind, to which any Significant Subsidiary of Parent is bound, obligating
such Significant Subsidiary to issue, deliver, sell, or cause to be
issued delivered or sold, additional shares of capital stock or other
voting securities of such Significant Subsidiary, or obligating such
Significant Subsidiary to issue, grant, extend or enter into any such
security, option, warrant, call, right commitment, agreement, arrangement
or undertaking.
(iv) As of the date of this Agreement, there are no outstanding
contractual obligations of Parent or any of its Significant Subsidiaries
to repurchase, redeem or otherwise acquire any shares of capital stock of
Parent or any of its Significant Subsidiaries. As of the date of this
Agreement, the authorized capital stock of Sub consists of 1,000 shares
of common stock, par value $.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.
35
<PAGE>
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.
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.
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
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.
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
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:
40
<PAGE>
-------------------------------------------
-------------------------------------------
AMENDED AND RESTATED DECLARATION
OF TRUST
FLEETWOOD CAPITAL TRUST
Dated as of February 10, 1998
-------------------------------------------
-------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
INTERPRETATION AND DEFINITIONS
<S> <C>
SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application. . . . . . . . . . . . . . . 10
SECTION 2.2 Lists of Holders of Securities. . . . . . . . . . . . . . . . 10
SECTION 2.3 Reports by the Property Trustee . . . . . . . . . . . . . . . 11
SECTION 2.4 Periodic Reports to Property Trustee. . . . . . . . . . . . . 11
SECTION 2.5 Evidence of Compliance with Conditions Precedent. . . . . . . 11
SECTION 2.6 Event of Default; Waiver. . . . . . . . . . . . . . . . . . . 11
SECTION 2.7 Event of Default; Notice. . . . . . . . . . . . . . . . . . . 13
ARTICLE III
ORGANIZATION
SECTION 3.1 Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.2 Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.5 Title to Property of the Trust. . . . . . . . . . . . . . . . 15
SECTION 3.6 Powers and Duties of the Regular Trustees . . . . . . . . . . 15
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees. . . . . 19
SECTION 3.8 Legal Title to the Debentures.. . . . . . . . . . . . . . . . 20
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee . 23
SECTION 3.10 Certain Rights of Property Trustee. . . . . . . . . . . . . . 25
SECTION 3.11 Delaware Trustee. . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.12 Execution of Documents. . . . . . . . . . . . . . . . . . . . 28
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities. . . . 28
SECTION 3.14 Duration of Trust . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 3.15 Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities . . . . . . . . . . . 30
SECTION 4.2 Responsibilities of the Sponsor . . . . . . . . . . . . . . . 30
</TABLE>
i
<PAGE>
<TABLE>
ARTICLE V
TRUSTEES
<S> <C>
SECTION 5.1 Number of Trustees. . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.2 Delaware Trustee. . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.3 Property Trustee; Eligibility . . . . . . . . . . . . . . . . 32
SECTION 5.4 Qualifications of Regular Trustees and Delaware
Trustee Generally . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.5 Initial Trustees. . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.6 Appointment, Removal and Resignation of Trustees. . . . . . . 34
SECTION 5.7 Vacancies Among Trustees. . . . . . . . . . . . . . . . . . . 35
SECTION 5.8 Effect of Vacancies . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.9 Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.10 Delegation of Power . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.11 Merger, Conversion, Consolidation or Succession
to Business . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities . . . . . . . . . . . 37
SECTION 7.2 Execution and Authentication. . . . . . . . . . . . . . . . . 38
SECTION 7.3 Form and Dating . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.4 Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.5 Paying Agent to Hold Money in Trust . . . . . . . . . . . . . 42
SECTION 7.6 [reserved]. . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.7 Replacement Securities. . . . . . . . . . . . . . . . . . . . 42
SECTION 7.8 Outstanding Preferred Securities. . . . . . . . . . . . . . . 43
SECTION 7.9 Preferred Securities in Treasury. . . . . . . . . . . . . . . 43
SECTION 7.10 Temporary Securities. . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.11 Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VIII
DISSOLUTION AND TERMINATION OF TRUST
SECTION 8.1 Dissolution and Termination of Trust. . . . . . . . . . . . . 45
ARTICLE IX
TRANSFER AND EXCHANGE
SECTION 9.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.2 Transfer Procedures and Restrictions. . . . . . . . . . . . . 47
SECTION 9.3 Deemed Security Holders . . . . . . . . . . . . . . . . . . . 56
SECTION 9.4 Book Entry Interests. . . . . . . . . . . . . . . . . . . . . 57
SECTION 9.5 Notices to the Depositary.. . . . . . . . . . . . . . . . . . 57
SECTION 9.6 Appointment of Successor Depositary.. . . . . . . . . . . . . 58
</TABLE>
ii
<PAGE>
<TABLE>
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
<S> <C>
SECTION 10.1 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 10.2 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 10.3 Fiduciary Duty. . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 10.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 10.5 Outside Businesses. . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 11.2 Certain Accounting Matters. . . . . . . . . . . . . . . . . . 61
SECTION 11.3 Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 11.4 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12.2 Meetings of the Holders of Securities; Action by Written
Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee. . . . . . 67
SECTION 13.2 Representations and Warranties of Delaware Trustee. . . . . . 68
ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 Registration Rights . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 15.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 15.3 Intention of the Parties. . . . . . . . . . . . . . . . . . . 72
SECTION 15.4 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 15.5 Successors and Assigns. . . . . . . . . . . . . . . . . . . . 73
SECTION 15.6 Partial Enforceability. . . . . . . . . . . . . . . . . . . . 73
SECTION 15.7 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
iii
<PAGE>
ANNEX I - Terms of Securities
EXHIBIT A-1 - Form of Preferred Security
EXHIBIT A-2 - Form of Exchanged Preferred Security
EXHIBIT A-3 - Form of Common Security
iv
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Declaration
- ------------------- -----------
<S> <C>
310(a) . . . . . . . . . . . . . . 5.3(a)
310(c) . . . . . . . . . . . . . . Inapplicable
311(c) . . . . . . . . . . . . . . Inapplicable
312(a) . . . . . . . . . . . . . . 2.2(a)
312(b) . . . . . . . . . . . . . . 2.2(b)
313 . . . . . . . . . . . . . . . 2.3
314(a) . . . . . . . . . . . . . . 2.4
314(b) . . . . . . . . . . . . . . Inapplicable
314(c) . . . . . . . . . . . . . . 2.5
314(d) . . . . . . . . . . . . . . Inapplicable
314(f) . . . . . . . . . . . . . . Inapplicable
315(a) . . . . . . . . . . . . . . 3.9(b)
315(c) . . . . . . . . . . . . . . 3.9(a)
315(d) . . . . . . . . . . . . . . 3.9(a)
316(a) . . . . . . . . . . . . . . Annex I
316(c) . . . . . . . . . . . . . . 3.6(e)
</TABLE>
- -------------------
* This Cross-Reference Table does not constitute part of the Declaration and
shall not affect the interpretation of any of its terms or provisions.
v
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
FLEETWOOD CAPITAL TRUST
February 10, 1998
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of February 10, 1998, by the undersigned trustees (together with
all other Persons from time to time duly appointed and serving as trustees in
accordance with the provisions of this Declaration, the "Trustees"), Fleetwood
Enterprises, Inc., a Delaware corporation, as trust sponsor (the "Sponsor"), and
by the holders, from time to time, of undivided beneficial interests in the
Trust issued pursuant to this Declaration;
WHEREAS, certain of the Trustees and the Sponsor established Fleetwood
Capital Trust (the "Trust"), a Delaware statutory business trust created under
the Business Trust Act, pursuant to a Declaration of Trust dated as of January
16, 1998 (the "Original Declaration") and a Certificate of Trust filed with the
Secretary of State of Delaware on January 16, 1998, for the sole purpose of
issuing and selling certain securities representing undivided beneficial
interests in the assets of the Trust and investing the proceeds thereof in
certain Debentures of the Debenture Issuer;
WHEREAS, as of the date hereof, no interests in the Trust have been
issued;
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
desire to amend and restate each and every term and provision of the Original
Declaration; and
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a Delaware statutory business trust created under the
Business Trust Act and that this Declaration constitute the governing instrument
of such business trust, the Trustees declare that all assets contributed to the
Trust will be held in trust for the benefit of the holders, from time to time,
of the securities representing undivided beneficial interests in the assets of
the Trust issued hereunder, subject to the provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 DEFINITIONS.
Unless the context otherwise requires:
<PAGE>
(a) Capitalized terms used in this Declaration but not defined
in the preamble above have the respective meanings assigned to them in this
Section 1.1;
(b) a term defined anywhere in this Declaration has the same
meaning throughout;
(c) all references to "the Declaration" or "this Declaration"
are to this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections
and Exhibits are to Articles and Sections of and Exhibits to this Declaration
unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Declaration unless otherwise defined in this
Declaration or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice
versa.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AGENT" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"AUTHORIZED OFFICER" of a Person means any Person that is
authorized to bind such Person.
"BOOK ENTRY INTEREST" means a beneficial interest in a global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Depositary as described in Section 9.4.
"BUSINESS DAY" means a day other than (a) a Saturday or Sunday,
(b) a day on which banking institutions in The City of New York are authorized
or required by law or executive order to remain closed, or (c) a day on which
the Property Trustee's corporate trust office or the Debenture Trustee's
Corporate Trust Office is closed for business.
2
<PAGE>
"BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code Section 3801 et seq., as it may be amended from time to time
or any successor legislation.
"CERTIFICATE" means a certificate in global or definitive form
representing a Common Security or a Preferred Security.
"CLOSING DATE" means February 10, 1998 or any subsequent date on
which the sale of Additional Preferred Securities (as defined in the Purchase
Agreement) is settled.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON SECURITIES" has the meaning set forth in Section 7.1(a).
"COMMON SECURITIES GUARANTEE" means the guarantee agreement dated
as of February 10, 1998, of the Sponsor in respect of the Common Securities.
"CONVERSION AGENT" has the meaning set forth in Section 7.4.
"COVERED PERSON" means: (a) any officer, director, trustee,
shareholder, partner, member, representative, employee or agent of (i) the Trust
or (ii) the Trust's Affiliates; and (b) any Holder of Securities.
"DEBENTURE ISSUER" means the Sponsor in its capacity as issuer of
the Debentures.
"DEBENTURE TRUSTEE" means The Bank of New York, not in its
individual capacity but solely as trustee under the Indenture, until a successor
is appointed thereunder, and thereafter means such successor trustee.
"DEBENTURES" means the 6% Convertible Subordinated Debentures to
be issued by the Debenture Issuer under the Indenture to be held by the Property
Trustee.
"DEFINITIVE PREFERRED SECURITIES" means any Regulation S
Definitive Preferred Security, any Restricted Definitive Preferred Security and
any other Preferred Securities in fully registered definitive form issued by the
Trust.
"DELAWARE TRUSTEE" has the meaning set forth in Section 5.2.
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"DEPOSITARY" means The Depository Trust Company.
"DISSOLUTION TAX OPINION" has the meaning set forth in Section
4(c) of Annex I hereto.
"DISTRIBUTION" means a distribution payable to Holders of
Securities in accordance with Section 6.1.
"EVENT OF DEFAULT" in respect of the Securities means an Event of
Default (as defined in the Indenture) has occurred and is continuing in respect
of the Debentures.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"EXCHANGED GLOBAL PREFERRED SECURITY" has the meaning set forth in
Section 9.2(b).
"FLEETWOOD COMMON STOCK" means the common stock, par value $1.00
per share, of the Sponsor.
"HOLDER" means a Person in whose name a Certificate representing a
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act.
"INDEMNIFIED PERSON" means (a) any Trustee; (b) any Affiliate of
any Trustee; (c) any officers, directors, shareholders, members, partners,
employees, representatives or agents of any Trustee; and (d) any employee or
agent of the Trust or its Affiliates.
"INDENTURE" means the Indenture dated as of February 10, 1998,
between the Debenture Issuer and The Bank of New York, not in its individual
capacity but solely as Debenture Trustee, and any indenture supplemental thereto
pursuant to which the Debentures are to be issued.
"INVESTMENT COMPANY" means an investment company as defined in the
Investment Company Act.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940,
as amended from time to time, or any successor legislation.
"INVESTMENT COMPANY EVENT" means the Regular Trustees shall have
obtained an opinion of a nationally recognized independent counsel experienced
in practice under the Investment Company Act to the effect that, as a result of
the occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, which change is enacted,
promulgated, issued or
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becomes effective on or after the date of the Offering Memorandum (a "Change in
1940 Act Law"), there is more than an insubstantial risk that the Trust is or
will be considered an investment company which is required to be registered
under the Investment Company Act.
"LEGAL ACTION" has the meaning set forth in Section 3.6(g).
"MINISTERIAL ACTION" has the meaning set forth in the terms of the
Securities as set forth in Annex I.
"MAJORITY IN LIQUIDATION AMOUNT OF THE PREFERRED SECURITIES"
means, except as provided in the terms of the Preferred Securities and by the
Trust Indenture Act, Holder(s) of outstanding Securities voting together as a
single class or, as the context may require, Holder(s) of outstanding Preferred
Securities or Holder(s) of outstanding Common Securities voting separately as a
class, who are the record owners of more than 50% of the aggregate liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all outstanding Securities of
the relevant class.
"NO RECOGNITION OPINION" has the meaning set forth in paragraph 4
of Annex I.
"OFFERING MEMORANDUM" means the confidential offering memorandum,
dated as of February 4, 1998, relating to the issuance by the Trust of the
Preferred Securities.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Declaration shall include:
(a) a statement that each officer signing the Certificate
has read the covenant or condition and the definitions
relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each
officer in rendering the Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's
opinion, is necessary to enable such officer to
express an informed opinion
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as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied
with.
"PARTICIPANTS" has the meaning set forth in Section 7.3(b).
"PAYING AGENT" has the meaning set forth in Section 7.4.
"PERSON" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"PREFERRED SECURITIES" has the meaning set forth in Section
7.1(a).
"PREFERRED SECURITIES GUARANTEE" means the guarantee agreement
dated as of February 10, 1998, of the Sponsor in respect of the Preferred
Securities.
"PREFERRED SECURITY BENEFICIAL OWNER" means, with respect to a
Book Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Depositary, or on the books of a
Person maintaining an account with such Depositary (directly as a Participant or
as an indirect participant, in each case in accordance with the rules of such
Depositary).
"PROPERTY TRUSTEE" means the Trustee meeting the eligibility
requirements set forth in Section 5.3.
"PROPERTY TRUSTEE ACCOUNT" has the meaning set forth in Section
3.8(c).
"PURCHASE AGREEMENT" shall have the meaning set forth in Section
7.3(a).
"QUORUM" means a majority of the Regular Trustees or, if there are
only one or two Regular Trustees, all of the Regular Trustees.
"REDEMPTION TAX OPINION" has the meaning set forth in paragraph 4
of Annex I.
"REGISTRAR" has the meaning set forth in Section 7.4.
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"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated February 10, 1998, among the Sponsor, the Trust, and the
Initial Purchaser named in the Purchase Agreement.
"REGULAR TRUSTEE" means any Trustee other than the Property
Trustee, the Guarantee Trustee, the Debenture Trustee and the Delaware Trustee.
"REGULATION S DEFINITIVE PREFERRED SECURITY" has the meaning set
forth in Section 7.3(c).
"RELATED PARTY" means, with respect to the Sponsor, any direct or
indirect wholly owned subsidiary of the Sponsor or any other Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"RESPONSIBLE OFFICER" means, with respect to the Property Trustee,
any vice-president, any assistant vice-president, the treasurer, any assistant
treasurer, any trust officer or assistant trust officer or any other officer in
the Corporate Trust Department of the Property Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
"RESTRICTED DEFINITIVE PREFERRED SECURITY" has the meaning set
forth in Section 7.3(c).
"RESTRICTED PERIOD" means the one-year period following the last
issue date for the Preferred Securities (including Preferred Securities issued
to cover over-allotments and Common Securities issued in connection with related
capital contributions). The Sponsor shall inform the Trustee as to the
termination of the restricted period and the Trustee may rely conclusively
thereon.
"RESTRICTED PREFERRED SECURITIES" shall include the Regulation S
Definitive Preferred Securities, the Restricted Definitive Preferred Securities
and the Rule 144A Global Preferred Securities.
"RESTRICTED SECURITY LEGEND" has the meaning set forth in Section
9.2(j).
"RULE 144A GLOBAL PREFERRED SECURITY" has the meaning set forth in
Section 7.3(a).
"SECURITIES" means the Common Securities and the Preferred
Securities.
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"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES CUSTODIAN" means the custodian with respect to the
Rule 144A Global Preferred Security and any other Preferred Security in global
form.
"SHELF REGISTRATION STATEMENT" has the meaning set forth in
Section 14.1.
"66-2/3% IN LIQUIDATION AMOUNT OF THE SECURITIES" means, except as
otherwise provided in the terms of the Preferred Securities and by the Trust
Indenture Act, Holders of outstanding Securities voting together as a single
class or, as the context may require, Holders of Preferred Securities or
Holder(s) of outstanding Common Securities voting separately as a class,
representing at least 66 2/3% of the aggregate stated liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all outstanding Securities of the relevant
class.
"SPONSOR" means Fleetwood Enterprises, Inc., a Delaware
corporation, or any successor entity in a merger, consolidation or amalgamation,
in its capacity as sponsor of the Trust.
"SUPER MAJORITY" has the meaning set forth in Section 2.6(a)(ii).
"TAX EVENT" means that the Regular Trustees shall have received an
opinion of a nationally recognized independent tax counsel experienced in such
matters to the effect that, as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws or any regulations
thereunder of the United States or any political subdivision or taxing authority
thereof or therein, (b) any amendment to, or change in, an interpretation or
application of any such laws or regulations by any legislative body, court or
governmental or regulatory agency or authority (including the enactment of any
legislation and the publication of any judicial decision or regulatory
determination) or (c) any official interpretation or pronouncement by any
legislative body, court or governmental or regulatory agency or authority that
provides for a position with respect to such laws or regulations that differs
from the theretofore generally accepted position, which amendment or change is
enacted, promulgated, issued or announced or which interpretation or
pronouncement is issued or announced, in each case, on or after the date of the
Offering Memorandum, there is more than an insubstantial risk that (i) the Trust
is, or will be within 90 days of the date thereof, subject to United States
federal income tax with respect to interest accrued or received on the
Debentures, (ii) the Trust is, or will be within 90 days
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of the date thereof, subject to more than a de minimis amount of other taxes,
duties or other governmental charges or (iii) interest (including original issue
discount) payable by the Debenture Issuer to the Trust on the Debentures is not,
or within 90 days of the date thereof will not be, deductible by the Debenture
Issuer for United States federal income tax purposes on a current accrual basis
(by reason of deferral, disallowance or otherwise).
"10% IN LIQUIDATION AMOUNT OF THE SECURITIES" means, except as
otherwise provided in the terms of the Preferred Securities or by the Trust
Indenture Act, Holders of outstanding Securities voting together as a single
class or, as the context may require, Holder(s) of outstanding Preferred
Securities or Holder(s) of outstanding Common Securities, voting separately as a
class, representing 10% of the aggregate stated liquidation amount (including
the stated amount that would be paid on redemption, liquidation or otherwise,
plus accrued and unpaid Distributions to the date upon which the voting
percentages are determined) of all outstanding Securities of the relevant class.
"TREASURY REGULATIONS" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"TRUSTEE" or "TRUSTEES" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended.
"UNRESTRICTED DEFINITIVE PREFERRED SECURITY" has the meaning set
forth in Section 9.2(c).
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration, which are
incorporated by reference in and made part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
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(b) The Property Trustee shall be the only Trustee that is a
Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this
Declaration shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) Each of the Sponsor and the Regular Trustees on behalf of
the Trust shall provide the Property Trustee (i) within 14 days after each
record date for payment of Distributions, a list, in such form as the Property
Trustee may reasonably require, of the names and addresses of the Holders of the
Securities ("List of Holders") as of such record date, provided, that neither
the Sponsor nor the Regular Trustees on behalf of the Trust shall be obligated
to provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Property Trustee by the
Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other
time, within 30 days of receipt by the Trust of a written request for a List of
Holders as of a date no more than 14 days before such List of Holders is given
to the Property Trustee. The Property Trustee shall preserve, in as current a
form as is reasonably practicable, all information contained in Lists of Holders
given to it or which it receives in the capacity as Paying Agent (if acting in
such capacity) provided, that the Property Trustee may destroy any List of
Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations under
Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 REPORTS BY THE PROPERTY TRUSTEE.
Within 60 days after May 15 of each year, the Property Trustee
shall provide to the Holders of the Preferred Securities such reports as are
required by Section 313 of the Trust Indenture Act, if any, in the form and in
the manner provided by Section 313 of the Trust Indenture Act. The Property
Trustee shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.
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SECTION 2.4 PERIODIC REPORTS TO PROPERTY TRUSTEE.
Each of the Sponsor and the Regular Trustees on behalf of the
Trust shall provide to the Property Trustee such documents, reports and
information (if any) and the compliance certificate required by Section 314 of
the Trust Indenture Act in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act.
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Sponsor and the Regular Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) of the Trust Indenture Act may be given in the form of an Officers'
Certificate.
SECTION 2.6 EVENT OF DEFAULT; WAIVER.
(a) The Holders of a Majority in liquidation amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default in respect of the Preferred
Securities and its consequences, PROVIDED, that if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, the Event of
Default under the Declaration also shall not be waivable; or
(ii) requires the consent or vote of (x) holders of
Debentures representing a specified percentage greater than a
majority in principal amount of the Debentures (a "Super
Majority") or (y) each holder of Debentures affected thereby to be
waived under the Indenture, then the Event of Default under the
Declaration may only be waived by the vote of in the case of (x)
above the Holders of at least the proportion in liquidation amount
of the outstanding Preferred Securities that the relevant Super
Majority represents of the aggregate principal amount of the
Debentures outstanding or, in the case of (y) above, each Holder
of outstanding Trust Preferred Securities affected thereby.
The foregoing provisions of this Section 2.6(a) shall be in lieu
of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B)
of the Trust Indenture Act is hereby expressly excluded from this Declaration
and the Securities, as
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permitted by the Trust Indenture Act. Upon such waiver, any such default shall
cease to exist, and any Event of Default with respect to the Preferred
Securities arising therefrom shall be deemed to have been cured, for every
purpose of this Declaration, but no such waiver shall extend to any subsequent
or other default or Event of Default with respect to the Preferred Securities or
impair any right consequent thereon. Any waiver by the Holders of the Preferred
Securities of an Event of Default with respect to the Preferred Securities shall
also be deemed to constitute a waiver by the Holders of the Common Securities of
any such Event of Default with respect to the Common Securities for all purposes
of this Declaration without any further act, vote, or consent of the Holder(s)
of the Common Securities.
(b) The Holders of a Majority in liquidation amount of the
Common Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, PROVIDED, that if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such
Event of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration also
shall not be waivable; or
(ii) requires the consent or vote of (x) a Super Majority
or (y) each holder of Debentures affected thereby to be waived,
except where the Holders of the Common Securities are deemed to
have waived such Event of Default under the Declaration as
provided below in this Section 2.6(b), the Event of Default under
the Declaration may only be waived by the vote of, in the case of
clause (x) above, the Holders of at least the proportion in
aggregate liquidation amount of the Common Securities that the
relevant Super Majority represents of the aggregate principal
amount of the Debentures outstanding or, in the case of clause (y)
above, each holder of outstanding Common Securities affected
thereby;
PROVIDED, FURTHER, each Holder of Common Securities shall be deemed to have
waived any such Event of Default and all Events of Default with respect to the
Common Securities and its or their consequences until all Events of Default with
respect to the Preferred Securities have been cured, waived or otherwise
eliminated, and until such Events of Default have been so cured, waived or
otherwise eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the Holders of the Preferred Securities and only the Holders of the
Preferred
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Securities will have the right to direct the Property Trustee in accordance
with the terms of the Securities. The foregoing provisions of this Section
2.6(b) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act
and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly
excluded from this Declaration and the Securities, as permitted by the Trust
Indenture Act. Subject to the foregoing provisions of this Section 2.6(b),
upon such waiver, any such default shall cease to exist and any Event of
Default with respect to the Common Securities arising therefrom shall be
deemed to have been cured for every purpose of this Declaration, but no such
waiver shall extend to any subsequent or other default or Event of Default
with respect to the Common Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee at the direction of the Holders of the Preferred Securities
constitutes a waiver of the corresponding Event of Default under this
Declaration. The foregoing provisions of this Section 2.6(c) shall be in
lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section
316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from
this Declaration and the Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Property Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Securities, notices of all defaults with respect
to the Securities actually known to a Responsible Officer of the Property
Trustee, unless such defaults have been cured before the giving of such notice
(the term "defaults" for the purposes of this Section 2.7(a) being hereby
defined to be an Event of Default as defined in the Indenture with respect to
the Debentures, not including any periods of grace provided for therein and
irrespective of the giving of any notice provided therein); PROVIDED, that,
except for a default in the payment of principal of (or premium, if any) or
interest (including Compounded Interest, Additional Interest and Liquidated
Damages, if any (each as defined in the Indenture)) on any of the Debentures,
the Property Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee, or a trust committee of
directors and/or Responsible Officers of the Property Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Securities.
(b) The Property Trustee shall not be deemed to have knowledge
of any default with respect to the Debentures except:
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(i) a default under Sections 501(1) and 501(2) of the
Indenture; or
(ii) any default as to which the Property Trustee shall
have received written notice or of which a Responsible Officer of
the Property Trustee charged with the administration of the
Declaration shall have actual knowledge.
ARTICLE III
ORGANIZATION
SECTION 3.1 NAME.
The Trust is named "Fleetwood Capital Trust," as such name may
be modified from time to time by the Regular Trustees following written
notice to the Holders of Securities. The Trust's activities may be conducted
under the name of the Trust or any other name deemed advisable by the Regular
Trustees.
SECTION 3.2 OFFICE.
The address of the principal office of the Trust is c/o
Fleetwood Enterprises, Inc., 3125 Myers Street, Riverside, California, 92513,
Attention: General Counsel. On ten Business Days' written notice to the
Holders of Securities, the Regular Trustees may designate another principal
office.
SECTION 3.3 PURPOSE.
The exclusive purposes and functions of the Trust are (a) to
issue and sell Securities and use the proceeds from such sale to acquire the
Debentures, and (b) except as otherwise provided herein, to engage in only
those other activities necessary or incidental thereto. The Trust shall not
borrow money, issue securities other than Securities, issue debt, make
investments other than in the Debentures or reinvest proceeds derived from
investments, pledge any of its assets, or otherwise undertake (or permit to
be undertaken) any activity that would cause the Trust not to be classified
for United States federal income tax purposes as a grantor trust.
SECTION 3.4 AUTHORITY.
Subject to the limitations provided in this Declaration and to
the specific duties of the Property Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. Any
action taken by the Regular Trustees in accordance with their powers shall
constitute the act of and serve to bind the Trust and any action taken by the
Property Trustee in accordance with its powers shall constitute the act of
and serve to bind the Trust. In dealing with the
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Trustees acting on behalf of the Trust, no person shall be required to inquire
into the authority of the Trustees to bind the Trust. Persons dealing with the
Trust are entitled to rely conclusively on the power and authority of the
Trustees as set forth in this Declaration.
SECTION 3.5 TITLE TO PROPERTY OF THE TRUST.
Except as provided in Section 3.8 with respect to the Debentures and
the Property Trustee Account or as otherwise provided in this Declaration, legal
title to all assets of the Trust shall be vested in the Trust. The Holders
shall not have legal title to any part of the assets of the Trust, but shall
have an undivided beneficial interest in the assets of the Trust.
SECTION 3.6 POWERS AND DUTIES OF THE REGULAR TRUSTEES.
The Regular Trustees shall have the exclusive power, duty and
authority to cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities in accordance with this Declaration; PROVIDED, HOWEVER, that the
Trust may issue no more than one series of Preferred Securities and no more than
one series of Common Securities, and PROVIDED, FURTHER, that there shall be no
interests in the Trust other than the Securities, and the issuance of Securities
shall be limited to a one-time, simultaneous issuance of both Preferred
Securities and Common Securities on the Closing Date and one additional
simultaneous issuance of Preferred Securities and Common Securities solely to
cover over-allotments in connection with the sale of the Preferred Securities;
(b) in connection with the issue and sale of the Preferred
Securities, at the direction of the Sponsor, to:
(i) prepare the Offering Memorandum in preliminary and final
form prepared by the Sponsor, in relation to the offering and sale of
Preferred Securities to qualified institutional buyers in reliance on
Rule 144A under the Securities Act, to a limited number of "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) and outside the United States to non-U.S. persons in
offshore transactions in reliance on Regulation S under the Securities
Act and to execute and file with the Commission, at such time as may
be determined by the Sponsor pursuant to the Registration Rights
Agreement, a shelf registration statement prepared by the Sponsor,
including any amendments thereto, and such other forms or filings as
may be required by the
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Securities Act, the Exchange Act or the Trust Indenture Act, in each
case in relation to the Preferred Securities;
(ii) execute and file any documents prepared by the Sponsor, or
take any acts as may be determined by the Sponsor to be necessary in
order to qualify or register all or part of the Preferred Securities
in any State or foreign jurisdiction in which the Sponsor has
determined to qualify or register such Preferred Securities for sale;
(iii) execute and file, at such time as may be determined by the
Sponsor, an application, prepared on behalf of the Sponsor, to the New
York Stock Exchange or any other national stock exchange or the Nasdaq
National Market for listing or quotation of the Preferred Securities;
(iv) execute and deliver letters or documents, or instruments
with, The Depository Trust Company ("DTC") relating to the Preferred
Securities;
(v) execute and file with the Commission, at such time as may
be determined by the Sponsor, a registration statement on Form 8-A,
including any amendments thereto, prepared by the Sponsor relating to
the registration of the Preferred Securities and the guarantee of the
Sponsor with respect to the Preferred Securities under the Exchange
Act;
(vi) obtain a CUSIP number for the Preferred Securities; and
(vii) execute and enter into the Purchase Agreement, the
Registration Rights Agreement and other related agreements providing
for the sale of the Preferred Securities;
(c) to acquire the Debentures with the proceeds of the sale of the
Preferred Securities and the Common Securities; PROVIDED, HOWEVER, that the
Regular Trustees shall cause legal title to the Debentures to be held of record
in the name of the Property Trustee for the benefit of the Holders of the
Preferred Securities and the Holders of Common Securities;
(d) to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of a Tax Event or an Investment Company Event;
PROVIDED, that the Regular Trustees shall consult with the Sponsor and the
Property Trustee before taking or refraining from taking any Ministerial Action
in relation to a Tax Event or an Investment Company Event;
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(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and with
respect to, for the purposes of Section 316 (c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Preferred Securities and Holders of Common Securities
as to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be required
of the Regular Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort
to legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has
the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations under
the Trust Indenture Act;
(j) to give the certificate required by Section 314(a)(4) of the
Trust Indenture Act to the Property Trustee, which certificate may be executed
by any Regular Trustee;
(k) to incur expenses that are necessary or incidental to carry out
any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, registrar and
transfer agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities
of any notice received from the Debenture Issuer of its election to defer
payments of interest on the Debentures by extending the interest payment period
under the Indenture, and the Property Trustee shall give such notice;
(n) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;
(o) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the
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Preferred Securities or to enable the Trust to effect the purposes for which the
Trust was created;
(p) to conduct the affairs of the Trust and to take any action, not
inconsistent with this Declaration or with applicable law, that the Regular
Trustees determine in their discretion to be necessary or desirable in carrying
out the activities of the Trust as set out in this Section 3.6, including, but
not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States
federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes,
PROVIDED, that such action does not adversely affect the interests of Holders;
and
(q) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to the
Trust to be duly prepared and filed by the Regular Trustees, on behalf of the
Trust.
The Regular Trustees must exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Regular Trustees shall not take any
action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.3.
Subject to this Section 3.6, the Regular Trustees shall have none of
the powers or the authority of the Property Trustee set forth in Section 3.8.
Any expenses incurred by the Regular Trustees pursuant to this Section
3.6 shall be reimbursed by the Sponsor.
SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES.
(a) The Trust shall not, and the Trustees (including the Property
Trustee) shall not on behalf of the Trust, engage in any activity other
than as required or authorized by this
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Declaration. In particular, the Trust shall not and the Trustees
(including the Property Trustee) shall cause the Trust not to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders of
Securities pursuant to the terms of this Declaration and of the
Securities;
(ii) acquire any assets other than as expressly provided
herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to
vary the Trust assets or the terms of the Securities in any way
whatsoever, including the power to convert the Debentures;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the
Securities; or
(vii) other than as provided in this Declaration, (A) direct
the time, method and place of exercising any trust or power conferred
upon the Debenture Trustee with respect to the Debentures, (B) waive
any past default that is waivable under the Indenture, (C) exercise
any right to rescind or annul any declaration that the principal of
all the Debentures shall be due and payable, or (D) consent to any
amendment, modification or termination of the Indenture or the
Debentures where such consent shall be required unless the Trust shall
have received an opinion of counsel to the effect that such
modification will not cause more than an insubstantial risk that (x)
the Trust will be deemed an Investment Company required to be
registered under the Investment Company Act, or (y) for United States
federal income tax purposes the Trust will not be classified as a
grantor trust.
SECTION 3.8 LEGAL TITLE TO THE DEBENTURES.
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the
Holders of the Securities. The right, title and interest of the Property
Trustee to the Debentures shall vest automatically in each Person who may
hereafter be appointed as Property Trustee in accordance with
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Section 5.6. Such vesting and cessation of title shall be effective whether or
not conveyancing documents with regard to the Debentures have been executed and
delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees or to the Delaware Trustee
(if the Property Trustee does not also act as Delaware Trustee). The Trust and
the Trustee shall not convert any Debentures held by either of them except
pursuant to a notice of conversion delivered to the Conversion Agent by a Holder
of Trust Securities.
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Property Trustee Account") in the name of and
under the exclusive control of the Property Trustee on behalf of the
Holders of the Securities and, upon the receipt of payments of funds
made in respect of the Debentures held by the Property Trustee,
deposit such funds into the Property Trustee Account and make payments
to the Holders of the Preferred Securities and Holders of the Common
Securities from the Property Trustee Account in accordance with
Section 6.1. Funds in the Property Trustee Account shall be held
uninvested until disbursed in accordance with this Declaration. The
Property Trustee Account shall be an account that is maintained with a
banking institution (which may be the Property Trustee) the rating on
whose long-term unsecured indebtedness is at least equal to the rating
assigned to the Preferred Securities by a "nationally recognized
statistical rating organization," as that term is defined for purposes
of Rule 436(g)(2) under the Securities Act;
(ii) engage in such ministerial activities as so directed and
as shall be necessary or appropriate to effect the redemption of the
Preferred Securities and the Common Securities to the extent the
Debentures are redeemed or accelerated or mature;
(iii) upon notice of distribution issued by the Regular Trustees
in accordance with the terms of the Securities, engage in such
ministerial activities as so directed as shall be necessary or
appropriate to effect the distribution of the Debentures to Holders of
Securities upon the occurrence of an Investment Company Event or a Tax
Event; and
(iv) take such ministerial action as may be directed in writing
by the Regular Trustees in
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connection with the winding up of the affairs of or liquidation of the
Trust in accordance with this Declaration and the preparation,
execution and filing of a certificate of termination or other
appropriate certificates with the Secretary of State of the State of
Delaware and other appropriate governmental authorities.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Securities.
(e) The Property Trustee shall take any Legal Action which arises
out of or in connection with an Event of Default of which a Responsible Officer
of the Property Trustee has actual knowledge or the Property Trustee's duties
and obligations under this Declaration or the Trust Indenture Act. The Holders
of a Majority in liquidation amount of the Preferred Securities will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Property Trustee or to direct the exercise of any trust
or power conferred upon the Property Trustee under the Declaration, including
the right to direct the Property Trustee to exercise the remedies available to
it as a holder of the Debentures. If the Property Trustee fails to enforce its
rights under the Debentures, a Holder of Preferred Securities, to the fullest
extent permitted by law, may institute a legal proceeding directly against the
Debenture Issuer to enforce the Property Trustee's rights under the Debentures
without first instituting any legal proceeding against the Property Trustee or
any other Person; PROVIDED, further, that, if an Event of Default has occurred
and is continuing and such event is attributable to the failure of the Debenture
Issuer to pay principal of, premium, if any, or interest on the Debentures on
the date such principal, premium or interest, as the case may be, is otherwise
payable (or in the case of redemption, on the redemption date), then a Holder of
Preferred Securities may directly institute a proceeding for enforcement of
payment to such Holder directly of such principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such Holder (a "DIRECT
ACTION") on or after the respective due date specified in the Debentures or the
Indenture. Notwithstanding any payments made to such Holder by the Debenture
Issuer, in connection with such Direct Action, the Debenture Issuer shall remain
obligated to pay the principal of, premium, if any, or interest on such
Debentures, and the Debenture Issuer shall be subrogated to the rights of such
Holder of Trust Preferred Securities to the extent of any payment made by the
Debenture Issuer to such Holder of Preferred Securities to the extent of any
payment made by the Debenture Issuer to such Holder of Preferred Securities in
such Direct Action. Except as provided in the preceding sentences of this
paragraph, the Holders of Preferred Securities shall have no right or power to
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exercise directly any other remedy available to the holders of the Debentures.
(f) The Property Trustee shall not resign as a Trustee unless
either:
(i) the Trust has been completely liquidated and the proceeds
of the liquidation distributed to the Holders of Securities pursuant
to the terms of the Securities; or
(ii) a Successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 5.6.
(g) The Property Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default occurs and is continuing, the Property
Trustee shall, for the benefit of Holders of the Securities, enforce its rights
as holder of the Debentures subject to the rights of the Holders pursuant to the
terms of such Securities. In no event, however, may the Property Trustee, in
its capacity as holder of the Debentures, have the power to convert the
Debentures unless instructed to do so on behalf of a Holder of Securities as
herein provided.
(h) The Property Trustee will act as Registrar, Paying Agent and
Conversion Agent and may authorize one or more persons (each, a "Paying Agent")
to pay Distributions, redemption payments or liquidation payments on behalf of
the Trust with respect to all Securities and any such Paying Agent shall comply
with Section 317(b) of the Trust Indenture Act. Any Paying Agent may be removed
by the Property Trustee at any time and a successor Paying Agent or additional
Paying Agents may be appointed at any time by the Property Trustee.
(i) Subject to this Section 3.8, the Property Trustee shall have
none of the duties, liabilities, powers or the authority of the Regular Trustees
set forth in Section 3.6.
The Property Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Property Trustee shall not take any
action that is inconsistent with the purposes and functions of the Trust set out
in Section 3.3.
SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE.
(a) The Property Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default
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that may have occurred, shall undertake to perform only such duties as are
specifically set forth in this Declaration and no implied covenants shall be
read into this Declaration against the Property Trustee. In case an Event of
Default has occurred (that has not been cured or waived pursuant to Section 2.6)
of which a Responsible Officer of the Property Trustee has actual knowledge, the
Property Trustee shall exercise such of the rights and powers vested in it by
this Declaration, and use the same degree of care and skill in their exercise,
as a prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Property Trustee
shall be determined solely by the express provisions of this
Declaration and the Property Trustee shall not be liable except
for the performance of such duties and obligations as are
specifically set forth in this Declaration, and no implied
covenants or obligations shall be read into this Declaration
against the Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively rely, as
to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Property Trustee and conforming to the
requirements of this Declaration; but in the case of any such
certificates or opinions that by any provision hereof are
specifically required to be furnished to the Property Trustee,
the Property Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of
this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it shall be proved that the Property Trustee was
negligent in ascertaining the pertinent facts;
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(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a
Majority in liquidation amount of the Securities relating to the time,
method and place of conducting any proceeding for any remedy available
to the Property Trustee, or exercising any trust or power conferred
upon the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the
Property Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Declaration or adequate indemnity against such risk or liability is
not reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and
the Property Trustee Account shall be to deal with such property in a
similar manner as the Property Trustee deals with similar property for
its own account, subject to the protections and limitations on
liability afforded to the Property Trustee under this Declaration and
the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or sufficiency of
the Debentures or the payment of any taxes or assessments levied
thereon or in connection therewith;
(vii) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree in
writing with the Sponsor. Money held by the Property Trustee need not
be segregated from other funds held by it except in relation to the
Property Trustee Account maintained by the Property Trustee pursuant
to Section 3.8(c)(i) and except to the extent otherwise required by
law; and
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Regular Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the Property
Trustee be liable for the default or misconduct of the Regular
Trustees or the Sponsor.
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SECTION 3.10 CERTAIN RIGHTS OF PROPERTY TRUSTEE.
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties;
(ii) any direction or act of the Sponsor or the Regular
Trustees contemplated by this Declaration shall be sufficiently
evidenced by an Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder,
the Property Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
rely upon an Officers' Certificate which, upon receipt of such
request, shall be promptly delivered by the Sponsor or the Regular
Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or
securities laws) or any rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel or other
experts and the advice or opinion of such counsel and experts with
respect to legal matters or advice within the scope of such experts'
area of expertise shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice or opinion,
and such counsel may be counsel to the Sponsor or any of its
Affiliates, and may include any of its employees; and the Property
Trustee shall have the right at any time to seek instructions
concerning the administration of this Declaration from any court of
competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration
at the request or
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direction of any Holder, unless such Holder shall have provided to the
Property Trustee adequate security and indemnity, reasonably
satisfactory to the Property Trustee, against the costs, expenses
(including attorneys' fees and expenses) and liabilities that might be
incurred by it in complying with such request or direction, including
such reasonable advances as may be requested by the Property Trustee;
PROVIDED, that nothing contained in this Section 3.10(a)(vi) shall be
taken to relieve the Property Trustee, upon the occurrence of an Event
of Default, of its obligation to exercise the rights and powers vested
in it by this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, security, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Property
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Property Trustee shall not be
responsible for any misconduct or negligence on the part of any agent
or attorney appointed with due care by it hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and
the signature of the Property Trustee or its agents alone shall be
sufficient and effective to perform any such action and no third party
shall be required to inquire as to the authority of the Property
Trustee to so act or as to its compliance with any of the terms and
provisions of this Declaration, both of which shall be conclusively
evidenced by the Property Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder the Property Trustee (i) may request instructions from the
Holders of the Securities which instructions may only be given by the
Holders of the same proportion in liquidation amount of the Securities
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as would be entitled to direct the Property Trustee under the terms of
the Securities in respect of such remedy, right or action, (ii) may
refrain from enforcing such remedy or right or taking such other
action until such instructions are received, and (iii) shall be
protected in acting in accordance with such instructions; and
(xi) except as otherwise expressly provided by this Declaration,
the Property Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Declaration.
(b) No provision of this Declaration shall be deemed to impose any
duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 3.11 DELAWARE TRUSTEE.
Notwithstanding any provision of this Declaration other than Section
5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor
shall the Delaware Trustee have any of the duties and responsibilities of the
Regular Trustees or the Property Trustee described in this Declaration. Except
as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for the
sole and limited purpose of fulfilling the requirements of Section 3807 of the
Business Trust Act. The duties of the Delaware Trustee shall be limited to (a)
accepting legal process served on the Trust in the State of Delaware and (b) the
execution of any certificates required to be filed with the Delaware Secretary
of Sate which the Delaware Trustee is required to execute under Section 3811 of
the Business Trust Act.
SECTION 3.12 EXECUTION OF DOCUMENTS.
Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act, any Regular Trustee is authorized
to execute on behalf of the Trust any documents that the Regular Trustees have
the power and authority to execute pursuant to Section 3.6; PROVIDED, that the
registration statement referred to in Section 3.6(b)(i), including any
amendments thereto, shall be signed by a majority of the Regular Trustees.
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SECTION 3.13 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES.
The Trustees do not assume any responsibility for the correctness of
the recitals contained in this Declaration and the Securities. The Trustees
make no representations as to the value or condition of the property of the
Trust or any part thereof. The Trustees make no representations as to the
validity or sufficiency of this Declaration or the Securities.
SECTION 3.14 DURATION OF TRUST.
The Trust, unless terminated pursuant to the provisions of Article
VIII hereof, shall exist until February 15, 2033.
SECTION 3.15 MERGERS.
(a) The Trust may not consolidate, amalgamate, merge with or into,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, except as described in Section
3.15(b) and (c).
(b) The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the Holders of the Securities, the Delaware
Trustee or the Property Trustee, consolidate, amalgamate, merge with or into, or
be replaced by a trust organized as such under the laws of any State or the
District of Columbia; PROVIDED, that:
(i) if the Trust is not the surviving entity, the successor
entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the
Trust under the Securities; or
(B) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred
Securities (the "Successor Securities") as long as the Successor
Securities rank, with respect to Distributions and payments upon
liquidation, redemption and otherwise of the Successor Entity,
at least as high as the Preferred Securities rank with respect
to Distributions and payments upon liquidation, redemption and
otherwise of the Trust;
(ii) if the Trust is not the surviving entity, the Debenture
Issuer expressly acknowledges or appoints a trustee of such Successor
Entity that possesses the same powers and duties as the Property
Trustee, as holder of the Debentures;
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(iii) the Preferred Securities or any Successor Securities are
listed, or any Successor Securities will be listed upon notification
of issuance, on any national securities exchange or with any other
organization on which the Preferred Securities are then listed or
quoted;
(iv) such merger, consolidation, amalgamation or replacement
does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical
rating organization;
(v) such merger, consolidation, amalgamation or replacement
does not adversely affect the rights, preferences and privileges of
the Holders of the Preferred Securities (including any Successor
Securities) in any material respect (other than with respect to any
dilution of such Holders' interest in the Successor Entity);
(vi) such Successor Entity has a purpose substantially
identical to that of the Trust;
(vii) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of a nationally
recognized independent counsel to the Trust experienced in such
matters to the effect that:
(A) such merger, consolidation, amalgamation or
replacement will not adversely affect the rights, preferences
and privileges of the Holders of the Securities (including any
Successor Securities) in any material respect (other than with
respect to any dilution of the Holders' interest in the
Successor Entity;
(B) following such merger, consolidation, amalgamation
or replacement, neither the Trust nor the Successor Entity will
be required to register as an Investment Company; and
(C) following such merger, consolidation, amalgamation
or replacement, the Successor Entity will be treated as a
grantor trust for United States federal income tax purposes;
(viii) if the Trust is not the surviving entity, the Sponsor
provides a guarantee to the Holders of the Successor Securities with
respect to the
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Successor Entity having substantially the same terms as the Preferred
Securities Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except
with the consent of Holders of 100% in liquidation amount of the Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other Person
or permit any other entity to consolidate, amalgamate, merge with or into, or
replace it, if such consolidation, amalgamation, merger or replacement would
cause the Trust or Successor Entity to be classified as other than a grantor
trust for United States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES.
On each Closing Date the Sponsor will purchase all the Common Securities
issued by the Trust, in an aggregate liquidation amount equal to approximately
3% of the total capital of the Trust, at the same time as the Preferred
Securities are sold.
SECTION 4.2 RESPONSIBILITIES OF THE SPONSOR.
In connection with the issue and sale of the Preferred Securities, the
Sponsor shall have the exclusive right and responsibility to engage in the
following activities:
(a) to prepare the Offering Memorandum in preliminary and final form
and to prepare for filing by the Trust with the Commission a shelf registration
statement, including any amendments thereto and such other forms or filings as
may be required by the Securities Act, the Exchange Act and the Trust Indenture
Act;
(b) to determine the states and foreign jurisdictions in which to
take appropriate action to qualify or register for sale all or part of the
Preferred Securities and to do any and all such acts, other than actions which
must be taken by the Trust, and advise the Trust of actions it must take, and
prepare for execution and filing any documents to be executed and filed by the
Trust, as the Sponsor deems necessary or advisable in order to comply with the
applicable laws of any such states and foreign jurisdictions;
(c) to prepare or cause to be prepared for filing by the Trust an
application to the New York Stock Exchange or any other national stock exchange
or the Nasdaq National Market for listing or quotation of the Preferred
Securities and, if deemed
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necessary or advisable by the Sponsor, the Preferred Securities Guarantee;
(d) to prepare letters or documents to, or instruments for filing
with, DTC relating to the Preferred Securities;
(e) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of the Preferred
Securities and the Preferred Securities Guarantee under the Exchange Act,
including any amendments thereto; and
(f) to negotiate the terms of the Purchase Agreement, the
Registration Rights Agreement and other related agreements providing for the
sale of the Preferred Securities.
ARTICLE V
TRUSTEES
SECTION 5.1 NUMBER OF TRUSTEES.
The number of Trustees shall initially be five (5), and:
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities:
the number of Trustees may be increased or decreased by vote of the
Holders of a Majority in liquidation amount of the Common Securities voting as a
class at a meeting of the Holders of the Common Securities; PROVIDED, HOWEVER,
that the number of Trustees shall in no event be less than two; PROVIDED,
FURTHER, that (1) one Trustee shall satisfy the requirements of Section 5.2; (2)
there shall be at least one Trustee who is an employee or officer of, or is
affiliated with the Sponsor (a "Regular Trustee"); and (3) one Trustee shall be
the Property Trustee for so long as this Declaration is required to qualify as
an indenture under the Trust Indenture Act, and such Trustee may also serve as
Delaware Trustee if it meets the applicable requirements; PROVIDED, FURTHER,
that if the Property Trustee does not also act as Delaware Trustee, the number
of Trustees shall be at least three (3).
SECTION 5.2 DELAWARE TRUSTEE.
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be (a) a natural person who is a resident of the State of
Delaware; or (b) if not a natural person, an entity which has its principal
place of business in
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the State of Delaware, and otherwise meets the requirements of applicable law,
PROVIDED, that if the Property Trustee has its principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee shall also be the Delaware Trustee and Section 3.11
shall have no application.
SECTION 5.3 PROPERTY TRUSTEE; ELIGIBILITY.
(a) There shall at all times be one Trustee which shall act as
Property Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation or bank organized and doing business
under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia, or a corporation,
bank or Person permitted by the Commission to act as an institutional
trustee under the Trust Indenture Act, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus
of at least 50 million U.S. dollars ($50,000,000), and subject to
supervision or examination by federal, state, territorial or District
of Columbia authority. If such Person publishes reports of condition
at least annually, pursuant to law or to the requirements of the
supervising or examining authority referred to above, then for the
purposes of this Section 5.3(a)(ii), the combined capital and surplus
of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Property Trustee shall cease to be eligible
to so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.6(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
(d) The Preferred Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be: The Bank of New York.
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SECTION 5.4 QUALIFICATIONS OF REGULAR TRUSTEES AND DELAWARE
TRUSTEE GENERALLY.
Each Regular Trustee and the Delaware Trustee (unless the Property
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.
SECTION 5.5 INITIAL TRUSTEES.
The initial Regular Trustees shall be:
Paul M. Bingham
Company/o Fleetwood Enterprises, Inc.
3125 Myers Street
Riverside, California 92513;
Lyle N. Larkin
Company/o Fleetwood Enterprises, Inc.
3125 Myers Street
Riverside, California 92513; and
Nelson W. Potter
Company/o Fleetwood Enterprises, Inc.
3125 Myers Street
Riverside, California 92513]
The initial Delaware Trustee shall be:
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
The initial Property Trustee shall be:
The Bank of New York
101 Barclay Street
21 West
New York, New York 10286
SECTION 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES.
(a) Subject to Section 5.6(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor; and
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(ii) after the issuance of any Securities, by vote of the
Holders of a Majority in liquidation amount of the Common Securities
voting as a class at a meeting of the Holders of the Common
Securities.
(b) The Trustee that acts as Property Trustee shall not be removed
in accordance with Section 5.6(a) until a Successor Property Trustee has been
appointed and has accepted such appointment by written instrument executed by
such Successor Property Trustee and delivered to the Regular Trustees and the
Sponsor; and
(c) The Trustee that acts as Delaware Trustee shall not be removed
in accordance with this Section 5.6(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Regular Trustees and the Sponsor.
(d) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the Sponsor and the Trust, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; PROVIDED, HOWEVER,
that:
(i) No such resignation of the Trustee that acts as the
Property Trustee shall be effective:
(A) until a Successor Property Trustee has been appointed
and has accepted such appointment by instrument executed by such
Successor Property Trustee and delivered to the Trust, the
Sponsor and the resigning Property Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the holders
of the Securities;
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument
executed by such Successor Delaware Trustee and delivered to the
Trust, the Sponsor and the resigning Delaware Trustee.
(e) The Holder(s) of the Common Securities shall use its or their
best efforts to promptly appoint a Successor
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Property Trustee or Successor Delaware Trustee, as the case may be, if the
Property Trustee or the Delaware Trustee delivers an instrument of resignation
in accordance with this Section 5.6.
(f) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted such appointment as provided in this
Section 5.6 within 60 days after removal or after delivery to the Sponsor and
the Trust of an instrument of resignation, the retiring Property Trustee or
Delaware Trustee, as applicable, may petition any court of competent
jurisdiction for appointment of a Successor Property Trustee or Successor
Delaware Trustee. Such court may thereupon, after prescribing such notice, if
any, as it may deem proper, appoint a Successor Property Trustee or Successor
Delaware Trustee, as the case may be.
(g) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee.
SECTION 5.7 VACANCIES AMONG TRUSTEES.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by a majority of the Regular Trustees
shall be conclusive evidence of the existence of such vacancy. The vacancy
shall be filled with a Trustee appointed in accordance with Section 5.6.
SECTION 5.8 EFFECT OF VACANCIES.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul the Trust. Whenever a vacancy in the number of Regular
Trustees shall occur, until such vacancy is filled by the appointment of a
Regular Trustee in accordance with Section 5.6, the Regular Trustees in office,
regardless of their number, shall have all the powers granted to the Regular
Trustees and shall discharge all the duties imposed upon the Regular Trustees by
this Declaration.
SECTION 5.9 MEETINGS.
Meetings of the Regular Trustees shall be held from time to time upon
the call of any Regular Trustee. Regular meetings of the Regular Trustees may
be held at a time and place fixed by resolution of the Regular Trustees. Notice
of any in-person meetings of the Regular Trustees shall be hand delivered or
otherwise delivered in writing (including by
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facsimile, with a hard copy by overnight courier) not less than 48 hours before
such meeting. Notice of any telephonic meetings of the Regular Trustees or any
committee thereof shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 24
hours before a meeting. Notices shall contain a brief statement of the time,
place and anticipated purposes of the meeting. The presence (whether in person
or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of
notice of such meeting except where a Regular Trustee attends a meeting for the
express purpose of objecting to the transaction of any activity on the ground
that the meeting has not been lawfully called or convened. Unless provided
otherwise in this Declaration, any action of the Regular Trustees may be taken
at a meeting by vote of a majority of the Regular Trustees present (whether in
person or by telephone) and eligible to vote with respect to such matter,
provided that a Quorum is present, or without a meeting by the unanimous written
consent of the Regular Trustees. In the event there is only one Regular
Trustee, any and all action of such Regular Trustee shall be evidenced by a
written consent of such Regular Trustee.
SECTION 5.10 DELEGATION OF POWER.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
3.6, including any registration statement or amendments thereto filed with the
Commission, or making any other governmental filing; and
(b) the Regular Trustees shall have power to delegate from time to
time to such of their number or to officers of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Regular Trustees or otherwise as the Regular Trustees may deem
expedient, to the extent such delegation is not prohibited by applicable law or
contrary to the provisions of the Trust, as set forth herein.
SECTION 5.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any Person into which the Property Trustee or the Delaware Trustee, as
the case may be, may be merged or converted or with which either may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Property Trustee or the Delaware Trustee, as the case
may be, shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of the Property Trustee or the Delaware Trustee, as
the case may be, shall be the successor of the Property Trustee or the Delaware
Trustee, as the
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case may be, hereunder, provided such Person shall be otherwise qualified and
eligible under this Article, without the execution or filing of any paper or
any further act on the part of any of the parties hereto; provided, however,
such successor shall notify the Sponsor and the Trust promptly of its
succession.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 DISTRIBUTIONS.
Holders shall receive Distributions (as defined herein) in accordance
with the applicable terms of the relevant Holder's Securities. Distributions
shall be made on the Preferred Securities and the Common Securities in
accordance with the preferences set forth in their respective terms. If and to
the extent that the Debenture Issuer makes a payment of interest (including
Compounded Interest, Liquidated Damages and Additional Interest (each as defined
in the Indenture)), principal or premium, if any, on the Debentures held by the
Property Trustee (the amount of any such payment being a "Payment Amount"), the
Property Trustee shall and is directed, to the extent funds are available for
that purpose, to make a distribution (a "Distribution") of the Payment Amount to
Holders.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 GENERAL PROVISIONS REGARDING SECURITIES.
(a) The Regular Trustees shall on behalf of the Trust issue one
class of convertible preferred securities, representing undivided beneficial
interests in the assets of the Trust (the "Preferred Securities"), having such
terms (the "Terms") as are set forth in Annex I hereto and one class of
convertible common securities, representing undivided beneficial interests in
the assets of the Trust (the "Common Securities"), having such terms as are set
forth in Annex I hereto. The Trust shall have no securities or other interests
in the assets of the Trust other than the Preferred Securities and the Common
Securities. The Trust shall issue no Securities in bearer form.
(b) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(c) Upon issuance of the Securities as provided in this Declaration,
the Securities so issued shall be deemed to be validly issued, fully paid and
nonassessable, subject to Section 10.1 with respect to the Common Securities.
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(d) Every Person, by virtue of having become a Holder or a Preferred
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.
(e) The Securities shall have no preemptive rights.
SECTION 7.2 EXECUTION AND AUTHENTICATION.
(a) The Securities shall be signed on behalf of the Trust by one
Regular Trustee. In case any Regular Trustee of the Trust who shall have signed
any of the Securities shall cease to be such Regular Trustee before the
Securities so signed shall be delivered by the Trust, such Securities
nevertheless may be delivered as though the person who signed such Securities
had not ceased to be such Regular Trustee; and any Securities may be signed on
behalf of the Trust by such persons who, at the actual date of execution of such
Securities, shall be the Regular Trustees of the Trust, although at the date of
the execution and delivery of the Declaration any such person was not such a
Regular Trustee.
(b) One Regular Trustee shall sign the Preferred Securities for the
Trust by manual or facsimile signature. Unless otherwise determined by the
Trust, such signature shall, in the case of Common Securities, be a manual
signature.
A Preferred Security shall not be valid until authenticated by the
manual signature of an authorized officer of the Property Trustee. Such
signature shall be conclusive evidence that the Preferred Security has been
authenticated under this Declaration.
Upon a written order of the Trust signed by one Regular Trustee, the
Property Trustee shall authenticate the Preferred Securities for original issue
as set forth in paragraph 5 of the Securities. The aggregate number of
Preferred Securities outstanding at any time shall not exceed the number set
forth in the Terms in Annex I hereto except as provided in Section 7.7.
The Property Trustee may appoint an authenticating agent acceptable to
the Trust to authenticate Preferred Securities. An authenticating agent may
authenticate Preferred Securities whenever the Property Trustee may do so. Each
reference in this Declaration to authentication by the Property Trustee includes
authentication by such agent. Any authenticating agent has the same rights as
the Property Trustee to deal with the Sponsor or an Affiliate of the Sponsor.
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SECTION 7.3 FORM AND DATING.
The Preferred Securities and the Property Trustee's certificate of
authentication shall be substantially in the forms of Exhibits A-1 and A-2 and
the Common Securities shall be substantially in the form of Exhibit A-3, each of
which is hereby incorporated in and expressly made a part of this Declaration.
Certificates may be printed, lithographed or engraved or may be produced in any
other manner as is reasonably acceptable to the Regular Trustees, as
conclusively evidenced by their execution thereof. The Securities may have
letters, numbers, notations or other marks of identification or designation and
such legends or endorsements required by law, stock exchange rule, agreements to
which the Trust is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Trust). The Trust at the
direction of the Sponsor shall furnish any such legend not contained in Exhibit
A-1 or Exhibit A-2 to the Property Trustee in writing. Each Preferred Security
shall be dated the date of its authentication. The terms and provisions of the
Securities set forth in Annex I and the forms of Securities set forth in
Exhibits A-1, A-2 and A-3 are part of the terms of this Declaration and to the
extent applicable, the Property Trustee and the Sponsor, by their execution and
delivery of this Declaration, expressly agree to such terms and provisions and
to be bound thereby.
(a) GLOBAL SECURITIES. The Preferred Securities are being offered
and sold by the Trust pursuant to a Purchase Agreement relating to the Preferred
Securities, dated February 4, 1998, among the Trust, the Sponsor and the Initial
Purchaser named therein (the "Purchase Agreement").
Securities offered and sold to Qualified Institutional Buyers ("QIBs")
in reliance on Rule 144A under the Securities Act ("Rule 144A") as provided in
the Purchase Agreement, shall be issued in the form of one or more permanent
global Securities in definitive, fully registered form without distribution
coupons with the appropriate global legends and Restricted Securities Legend set
forth in Exhibit A-1 hereto (each, a "Rule 144A Global Preferred Security"),
which shall be deposited on behalf of the purchasers of the Preferred Securities
represented thereby with the Property Trustee, at its Corporate Trust Office, as
custodian for the Depositary, and registered in the name of the Depositary or a
nominee of the Depositary, duly executed by the Trust and authenticated by the
Property Trustee as hereinafter provided. The number of Preferred Securities
represented by the Rule 144A Global Preferred Security may from time to time be
increased or decreased by adjustments made on the records of the Property
Trustee and the Depositary or its nominee as hereinafter provided.
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(b) BOOK-ENTRY PROVISIONS. This Section 7.3(b) shall apply only to the
Rule 144A Global Preferred Securities and such other Preferred Securities in
global form as may be authorized by the Trust to be deposited with or on behalf
of the Depositary.
The Trust shall execute and the Property Trustee shall, in accordance with
this Section 7.3, authenticate and deliver initially one or more Rule 144A
Global Preferred Securities that (a) shall be registered in the name of Cede &
Co. or other nominee of such Depositary and (b) shall be delivered by the
Property Trustee to such Depositary or pursuant to such Depositary's
instructions or held by the Property Trustee as custodian for the Depositary.
Members of, or participants in, the Depositary ("Participants") shall have
no rights under this Declaration with respect to any Rule 144A Global Preferred
Security held on their behalf by the Depositary or by the Property Trustee as
the custodian of the Depositary or under such Rule 144A Global Preferred
Security, and the Depositary may be treated by the Trust, the Property Trustee
and any agent of the Trust or the Property Trustee as the absolute owner of such
Rule 144A Global Preferred Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Trust, the
Property Trustee or any agent of the Trust or the Property Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Participants, the
operation of customary practices of such Depositary governing the exercise of
the rights of a holder of a beneficial interest in any Rule 144A Global
Preferred Security.
(c) CERTIFICATED SECURITIES. Except as provided in Section 7.10,
owners of beneficial interests in the Rule 144A Global Preferred Security will
not be entitled to receive physical delivery of certificated Preferred
Securities. Preferred Securities offered and sold in reliance on Regulation S
under the Securities Act ("Regulation S"), as provided in the Purchase
Agreement, shall be issued initially in the form of individual certificates in
definitive, fully registered form without distribution coupons and shall bear
the Restricted Securities Legend set forth in Exhibit A-1 hereto (the
"Regulation S Definitive Preferred Securities"). Purchasers of Securities who
are institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) and did not purchase Preferred Securities in
reliance on Regulation S under the Securities Act will receive Preferred
Securities in the form of individual certificates in definitive, fully
registered form without distribution coupons and with the Restricted Securities
Legend set forth in Exhibit A-1 hereto ("Restricted Definitive Preferred
Securities"); PROVIDED, HOWEVER, that upon transfer of such Restricted
Definitive Preferred Securities to a QIB, such Restricted Definitive
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Preferred Securities will, unless the Rule 144A Global Preferred Security has
previously been exchanged, be exchanged for an interest in a Rule 144A Global
Security pursuant to the provisions set forth in Section 9.2. Restricted
Definitive Preferred Securities will bear the Restricted Securities Legend set
forth in Exhibit A-1 hereto unless removed in accordance with this Section 7.3
or Section 9.2.
SECTION 7.4 REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Trust shall maintain in the City of New York, (i) an office or
agency where Securities may be presented for registration of transfer or
exchange ("Registrar"), (ii) an office or agency where Securities may be
presented for payment ("Paying Agent") and (iii) an office or agency where
Securities may be presented for conversion ("Conversion Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Trust may appoint the Registrar, the Paying Agent and the Conversion Agent and
may appoint one or more co-registrars, one or more additional paying agents and
one or more additional conversion agents in such other locations as it shall
determine. The term "Paying Agent" includes any additional paying agent and the
term "Conversion Agent" includes any additional conversion agent. The Trust may
change any Paying Agent, Registrar, co-registrar or Conversion Agent without
prior notice to any Holder. The Paying Agent will be permitted to resign as
Paying Agent upon 30 days' written notice to the Regular Trustees. The Trust
shall notify the Property Trustee of the name and address of any Agent not a
party to this Declaration. If the Trust fails to appoint or maintain another
entity as Registrar, Paying Agent or Conversion Agent, the Property Trustee
shall act as such for the Preferred Securities. The Trust or any of its
Affiliates may act as Paying Agent, Registrar, or Conversion Agent. The Trust
shall act as Paying Agent, Registrar, co-registrar, and Conversion Agent for the
Common Securities. The Paying Agent, Registrar and Conversion Agent shall be
entitled to the rights and protections extended to the Property Trustee when
acting in such capacity.
The Trust initially appoints the Property Trustee, acting through its
Corporate Trust Office in New York, New York, as Registrar, Paying Agent, and
Conversion Agent for the Preferred Securities.
SECTION 7.5 PAYING AGENT TO HOLD MONEY IN TRUST.
The Trust shall require each Paying Agent other than the Property
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Property Trustee all money held by the Paying Agent
for the payment of principal or distribution on the Securities, and will notify
the
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Property Trustee if there are insufficient funds. While any such insufficiency
continues, the Property Trustee may require a Paying Agent to pay all money held
by it to the Property Trustee. The Trust at any time may require a Paying Agent
to pay all money held by it to the Property Trustee and to account for any money
disbursed by it. Upon payment over to the Property Trustee, the Paying Agent
(if other than the Trust or an Affiliate of the Trust) shall have no further
liability for the money. If the Trust or the Sponsor or an Affiliate of the
Trust or the Sponsor acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders all money held by it as
Paying Agent.
SECTION 7.6 [reserved]
SECTION 7.7 REPLACEMENT SECURITIES.
If the holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken or if such Security is mutilated and is
surrendered to the Trust or in the case of the Preferred Securities to the
Property Trustee, the Trust shall issue and the Property Trustee shall
authenticate a replacement Security if the Property Trustee's and the Trust's
requirements, as the case may be, are met. If required by the Property Trustee
or the Trust, an indemnity bond must be posted in an amount sufficient in the
judgment of both to protect the Trustees, the Property Trustee, the Sponsor or
any authenticating agent from any loss which any of them may suffer if a
Security is replaced. The Company may charge for its expenses in replacing a
Security.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, or is about to be purchased by the
Sponsor pursuant to Article III hereof, the Sponsor in its discretion may,
instead of issuing a new Security, pay or purchase such Security, as the case
may be.
Every replacement Security is an additional obligation of the Trust.
SECTION 7.8 OUTSTANDING PREFERRED SECURITIES.
The Preferred Securities outstanding at any time are all the Preferred
Securities authenticated by the Property Trustee except for those canceled by
it, those delivered to it for cancellation, and those described in this Section
as not outstanding.
If a Preferred Security is replaced, paid or purchased pursuant to
Section 7.7 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Preferred
Security is held by a bona fide purchaser.
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If Preferred Securities are considered paid in accordance with the
terms of this Declaration, they cease to be outstanding and interest on them
ceases to accrue.
A Preferred Security does not cease to be outstanding because one of
the Trust, the Sponsor or an Affiliate of the Sponsor holds the Security.
SECTION 7.9 PREFERRED SECURITIES IN TREASURY.
In determining whether the Holders of the required amount of
Securities have concurred in any direction, waiver or consent, Preferred
Securities owned by the Trust, the Sponsor or an Affiliate of the Sponsor, as
the case may be, shall be disregarded and deemed not to be outstanding, except
that for the purposes of determining whether the Property Trustee shall be
protected in relying on any such direction, waiver or consent, only Securities
which a Responsible Officer of the Property Trustee knows are so owned shall be
so disregarded.
SECTION 7.10 TEMPORARY SECURITIES.
(a) Until definitive Securities are ready for delivery, the Trust
may prepare and, in the case of the Preferred Securities, the Property Trustee
shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Trust considers appropriate for temporary Securities. Without unreasonable
delay, the Trust shall prepare and, in the case of the Preferred Securities, the
Property Trustee shall authenticate definitive Securities in exchange for
temporary Securities.
(b) A Global Preferred Security deposited with the Depositary or
with the Property Trustee as custodian for the Depositary pursuant to Section
7.3 shall be transferred to the beneficial owners thereof in the form of
certificated Preferred Securities only if such transfer complies with Section
9.2 and (i) the Depositary notifies the Company that it is unwilling or unable
to continue as Depositary for such Global Preferred Security or if at any time
such Depositary ceases to be a "clearing agency" registered under the Exchange
Act and a successor depositary is not appointed by the Sponsor within 90 days of
such notice, or (ii) an Event of Default has occurred and is continuing.
(c) Any Global Preferred Security that is transferable to the
beneficial owners thereof in the form of certificated Preferred Securities
pursuant to this Section 7.10 shall be surrendered by the Depositary to the
Property Trustee, to be so transferred, in whole or from time to time in part,
without charge, and the Property Trustee shall authenticate and deliver, upon
such transfer of each portion of such Global Preferred
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Security, an equal aggregate liquidation amount of Securities of authorized
denominations in the form of certificated Securities. Any portion of a Global
Preferred Security transferred pursuant to this Section shall be registered in
such names as the Depositary shall direct. Any Preferred Security in the form
of certificated Preferred Securities delivered in exchange for an interest in
the Restricted Global Preferred Security shall, except as otherwise provided by
Sections 7.3 and 9.1, bear the Restricted Securities Legend set forth in Exhibit
A-1 hereto.
(d) Subject to the provisions of Section 7.10(c), the registered
holder of a Global Preferred Security may grant proxies and otherwise authorize
any person, including Participants and persons that may hold interests through
Participants, to take any action which a holder is entitled to take under this
Declaration or the Securities.
(e) In the event of the occurrence of either of the events specified
in Section 7.10(b), the Trust will promptly make available to the Property
Trustee a reasonable supply of certificated Preferred Securities in definitive,
fully registered form without distribution coupons.
SECTION 7.11 CANCELLATION.
The Trust at any time may deliver Securities to the Property Trustee
for cancellation. The Registrar, Paying Agent and Conversion Agent shall
forward to the Property Trustee any Securities surrendered to them for
registration of transfer, redemption, conversion, exchange or payment. The
Property Trustee shall promptly cancel all Securities surrendered for
registration of transfer, redemption, conversion, exchange, payment, replacement
or cancellation and shall dispose of canceled Securities as the Trust directs
provided that the Property Trustee shall not be required to destroy such
canceled securities. The Trust may not issue new Securities to replace
Securities that it has paid or that have been delivered to the Property Trustee
for cancellation or that any holder has converted.
ARTICLE VIII
DISSOLUTION AND TERMINATION OF TRUST
SECTION 8.1 DISSOLUTION AND TERMINATION OF TRUST.
(a) The Trust shall dissolve upon the earliest to occur of the
following:
(i) the expiration of the term of the Trust on February 15,
2033;
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(ii) the bankruptcy of the Holder of the Common Securities or
the Sponsor;
(iii) the filing of a certificate of dissolution or its
equivalent with respect to the Holder of the Common Securities or the
Sponsor after receipt by the Trustee of the consent of the Holders of
at least a Majority in liquidation amount of the outstanding
Securities voting together as a single class to dissolve the Trust and
file a certificate of dissolution with respect to the Trust or the
revocation of the charter of the Holder of the Common Securities or
the Sponsor and the expiration of 90 days after the date of revocation
without a reinstatement thereof;
(iv) the occurrence and continuation of a Tax Event or
Investment Company Event pursuant to which the Trust shall be
dissolved in accordance with the terms of the Securities and, after
satisfaction of liabilities of creditors (whether by payment or
reasonable provision for payment), the Debentures held by the Property
Trustee shall be distributed to the Holders of Securities in exchange
for all of the Securities;
(v) the entry of a decree of judicial dissolution of the
Holder of the Common Securities, the Sponsor or the Trust;
(vi) all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have
been paid to the Holders in accordance with the terms of the
Securities; or
(vii) upon the conversion of all outstanding Preferred Securities
into Fleetwood Common Stock or other cash, securities or property, as
the case may be.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a), and upon the completion of the winding up of the
Trust, one of the Trustees shall file a certificate of cancellation with the
Secretary of State of the State of Delaware and the Trust shall terminate.
(c) The provisions of Article X shall survive the termination of the
Trust.
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ARTICLE IX
TRANSFER AND EXCHANGE
SECTION 9.1 GENERAL.
(a) Where Preferred Securities are presented to the Registrar with a
request to register a transfer or to exchange them for an equal number of
Preferred Securities represented by different certificates, the Registrar shall
register the transfer or make the exchange if its requirements for such
transactions are met. To permit registrations of transfers and exchanges, the
Trust shall issue and the Property Trustee shall authenticate Preferred
Securities at the Registrar's request.
(b) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
Subject to this Article IX, the Sponsor and any Related Party may only
transfer Common Securities to the Sponsor or a Related Party of the Sponsor;
PROVIDED, that any such transfer is subject to the condition precedent that the
transferor obtain the written opinion of nationally recognized independent
counsel experienced in such matters that such transfer would not cause more than
an insubstantial risk that:
(i) the Trust would not be classified for United States federal
income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment Company required to
register under the Investment Company Act or the transferee would
become an Investment Company required to register under the Investment
Company Act.
(c) The Regular Trustees shall provide for the registration of
Securities and of transfers of Securities, which will be effected without charge
but only upon payment (with such indemnity as the Regular Trustees may require)
in respect of any tax or other governmental charges that may be imposed in
relation to it. Upon surrender for registration of transfer of any Securities,
the Regular Trustees shall cause one or more new Securities to be issued in the
name of the designated transferee or transferees. Every Security surrendered
for registration of transfer or exchange, or for conversion or redemption, shall
be accompanied by a written instrument of transfer in form satisfactory to the
Registrar and Regular Trustees duly executed by the Holder or such Holder's
attorney duly authorized in writing. Each Security surrendered for registration
of transfer or exchange, or for conversion or redemption, shall be canceled
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by the Regular Trustees (in the case of the Common Securities) or by the
Property Trustee (in the case of Preferred Securities). A transferee of a
Security shall be entitled to the rights and subject to the obligations of a
Holder hereunder upon the receipt by such transferee of a Security. By
acceptance of a Security, each transferee shall be deemed to have agreed to be
bound by this Declaration.
(d) The Property Trustee shall not be required (i) to issue,
register the transfer of, or exchange any Preferred Securities during a period
beginning at the opening of business 15 days before the day of any selection of
Preferred Securities to be redeemed (unless all of the outstanding Securities
are called for Redemption) and ending at the close of business on the day of
selection, or (ii) to register the transfer or exchange of any Preferred
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Preferred Security being redeemed in part.
SECTION 9.2 TRANSFER PROCEDURES AND RESTRICTIONS.
(a) GENERAL. Except in connection with a Shelf Registration
Statement contemplated by and in accordance with the terms of the Registration
Rights Agreement, if Preferred Securities are issued upon the transfer, exchange
or replacement of Preferred Securities bearing the Restricted Securities Legend
set forth in Exhibit A-1 hereto, or if a request is made to remove such
Restricted Securities Legend on Preferred Securities, the Preferred Securities
so issued shall bear the Restricted Securities Legend, or the Restricted
Securities Legend shall not be removed, as the case may be, unless there is
delivered to the Trust such satisfactory evidence, which may include an opinion
of counsel licensed to practice law in the State of New York, as may be
reasonably required by the Trust, that neither the legend nor the restrictions
on transfer set forth therein are required to ensure that transfers thereof
comply with the provisions of Rule 144A, Rule 144 or Regulation S under the
Securities Act or, with respect to Restricted Securities, that such Securities
are not "restricted" within the meaning of Rule 144 under the Securities Act.
Upon provision of such satisfactory evidence, the Property Trustee, at the
written direction of the Trust, shall authenticate and deliver Preferred
Securities that do not bear the legend.
(b) TRANSFERS AFTER EFFECTIVENESS OF SHELF REGISTRATION STATEMENT.
After the effectiveness of a Shelf Registration Statement for any Preferred
Securities, all requirements pertaining to legends on such Preferred Security
will cease to apply, and beneficial interests in a Preferred Security in global
form without legends will be available to transferees of such Preferred
Securities upon exchange of the transferring holder's Restricted Definitive
Preferred Security or
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directions to transfer such Holder's beneficial interest in the Rule 144A Global
Preferred Security, as the case may be. After the effectiveness of the Shelf
Registration Statement, the Trust shall issue and the Property Trustee shall
authenticate a Preferred Security in global form without the Restricted
Securities Legend (the "Exchanged Global Preferred Security") to deposit with
the Depositary to evidence transfers of (i) beneficial interests from the Rule
144A Global Preferred Security, (ii) Restricted Definitive Preferred Securities,
and (iii) Unrestricted Definitive Preferred Securities.
(c) REGULATION S DEFINITIVE PREFERRED SECURITY TO UNRESTRICTED
DEFINITIVE PREFERRED SECURITY; TERMINATION OF RESTRICTED PERIOD. Following the
termination of the one-year "restricted period" with respect to the issuance of
the Preferred Securities, Regulation S Definitive Preferred Securities may be
exchanged for an interest in a Preferred Security in definitive, fully
registered form without distribution coupons, but without the Restricted
Securities Legend (an "Unrestricted Definitive Preferred Security"), that is
free from any restriction on transfer (other than such as are solely
attributable to any holder's status). Unrestricted Definitive Preferred
Securities will bear a CUSIP number different from that of the Exchanged Global
Preferred Securities and transfers or exchanges from an Unrestricted Definitive
Preferred Security or Regulation S Definitive Preferred Security to an Exchanged
Preferred Security must be effected pursuant to Section 9.2(b).
(d) TRANSFER AND EXCHANGE OF DEFINITIVE PREFERRED SECURITIES. When
Definitive Preferred Securities are presented to the Registrar or co-registrar
(x) to register the transfer of such Definitive Preferred
Securities; or
(y) to exchange such Definitive Preferred Securities for an
equal number of Definitive Preferred Securities of another number,
the Registrar shall register the transfer or make the exchange as requested if
its reasonable requirements for such transaction are met; PROVIDED, HOWEVER,
that the Definitive Preferred Securities surrendered for transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Trust
and the Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing; and
(ii) in the case of Definitive Preferred Securities that are
Restricted Definitive Preferred
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Securities, are being transferred or exchanged pursuant to an
effective registration statement under the Securities Act or pursuant
to clause (A) or (B) below, and are accompanied by the following
additional information and documents, as applicable:
(A) if such Restricted Preferred Securities are being
delivered to the Registrar by a Holder for registration in the
name of such Holder, without transfer, a certification from such
Holder to that effect (in the form set forth on the reverse of
the Preferred Security); or
(B) if such Restricted Preferred Securities are being
transferred pursuant to an exemption from registration in
accordance with Rule 144 or Regulation S under the Securities
Act: (i) a certification to that effect (in the form set forth
on the reverse of the Preferred Security) and (ii) if the Trust
or Registrar so requests, evidence reasonably satisfactory to
them as to the compliance with the restrictions set forth in the
Restricted Securities Legend.
With respect to Definitive Preferred Securities that are transferred
to QIBs in accordance with Rule 144A under the Securities Act, the transferee
QIBs must take delivery of their interests in the Preferred Securities in the
form of a beneficial interest in the Rule 144A Global Preferred Security in
accordance with Section 9.2(e).
(e) RESTRICTIONS ON TRANSFER OF A DEFINITIVE PREFERRED SECURITY FOR
A BENEFICIAL INTEREST IN A GLOBAL PREFERRED SECURITY. A Definitive Preferred
Security may not be exchanged for a beneficial interest in a Global Preferred
Security except upon satisfaction of the requirements set forth below. Upon
receipt by the Property Trustee of a Definitive Preferred Security, duly
endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Property Trustee, together with:
(i) if such Definitive Preferred Security is a Restricted
Preferred Security, certification, in the form set forth on the
reverse of the Preferred Security, that such Definitive Preferred
Security is being transferred to a QIB in accordance with Rule 144A
under the Securities Act; and
(ii) whether or not such Definitive Preferred Security is a
Restricted Preferred Security, written instructions directing the
Property Trustee to make, or to direct the Depositary to make, an
adjustment on its
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books and records with respect to such Global Preferred Security to
reflect an increase in the number of the Preferred Securities
represented by the Global Preferred Security,
then the Property Trustee shall cancel such Definitive Preferred Security and
cause, or direct the Depositary to cause, the aggregate number of Preferred
Securities represented by the Global Preferred Security to be increased
accordingly. If no Global Preferred Securities are then outstanding, the Trust
shall issue and the Property Trustee shall authenticate, upon written order of
any Regular Trustee, an appropriate number of Preferred Securities in global
form.
(f) TRANSFER AND EXCHANGE OF GLOBAL PREFERRED SECURITIES. The
transfer and exchange of Global Preferred Securities or beneficial interests
therein shall be effected through the Depositary, in accordance with this
Declaration (including applicable restrictions on transfer set forth herein, if
any) and the procedures of the Depositary therefor.
(g) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL PREFERRED SECURITY
FOR A DEFINITIVE PREFERRED SECURITY.
(i) Any person having a beneficial interest in a Global
Preferred Security that is being transferred or exchanged pursuant to
an effective registration statement under the Securities Act or
pursuant to clause (A) or (B) below may upon request, and if
accompanied by the information specified below, exchange such
beneficial interest for a Definitive Preferred Security representing
the same number of Preferred Securities. Upon receipt by the Property
Trustee from the Depositary or its nominee on behalf of any Person
having a beneficial interest in a Global Preferred Security of written
instructions or such other form of instructions as is customary for
the Depositary or the person designated by the Depositary as having
such a beneficial interest in a Restricted Preferred Security and the
following additional information and documents (all of which may be
submitted by facsimile):
(A) if such beneficial interest is being transferred to the
person designated by the Depositary as being the owner of a
beneficial interest in a Global Preferred Security, a
certification from such Person to that effect (in the form set
forth on the reverse of the Preferred Security); or
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(B) if such beneficial interest is being transferred
pursuant to an exemption from registration in accordance with
Rule 144 or Regulation S under the Securities Act: (i) a
certification to that effect from the transferee or transferor
(in the form set forth on the reverse of the Preferred Security)
and (ii) if the Property Trustee or Registrar so requests,
evidence reasonably satisfactory to them as to the compliance
with the restrictions set forth in the legend set forth in
Section 9.2(j),
then the Property Trustee or the Securities Custodian, at the direction of the
Property Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian, the
aggregate principal amount of the Global Preferred Security to be reduced on its
books and records and, following such reduction, the Trust will execute and the
Property Trustee will authenticate and deliver to the transferee a Definitive
Preferred Security.
(ii) Definitive Preferred Securities issued in exchange for a
beneficial interest in a Global Preferred Security pursuant to this
Section 9.2(g) shall be registered in such names and in such
authorized denominations as the Depositary, pursuant to instructions
from its Participants or indirect participants or otherwise, shall
instruct the Property Trustee. The Property Trustee shall deliver
such Preferred Securities to the persons in whose names such Preferred
Securities are so registered in accordance with the instructions of
the Depositary.
Beneficial interests in the Rule 144A Global Security may not be
exchanged for a Definitive Preferred Security except a Regulation S Definitive
Preferred Security and except as provided in Section 9.2(i).
(h) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL PREFERRED
SECURITIES. Notwithstanding any other provisions of this Declaration (other
than the provisions set forth in subsection (i) of this Section 9.2), a Global
Preferred Security may not be transferred as a whole except by the Depositary to
a nominee of the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary.
With respect to Definitive Preferred Securities that are transferred
to QIBs in accordance with Rule 144A under the Securities Act, the transferee
QIBs must take delivery of their interests in the Preferred Securities in the
form of a beneficial
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interest in the Rule 144A Global Preferred Security in accordance with Section
9.2(e).
(i) AUTHENTICATION OF DEFINITIVE PREFERRED SECURITIES. If at any
time:
(i) the Depositary notifies the Trust that the Depositary is
unwilling or unable to continue as Depositary for the Global Preferred
Securities and a successor Depositary for the Global Preferred
Securities is not appointed by the Trust at the direction of the
Sponsor within 90 days after delivery of such notice; or
(ii) the Trust, in its sole discretion, notifies the Property
Trustee in writing that it elects to cause the issuance of Definitive
Preferred Securities under this Declaration,
then the Trust will execute, and the Property Trustee, upon receipt of a written
order of the Trust signed by one Regular Trustee requesting the authentication
and delivery of Definitive Preferred Securities to the Persons designated by the
Trust, will authenticate and deliver Definitive Preferred Securities, in an
aggregate principal amount equal to the principal amount of Global Preferred
Securities, in exchange for such Global Preferred Securities.
(j) LEGEND.
(i) Except as permitted by the following paragraph (ii), each
Preferred Security certificate evidencing the Global Preferred
Securities and the Definitive Preferred Securities (and all Preferred
Securities issued in exchange therefor or substitution thereof) shall
bear a legend (the "Restricted Securities Legend") in substantially
the following form:
THIS SECURITY, ANY CONVERTIBLE SUBORDINATED DEBENTURE
ISSUED IN EXCHANGE FOR THIS SECURITY AND ANY COMMON STOCK ISSUED
ON CONVERSION THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF
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THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER
SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON
WHICH FLEETWOOD ENTERPRISES, INC. (THE "COMPANY") OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION
TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C)
FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR
(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT
TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRANSFER AGENTS RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF
THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER
IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
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(ii) Upon any sale or transfer of a Restricted Preferred
Security (including any Restricted Preferred Security represented by a
Global Preferred Security) pursuant to Rule 144 under the Securities
Act or an effective registration statement under the Securities Act:
(A) in the case of any Restricted Preferred Security that
is a Definitive Preferred Security, the Registrar shall permit
the Holder thereof to exchange such Restricted Preferred
Security for a Definitive Preferred Security that does not bear
the Restricted Securities Legend and rescind any restriction on
the transfer of such Restricted Preferred Security; and
(B) in the case of any Restricted Preferred Security that
is represented by a Global Preferred Security, the Registrar
shall permit the Holder thereof to exchange such Restricted
Preferred Security (in connection with the sale of Preferred
Security pursuant to the Registration Rights Agreement) for
another Global Preferred Security that does not bear the
Restricted Securities Legend.
(k) CANCELLATION OR ADJUSTMENT OF GLOBAL PREFERRED SECURITY. At
such time as all beneficial interests in a Global Preferred Security have either
been exchanged for Definitive Preferred Securities to the extent permitted by
the Declaration or redeemed, repurchased or canceled in accordance with the
terms of this Declaration, such Global Preferred Security shall be returned to
the Depositary for cancellation or retained and canceled by the Property
Trustee. At any time prior to such cancellation, if any beneficial interest in
a Global Preferred Security is exchanged for Definitive Preferred Securities,
Preferred Securities represented by such Global Preferred Security shall be
reduced and an adjustment shall be made on the books and records of the Property
Trustee (if it is then the Securities Custodian for such Global Preferred
Security) with respect to such Global Preferred Security, by the Property
Trustee or the Securities Custodian, to reflect such reduction.
(l) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF PREFERRED
SECURITIES.
(i) To permit registrations of transfers and exchanges, the
Trust shall execute and the Property Trustee shall authenticate
Definitive Preferred Securities and Global Preferred Securities at the
Registrar's or co-Registrar's request.
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(ii) Registrations of transfers or exchanges will be effected
without charge, but only upon payment (with such indemnity as the
Trust or the Sponsor may require) in respect of any tax or other
governmental charge that may be imposed in relation to it.
(iii) The Registrar shall not be required to register the
transfer of or exchange of (a) any Definitive Preferred Security
selected for redemption in whole or in part pursuant to Article 3,
except the unredeemed portion of any Definitive Preferred Security
being redeemed in part, or (b) any Preferred Security for a period
beginning 15 Business Days before the mailing of a notice of an offer
to repurchase or redeem Preferred Securities or 15 Business Days
before a quarterly distribution date.
(iv) Prior to the due presentation for registration of transfer
of any Preferred Security, the Trust, the Property Trustee, the Paying
Agent, the Registrar or any co-registrar may deem and treat the person
in whose name a Preferred Security is registered as the absolute owner
of such Preferred Security for the purpose of receiving Distributions
on such Preferred Security and for all other purposes whatsoever, and
none of the Trust, the Property Trustee, the Paying Agent or the
Registrar shall be affected by notice to the contrary.
(v) All Preferred Securities issued upon any transfer or
exchange pursuant to the terms of this Declaration shall evidence the
same security and shall be entitled to the same benefits under this
Declaration as the Preferred Securities surrendered upon such transfer
or exchange.
(m) NO OBLIGATION OF THE PROPERTY TRUSTEE.
(i) The Property Trustee shall have no responsibility or
obligation to any beneficial owner of a Global Preferred Security, a
Participant in the Depositary or other Person with respect to the
accuracy of the records of the Depositary or its nominee or of any
Participant thereof, with respect to any ownership interest in the
Preferred Securities or with respect to the delivery to any
Participant, beneficial owner or other Person (other than the
Depositary) of any notice (including any notice of redemption) or the
payment of any amount, under or with respect to such Preferred
Securities. All notices and communications to be given to the Holders
and all payments to be made to Holders under the Preferred Securities
shall be given or made
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only to or upon the order of the registered Holders (which shall be
the Depositary or its nominee in the case of a Global Preferred
Security). The rights of beneficial owners in any Global Preferred
Security shall be exercised only through the Depositary subject to the
applicable rules and procedures of the Depositary. The Property
Trustee may rely and shall be fully protected in relying upon
information furnished by the Depositary with respect to its
Participants and any beneficial owners.
(ii) The Property Trustee and Registrar shall have no
obligation or duty to monitor, determine or inquire as to compliance
with any restrictions on transfer imposed under this Declaration or
under applicable law with respect to any transfer of any interest in
any Preferred Security (including any transfers between or among
Depositary Participants or beneficial owners in any Global Preferred
Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to
do so if and when expressly required by, the terms of this
Declaration, and to examine the same to determine substantial
compliance as to form with the express requirements hereof.
SECTION 9.3 DEEMED SECURITY HOLDERS.
The Trustees may treat the Person in whose name any Certificate shall
be registered on the books and records of the Trust as the sole holder of such
Certificate and of the Securities represented by such Certificate for purposes
of receiving Distributions and for all other purposes whatsoever and,
accordingly, to the extent permitted by applicable law, shall not be bound to
recognize any equitable or other claim to or interest in such Certificate or in
the Securities represented by such Certificate on the part of any Person,
whether or not the Trust, the Property Trustee or the Registrar shall have
actual or other notice thereof.
SECTION 9.4 BOOK ENTRY INTERESTS.
Global Preferred Securities shall initially be registered on the books
and records of the Trust in the name of Cede & Co., the nominee of the
Depositary, and no Preferred Security Beneficial Owner will receive a definitive
Preferred Security Certificate representing such Preferred Security Beneficial
Owner's interests in such Global Preferred Securities, except as provided in
Section 9.2(g). Unless and until definitive, fully registered Preferred
Securities Certificates have been issued to the Preferred Security Beneficial
Owners pursuant to Sections 7.10 or 9.2(g):
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(a) the provisions of this Section 9.4 shall be in full force and
effect;
(b) the Trust and the Trustees shall be entitled to deal with the
Depositary for all purposes of this Declaration (including the payment of
Distributions on the relevant Global Preferred Securities and receiving
approvals, votes or consents hereunder) as the Holder of the Preferred
Securities and the sole holder of the Global Preferred Securities and shall have
no obligation to the Preferred Security Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4 conflict
with any other provisions of this Declaration, the provisions of this Section
9.4 shall control; and
(d) the rights of the Preferred Security Beneficial Owners shall be
exercised only through the Depositary and shall be limited to those established
by law and agreements between such Preferred Security Beneficial Owners and the
Depositary and/or the Participants and receive and transmit payments of
Distributions on the Global Certificates to such Participants. The Depositary
will make book entry transfers among the Participants; PROVIDED, that solely for
the purposes of determining whether the Holders of the requisite amount of
Preferred Securities have voted on any matter provided for in this Declaration,
so long as Definitive Preferred Security Certificates have not been issued, the
Trustees may conclusively rely on, and shall be protected in relying on, any
written instrument (including a proxy) delivered to the Trustees by the
Depositary setting forth the Preferred Security Beneficial Owners' votes or
assigning the right to vote on any matter to any other Persons either in whole
or in part.
SECTION 9.5 NOTICES TO THE DEPOSITARY.
Whenever a notice or other communication to the Preferred Security
Holders is required under this Declaration, the Regular Trustees shall, in the
case of any Global Preferred Security, give all such notices and communications
specified herein to be given to the Preferred Security Holders to the
Depositary, and shall have no notice obligations to the Preferred Security
Beneficial Owners.
SECTION 9.6 APPOINTMENT OF SUCCESSOR DEPOSITARY.
If the Depositary elects to discontinue its services as securities
depositary with respect to the Preferred Securities, the Regular Trustees may,
in their sole discretion, appoint a successor Depositary with respect to such
Preferred Securities.
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ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 LIABILITY.
(a) Except as expressly set forth in this Declaration, the
Securities Guarantees and the terms of the Securities the Sponsor shall not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders of the
Securities which shall be made solely from assets of the Trust; or
(ii) required to pay to the Trust or to any Holder of
Securities any deficit upon dissolution of the Trust or otherwise.
(b) The Sponsor shall be liable for all of the debts and obligations
of the Trust (other than with respect to the Securities) to the extent not
satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Preferred Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware.
SECTION 10.2 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's negligence or willful
misconduct (except as otherwise provided, in the case of the Property Trustee,
in the Trust Indenture Act) with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable
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care by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Securities might properly be paid.
SECTION 10.3 FIDUCIARY DUTY.
(a) To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions
of this Declaration, to the extent that they restrict the duties and liabilities
of an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between
an Indemnified Person and any Covered Person; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person
shall act in a manner that is, or provides terms that are, fair and
reasonable to the Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted
or required to make a decision
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests
and factors as it
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desires, including its own interests, and shall have no duty or
obligation to give any consideration to any interests of or factors
affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not
be subject to any other or different standard imposed by this
Declaration or by applicable law.
SECTION 10.4 INDEMNIFICATION.
(a) To the fullest extent permitted by applicable law, the Sponsor
shall indemnify and hold harmless each Indemnified Person from and against any
loss, damage, liability, tax, penalty, expense or claim of any kind or nature
whatsoever incurred by such Indemnified Person by reason of the creation,
operation or termination of the Trust or any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of
authority conferred on such Indemnified Person by this Declaration, except that
no Indemnified Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Indemnified Person by reason of
negligence or willful misconduct with respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law, expenses
(including legal fees and expenses) incurred by an Indemnified Person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Sponsor prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Sponsor of an undertaking
by or on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 10.4(a). The indemnification shall survive the
termination of this Declaration.
SECTION 10.5 OUTSIDE BUSINESSES.
Any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar to
the business of the Trust, and the Trust and the Holders of Securities shall
have no rights by virtue of this Declaration in and to such independent ventures
or the income or profits derived therefrom and the pursuit of any such venture,
even if competitive with the business of the Trust, shall not be deemed wrongful
or improper. No Covered Person, the Sponsor, the
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Delaware Trustee, or the Property Trustee shall be obligated to present any
particular investment or other opportunity to the Trust even if such opportunity
is of a character that, if presented to the Trust, could be taken by the Trust,
and any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee shall have the right to take for its own account (individually or as a
- -partner or fiduciary) or to recommend to others any such particular investment
or other opportunity. Any Covered Person, the Delaware Trustee and the Property
Trustee may engage or be interested in any financial or other transaction with
the Sponsor or any Affiliate of the Sponsor, or may act as a depositary for
trustee or agent for, or act on any committee or body of holders of, securities
or other obligations of the Sponsor or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 FISCAL YEAR.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
SECTION 11.2 CERTAIN ACCOUNTING MATTERS.
(a) At all times during the existence of the Trust, the Regular
Trustees shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each transaction
of the Trust. The books of account shall be maintained on the accrual method of
accounting, in accordance with generally accepted accounting principles,
consistently applied. The Trust shall use the accrual method of accounting for
United States federal income tax purposes. The financial statements of the
Trust for each of its Fiscal Year shall be audited in accordance with generally
accepted auditing standards by a firm of independent certified public
accountants selected by the Regular Trustees.
(b) The Regular Trustees shall cause to be prepared and delivered to
each of the Holders of Securities, within 90 days after the end of each Fiscal
Year of the Trust, annual financial statements of the Trust, including a balance
sheet of the Trust as of the end of such Fiscal Year, and the related statements
of income or loss for each Fiscal Year;
(c) The Regular Trustees shall cause to be duly prepared and
delivered to each of the Holders of Securities, any annual United States federal
income tax information statement, required by the Code, containing such
information with regard to the Securities held by each Holder as is required by
the Code and the Treasury Regulations. Notwithstanding any right under the Code
to deliver any such statement at a later date, the Regular
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Trustees shall endeavor to deliver all such statements within 30 days after the
end of each Fiscal Year of the Trust.
(d) The Regular Trustees shall cause to be duly prepared and filed
with the appropriate taxing authority, an annual United States federal income
tax return, on a Form 1041 or such other form required by United States federal
income tax law, and any other annual income tax returns required to be filed by
the Regular Trustees on behalf of the Trust with any state or local taxing
authority.
SECTION 11.3 BANKING.
The Trust shall maintain one or more bank accounts in the name and for
the sole benefit of the Trust; PROVIDED, HOWEVER, that all payments of funds in
respect of the Debentures held by the Property Trustee shall be made directly to
the Property Trustee Account and no other funds of the Trust shall be deposited
in the Property Trustee Account. The sole signatories for such accounts shall
be designated by the Regular Trustees; PROVIDED, HOWEVER, that the Property
Trustee shall designate the signatories for the Property Trustee Account.
SECTION 11.4 WITHHOLDING.
The Trust and the Regular Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Trust shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be requested by
the Trust to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Regular Trustees shall file required forms with
applicable jurisdictions and, unless an exemption from withholding is properly
established by a Holder, shall remit amounts withheld with respect to the Holder
to applicable jurisdictions. To the extent that the Trust is required to
withhold and pay over any amounts to any authority with respect to Distributions
or allocations to any Holder, the amount withheld shall be deemed to be a
distribution in the amount of the withholding to the Holder. In the event of
any claimed over withholding, Holders shall be limited to an action against the
applicable jurisdiction. If the amount required to be withheld was not withheld
from actual Distributions made, the Trust may reduce subsequent Distributions by
the amount of such withholding.
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ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 AMENDMENTS.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by:
(i) the Regular Trustees (or, if there are more than two
Regular Trustees, a majority of the Regular Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property
Trustee; and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware
Trustee;
(iv) if the amendment affects the rights, powers, duties,
obligations or immunities of the Sponsor, the Sponsor;
(b) no amendment shall be made, and a proposal of the Regular
Trustees may not otherwise effect such amendment, and any such purported
amendment or proposal shall be void and ineffective:
(i) unless, in the case of any proposed amendment, the
Property Trustee shall have first received an Officers' Certificate
from each of the Trust and the Sponsor that such amendment is
permitted by, and conforms to, the terms of this Declaration
(including the terms of the Securities);
(ii) unless, in the case of any proposed amendment which
affects the rights, powers, duties, obligations or immunities of the
Property Trustee, the Property Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust
and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the
terms of the Securities); and
(B) an opinion of counsel (who may be counsel to the
Sponsor or the Trust) that such amendment is permitted by,
and conforms
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to, the terms of this Declaration (including the terms of
the Securities);
(iii)to the extent the such amendment provides for, or such
proposal proposes to effect,:
(A) any action that would adversely affect the
powers, preferences or special rights of the Securities,
whether by way of amendment to this Declaration or
otherwise; or
(B) the dissolution, winding-up or termination of the
Trust other than pursuant to the terms of this
Declaration;
unless, the Holders of the Securities voting together as a
single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be
effective except with the approval of at least a 66 2/3%
in liquidation amount of the Securities affected thereby,
voting together as a single class; provided, that if any
amendment or proposal referred to in clause (A) above
would adversely affect only the Holders of the Preferred
Securities or the Common Securities, then only the
affected class will be entitled to vote on such amendment
or proposal and such amendment or proposal shall not be
effective except with the approval of 66-2/3% in
liquidation amount of such class of the Securities; and
(iv) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be
classified for purposes of United States federal income
taxation as a grantor trust;
(B) reduce or otherwise adversely affect the powers
of the Property Trustee in contravention of the Trust
Indenture Act; or
(C) cause the Trust to be deemed to be an Investment
Company required to be registered under the Investment
Company Act.
(c) at such time after the Trust has issued any Securities that
remain outstanding, any amendment that would
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adversely affect the rights, privileges or preferences of any Holder of
Securities may be effected only with such additional requirements as may be
set forth in the terms of such Securities;
(d) Section 9.1(c) and this Section 12.1 shall not be amended
without the consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the
Holders of a Majority in liquidation amount of the Common Securities;
(f) the rights of the holders of the Common Securities under Article
V to increase or decrease the number of, and appoint and remove Trustees shall
not be amended without the consent of the Holders of a Majority in liquidation
amount of the Common Securities; and
(g) notwithstanding Section 12.1(c), this Declaration may be amended
without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration
that may be defective or inconsistent with any other provision of this
Declaration;
(iii) add to the covenants, restrictions or obligations of the
Sponsor; and
(iv) modify, eliminate or add to any provision in this
Declaration to the extent deemed necessary or advisable by the Regular
Trustees to ensure that the Trust will be classified for United States
federal income tax purposes as a grantor trust or to ensure that the
Trust will not be required to register as an Investment Company under
the Investment Company Act; and
(v) conform to any change in Rule 3a-5 of the Investment
Company Act or written change in interpretation or application of
Rule 3a-5 of the Investment Company Act by any legislative body, court,
government agency or regulatory authority which amendment does not have
a material adverse effect on the rights, preferences or privileges of
the Holders.
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SECTION 12.2 MEETINGS OF THE HOLDERS OF SECURITIES;
ACTION BY WRITTEN CONSENT.
(a) Meetings of the Holders of any class of Securities may be called
at any time by the Regular Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of such class of
Securities are entitled to act under the terms of this Declaration, the terms of
the Securities or the rules of any stock exchange on which the Preferred
Securities are listed or admitted for trading. The Regular Trustees shall call
a meeting of the Holders of such class if directed to do so by the Holders of at
least 10% in liquidation amount of such class of Securities. Such direction
shall be given by delivering to the Regular Trustees one or more requests in a
writing stating that the signing Holders of Securities wish to call a meeting
and indicating the general or specific purpose for which the meeting is to be
called. Any Holders of Securities calling a meeting shall specify in writing
the Certificates held by the Holders of Securities exercising the right to call
a meeting and only those Securities represented by the Certificates so specified
shall be counted for purposes of determining whether the required percentage set
forth in the second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the
Holders of Securities having a right to vote thereat at least 7 days
and not more than 60 days before the date of such meeting. Whenever a
vote, consent or approval of the Holders of Securities is permitted or
required under this Declaration or the rules of any stock exchange on
which the Preferred Securities are listed or admitted for trading,
such vote, consent or approval may be given at a meeting of the
Holders of Securities. Any action that may be taken at a meeting of
the Holders of Securities may be taken without a meeting if a consent
in writing setting forth the action so taken is signed by the Holders
of Securities owning not less than the minimum aggregate liquidation
amount of Securities that would be necessary to authorize or take such
action at a meeting at which all Holders of Securities having a right
to vote thereon were present and voting. Prompt notice of the taking
of action without a meeting shall be given to the Holders of
Securities entitled to vote who have not consented in writing. The
Regular Trustees may specify that any written ballot submitted to the
Security Holders for the purpose of taking any action
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without a meeting shall be returned to the Trust within the time
specified by the Regular Trustees;
(ii) each Holder of a Security may authorize any Person to
act for it by proxy on all matters in which a Holder of Securities
is entitled to participate, including waiving notice of any meeting,
or voting or participating at a meeting. No proxy shall be valid
after the expiration of 11 months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at
the pleasure of the Holder of Securities executing it. Except as
otherwise provided herein, all matters relating to the giving,
voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware
corporation and the Holders of the Securities were stockholders of a
Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or by such other Person that the
Regular Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms
of the Securities, the Trust Indenture Act or the listing rules of any
stock exchange on which the Preferred Securities are then listed or
trading otherwise provides, the Regular Trustees, in their sole
discretion, shall establish all other provisions relating to meetings
of Holders of Securities, including notice of the time, place or
purpose of any meeting at which any matter is to be voted on by any
Holders of Securities, waiver of any such notice, action by consent
without a meeting, the establishment of a record date, quorum
requirements, voting in person or by proxy or any other matter with
respect to the exercise of any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE
SECTION 13.1 REPRESENTATIONS AND WARRANTIES OF
PROPERTY TRUSTEE.
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration and at
the time of Closing, and each Successor Property Trustee represents and warrants
to the Trust and the Sponsor at the time of the Successor Property Trustee's
acceptance of its appointment as Property Trustee that:
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(a) the Property Trustee is a banking corporation with trust powers,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with corporate power and authority to execute
and deliver, and to carry out and perform its obligations under the terms of,
the Declaration;
(b) the execution, delivery and performance by the Property Trustee
of the Declaration have been duly authorized by all necessary corporate action
on the part of the Property Trustee. The Declaration has been duly executed and
delivered by the Property Trustee and constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(c) the execution, delivery and performance of the Declaration by
the Property Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Property Trustee;
(d) at the Closing Date, the Property Trustee will have valid
ownership interest in the Debentures for the benefit of the Holders of the
Securities in each case free from liens, encumbrances and defects; and
(e) no consent, approval or authorization of, or registration with
or notice to, any state or federal banking authority is required for the
execution, delivery or performance by the Property Trustee of the Declaration.
SECTION 13.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE
TRUSTEE.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration and at
the time of Closing, and each Successor Delaware Trustee represents and warrants
to the Trust and the Sponsor at the time of the Successor Delaware Trustee's
acceptance of its appointment as Delaware Trustee that:
(a) The Delaware Trustee is a banking corporation with trust powers,
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with corporate power and authority to execute and deliver,
and to carry out and perform its obligations under the terms of, the
Declaration;
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(b) the Delaware Trustee has been duly authorized by all necessary
corporate action on the part of the Delaware Trustee to execute and deliver the
Declaration and perform its obligations thereunder and under the Certificate of
Trust. The Declaration has been duly executed and delivered by the Delaware
Trustee, and under Delaware law constitutes a legal, valid and binding
obligation of the Delaware Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(c) the execution, delivery and performance of the Declaration by
the Delaware Trustee does not conflict with or constitute a breach of the
certificate of incorporation or by-laws of the Delaware Trustee;
(d) no consent, approval or authorization of, or registration with
or notice to, any Delaware or federal banking authority is required for the
execution, delivery or performance by the Delaware Trustee of the Declaration;
and
(e) The Delaware Trustee is an entity which has its principal place
of business in the State of Delaware.
ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 REGISTRATION RIGHTS.
The Holders of the Preferred Securities, the Preferred Securities
Guarantee, the Debentures and the Fleetwood Common Stock issuable upon
conversion thereof (collectively, the "Registrable Securities") are entitled
to the benefits of the Registration Rights Agreement. Pursuant to the
Registration Rights Agreement, the Trust and the Company have agreed for the
benefit of the holders from time to time of the Registrable Securities that
they will, at the Company's expense, (i) within 90 days after the date of
original issuance of the Preferred Securities, file a shelf registration
statement (the "Shelf Registration Statement") with the Commission with
respect to resales of the Registrable Securities, (ii) use their best efforts
to cause the Shelf Registration Statement to be declared effective by the
Commission under the Securities Act within 150 days of the date of original
issuance of the Preferred Securities, and (iii) use their best efforts to
keep the Shelf Registration Statement continuously effective until the date
two years after the date of original issuance of the Preferred Securities or
such earlier date as all Registrable Securities have been disposed of or on
which all Registrable Securities
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shall have been disposed of or on which all Registrable Securities held by
persons that are not affiliates of the Company or the Trust may be resold
without registration pursuant to Rule 144(k) under the Securities Act.
If (i) on or prior to 90 days following the date of original
issuance of the Preferred Securities, the Shelf Registration Statement has
not been filed with the Commission or (ii) on or prior to the date 150 days
following the date of original issuance of the Preferred Securities, the
Shelf Registration Statement is not declared effective by the Commission; or
(iii) after the Shelf Registration Statement has been declared effective, it
ceases to be effective or usable (subject to certain exceptions specified in
the Registration Rights Agreement) in connection with resales of the
Registrable Securities in accordance with and during the periods specified in
the Registration Rights Agreement (each, a "Registration Default"),
additional interest ("Liquidated Damages") will accrue on the Securities from
and including the day following such Registration Default to but excluding
the day on which such Registration Default has been cured. Liquidated
Damages will be paid quarterly in arrears, with the first quarterly payment
due on the first interest payment date in respect of the Securities following
the date on which such Liquidated Damages begin to accrue, and will accrue at
a rate per annum equal to an additional one-half of one percent (0.50%) of
the principal amount of the Securities.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 NOTICES.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the Trust may
give notice of to the Holders of the Securities):
c/o Fleetwood Enterprises, Inc.
3125 Myers Street
Riverside, California 92513
Attention: General Counsel
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(b) if given to the Property Trustee, at the mailing address set
forth below (or such other address as the Property Trustee may give notice of to
the Holders of the Securities):
The Bank of New York
101 Barclay Street
21 West
New York, New York 10286
Attention: Corporate Trust Administration
(c) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as the Delaware Trustee may give notice of to
the Holders of the Securities):
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Attention: Corporate Trust Administration
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice to the Trust):
c/o Fleetwood Enterprises, Inc.
3125 Myers Street
Riverside, California 92513
Attention: General Counsel
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust or the Registrar, as applicable.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 15.2 GOVERNING LAW.
THIS DECLARATION AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF
DELAWARE OR ANY OTHER
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JURISDICTION THAT WOULD CALL FOR THE APPLICATION OF THE LAW OF ANY
JURISDICTION OTHER THAN THE STATE OF DELAWARE; PROVIDED, HOWEVER, THAT
THERE SHALL NOT BE APPLICABLE TO THE PARTIES HEREUNDER OR THIS
DECLARATION ANY PROVISIONS OF THE LAWS (STATUTORY OR COMMON) OF THE
STATE OF DELAWARE PERTAINING TO TRUSTS THAT RELATE TO OR REGULATE, IN
A MANNER INCONSISTENT WITH THE TERMS HEREOF (A) THE FILING WITH ANY
COURT OR GOVERNMENTAL BODY OR AGENCY OF TRUSTEE ACCOUNTS OR SCHEDULES
OF TRUSTEE FEES AND CHARGES, (B) AFFIRMATIVE REQUIREMENTS TO POST
BONDS FOR TRUSTEES, OFFICERS, AGENTS OR EMPLOYEES OF A TRUST, (C) THE
NECESSITY FOR OBTAINING COURT OR OTHER GOVERNMENTAL APPROVAL
CONCERNING THE ACQUISITION, HOLDING OR DISPOSITION OF REAL OR PERSONAL
PROPERTY, (D) FEES OR OTHER SUMS PAYABLE TO TRUSTEES, OFFICERS, AGENTS
OR EMPLOYEES OF A TRUST, (E) THE ALLOCATION OF RECEIPTS AND
EXPENDITURES TO INCOME OR PRINCIPAL, (F) RESTRICTIONS OR LIMITATIONS
ON THE PERMISSIBLE NATURE, AMOUNT OR CONCENTRATION OF TRUST
INVESTMENTS OR REQUIREMENTS RELATING TO THE TITLING, STORAGE OR OTHER
MANNER OF HOLDING OR INVESTING TRUST ASSETS OR (G) THE ESTABLISHMENT
OF FIDUCIARY OR OTHER STANDARDS OF RESPONSIBILITY OR LIMITATIONS ON
THE ACTS OR POWERS OF TRUSTEES THAT ARE INCONSISTENT WITH THE
LIMITATIONS OR LIABILITIES OR AUTHORITIES AND POWERS OF THE TRUSTEES
HEREUNDER AS SET FORTH OR REFERENCED IN THIS DECLARATION. SECTION
3540 OF TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THE TRUST.
SECTION 15.3 INTENTION OF THE PARTIES.
It is the intention of the parties hereto that the Trust be classified
for United States federal income tax purposes as a grantor trust. The
provisions of this Declaration shall be interpreted to further this intention of
the parties.
SECTION 15.4 HEADINGS.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
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SECTION 15.5 SUCCESSORS AND ASSIGNS.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 15.6 PARTIAL ENFORCEABILITY.
If any provision of this Declaration, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Declaration, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 15.7 COUNTERPARTS.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
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IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
Paul M. Bingham,
as Regular Trustee
/s/ Paul M. Bingham
----------------------------------------
Lyle N. Larkin,
as Regular Trustee
/s/ Lyle N. Larkin
----------------------------------------
Nelson W. Potter,
as Regular Trustee
/s/ Nelson W. Potter
----------------------------------------
The Bank of New York (Delaware),
not in its individual
capacity but solely as
Delaware Trustee
By:
------------------------------------
Name:
Title:
The Bank of New York,
not in its individual
capacity but solely as
Property Trustee
By: /s/ Mary Beth Lewicki
------------------------------------
Name: Mary Beth Lewicki
Title: Assistant Vice President
FLEETWOOD ENTERPRISES, INC.,
as Sponsor
By: /s/ William H. Lear
------------------------------------
Name: William H. Lear
Title: Vice President - General Counsel
and Secretary
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
Paul M. Bingham,
as Regular Trustee
----------------------------------------
Nelson W. Potter,
as Regular Trustee
----------------------------------------
Lyle N. Larkin,
as Regular Trustee
----------------------------------------
The Bank of New York (Delaware),
not in its individual
capacity but solely as
Delaware Trustee
By: /s/ Mary Jane Morrissey
------------------------------------
Name: Mary Jane Morrissey
Title: Authorized Signatory
The Bank of New York,
not in its individual
capacity but solely as
Property Trustee
By:
------------------------------------
Name:
Title:
FLEETWOOD ENTERPRISES, INC.,
as Sponsor
By:
------------------------------------
Name:
Title:
<PAGE>
ANNEX I
TERMS OF
6% CONVERTIBLE TRUST PREFERRED SECURITIES
6% CONVERTIBLE COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of
Trust, dated as of February 10, 1998 by and among Fleetwood Enterprises, Inc.,
as sponsor (the "Sponsor"), The Bank of New York, as Property Trustee, the Bank
of New York (Delaware), as Delaware Trustee, and the Regular Trustees listed on
the signature page thereto (as amended from time to time, the "Declaration"),
the designation, rights, privileges, restrictions, preferences and other terms
and provisions of the Preferred Securities and the Common Securities are set out
below (each capitalized term used but not defined herein has the meaning set
forth in the Declaration or, if not defined in such Declaration, as defined in
the Offering Memorandum referred to below):
1. DESIGNATION AND NUMBER.
(a) "Preferred Securities." 5,750,000 Preferred Securities of the Trust
with an aggregate liquidation amount with respect to the assets of the
Trust of Two Hundred and Eighty-Seven Million Dollars ($287,500,000),
including 750,000 Preferred Securities of the Trust with an aggregate
liquidation amount with respect to the assets of the Trust of
Thirty-Seven Million Five Hundred Thousand Dollars ($37,500,000)
pursuant to the exercise of the over-allotment option, as provided for
in the Purchase Agreement (the "Additional Preferred Securities"), and
a liquidation amount with respect to the assets of the Trust of $50
per Preferred Security, are hereby designated for the purposes of
identification only as "6% Convertible Trust Preferred Securities
(liquidation amount $50 per Preferred Security)" (the "Preferred
Securities"). The certificates evidencing the Preferred Securities
shall be substantially in the form attached hereto as Exhibit A-1 and
Exhibit A-2, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice or
to conform to the rules of any stock exchange or quotation system on
which the Preferred Securities are listed or quoted, or as may be
permitted by Section 7.3 of the Declaration.
(b) "Common Securities." 178,000 Common Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust
of Seven Million Seven Hundred Fifty Thousand Dollars ($8,900,000),
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including 23,000 Common Securities of the Trust with an aggregate
liquidation amount with respect to the assets of the Trust of One
Million One Hundred Fifty Thousand Dollars ($1,150,000) to meet the
capital requirements of the Trust in connection with the exercise of
the over-allotment issue, and a liquidation amount with respect to the
assets of the Trust of $50 per Common Trust Security, are hereby
designated for the purposes of identification only as "6% Convertible
Common Securities (liquidation amount $50 per Convertible Trust Common
Security)" (the "Common Securities"). The certificates evidencing the
Common Securities shall be substantially in the form attached hereto
as Exhibit A-3, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice or
as may be permitted by Section 7.3 of the Declaration.
2. DISTRIBUTIONS.
(a) Distributions payable on each Security will be fixed at a rate per
annum of 6% (the "Coupon Rate") of the stated liquidation amount of
$50 per Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. To the extent
permitted by applicable law, Distributions in arrears for more than
one quarter will bear interest thereon at the Coupon Rate compounded
quarterly (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and
any such interest payable unless otherwise stated plus any Compounded
Interest (as defined in the Indenture), Additional Interest (as
defined in the Indenture) or Liquidated Damages (as defined in the
Indenture). A Distribution is payable only to the extent that
payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds available
therefor. The amount of Distributions payable for any period will be
computed for any full quarterly Distribution period on the basis of a
360-day year of twelve 30-day months, and, for any period shorter than
a full calendar month, the actual number of days elapsed per 30-day
month.
(b) Distributions on the Securities will be cumulative, will accrue from
February 10, 1998 and will be payable quarterly in arrears on February
15, May 15, August 15 and November 15 of each year, commencing on May
15, 1998, when, as and if available for payment, except as otherwise
described below. So long as the Debenture Issuer shall not be in
default on the payment of
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interest with respect to the Debentures, the Debenture Issuer has the
right under the Indenture to defer payments of interest by extending
the interest payment period on the Debentures for successive periods
not exceeding 20 consecutive quarters (each an "Extension Period").
No Extension Period shall extend beyond the maturity date of the
Debentures or end on other than a Distribution payment date. As a
consequence of such deferral, Distributions will also be deferred.
Despite such deferral, quarterly Distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law) at
the Coupon Rate compounded quarterly during any such Extension Period.
In the event that the Debenture Issuer exercises this right, then (a)
the Debenture Issuer shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make
a liquidation payment with respect to, any of its capital stock (other
than (x)(i) purchases or acquisitions of shares of the Debenture
Issuer's capital stock (or capital stock equivalents) in connection
with the satisfaction by the Debenture Issuer of its obligations under
any officers, directors or employee benefit plans (or any options or
other instruments issued thereunder) or the satisfaction by the
Debenture Issuer of its obligations pursuant to any contract or
security requiring the Debenture Issuer to purchase shares of the
Debenture Issuer's capital stock (or capital stock equivalents), (ii)
purchases of shares of the Debenture Issuer's capital stock (or
capital stock equivalents) from officers, directors or employees of
the Debenture Issuer or its subsidiaries pursuant to employment
agreements or upon termination of employment or retirement, (iii) as a
result of a reclassification, combination or subdivision of the
Debenture Issuer's capital stock or the exchange or conversion of one
class or series of the Debenture Issuer's capital stock for another
class or series of the Debenture Issuer's capital stock, (iv)
dividends or distribution in shares of its capital stock of the same
class on which such dividend or distribution is being made and
conversions or exchanges of common stock of one class into common
stock of another class, (v) the purchase of fractional interests in
shares of the Debenture Issuer's capital stick pursuant to the
conversion or exchange provisions of such capital stock or any
security being converted or exchanged, (vi) purchases or other
acquisitions of common stock in connection with a dividend
reinvestment or other similar plan, or (vii) any dividend or
distribution of capital stock (or capital stock equivalents) in
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connection with the implementation of a stockholders' rights plan, or
the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto, or (y)
guarantee payments made with respect to any of the foregoing), (b) the
Debenture Issuer shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
issued by the Debenture Issuer that rank pari passu with or junior to
the Debentures and (c) the Debenture Issuer shall not make any
guarantee payments with respect to the foregoing (other than pursuant
to the Guarantee or the Debenture Issuer's guarantee of the Common
Securities). Prior to the termination of any such Extension Period,
the Debenture Issuer may further extend such Extension Period;
provided, that such Extension Period together with all such further
extensions thereof may not exceed 20 consecutive quarters or extend
beyond the maturity date of the Debentures or end on other than a
Distribution payment date. No interest shall be due and payable
during an Extension Period, except at the end thereof, but the
Debenture Issuer may prepay at any time all or any portion of the
interest accrued during an Extension Period. If Distributions are
deferred as aforesaid, the deferred accumulated Distributions and, to
the extent permitted by applicable law, accrued and unpaid interest
thereon shall be payable to Holders as they appear on the books and
records of the Trust at the close of business on the related record
date for the Distribution payment date upon which the Extension Period
terminates. Upon the termination of any Extension Period and the
payment of all amounts then due on the Debentures, the Debenture
Issuer may commence a new Extension Period, subject to the above
requirements.
(c) Distributions on the Securities will be payable to the Holders thereof
as they appear on the books and records of the Trust at the close of
business on the relevant record dates. Subject to any applicable laws
and regulations and the provisions of the Declaration, the relevant
record date in respect of Preferred Securities will be 15 days prior
to the relevant payment dates (whether or not such date is a Business
Day). Distributions payable on Preferred Securities which are held in
book-entry form through the Depository Company (the "Depository") will
be made as described under the heading "Description of the Preferred
Securities -- Book-Entry Only Issuance; The Depository Trust Company"
in the Offering Memorandum. Distributions payable on Preferred
Securities which
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are not in book-entry form may be made at the option of the Trust by
check mailed to the address of the holder entitled thereto or by wire
transfer to an account in the United States appropriately designated
by the holder entitled thereto prior to the record date for the
corresponding Distribution payment date; provided that such payment
shall be made by wire transfer if such instructions are given by a
Holder of Preferred Securities having an aggregate liquidation amount
of $1,000,000 or more. Distributions payable on any Securities that
are not punctually paid on any Distribution payment date, as a result
of the Debenture Issuer having failed to make a payment under the
Debentures, will cease to be payable to the Person in whose name such
Securities are registered on the relevant record date, and such
defaulted Distribution will instead be payable to the Person in whose
name such Securities are registered on the special record date or
other specified date determined in accordance with the Indenture;
PROVIDED, HOWEVER, that distributions shall not be considered payable
on any distribution payment date falling within an Extension Period
unless the Debenture Issuer has elected to make a full or partial
payment of interest accrued on the Debentures on such distribution
payment date. Such distributions will be paid through the Property
Trustee, who will hold amounts received in respect of the Debentures
for the benefit of the Holders. The relevant record dates for the
Common Securities shall be the same record dates as for the Preferred
Securities. If any date on which Distributions are payable on the
Securities is not a Business Day, then payment of the Distribution
payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of
any such delay) except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force
and effect as if made on such date.
(d) In the event of the election of the Holder to convert its Securities
through the Conversion Agent into Common Stock, $1.00 par value per
share, of the Sponsor ("Fleetwood Common Stock"), Holders of
Securities at the close of business on a Distribution record date will
be entitled to receive the Distribution payable on such Securities on
the corresponding Distribution payment date notwithstanding the
conversion of such Securities following such record date but prior to
such distribution payment date. Except as provided in the
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immediately preceding sentence, neither the Trust nor the Sponsor will
make, or be required to make, any payment, allowance or adjustment for
any accumulated and unpaid Distributions whether or not in arrears.
The Sponsor will make no payment or allowance for distributions on the
shares of Fleetwood Common Stock issued upon such conversion, except
to the extent that such shares of Fleetwood Common Stock are held of
record on the record date for any such distributions.
(e) In the event that there is any money or other property held by or for
the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) among the Holders of the
Securities.
3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION.
In the event of any voluntary or involuntary dissolution of the Trust,
the Holders of the Securities on the date of the dissolution will be entitled to
receive out of the assets of the Trust available for distribution, after paying
or making reasonable provision to pay all claims and obligations of the Trust in
accordance with Section 3808(e) of the Business Trust Act, an amount equal to
the aggregate of the stated liquidation amount of $50 per Security plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"), unless such dissolution occurs in
connection with a Special Event in which, in accordance with Section 4(c),
Debentures in an aggregate principal amount equal to the aggregate stated
liquidation amount of such Securities, with an interest rate equal to the Coupon
Rate of, and bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid Distributions on, such Securities, shall be distributed on a
Pro Rata basis to the Holders of the Securities in exchange for such Securities.
If, upon any such dissolution, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Trust on the Securities shall be paid on a Pro Rata basis, except that if
a Declaration Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with regard to
such Liquidation Distribution.
4. REDEMPTION AND DISTRIBUTION.
(a) Upon the repayment or payment of the Debentures in whole or in part,
whether at maturity or upon acceleration, redemption or otherwise, the
proceeds
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from such repayment or redemption shall be simultaneously applied to
the extent of such proceeds to redeem Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the
Debentures so repaid or redeemed at the redemption price of the
Debentures together with accrued and unpaid Distributions thereon
through the date of the redemption, payable in cash (the "Redemption
Price"). Except in the case of redemption upon maturity of the
Debentures, Holders will be given not less than 30 nor more than 60
days' notice of such redemption. The applicable redemption price per
Preferred Security shall be equal to the redemption price per $50
principal amount of Debentures.
(b) If fewer than all the outstanding Securities are to be so redeemed,
the Common Securities and the Preferred Securities will be redeemed
Pro Rata and the Preferred Securities to be redeemed will be
determined as described in Paragraph 4(e)(ii) below.
(c) If, at any time, a Tax Event shall occur and be continuing the Regular
Trustees may, with the prior written consent of the Sponsor, unless
the Debentures are redeemed in the limited circumstances described
below, dissolve the Trust and, after paying or making reasonable
provisions to pay all claims and obligations of the Trust in
accordance with Section 3808(e) of the Business Trust Act, cause
Debentures to be distributed to the Holders of the Securities in
liquidation of the Trust within 90 days following the occurrence of
such Tax Event (the "90 Day Period"); PROVIDED, HOWEVER, that such
dissolution, liquidation and distribution shall be conditioned on (i)
the Regular Trustees' receipt of an opinion of a nationally recognized
independent tax counsel experienced in such matters (a "No Recognition
Opinion"), which opinion may rely on published revenue rulings of the
Internal Revenue Service, to the effect that the Holders of the
Securities will not recognize any income, gain or loss for United
States federal income tax purposes as a result of such dissolution and
distribution of Debentures, and (ii) the Trust being unable to avoid
such Tax Event within such 90-day period by taking some ministerial
action or pursuing some other reasonable measure that, in the sole
judgment of the Sponsor, will have no adverse effect on the Trust, the
Sponsor or the Holders of the Securities and will involve no material
cost ("Ministerial Action").
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If (i) the Regular Trustees have received an opinion (a "Redemption
Tax Opinion") of a nationally recognized independent tax counsel (reasonably
acceptable to the Regular Trustees) experienced in such matters that, as a
result of a Tax Event, there is more than an insubstantial risk that the
Debenture Issuer would be precluded from deducting the interest on the
Debentures for United States federal income tax purposes on a current accrual
basis (by reason of deferral, disallowance or otherwise), even after the
Debentures were distributed to the Holders of Securities upon liquidation of the
Trust as described in this paragraph 4(c) or (ii) the Regular Trustees shall
have been informed by such tax counsel that it cannot deliver a No Recognition
Opinion, the Debenture Issuer shall have the right, upon not less than 30 nor
more than 60 days' notice, and within 90 days following the occurrence of such
Tax Event, to redeem the Debentures in whole or in part for cash, at a
redemption price equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon to the redemption date, within 90 days following the
occurrence of a Tax Event, and, following such redemption, the Preferred
Securities will be redeemed by the Trust at the liquidation amount of $50 per
Preferred Security plus accumulated and unpaid Distributions; PROVIDED, HOWEVER,
that, if at the time there is available to the Debenture Issuer or the Trust the
opportunity to eliminate, within such 90-day period, the Tax Event by taking
some Ministerial Action, the Trust or the Debenture Issuer will pursue such
Ministerial Action in lieu of redemption. If the Sponsor declines to consent to
such a dissolution of the Trust and distribution of the Debentures or declines
to redeem to Debentures as described above, the Preferred Securities will remain
outstanding.
"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
(a "Dissolution Tax Opinion") to the effect that, as a result of (a) any
amendment to, or change (including any announced prospective change) in, the
laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, (b) any amendment to, or
change in, an interpretation or application of any such laws or regulations by
any legislative body, court or governmental or regulatory agency or authority
(including the enactment of any legislation and the publication of any judicial
decision or regulatory determination) or (c) any official interpretation or
pronouncement by any legislative body, court or governmental or regulatory
agency or authority that provides for a position with respect to such laws or
regulations that differs from the theretofore generally accepted position, which
amendment or change is enacted, promulgated, issued or announced or which
interpretation or pronouncement is issued or announced, in each case, on or
after the date of the Offering Memorandum, there is more than an insubstantial
risk that (i) the Trust is, or will be within 90 days of the date thereof,
subject to United States
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federal income tax with respect to interest accrued or received on the
Debentures, (ii) the Trust is, or will be within 90 days of the date thereof,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges or (iii) interest (including original issue discount)
payable by the Debenture Issuer to the Trust on the Debentures is not, or within
90 days of the date thereof will not be, deductible by the Debenture Issuer for
United States federal income tax purposes on a current accrual basis (by reason
of deferral, disallowance or otherwise).
If, at any time, an Investment Company Event (as hereinafter defined)
shall occur and be continuing, the Regular Trustees may, with the prior written
consent of the Sponsor, dissolve the Trust and, after paying or making
reasonable provision to pay all claims and obligations of the Trust in
accordance with Section 3808(e) of the Business Trust Act, cause the Debentures
to be distributed to the Holders of the Securities in liquidation of the Trust
within 90 days following the occurrence of such Investment Company Event.
"Investment Company Event" means the Regular Trustees shall have
obtained an opinion from independent counsel experienced in practice under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), to
the effect that, as a result of the occurrence of a change in law or regulation
or a written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority, which
change is enacted, promulgated, issued or becomes effective on or after the date
of the Offering Memorandum (a "Change in Investment Company Act Law"), there is
more than an insubstantial risk that the Trust is or will be considered an
investment company which is required to be registered under the Investment
Company Act.
After the date fixed for any distribution of Debentures: (i) the
Preferred Securities will no longer be deemed to be outstanding, (ii) the
Depositary Trust Company (the "Depositary") or its nominee (or any successor
depositary or its nominee), as record Holder of Preferred Securities represented
by global certificates, will receive a registered global certificate or
certificates representing the Debentures to be delivered upon such distribution
and (iii) any certificates representing Securities, except for certificates
representing Preferred Securities held by the Depositary or its nominee (or any
successor depositary or its nominee), will be deemed to represent Debentures
having an aggregate principal amount equal to the aggregate stated liquidation
amount of such Preferred Securities, with an interest rate equal to the Coupon
Rate and accrued and unpaid interest equal to accrued and unpaid Distributions
on such Preferred Securities until such certificates are presented to the
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Debenture Issuer or its agent for transfer, exchange or reissuance.
(d) The Issuer shall not redeem fewer than all of the outstanding
Preferred Securities unless all accrued and unpaid Distributions have
been or contemporaneously are paid (or such payment is duly provided
for) on all Preferred Securities for all quarterly Distribution
periods terminating on or before the date of redemption.
(e) REDEMPTION OR DISTRIBUTION PROCEDURES.
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for the Securities (a
"Redemption/Distribution Notice") will be given by the Trust by
mail to each Holder of Securities to be redeemed or exchanged
not fewer than 30 nor more than 60 days before the date fixed
for redemption or exchange thereof which, in the case of a
redemption, will be the date fixed for redemption of the
Debentures. For purposes of the calculation of the date of
redemption or exchange and the dates on which notices are given
pursuant to this paragraph 4(e)(i), a Redemption/Distribution
Notice shall be deemed to be given on the day such notice is
first mailed by first-class mail, postage prepaid, to Holders
of Securities. Each Redemption/Distribution Notice shall be
addressed to the Holders of Securities at the address of each
such Holder appearing in the books and records of the Trust.
No defect in the Redemption/Distribution Notice or in the
mailing of either thereof with respect to any Holder shall
affect the validity of the redemption or exchange proceedings
with respect to any other Holder.
(ii) In the event that fewer than all the outstanding Securities are
to be redeemed, the Securities to be redeemed shall be redeemed
Pro Rata it being understood that, in respect of Preferred
Securities registered in the name of and held of record by the
Depositary (or any successor depositary) or any nominee, the
distribution of the proceeds of such redemption will be made in
accordance with the procedures of such agency or nominee.
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(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice may only be issued
if the Debentures are redeemed as set out in this paragraph 4
(which notice will be irrevocable), then (A) with respect to
Preferred Securities held in book-entry form, by 12:00 noon,
New York City time, on the redemption date, provided that the
Debenture Issuer has paid the Property Trustee a sufficient
amount of cash in connection with the related redemption or
maturity of the Debentures, the Property Trustee will deposit
irrevocably with the Depositary (or successor depositary) funds
sufficient to pay the amount payable on redemption with respect
to such Preferred Securities and will give the Depositary
irrevocable instructions and authority to pay the amount
payable on redemption to the Holders of such Preferred
Securities, and (B) with respect to Preferred Securities issued
in certificated form and Common Securities, provided that the
Debenture Issuer has paid the Property Trustee a sufficient
amount of cash in connection with the related redemption or
maturity of the Debentures, the Property Trustee will
irrevocably deposit with the Paying Agent funds sufficient to
pay the amount payable on redemption to the Holders of such
Securities upon surrender of their certificates. If a
Redemption/Distribution Notice shall have been given and funds
deposited as required, then, immediately prior to the close of
business on the date fixed for redemption, Distributions will
cease to accumulate and all rights of Holders of such Preferred
Securities so called for redemption will cease, except the
right of the Holders of such Preferred Securities to receive
the Redemption Price, but without interest on such Redemption
Price. If any date fixed for redemption of Preferred
Securities is not a Business Day, then payment of the amount
payable on such date will be made on the next succeeding day
that is a Business Day (without any interest or other payment
in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on
the immediately preceding Business Day, in each case with the
same force and effect as if made on such date fixed for
redemption. If payment of the redemption price in respect of
any Preferred Securities is
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improperly withheld or refused and not paid either by the Trust
or by the Sponsor as guarantor pursuant to the relevant
Securities Guarantee, Distributions on such Preferred
Securities will continue to accrue at the then applicable rate,
from the original redemption date to the date of payment, in
which case the actual payment date will be considered the date
fixed for redemption for purposes of calculating the amount
payable upon redemption (other than for purposes of calculating
any premium).
(iv) In the event of any redemption in part, the Trust shall not be
required to (i) issue, register the transfer of or exchange any
Security held in certificated form during a period beginning at
the opening of business 15 days before any selection for
redemption of Preferred Securities and ending at the close of
business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of
Preferred Securities to be so redeemed or (ii) register the
transfer of or exchange any Securities held in certificated
form so selected for redemption, in whole or in part, except
for the unredeemed portion of any Securities held in
certificated form being redeemed in part.
(v) Redemption/Distribution Notices shall be sent by the Regular
Trustees on behalf of the Trust to (A) in the case of Preferred
Securities held in book-entry form, the Depositary and, in the
case of Securities held in certificated form, the Holders of
such certificates and (B) in respect of the Common Securities,
the Holder(s) thereof.
(vi) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Sponsor
or any of its subsidiaries may at any time and from time to
time purchase outstanding Preferred Securities by tender, in
the open market or by private agreement.
5. CONVERSION RIGHTS.
The Holders of Securities shall have the right at any time prior to the
close of business on February 15, 2028 (or in the case of Preferred
Securities called for redemption,
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prior to the close of business on the Business Day prior to the Redemption
Date), at their option, to cause the Conversion Agent to convert
Securities, on behalf of the converting Holders, into shares of Fleetwood
Common Stock in the manner described herein on and subject to the following
terms and conditions:
(a) The Securities will be convertible at the office of the Conversion
Agent into fully paid and nonassessable shares of Fleetwood Common
Stock pursuant to the Holder's direction to the Conversion Agent to
exchange such Securities for a portion of the Debentures theretofore
held by the Trust on the basis of one Security per $50 principal
amount of Debentures, and immediately convert such amount of
Debentures into fully paid and nonassessable shares of Fleetwood
Common Stock at an initial rate of 1.02627 shares of Fleetwood Common
Stock per $50 principal amount of Debentures (which is equivalent to a
conversion price of $48.72 per share of Fleetwood Common Stock,
subject to certain adjustments set forth in the terms of the
Debentures (as so adjusted, the "Conversion Price")).
(b) In order to convert Securities into Fleetwood Common Stock the Holder
shall submit to the Conversion Agent at the office referred to above
an irrevocable request to convert Securities on behalf of such Holder
(the "Conversion Request"), together, if the Securities are in
certificated form, with such certificates. The Conversion Request
shall (i) set forth the number of Securities to be converted and the
name or names, if other than the Holder, in which the shares of
Fleetwood Common Stock should be issued and (ii) direct the Conversion
Agent (a) to exchange such Securities for a portion of the Debentures
held by the Trust (at the rate of exchange specified in the preceding
paragraph) and (b) to immediately convert such Debentures on behalf of
such Holder, into Fleetwood Common Stock (at the conversion rate
specified in the preceding paragraph). The Conversion Agent shall
notify the Trust of the Holder's election to exchange Securities for a
portion of the Debentures held by the Trust and the Trust shall, upon
receipt of such notice, deliver to the Conversion Agent the
appropriate principal amount of Debentures for exchange in accordance
with this Section. The Conversion Agent shall thereupon notify the
Sponsor of the Holder's election to convert such Debentures into
shares of Fleetwood Common Stock. Holders of Securities at the close
of business on a Distribution record date will be entitled to receive
the Distribution payable on such securities on the
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corresponding Distribution payment date notwithstanding the conversion
of such Securities following such record date but prior to such
distribution payment date. Except as provided above, neither the
Trust nor the Sponsor will make, or be required to make, any payment,
allowance or adjustment upon any conversion on account of any
accumulated and unpaid Distributions whether or not in arrears accrued
on the Securities surrendered for conversion, or on account of any
accumulated and unpaid dividends on the shares of Fleetwood Common
Stock issued upon such conversion. Securities shall be deemed to have
been converted immediately prior to the close of business on the day
on which a Notice of Conversion relating to such Securities is
received by the Trust in accordance with the foregoing provision (the
"Conversion Date"). The Person or Persons entitled to receive the
Fleetwood Common Stock issuable upon conversion of the Debentures
shall be treated for all purposes as the record holder or holders of
such Fleetwood Common Stock at such time. As promptly as practicable
on or after the Conversion Date, the Sponsor shall issue and deliver
at the office of the Conversion Agent a certificate or certificates
for the number of full shares of Fleetwood Common Stock issuable upon
such conversion, together with the cash payment, if any, in lieu of
any fraction of any share to the Person or Persons entitled to receive
the same, unless otherwise directed by the Holder in the notice of
conversion and the Conversion Agent shall distribute such certificate
or certificates to such Person or Persons.
(c) Each Holder of a Security by his acceptance thereof appoints The Bank
of New York, not in its individual capacity but solely as Trustee as
conversion agent (the "Conversion Agent") for the purpose of effecting
the conversion of Securities in accordance with this Section. In
effecting the conversion and transactions described in this Section,
the Conversion Agent shall be acting as agent of the Holders of
Securities directing it to effect such conversion transactions. The
Conversion Agent is hereby authorized (i) to exchange Securities from
time to time for Debentures held by the Trust in connection with the
conversion of such Securities in accordance with this Section and (ii)
to convert all or a portion of the Debentures into Fleetwood Common
Stock and thereupon to deliver such shares of Fleetwood Common Stock
in accordance with the provisions of this Section and to deliver to
the Trust a new Debenture or Debentures for any resulting unconverted
principal amount provided, however, that the Conversion Agent shall
not reflect
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any conversion of Securities if, after giving effect to such
conversion, the aggregate liquidation amount of Common Securities
outstanding shall be less than 3% of the aggregate liquidation amount
of Securities.
(d) No fractional shares of Fleetwood Common Stock will be issued as a
result of conversion, but in lieu thereof, such fractional interest
will be paid in cash by the Sponsor to the Trust in an amount equal to
the Current Market Price of the fractional share of the Fleetwood
Common Stock, which in turn will make such payment to the Holder or
Holders of Securities so converted.
(e) The Sponsor shall at all times reserve and keep available out of its
authorized and unissued Fleetwood Common Stock, solely for issuance
upon the conversion of the Debentures, such number of shares of
Fleetwood Common Stock as shall from time to time be issuable upon the
conversion of all the Debentures then outstanding. Notwithstanding
the foregoing, the Sponsor shall be entitled to deliver upon
conversion of Debentures, shares of Fleetwood Common Stock reacquired
and held in the treasury of the Sponsor (in lieu of the issuance of
authorized and unissued shares of Fleetwood Common Stock), so long as
any such treasury shares are free and clear of all liens, charges,
security interests or encumbrances. Any shares of Fleetwood Common
Stock issued upon conversion of the Debentures shall be duly
authorized, validly issued and fully paid and nonassessable. The
Trust shall deliver the shares of Fleetwood Common Stock received upon
conversion of the Debentures to the converting Holder free and clear
of all liens, charges, security interests and encumbrances, except for
United States withholding taxes. Each of the Sponsor and the Trust
shall prepare and shall use its best efforts to obtain and keep in
force such governmental or regulatory permits or other authorizations
as may be required by law, and shall comply with all applicable
requirements as to registration or qualification of the Fleetwood
Common Stock (and all requirements to list the Fleetwood Common Stock
issuable upon conversion of Debentures that are at the time
applicable), in order to enable the Sponsor to lawfully issue
Fleetwood Common Stock to the Trust upon conversion of the Debentures
and the Trust to lawfully deliver the Fleetwood Common Stock to each
Holder upon conversion of the Securities.
(f) The Sponsor will pay any and all taxes that may be payable in respect
of the issue or delivery of shares of Fleetwood Common Stock on
conversion of Debentures
I-15
<PAGE>
and the delivery of the shares of Fleetwood Common Stock by the Trust
upon conversion of the Securities. Fleetwood shall not, however, be
required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Fleetwood
Common Stock in a name other than that in which the Securities so
converted were registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the
Trust the amount of any such tax, or has established to the
satisfaction of the Trust that such tax has been paid.
(g) Nothing in the preceding Paragraph (f) shall limit the requirement of
the Trust to withhold taxes pursuant to the terms of the Securities or
set forth in this Annex I to the Declaration or to the Declaration
itself or otherwise require the Property Trustee or the Trust to pay
any amounts on account of such withholdings.
6. VOTING RIGHTS - PREFERRED SECURITIES.
(a) Except as provided under paragraph 6(b), in the Business Trust Act, in
the Trust Indenture Act, and as otherwise required by law, the Holders
of the Preferred Securities will have no voting rights. If at any
time the Sponsor elects to defer payments of interest on the
Debentures as set forth in this Annex I, the Holders of the Preferred
Securities will have no right to appoint a special representative or
trustee.
(b) Subject to the requirements set forth in this paragraph, the Holders
of a majority in liquidation amount of the Preferred Securities,
voting separately as a class, may direct the time, method, and place
of conducting any proceeding for any remedy available to the Property
Trustee, or direct the exercise of any trust or power conferred upon
the Property Trustee under the Declaration, including the right to
direct the Property Trustee, as holder of the Debentures, to (i)
exercise the remedies available under the Indenture with respect to
the Debentures, (ii) waive any past default and its consequences that
is waivable under Section 513 of the Indenture, (iii) exercise any
right to rescind or annul a declaration that the principal of all the
Debentures shall be due and payable or (iv) consent to any amendment,
modification or termination of the Indenture or the Debentures
requiring the consent of the holders of the Debentures, PROVIDED,
HOWEVER, that, if an event of default has occurred and is continuing
under the
I-16
<PAGE>
Indenture, the holders of 25% of the aggregate liquidation amount of
the Preferred Securities then outstanding may direct the Property
Trustee to declare the principal and interest of the Debentures
immediately due and payable; and provided, further, that where a
consent or action under the Indenture would require the consent of (a)
Holders of Debentures representing a specified percentage greater than
a majority in principal amount of the Debentures (a "Super-Majority")
or (b) each holder of Debentures affected thereby, no such consent
shall be given by the Property Trustee without the prior consent of,
in the case of clause (a) above, Holders of Preferred Securities
representing at least such specified percentage of the aggregate
liquidation amount of the Preferred Securities or, in the case of
clause (b) above, each Holder of Preferred Securities affected
thereby.
The Property Trustee shall notify all Holders of the Preferred
Securities of any notice of default received from the Debt Trustee
with respect to the Debentures. Such notice shall state that such
event of default under the Indenture also constitutes an event of
default under the Declaration. Except with respect to directing the
time, method and place of conducting a proceeding for a remedy, the
Property Trustee shall not take any of the actions described in clause
(i), (ii), (iii) or (iv) above unless the Property Trustee has
obtained an opinion of nationally recognized tax counsel experienced
in such matters to the effect that, as a result of such action, the
Trust will not be classified as other than a grantor trust for U.S.
federal income tax purposes and each Holder will be treated as owning
an undivided beneficial interest in the Debentures. The Property
Trustee shall not revoke any action previously authorized or approved
by a vote of the Holders of the Preferred Securities. If the Property
Trustee fails to enforce its rights, as holder of the Debentures,
under the Indenture, any Holder of Preferred Securities may, after a
period of 30 days has elapsed from such Holder's written request to
the Property Trustee to enforce such rights, institute a legal
proceeding directly against the Debenture Issuer, to enforce the
rights of the Property Trustee, as holder of the Debentures, under the
Indenture, without first instituting any legal proceeding against the
Property Trustee or any other Person.
Any approval or direction of Holders of Preferred Securities may be
given at a separate meeting of
I-17
<PAGE>
Holders of Preferred Securities convened for such purpose, at a
meeting of all of the Holders of Securities in the Trust or pursuant
to written consent. The Regular Trustees will cause a notice of any
meeting at which Holders of Preferred Securities are entitled to vote,
or of any matter upon which action by written consent of such Holders
is to be taken, to be mailed to each Holder of record of Preferred
Securities. Each such notice will include a statement setting forth
the following information: (i) the date of such meeting or the date by
which such action is to be taken; (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are
entitled to vote or of such matter upon which written consent is
sought; and (iii) instructions for the delivery of proxies or
consents.
No vote or consent of the Holders of the Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities or to
distribute the Debentures in accordance with the Declaration and the
terms of the Securities.
Notwithstanding that Holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of
the Preferred Securities that are owned by the Sponsor or any
Affiliate of the Sponsor shall not be entitled to vote or consent and
shall, for purposes of such vote or consent, be treated as if they
were not outstanding.
Holders of Preferred Securities will have no rights to increase or
decrease the number of the Regular Trustees or to appoint or remove
the Regular Trustees, who may be appointed, removed or replaced solely
by the Sponsor as the indirect or direct holder of all of the Common
Securities.
7. VOTING RIGHTS - COMMON SECURITIES.
(a) Except as provided under paragraphs 7(b), (c) and 8 below, in the
Business Trust Act and as otherwise required by law and the
Declaration, the Holders of the Common Securities will have no voting
rights.
(b) The Holders of the Common Securities are entitled, in accordance with
Article V of the Declaration, to vote to appoint, remove or replace
any Trustee.
(c) Subject to Section 2.6 of the Declaration and only after the Event of
Default with respect to the Preferred Securities has been cured,
waived, or
I-18
<PAGE>
otherwise eliminated and subject to the requirements of the second to
last sentence of this paragraph, the Holders of a Majority in
liquidation amount of the Common Securities, voting separately as a
class, may direct the time, method, and place of conducting any
proceeding for any remedy available to the Property Trustee, or
exercising any trust or power conferred upon the Property Trustee
under the Declaration, including (i) directing the time, method, place
of conducting any proceeding for any remedy waivable to the Debenture
Trustee, or exercising any trust or power conferred on the Property
Trustee with respect to the Debentures, (ii) waive any past default
and its consequences that is waivable under Section 606 of the
Indenture, or (iii) exercise any right to rescind or annul a
declaration that the principal of all the Debentures shall be due and
payable, PROVIDED, that where a consent or action under the Indenture
would require the consent or act of the Holders of greater than a
majority in principal amount of Debentures affected thereby (a "Super
Majority"), the Property Trustee may only give such consent or take
such action at the direction of the Holders of at least the proportion
in liquidation amount of the Common Securities which the relevant
Super Majority represents of the aggregate principal amount of the
Debentures outstanding. Pursuant to this paragraph 7(c), the Property
Trustee shall not revoke any action previously authorized or approved
by a vote of the Holders of the Preferred Securities. Other than with
respect to directing the time, method and place of conducting any
remedy available to the Property Trustee or the Debenture Trustee as
set forth above, the Property Trustee shall not take any action in
accordance with the directions of the Holders of the Common Securities
under this paragraph unless the Property Trustee has been provided
with an opinion of independent tax counsel to the effect that, as a
result of such action the Trust will not fail to be classified as a
grantor trust or a partnership for United States federal income tax
purposes and each Holder of Common Securities will be treated as
owning undivided beneficial interests in the Debentures. If the
Property Trustee fails to enforce its rights, as holder of the
Debentures, under the Indenture, any Holder of Common Securities may,
after a period of 30 days has elapsed from such Holder's written
request to the Property Trustee to enforce such rights, institute a
legal proceeding directly against the Debenture Issuer, to enforce the
Property Trustee's rights, as holder of the Debentures, under the
Indenture, without
I-19
<PAGE>
first instituting any legal proceeding against the Property Trustee or
any other Person.
Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for
such purpose, at a meeting of all of the Holders of Securities in the
Trust or pursuant to written consent. The Regular Trustees will cause
a notice of any meeting at which Holders of Common Securities are
entitled to vote, or of any matter upon which action by written
consent of such Holders is to be taken, to be mailed to each Holder of
record of Common Securities. Each such notice will include a
statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a
description of any resolution proposed for adoption at such meeting on
which such Holders are entitled to vote or of such matter upon which
written consent is sought; and (iii) instructions for the delivery of
proxies or consents.
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to
distribute the Debentures in accordance with the Declaration and the
terms of the Securities.
8. AMENDMENTS TO DECLARATION AND INDENTURE.
(a) In addition to any requirements under Section 12.1 of the Declaration,
if any proposed amendment to the Declaration provides for, or the
Regular Trustees otherwise propose to effect, (i) any action that
would adversely affect the powers, preferences or special rights of
the Securities, whether by way of amendment to the Declaration or
otherwise, or (ii) the dissolution, winding-up or termination of the
Trust, other than as described in Section 8.1 of the Declaration, then
the Holders of outstanding Securities voting together as a single
class, will be entitled to vote on such amendment or proposal (but not
on any other amendment or proposal) and such amendment or proposal
shall not be effective except with the approval of the Holders of at
least 66 2/3% in liquidation amount of the Securities affected
thereby, PROVIDED, HOWEVER, that if any amendment or proposal referred
to in clause (i) above would adversely affect only the Preferred
Securities or only the Common Securities, then only the affected class
will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective
I-20
<PAGE>
except with the approval of 66 2/3% in liquidation amount of such
class of Securities.
(b) In the event the consent of the Property Trustee as the holder of the
Debentures is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the
Debentures, the Property Trustee shall request the direction of the
Holders of the Securities with respect to such amendment, modification
or termination and shall vote with respect to such amendment,
modification or termination as directed by a Majority in liquidation
amount of the Securities voting together as a single class; PROVIDED,
HOWEVER, that where a consent under the Indenture would require the
consent of the holders of greater than a majority in aggregate
principal amount of the Debentures (a "Super Majority"), the Property
Trustee may only give such consent at the direction of the Holders of
at least the same proportion in aggregate stated liquidation amount of
the Securities; PROVIDED, FURTHER, that the Property Trustee shall not
take any action in accordance with the directions of the Holders of
the Securities under this paragraph 8(b) unless the Property Trustee
has obtained an opinion of tax counsel to the effect that for the
purposes of United States federal income tax the Trust will not be
classified as other than a grantor trust or partnership on account of
such action. Notwithstanding the foregoing, no amendment or
modification may be made to the Declaration if such amendment or
modification would (i) cause the Trust to be classified for United
States federal income tax purposes as other than a grantor trust, (ii)
reduce or otherwise adversely affect the powers of the Property
Trustee in contravention of the Trust Indenture Act or cause the Trust
to be deemed an "investment company" which is required to be
registered under the 1940 Act.
9. PRO RATA.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate liquidation amount of the Securities
held by the relevant Holder in relation to the aggregate liquidation amount of
all Securities outstanding unless, on any distribution date or redemption date
an Event of Default under the Declaration has occurred and is continuing, in
which case no payment of any distribution on, or amount payable upon redemption
of, any Common Security, and no other payment on account of the redemption,
liquidation or other acquisition of Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid distributions on all
I-21
<PAGE>
outstanding Preferred Securities for all distribution periods terminating on or
prior thereto, or in the case of payment of the amount payable upon redemption
of the Preferred Securities, the full amount of such amount in respect of all
outstanding Preferred Securities shall have been made or provided for, and all
funds available to the Property Trustee shall first be applied to the payment in
full in cash of all Distributions on, or the amount payable upon redemption of
Preferred Securities then due and payable.
10. RANKING.
The Preferred Securities rank PARI PASSU and payment thereon shall be
made Pro Rata with the Common Securities except that, where an Event of Default
occurs and is continuing under the Indenture in respect of the Debentures held
by the Property Trustee, the rights of Holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption
and otherwise are subordinated to the rights to payment of the Holders of the
Preferred Securities.
11. ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE.
Each Holder of Preferred Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee and the Common Securities Guarantee, respectively, including the
subordination provisions therein and to the provisions of the Indenture.
12. NO PREEMPTIVE RIGHTS.
The Holders of the Securities shall have no preemptive rights to
subscribe for any additional securities.
13. MISCELLANEOUS.
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the Preferred
Securities Guarantee or the Common Securities Guarantee (as may be appropriate),
and the Indenture to a Holder without charge on written request to the Sponsor
at its principal place of business.
I-22
<PAGE>
EXHIBIT A-1
FORM OF PREFERRED SECURITY
[FORM OF FACE OF SECURITY]
[Include the following Restricted Securities Legend on all Preferred
Securities, including Rule 144A Global Preferred Securities, Regulation S Global
Preferred Securities, and Restricted Definitive Preferred Securities, unless
otherwise determined by the Sponsor in accordance with applicable law -THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY
ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH FLEETWOOD ENTERPRISES, INC. (THE "COMPANY")
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THE SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE"), ONLY
(A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND
THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRANSFER AGENT.
A1-1
<PAGE>
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
[Include if Preferred Security is a Regulation S Definitive Preferred
Security or any other Security issued in respect of a Preferred Security
initially issued in reliance on Regulation S under the Securities Act
- --SUBSEQUENT TRANSFERS OF THIS SECURITY (OR ANY OTHER SECURITY REFERRED TO
ABOVE) AND REGISTRATION OF SUCH TRANSFERS ARE SUBJECT TO THE PRIOR
SATISFACTION OF THE CERTIFICATION REQUIREMENTS AS THE REGISTRAR OR TRANSFER
AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS.]
[Include if Preferred Security is Restricted Definitive Preferred
Security -- IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH
TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES
WITH THE FOREGOING RESTRICTIONS.]
[Include if Preferred Security is in global form and The Depository
Trust Company is the U.S. Depository -- UNLESS THIS CERTIFICATE IS PRESENTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
[Include if Preferred Security is in global form -- TRANSFERS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE DECLARATION REFERRED TO
BELOW.]
A1-2
<PAGE>
Certificate Number Number of Preferred Securities
$_____________ Aggregate Liquidation Amount
CUSIP NO. [ ]
Preferred Securities
of
Fleetwood Capital Trust
6% Convertible Trust Preferred Securities
(liquidation amount $50 per Preferred Security)
Fleetwood Capital Trust, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that
(the "Holder") is the registered owner of preferred securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the 6% Convertible Trust Preferred Securities (liquidation amount $50
per Preferred Security) (the "Preferred Securities"). The Preferred Securities
are transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Securities
represented hereby are issued and shall in all respects be subject to the
provisions of the Amended and Restated Declaration of Trust of the Trust dated
as of February 10, 1998, as the same may be amended from time to time (the
"Declaration"), including the designation of the terms of the Preferred
Securities as set forth in Annex I to the Declaration. Capitalized terms used
herein but not defined shall have the meanings given them in the Declaration.
The Holder is entitled to the benefits of the Preferred Securities Guarantee to
the extent provided therein. The Sponsor will provide a copy of the
Declaration, the Preferred Securities Guarantee and the Indenture to a Holder
without charge upon written request to the Trust at its principal place of
business.
Reference is hereby made to select provisions of the Preferred
Securities set forth on the reverse hereof, which select provisions shall for
all purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
A1-3
<PAGE>
By acceptance of this Preferred Security, the Holder agrees to treat,
for United States federal income tax purposes, the Debentures as indebtedness
and the Preferred Securities as evidence of indirect beneficial ownership in the
Debentures.
By acceptance of this Preferred Security, the Holder agrees to be
bound by the terms of the Registration Rights Agreement relating to the
Preferred Securities and the Fleetwood Common Stock issuable upon conversion
thereof.
Unless the Property Trustee's Certificate of Authentication hereon has
been properly executed, these Preferred Securities shall not be entitled to any
benefit under the Declaration or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Trust has executed this certificate this 10th
day of February, 1998.
Fleetwood Capital Trust
By:
-----------------------------------
Paul M. Bingham
Title: Regular Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the
within-mentioned Declaration.
Dated: February 10, 1998
The Bank of New York,
not in its individual capacity
but solely as Property Trustee
By:
---------------------------
Authorized Signatory
A1-4
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be fixed at a
rate per annum of 6% (the "Coupon Rate") of the stated liquidation amount of $50
per Preferred Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for
more than one quarter will bear interest thereon compounded quarterly at the
Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and any such
interest payable unless otherwise stated. A Distribution is payable only to the
extent that payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds available therefor.
The amount of Distributions payable for any period will be computed for any full
quarterly Distribution period on the basis of a 360-day year of twelve 30-day
months, and for any period of less than a full calendar month, the actual number
of days elapsed in such month.
Except as otherwise described below, distributions on the Preferred
Securities will be cumulative, will accrue from the date of original issuance
and will be payable quarterly in arrears, on February 15, May 15, August 15 and
November 15 of each year, commencing on May 15, 1998, to Holders of record on
the date 15 days prior to such payment dates (whether or not such day is a
Business Day) which payment dates shall correspond to the interest payment dates
on the Debentures. The Debenture Issuer has the right under the Indenture to
defer payments of interest by extending the interest payment period from time to
time on the Debentures for a period not exceeding 20 consecutive quarters (each
an "Extension Period") and, as a consequence of such deferral, Distributions
will also be deferred. Despite such deferral, quarterly Distributions will
continue to accrue with interest thereon (to the extent permitted by applicable
law) at the Coupon Rate compounded quarterly during any such Extension Period.
Prior to the termination of any such Extension Period, the Debenture Issuer may
further extend such Extension Period; PROVIDED THAT such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarters. Payments of accrued Distributions will be payable to
Holders as they appear on the books and records of the Trust on the first record
date after the end of the Extension Period. Upon the termination of any
Extension Period and the payment of all amounts then due, the Debenture Issuer
may commence a new Extension Period, subject to the above requirements.
The Preferred Securities shall be redeemable as provided in the
Declaration.
A1-5
<PAGE>
The Preferred Securities shall be convertible into shares of common
stock of Fleetwood Enterprises, Inc. ("Fleetwood Common Stock"), through (i)
the exchange of Preferred Securities for a portion of the Debentures and (ii)
the immediate conversion of such Debentures into Fleetwood Common Stock, in the
manner and according to the terms set forth in the Declaration.
A1-6
<PAGE>
CONVERSION REQUEST
To: The Bank of New York,
not in its individual
capacity but solely
as Property Trustee of
Fleetwood Capital Trust
The undersigned owner of these Preferred Securities hereby irrevocably
exercises the option to convert these Preferred Securities, or the portion below
designated, into Common Stock of FLEETWOOD ENTERPRISES, INC. (the "Fleetwood
Common Stock") in accordance with the terms of the Amended and Restated
Declaration of Trust (the "Declaration"), dated as of February 10, 1998, by and
among Paul M. Bingham, Lyle N. Larkin and Nelson W. Potter, as Regular Trustees,
The Bank of New York (Delaware), not in its individual capacity but solely as
Delaware Trustee, The Bank of New York, not in its individual capacity but
solely as Property Trustee, and Fleetwood Enterprises, Inc., as Sponsor.
Pursuant to the aforementioned exercise of the option to convert these Preferred
Securities, the undersigned hereby directs the Conversion Agent (as that term is
defined in the Declaration) to (i) exchange such Preferred Securities for a
portion of the Debentures (as that term is defined in the Declaration) held by
the Trust (at the rate of exchange specified in the terms of the Preferred
Securities set forth as Annex I to the Declaration) and (ii) immediately convert
such Debentures on behalf of the undersigned, into Fleetwood Common Stock (at
the conversion rate specified in the terms of the Preferred Securities set forth
as Annex I to the Declaration).
The undersigned does also hereby direct the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
A1-7
<PAGE>
Any holder, upon the exercise of its conversion rights in accordance
with the terms of the Declaration and the Preferred Securities, agrees to be
bound by the terms of the Registration Rights Agreement relating to the
Fleetwood Common Stock issuable upon conversion of the Preferred Securities.
Date: ,
-------------- ----
in whole __ in part __
Number of Preferred Securities to be
converted:
--------------
If a name or names other than the
undersigned, please indicate in the
spaces below the name or names in which
the shares of Fleetwood Common Stock are
to be issued, along with the address or
addresses of such person or persons
- ------------------------------------
- ------------------------------------
- ------------------------------------
- ------------------------------------
- ------------------------------------
- ------------------------------------
- ------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and Address, Including Zip Code, and Social
Security or Other Identifying Number
- -------------------------------------
- -------------------------------------
- -------------------------------------
Signature Guarantee:**
---------------
- --------------------
** (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan
(continued...)
A1-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer this Preferred Security on the books of the Trust. The agent
may substitute another to act for him or her.
Date:
----------------------
Signature:
------------------
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate)
Signature Guarantee **
- ------------------------------------------
- -------------------
(...continued)
association or credit union meeting the requirements of the Registrar,
which requirements include membership or participation in the Securities
Transfer Agents Medallion Program ("STAMP") or such other "signature
guarantee program" as may be determined by the Registrar in addition to, or
in substitution for, STAMP, all in accordance with the Securities Exchange
Act of 1934, as amended.)
** (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.)
A1-9
<PAGE>
---------------------
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF RESTRICTED
PREFERRED SECURITIES
This certificate relates to ___________________ Preferred Securities held in
(check applicable space) ___ book-entry or ___ definitive form by the
undersigned.
(A) The undersigned (check one box below):
/ / has requested the Property Trustee by written order to deliver in exchange
for its beneficial interest in the Rule 144A Global Preferred Security held
by the Depositary a Preferred Security or Preferred Securities in
definitive, registered form in such number equal to its beneficial interest
in such Rule 144A Global Preferred Security (or the number thereof
indicated above); or
/ / has requested the Property Trustee by written order to exchange its
Preferred Security in definitive registered form for an interest in the
Rule 144A Global Preferred Security held by the Depositary in such number
equal to number of Preferred Securities in definitive registered form so
held; or
/ / has requested the Property Trustee by written order to exchange or register
the transfer of a Preferred Security or Preferred Securities.
(B) The undersigned confirms that such Securities are being (check one box
below):
(1) / / acquired for the undersigned's own account, without transfer (in
satisfaction of Section 9.2(d)(ii)(A); or
(2) / / pursuant to and in compliance with Rule 144A under the Securities
Act of 1933; or
(3) / / pursuant to and in compliance with Regulation S under the
Securities Act of 1933; or
(4) / / pursuant to Rule 144 of the Securities Act of 1933.
Unless one of the boxes in (B) above is checked, the Property Trustee will
refuse to register any of the Preferred Securities evidenced by this certificate
in the name of any person other than the registered Holder thereof; PROVIDED,
HOWEVER, that if box (3) or (4) is checked, the Property Trustee may require,
prior to registering any such transfer of the Preferred Securities such legal
opinions, certifications and other information as the Trust has reasonably
requested to confirm that
A1-10
<PAGE>
such transfer is being made pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act of 1933,
such as the exemption provided by Rule 144 under such Act.
-----------------------------------
Signature
Signature Guarantee:***
- ---------------------------- -----------------------------------
Signature must be guaranteed Signature
- --------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing these
Preferred Securities for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Trust as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:
----------------- ------------------------------
NOTICE: To be executed by an
executive officer
- -------------------
*** (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.)
A1-11
<PAGE>
EXHIBIT A-2
FORM OF EXCHANGED PREFERRED SECURITY
[FORM OF FACE OF SECURITY]
[Include if Preferred Security is in global form and the Depository
Trust Company is the U.S. Depositary -- UNLESS THIS CERTIFICATE IS PRESENTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
[Include if Preferred Security is in global form -- TRANSFERS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND
TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE DECLARATION REFERRED TO
BELOW.]
Certificate Number Number of Preferred Securities
$____________ Aggregate Liquidation Amount
CUSIP NO. [ ]
Preferred Securities
of
Fleetwood Capital Trust
6% Convertible Preferred Securities
(liquidation amount $50 per Preferred Security)
Fleetwood Capital Trust, a statutory
business trust formed under the laws of the State of Delaware
(the "Trust"), hereby certifies that
- --------------------------------------------------------------------------------
A2-1
<PAGE>
(the "Holder") is the registered owner of preferred securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the 6% Convertible Trust Preferred Securities (liquidation amount $50
per Preferred Security) (the "Preferred Securities"). The Preferred Securities
are transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Securities
represented hereby are issued and shall in all respects be subject to the
provisions of the Amended and Restated Declaration of Trust of the Trust dated
as of February 10, 1998, as the same may be amended from time to time (the
"Declaration"), including the designation of the terms of the Preferred
Securities as set forth in Annex I to the Declaration. Capitalized terms used
herein but not defined shall have the meaning given them in the Declaration.
The Holder is entitled to the benefits of the Preferred Securities Guarantee to
the extent provided therein. The Sponsor will provide a copy of the
Declaration, the Preferred Securities Guarantee and the Indenture to a Holder
without charge upon written request to the Trust at its principal place of
business.
Reference is hereby made to select provisions of the Preferred
Securities set forth on the reverse hereof, which select provisions shall for
all purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred Securities
as evidence of indirect beneficial ownership in the Debentures.
A2-2
<PAGE>
Unless the Property Trustee's Certificate of Authentication hereon has
been properly executed, these Preferred Securities shall not be entitled to any
benefit under the Declaration or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Trust has executed this certificate this 10th
day of February, 1998.
Fleetwood Capital Trust
By:
------------------------------
Name: Paul M. Bingham
Title: Regular Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the
within-mentioned Declaration.
Dated: February 10, 1998
The Bank of New York,
not in its individual capacity
but solely as Property Trustee
By:
------------------------------
Authorized Signatory
A2-3
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be fixed at a
rate per annum of 6% (the "Coupon Rate") of the stated liquidation amount of $50
per Preferred Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for
more than one quarter will bear interest thereon compounded quarterly at the
Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and any such
interest payable unless otherwise stated. A Distribution is payable only to the
extent that payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds available therefor.
The amount of Distributions payable for any period will be computed for any full
quarterly Distribution period on the basis of a 360-day year of twelve 30-day
months, and for any period of less than a full calendar month, the actual number
of days elapsed in such month.
Except as otherwise described below and in the Declaration,
distributions on the Preferred Securities will be cumulative, will accrue from
the date of original issuance and will be payable quarterly in arrears, on
February 15, May 15, August 15 and November 15 of each year, commencing on May
15, 1998, to Holders of record on the date 15 days prior to such payment dates
(whether or not such day is a Business Day), which payment dates shall
correspond to the interest payment dates on the Debentures. The Debenture
Issuer has the right under the Indenture to defer payments of interest by
extending the interest payment period from time to time on the Debentures for a
period not exceeding 20 consecutive quarters (each an "Extension Period") and,
as a consequence of such deferral, Distributions will also be deferred. Despite
such deferral, quarterly Distributions will continue to accrue with interest
thereon (to the extent permitted by applicable law) at the Coupon Rate
compounded quarterly during any such Extension Period. Prior to the termination
of any such Extension Period, the Debenture Issuer may further extend such
Extension Period; PROVIDED THAT such Extension Period together with all such
previous and further extensions thereof may not exceed 20 consecutive quarters.
Payments of accrued Distributions will be payable to Holders as they appear on
the books and records of the Trust on the first record date after the end of the
Extension Period. Upon the termination of any Extension Period and the payment
of all amounts then due, the Debenture Issuer may commence a new Extension
Period, subject to the above requirements.
The Preferred Securities shall be redeemable as provided in the
Declaration.
A2-4
<PAGE>
The Preferred Securities shall be convertible into shares of Common
Stock of Fleetwood Enterprises, Inc. ("Fleetwood Common Stock"), through (i)
the exchange of Preferred Securities for a portion of the Debentures and (ii)
the immediate conversion of such Debentures into Fleetwood Common Stock, in the
manner and according to the terms set forth in the Declaration.
A2-5
<PAGE>
CONVERSION REQUEST
To: The Bank of New York, not in its individual
capacity but solely as Property Trustee of
Fleetwood Capital Trust
The undersigned owner of these Preferred Securities hereby irrevocably
exercises the option to convert these Preferred Securities, or the portion below
designated, into Common Stock of Fleetwood Enterprises, Inc. (the "Fleetwood
Common Stock") in accordance with the terms of the Amended and Restated
Declaration of Trust (the "Declaration"), dated as of February 10, 1998, by and
among Paul M. Bingham, Lyle N. Larkin and Nelson W. Potter, as Regular Trustees,
The Bank of New York (Delaware), not in its individual capacity but solely as
Delaware Trustee, The Bank of New York, not in its individual capacity but
solely as Property Trustee and Fleetwood Enterprises, Inc., as Sponsor.
Pursuant to the aforementioned exercise of the option to convert these Preferred
Securities, the undersigned hereby directs the Conversion Agent (as that term is
defined in Annex I to the Declaration) to (i) exchange such Preferred Securities
for a portion of the Debentures (as that term is defined in the Declaration)
held by the Trust (at the rate of exchange specified in the terms of the
Preferred Securities set forth as Annex I to the Declaration) and (ii)
immediately convert such Debentures on behalf of the undersigned, into Fleetwood
Common Stock (at the conversion rate specified in the terms of the Preferred
Securities set forth as Annex I to the Declaration).
The undersigned does also hereby direct the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
A2-6
<PAGE>
Any holder, upon the exercise of its conversion rights in accordance
with the terms of the Declaration and the Preferred Securities, agrees to be
bound by the terms of the Registration Rights Agreement relating to the
Fleetwood Common Stock issuable upon conversion of the Preferred Securities.
Date: ,
---------- ----
in whole __ in part __
Number of Preferred Securities to be
converted:
--------------
If a name or names other than the
undersigned, please indicate in the
spaces below the name or names in which
the shares of Fleetwood Common Stock are
to be issued, along with the address or
addresses of such person or persons
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and
Address, Including Zip Code, and Social
Security or Other Identifying Number
-------------------------------------
-------------------------------------
-------------------------------------
Signature Guarantee:****
- ---------------
- ----------------------
**** (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.)
A2-7
<PAGE>
----------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer this Preferred Security on the books of the Trust. The agent
may substitute another to act for him or her.
Date:
----------------------
Signature:
------------------
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate)
Signature Guarantee *****:
- ---------------------------------------
- ---------------------
***** (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange
Act of 1934, as amended.)
A2-8
<PAGE>
EXHIBIT A-3
FORM OF COMMON SECURITY
[FORM OF FACE OF SECURITY]
THE COMMON SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE OF THE CONVERTIBLE SUBORDINATED DEBENTURES UPON THE
CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED AND THE
LAST DATE ON WHICH FLEETWOOD ENTERPRISES, INC. (THE "COMPANY") OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO
THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE COMMON SECURITY EVIDENCED HEREBY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT
TO THE COMPANY'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS
SECURITY IS COMPLETED AND
A3-1
<PAGE>
DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
A3-2
<PAGE>
Certificate Number Number of Common Securities
$____________ Aggregate Liquidation Amount
Common Securities
of
Fleetwood Capital Trust
6% Convertible Common Securities
(liquidation amount $50 per Convertible Common Security)
Fleetwood Capital Trust, a statutory
business trust formed under the laws of the State of Delaware
(the "Trust"), hereby certifies that
- --------------------------------------------------------------------------------
(the "Holder") is the registered owner of common securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the 6% Convertible Common Securities (liquidation amount $50 per
Convertible Common Security) (the "Common Securities"). The Common Securities
are transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities represented
hereby are issued and shall in all respects be subject to the provisions of the
A3-3
<PAGE>
Amended and Restated Declaration of Trust of the Trust dated as of February 10,
1998, as the same may be amended from time to time (the "Declaration"),
including the designation of the terms of the Common Securities as set forth in
Annex I to the Declaration. Capitalized terms used herein but not defined shall
have the meaning given them in the Declaration. The Holder is entitled to the
benefits of the Common Securities Guarantee to the extent provided therein. The
Sponsor will provide a copy of the Declaration, the Common Securities Guarantee
and the Indenture to a Holder without charge upon written request to the Sponsor
at its principal place of business.
Reference is hereby made to select provisions of the Common Securities
set forth on the reverse hereof, which select provisions shall for all purposes
have the same effect as if set forth at this place.
Upon receipt of this certificate, the Sponsor is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat for United States federal
income tax purposes the Debentures as indebtedness and the Common Securities as
evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this 10th
day of February, 1998.
Fleetwood Capital Trust
By:
------------------------------
Name: Paul M. Bingham
Title: Regular Trustee
A3-4
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate
per annum of 6% (the "Coupon Rate") of the stated liquidation amount of $50 per
Common Security, such rate being the rate of interest payable on the Debentures
to be held by the Property Trustee. Distributions in arrears for more than one
quarter will bear interest thereon compounded quarterly at the Coupon Rate (to
the extent permitted by applicable law). The term "Distributions" as used
herein includes such cash distributions and any such interest payable unless
otherwise stated. A Distribution is payable only to the extent that payments
are made in respect of the Debentures held by the Property Trustee and to the
extent the Property Trustee has funds available therefor. The amount of
Distributions payable for any period will be computed for any full quarterly
Distribution period on the basis of a 360-day year of twelve 30-day months, and
for any period of less than a full month, the actual number of days elapsed in
such month.
Except as otherwise described below and in the Declaration,
distributions on the Common Securities will be cumulative, will accrue from the
date of original issuance and will be payable quarterly in arrears, on February
15, May 15, August 15 and November 15 of each year, commencing on May 15, 1998,
to Holders of record on the date 15 days prior to such payment dates (whether or
not such day is a Business Day), which payment dates shall correspond to the
interest payment dates on the Debentures. The Debenture Issuer has the right
under the Indenture to defer payments of interest by extending the interest
payment period from time to time on the Debentures for a period not exceeding 20
consecutive quarters (each an "Extension Period") and, as a consequence of such
deferral, Distributions will also be deferred. Despite such deferral, quarterly
Distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at the Coupon Rate compounded quarterly during any
such Extension Period. Prior to the termination of any such Extension Period,
the Debenture Issuer may further extend such Extension Period; PROVIDED THAT
such Extension Period together with all such previous and further extensions
thereof may not exceed 20 consecutive quarters. Payments of accrued
Distributions will be payable to Holders as they appear on the books and records
of the Trust on the first record date after the end of the Extension Period.
Upon the termination of any Extension Period and the payment of all amounts then
due, the Debenture Issuer may commence a new Extension Period, subject to the
above requirements.
A3-5
<PAGE>
The Common Securities shall be redeemable as provided in the
Declaration.
The Common Securities shall be convertible into shares of Common Stock
of Fleetwood Enterprises, Inc. ("Fleetwood Common Stock") through (i) the
exchange of Common Securities for a portion of the Debentures and (ii) the
immediate conversion of such Debentures into Fleetwood Common Stock, in the
manner and according to the terms set forth in the Declaration.
A3-6
<PAGE>
CONVERSION REQUEST
To: The Bank of New York,
not in its individual
capacity but solely as
Property Trustee of
Fleetwood Capital Trust
The undersigned owner of these Common Securities hereby irrevocably
exercises the option to convert these Common Securities, or the portion below
designated, into Common Stock of Fleetwood Enterprises, Inc. (the "Fleetwood
Common Stock") in accordance with the terms of the Amended and Restated
Declaration of Trust (the "Declaration"), dated as of February 10, 1998, by and
among Paul M. Bingham, Lyle N. Larkin and Nelson W. Potter, as Regular Trustees,
The Bank of New York (Delaware), not in its individual capacity but solely as
Delaware Trustee, The Bank of New York, not in its individual capacity but
solely as Property Trustee, and Fleetwood Enterprises, Inc., as Sponsor.
Pursuant to the aforementioned exercise of the option to convert these Common
Securities, the undersigned hereby directs the Conversion Agent (as that term is
defined in Annex I to the Declaration) to (i) exchange such Common Securities
for a portion of the Debentures (as that term is defined in the Declaration)
held by the Trust (at the rate of exchange specified in the terms of the Common
Securities set forth as Annex I to the Declaration) and (ii) immediately convert
such Debentures on behalf of the undersigned, into Fleetwood Common Stock (at
the conversion rate specified in the terms of the Common Securities set forth as
Annex I to the Declaration).
The undersigned does also hereby direct the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
A3-7
<PAGE>
Any holder, upon the exercise of its conversion rights in accordance
with the terms of the Declaration and the Common Securities, agrees to be bound
by the terms of the Registration Rights Agreement relating to the Fleetwood
Common Stock issuable upon conversion of the Common Securities.
Date: ,
------------- ----
in whole __ in part __
Number of Preferred Securities to be
converted:
--------------
If a name or names other than the
undersigned, please indicate in the
spaces below the name or names in which
the shares of Fleetwood Common Stock are
to be issued, along with the address or
addresses of such person or persons
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and
Address, Including Zip Code, and Social
Security or Other Identifying Number
-------------------------------------
-------------------------------------
-------------------------------------
Signature
Guarantee:******
----------------
- ----------------------
****** (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to, or in substitution
for, STAMP, all in
(continued...)
A3-8
<PAGE>
-------------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer this Preferred Security on the books of the Trust. The agent
may substitute another to act for him or her.
Date:
----------------------
Signature:
------------------
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate)
Signature Guarantee *******:
- --------------------------------------
- ---------------------
******(...continued)
accordance with the Securities Exchange Act of 1934, as amended.)
******* (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934,
as amended.)
A3-9
<PAGE>
EXECUTION COPY
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FLEETWOOD ENTERPRISES, INC.
TO
THE BANK OF NEW YORK,
not in its individual capacity,
but solely as Trustee
---------------
Indenture
Dated as of February 10, 1998
---------------
$296,400,000
(including $38,650,000 pursuant to the exercise
of an over-allotment option)
6% Convertible Subordinated Debentures Due 2028
- --------------------------------------------------------------------------------
<PAGE>
Fleetwood Enterprises, Inc.
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
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<S> <C>
Section 310 (a)(1) . . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . 608, 610
Section 311 (a) . . . . . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . . 613
Section 312 (a) . . . . . . . . . . . . . . . . . . . 701
702(a)
(b) . . . . . . . . . . . . . . . . . . . 702(b)
(c) . . . . . . . . . . . . . . . . . . . 702(c)
Section 313 (a) . . . . . . . . . . . . . . . . . . . 703(a)
(a)(4) . . . . . . . . . . . . . . . . . . . 101, 1004
(b) . . . . . . . . . . . . . . . . . . . 703(a)
(c) . . . . . . . . . . . . . . . . . . . 703(a)
(d) . . . . . . . . . . . . . . . . . . . 703(b)
Section 314 (a) . . . . . . . . . . . . . . . . . . . 704
(b) . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . 102
Section 315 (a) . . . . . . . . . . . . . . . . . . . 601
(b) . . . . . . . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . . . . . . . 514
Section 316 (a) . . . . . . . . . . . . . . . . . . . 101
(a)(1)(A) . . . . . . . . . . . . . . . . . . . 502
512
(a)(1)(B) . . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . . . 104(c)
Section 317 (a)(1) . . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . 1003
Section 318 (a) . . . . . . . . . . . . . . . . . . . 107
</TABLE>
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Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 102. Compliance Certificates and Opinions . . . . . . . . . . . . . 11
SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . . . . . 11
SECTION 104. Acts of Holders; Record Dates. . . . . . . . . . . . . . . . . 12
SECTION 105. Notices, Etc., to Trustee and the Company. . . . . . . . . . . 13
SECTION 106. Notice to Holders; Waiver. . . . . . . . . . . . . . . . . . . 14
SECTION 107. Conflict with Trust Indenture Act. . . . . . . . . . . . . . . 14
SECTION 108. Effect of Headings and Table of Contents . . . . . . . . . . . 14
SECTION 109. Successors and Assigns . . . . . . . . . . . . . . . . . . . . 14
SECTION 110. Separability Clause. . . . . . . . . . . . . . . . . . . . . . 15
SECTION 111. Benefits of Indenture. . . . . . . . . . . . . . . . . . . . . 15
SECTION 112. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 113. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally. . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 202. Initial Issuance to Property Trustee . . . . . . . . . . . . . 16
ARTICLE THREE
The Securities
SECTION 301. Title and Terms. . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 302. Denominations. . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 303. Execution, Authentication, Delivery and Dating . . . . . . . . 19
SECTION 304. Temporary Securities . . . . . . . . . . . . . . . . . . . . . 19
SECTION 305. Registration, Registration of Transfer and
Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . 21
SECTION 307. Payment of Interest; Interest Rights Preserved . . . . . . . . 22
SECTION 308. Persons Deemed Owners. . . . . . . . . . . . . . . . . . . . . 24
SECTION 309. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 310. Right of Setoff. . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 311. CUSIP Numbers. . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 312. Extension of Interest Payment Period; Notice of
Extension. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 313. Paying Agent, Security Registrar and Conversion
Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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i
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ARTICLE FOUR
Satisfaction and Discharge
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SECTION 401. Satisfaction and Discharge of Indenture. . . . . . . . . . . . 26
SECTION 402. Application of Trust Money . . . . . . . . . . . . . . . . . . 28
ARTICLE FIVE
Remedies
SECTION 501. Events of Default. . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 502. Acceleration of Maturity; Rescission and
Annulment. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee . . . . . . . . . . . . . . . . . . . . 31
SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . 32
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 506. Application of Money Collected . . . . . . . . . . . . . . . . 33
SECTION 507. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 508. Unconditional Right of Holders to Receive Principal
and any Premium and Interest and to Convert. . . . . . . . . . 34
SECTION 509. Restoration of Rights and Remedies . . . . . . . . . . . . . . 34
SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . 35
SECTION 511. Delays or Omission Not Waiver. . . . . . . . . . . . . . . . . 35
SECTION 512. Control by Holders . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 513. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . 36
SECTION 514. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . 36
SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . 37
SECTION 516. Enforcement by Holders of Preferred Securities . . . . . . . . 37
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities. . . . . . . . . . . . . . 37
SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 603. Certain Rights of Trustee. . . . . . . . . . . . . . . . . . . 38
SECTION 604. Not Responsible for Recitals or Issuance of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 605. May Hold Securities. . . . . . . . . . . . . . . . . . . . . . 40
SECTION 606. Money Held in Trust. . . . . . . . . . . . . . . . . . . . . . 40
SECTION 607. Compensation and Reimbursement . . . . . . . . . . . . . . . . 40
SECTION 608. Disqualification; Conflicting Interest . . . . . . . . . . . . 40
SECTION 609. Corporate Trustee Required; Eligibility. . . . . . . . . . . . 41
SECTION 610. Resignation and Removal; Appointment of Successor. . . . . . . 41
SECTION 611. Acceptance of Appointment by Successor . . . . . . . . . . . . 42
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
ii
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SECTION 613. Preferential Collection of Claims Against Company. . . . . . . 43
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 702. Preservation of Information: Communications to
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 703. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 704. Reports by Company . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Company May Consolidate, Etc., Only on Certain
Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 802. Successor Substituted. . . . . . . . . . . . . . . . . . . . . 46
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures without Consent of
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 902. Supplemental Indentures with Consent of Holders. . . . . . . . 48
SECTION 903. Execution of Supplemental Indentures . . . . . . . . . . . . . 49
SECTION 904. Effect of Supplemental Indentures. . . . . . . . . . . . . . . 50
SECTION 905. Conformity with Trust Indenture Act. . . . . . . . . . . . . . 50
SECTION 906. Reference in Securities to Supplemental
Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE TEN
Covenants; Representations and Warranties
SECTION 1001. Payment of Principal and Interest. . . . . . . . . . . . . . . 50
SECTION 1002. Maintenance of Office or Agency. . . . . . . . . . . . . . . . 50
SECTION 1003. Money for Security Payments to Be Held in Trust. . . . . . . . 51
SECTION 1004. Statement by Officers as to Default. . . . . . . . . . . . . . 52
SECTION 1005. Limitation on Dividends; Covenants as to the
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 1006. Payment of Expenses of the Trust . . . . . . . . . . . . . . . 54
SECTION 1007. Registration Rights. . . . . . . . . . . . . . . . . . . . . . 54
SECTION 1008. Limitation of Transactions . . . . . . . . . . . . . . . . . . 55
SECTION 1009. Listing of Securities. . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
iii
<PAGE>
ARTICLE ELEVEN
Redemption of Securities
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SECTION 1101. Right of Redemption. . . . . . . . . . . . . . . . . . . . . . 57
SECTION 1102. Applicability of Article . . . . . . . . . . . . . . . . . . . 57
SECTION 1103. Election to Redeem; Notice to Trustee. . . . . . . . . . . . . 57
SECTION 1104. Selection by Trustee of Securities to Be
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 1105. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . 58
SECTION 1106. Deposit of Redemption Price. . . . . . . . . . . . . . . . . . 59
SECTION 1107. Securities Payable on Redemption Date. . . . . . . . . . . . . 59
SECTION 1108. Securities Redeemed in Part. . . . . . . . . . . . . . . . . . 59
SECTION 1109. Optional Redemption. . . . . . . . . . . . . . . . . . . . . . 60
SECTION 1110. Tax Event Redemption . . . . . . . . . . . . . . . . . . . . . 61
SECTION 1111. Certain Limitations on Redemption. . . . . . . . . . . . . . . 62
ARTICLE TWELVE
Subordination of Securities
SECTION 1201. Agreement to Subordinate . . . . . . . . . . . . . . . . . . . 62
SECTION 1202. Default on Senior Indebtedness . . . . . . . . . . . . . . . . 62
SECTION 1203. Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . 63
SECTION 1204. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 1205. Trustee to Effectuate Subordination. . . . . . . . . . . . . . 66
SECTION 1206. Notice by the Company. . . . . . . . . . . . . . . . . . . . . 66
SECTION 1207. Rights of the Trustee; Holders of Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 1208. Subordination May Not Be Impaired. . . . . . . . . . . . . . . 68
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. Conversion Rights. . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 1302. Conversion Procedures. . . . . . . . . . . . . . . . . . . . . 69
SECTION 1303. Conversion Price Adjustments . . . . . . . . . . . . . . . . . 72
SECTION 1304. Adjustment of Conversion Price -- Fundamental
Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 1305 Notice of Adjustments of Conversion Price. . . . . . . . . . . 85
SECTION 1306. Company to Provide Stock . . . . . . . . . . . . . . . . . . . 87
SECTION 1307. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 87
SECTION 1308. Certain Additional Rights. . . . . . . . . . . . . . . . . . . 88
SECTION 1309. Restrictions on Common Stock Issuable upon
Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 1310. Trustee Not Responsible for Determining Conversion
Price or Adjustments . . . . . . . . . . . . . . . . . . . . . 90
ARTICLE FOURTEEN
Meetings of Holders of Securities
SECTION 1401. Purposes for Which Meetings May Be Called. . . . . . . . . . . 91
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SECTION 1402. Call, Notice and Place of Meetings . . . . . . . . . . . . . . 91
SECTION 1403. Persons Entitled to Vote at Meetings . . . . . . . . . . . . . 92
SECTION 1404. Quorum; Action . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 1405. Determination of Voting Rights; Conduct
and Adjournment of Meetings. . . . . . . . . . . . . . . . . . 93
SECTION 1406. Counting Votes and Recording Action of Meetings. . . . . . . . 94
</TABLE>
v
<PAGE>
EXHIBIT A-1 Form of the Security
EXHIBIT A-2 Form of the Exchange Security
ANNEX A Form of Amended and Restated Declaration of Trust among the
Company, as Sponsor, The Bank of New York (Delaware), as Delaware
Trustee, and Nelson W. Potter, Paul M. Bingham and Lyle N.
Larkin, each as Regular Trustees, dated as of February 10, 1998.
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Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
vi
<PAGE>
INDENTURE, dated as of February 10, 1998, between Fleetwood
Enterprises, Inc., a corporation duly organized and existing under the laws of
the State of Delaware ("Fleetwood" or the "Company"), having its principal
office at 3125 Myers Street, Riverside, California 92513, and The Bank of New
York, not in its individual capacity but solely as Trustee (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, Fleetwood Capital Trust, a Delaware business trust (the
"Trust") formed under the Amended and Restated Declaration of Trust among the
Company, as Sponsor, The Bank of New York, not in its individual capacity but
solely in its capacities as property trustee (the "Property Trustee") and
Delaware trustee (the "Delaware Trustee"), and Nelson W. Potter, Paul M.
Bingham, and Lyle N. Larkin, as trustees (the "Regular Trustees"), dated as of
February 10, 1998 (the "Declaration"), pursuant to the Purchase Agreement (the
"Purchase Agreement") dated February 4, 1998, among the Company, the Trust and
the Initial Purchaser named therein, will issue and sell 5,750,000 (including
750,000 pursuant to the exercise of the over-allotment option granted to the
Initial Purchaser) of its 6% Convertible Trust Preferred Securities (the
"Preferred Securities"), with a liquidation amount of $50 per Preferred Security
and having an aggregate liquidation amount with respect to the assets of the
Trust of $287,500,000 (including $37,500,000 pursuant to the exercise of the
over-allotment option);
WHEREAS, the trustees of the Trust, on behalf of the Trust, will
execute and deliver to the Company common securities evidencing an ownership
interest in the Trust (the "Common Securities"), registered in the name of the
Company, in an aggregate amount equal to approximately three percent (3%) of the
capitalization of the Trust, equivalent to 178,000 Common Securities (including
23,000 pursuant to the exercise of the over-allotment option), with a
liquidation amount of $50 per Common Security and having an aggregate
liquidation amount with respect to the assets of the Trust of $8,900,000
(including $1,150,000 pursuant to the exercise of the over-allotment option);
WHEREAS, the Trust will use the proceeds from the sale of the
Preferred Securities and the Common Securities to purchase, from the Company,
Securities (as defined below) in an aggregate principal amount of $296,400,000
(including $38,650,000 pursuant to the exercise of the over-allotment option);
WHEREAS, the Company is guaranteeing the payment of all distributions
(including Additional Interest, Compounded Interest
<PAGE>
and Liquidated Damages, if any) on the Preferred Securities, payment of the
Redemption Price, as applicable, and payments on liquidation with respect to the
Preferred Securities, to the extent provided in the Preferred Securities
Guarantee Agreement (the "Preferred Securities Guarantee") between the Company
and The Bank of New York, not in its individual capacity but solely in its
capacity as guarantee trustee, for the benefit of the holders from time to time
of the Preferred Securities;
WHEREAS, the Company has duly authorized the creation of an issue of
its 6% Convertible Subordinated Debentures Due 2028 (the "Securities") of
substantially the tenor and amount hereinafter set forth and, to provide
therefor, the Company has duly authorized the execution and delivery of this
Indenture; and
WHEREAS, so long as the Trust is a Holder (as defined below) of
Securities and any Preferred Securities are outstanding, the Declaration
provides that the holders of Preferred Securities may cause the Conversion Agent
to (a) exchange such Preferred Securities for Securities held by the Trust and
(b) immediately convert such Securities into Fleetwood Common Stock (as defined
below);
WHEREAS, all things necessary to make the Securities, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
2
<PAGE>
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section, Clause or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Additional Interest" has the meaning specified in Section 301.
"Additional Payments" means Compounded Interest, Additional Interest
and Liquidated Damages, if any.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
3
<PAGE>
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in The City of New York are authorized or
required by law or executive order to remain closed, or (c) a day on which the
Property Trustee's corporate trust office or the Trustee's Corporate Trust
Office is closed for business.
"Change in 1940 Act Law" has the meaning specified in the Declaration.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Securities" has the meaning specified in the Recitals to this
Indenture.
"Common Securities Guarantee" means the guarantee agreement dated as
of February 10, 1998, of the Sponsor in respect of the Common Securities.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and delivered to the Trustee.
"Compounded Interest" has the meaning specified in Section 312.
"Conversion Agent" means the Person or Persons appointed to act on
behalf of the holders of Preferred Securities and/or on behalf of the holders of
Common Securities in effecting the conversion of Preferred Securities and/or
Common Securities as and in the manner set forth in the Declaration and Section
1302 hereof.
"Conversion Date" has the meaning specified in Section 1302.
4
<PAGE>
"Conversion Price" has the meaning specified in Section 1301.
"Corporate Trust Office" means the principal office of The Trustee at
which at any particular time its corporate trust business shall be administered
and which at the date of this Indenture is at 101 Barclay Street, 21 West, New
York, New York, 10286, Attention: Corporate Trust Administration.
"Current Market Price" has the meaning specified in Section
1303(a)(vii).
"Declaration" has the meaning specified in the Recitals to this
Indenture.
"Defaulted Interest" has the meaning specified in Section 307.
"Delaware Trustee" has the meaning specified in the Recitals to this
Indenture.
"Dissolution Event" means that, as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Declaration, and the Securities held by the Property Trustee are to be
distributed to the holders of the Trust Securities issued by the Trust pro rata
in accordance with the Declaration.
"Dissolution Tax Opinion" has the meaning specified in the
Declaration.
"Event of Default" has the meaning specified in Section 501.
"Exchanged Securities" means the 6% Convertible Subordinated
Debentures Due 2028 to be issued in connection with sales of such Securities
pursuant to an effective Shelf Registration Statement.
"Extension Period" has the meaning specified in Section 312.
"Fleetwood Common Stock" has the meaning specified in Section
1303(a)(x).
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or
5
<PAGE>
amended by one or more indentures supplemental hereto entered into pursuant to
the applicable provisions hereof, including, for all purposes of this instrument
and any such supplemental indenture, the provisions of the Trust Indenture Act
that are deemed to be a part of and govern this instrument and any such
supplemental indenture, respectively.
"Initial Purchaser", with respect to the Preferred Securities, means
PaineWebber Incorporated.
"Interest Payment Date" has the meaning specified in Section 301.
"Investment Company Event" has the meaning specified in the
Declaration.
"Liquidated Damages" has the meaning specified in Section 1007.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"90 Day Period" has the meaning specified in Section 1110.
"No Recognition Opinion" has the meaning specified in the Declaration.
"Notice of Conversion" means the notice to be given by a holder of
Preferred Securities or Common Securities to the Conversion Agent directing the
Conversion Agent to exchange such Preferred Securities or Common Securities for
Securities and to convert such Securities into Fleetwood Common Stock on behalf
of such holder.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee. One of the officers signing an Officers' Certificate given
pursuant to Section 1004 shall be the principal executive, financial or
accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the Trustee.
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"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, EXCEPT: (i) Securities theretofore cancelled by the
Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose
payment or redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company shall act as
its own Paying Agent) for the Holders of such Securities; provided, that if such
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the Trustee has
been made; and (iii) Securities which have been paid pursuant to Section 306,
converted into Fleetwood Common Stock pursuant to Section 1301, or in exchange
for or in lieu of which other Securities have been authenticated and delivered
pursuant to this Indenture, other than any such Securities in respect of which
there shall have been presented to the Trustee proof satisfactory to it that
such Securities are held by a bona fide purchaser in whose hands such Securities
are valid obligations of the Company; provided, however, that upon any
distribution of the Securities to the holders of the Preferred Securities in
accordance with the Declaration, in determining whether the Holders of the
requisite principal amount of Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder or are
present at a meeting of Holders of Securities for quorum purposes, Securities
beneficially owned by the Company or any other obligor upon the Securities, or
any Affiliate of the Company or such other obligor, shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in making any such determination or relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so disregarded.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, company, partnership,
joint venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to
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evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Securities" has the meaning specified in the Recitals to
this Indenture.
"Preferred Securities Guarantee" has the meaning specified in the
Recitals to this Indenture.
"Property Trustee" has the meaning specified in the Recitals to this
Indenture.
"Purchase Agreement" has the meaning specified in the Recitals to this
Indenture.
"Redemption Date", when used with respect to any
Security to be redeemed, means the date fixed for such redemption by or pursuant
to this Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Redemption Tax Opinion" has the meaning specified in the Declaration.
"Reference Date" has the meaning specified in Section 1303(a)(iv).
"Registration Rights Agreement" has the meaning specified in Section
1007.
"Regular Record Date" has the meaning specified in Section 301.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the treasurer, any assistant treasurer, the cashier, any assistant
cashier, any trust officer or assistant trust officer, the controller or any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
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"Restricted Securities Legend" has the meaning specified in Section
202.
"Securities" has the meaning specified in the Recitals to this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Indebtedness" means (a) any liability of the Company (1) for
borrowed money or under any reimbursement obligation relating to a letter of
credit, surety bond or similar instrument, or (2) evidenced by a bond, note,
debenture or similar instrument, or (3) for obligations to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business, or (4) for the payment of money relating to a
capitalized lease obligation, or (5) for the payment of money under any Swap
Agreement; (b) any liability of others described in the preceding clause (a)
that the Company has guaranteed or that is otherwise its legal liability; and
(c) any deferral, renewal, extension or refunding of any liability of the types
referred to in clauses (a) and (b) above, unless, in the instrument creating or
evidencing any such liability referred to in clause (a) or (b) above or any such
deferral, renewal, extension or refunding referred to in clause (c) above or
pursuant to which the same is outstanding, it is expressly provided that such
liability, deferral, renewal, extension or refunding is subordinate in right of
payment to all other indebtedness of the Company or is not senior or prior in
right of payment to the Securities or ranks PARI PASSU with or subordinate to
the Securities in right of payment; PROVIDED that the Securities shall not
constitute Senior Indebtedness; and PROVIDED, FURTHER, that Senior Indebtedness
shall not include any indebtedness or guarantees between or among the Company or
its affiliates, including all debt securities or guarantees in respect of those
debt securities issued to any trust (including the Trust), trustee of a trust
(including the Trust), partnership, limited liability company or other person
affiliated with the Company that is a financing vehicle of the Company
(a"Financing Entity") in connection with the issuance by such Financing Entity
of preferred securities unless otherwise expressly provided in the instrument
creating or evidencing such indebtedness, debt securities or guarantees, as the
case may be, or pursuant to which the same is outstanding.
"Shelf Registration Statement" has the meaning specified in Section
1007.
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"Special Event" means either a Tax Event or an Investment Company
Event.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal, together with any accrued and unpaid
interest (including Compounded Interest), of such Security or such installment
of interest is due and payable.
"Subsidiary" of any Person means (i) a corporation more than 50% of
the outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Swap Agreement" means any financial agreement designed to manage the
Company's exposure to fluctuations in interest rates or credit conditions,
currency exchange rates or commodity prices, including without limitation swap
agreements, option agreements, cap agreements, floor agreements, collar
agreements, credit swaps and forward purchase agreements.
"Tax Event" has the meaning specified in the Declaration.
"Trading Day" means a day on which Fleetwood Common Stock is traded on
the national securities exchange or the quotation system used to determine the
Current Market Price.
"Trust" has the meaning specified in the Recitals to this Indenture.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; PROVIDED, HOWEVER,
that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
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"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Securities" means Common Securities and Preferred Securities.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" of any Person means capital stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act or reasonably requested by the Trustee in connection with such
application or request. Each such certificate or opinion shall be given in the
form of an Officers' Certificate, if to be given by an officer of the Company,
or an Opinion of Counsel, if to be given by counsel, and shall comply with the
applicable requirements of the Trust Indenture Act and any other applicable
requirement set forth in this Indenture.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless
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such officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the matters upon which
his certificate or opinion is based are erroneous. Any such certificate or
opinion of counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Company stating that the information with respect to such factual matters is
in the possession of the Company, unless such counsel knows, or in the exercise
of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. ACTS OF HOLDERS; RECORD DATES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee or the Company, as the case may be, deems
sufficient.
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(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to
any record date, only the Holders on such date (or their duly designated
proxies) shall be entitled to give or take, or vote on, the relevant action.
(d) The ownership of Securities shall be proved by the Security
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND THE COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Trustee Administration, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company.
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SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at such Holder's address as it appears in the Security Register,
not later than the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by
Holders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under the Trust Indenture
Act to be a part of and govern this Indenture, the latter provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
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SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness, the holders of Preferred
Securities (to the extent provided herein) and the Holders of Securities, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last date on which a Holder has the right to
convert his Securities shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Securities) payment of interest or
principal or conversion of the Securities need not be made on such date, but may
be made on the next succeeding Business Day (except that, if such Business Day
is in the next succeeding calendar year, such Interest Payment Date, Redemption
Date or Stated Maturity, as the case may be, shall be the immediately preceding
Business Day) with the same force and effect as if made on the Interest Payment
Date or Redemption Date, or at the Stated Maturity or on such last day for
conversion, PROVIDED, that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be.
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ARTICLE TWO
Security Forms
SECTION 201. FORMS GENERALLY.
The Securities and the Trustee's certificates of authentication shall
be substantially in the form of EXHIBIT A-1 which is hereby incorporated in and
expressly made a part of this Indenture. The Exchanged Securities and the
Trustee's certificates of authentication shall be substantially in the form of
EXHIBIT A-2, which is hereby incorporated by reference and expressly made a part
of this Indenture. The Securities may have notations, legends or endorsements
required by law, stock exchange rule, agreements to which the Company is
subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Company). The Company shall furnish
any such legend not contained in EXHIBIT A-1 to the Trustee in writing. Each
Security shall be dated the date of its authentication. The terms and
provisions of the Securities set forth in EXHIBITS A-1 and A-2 are part of the
terms of this Indenture and, to the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
The definitive Securities shall be typewritten or printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as conclusively evidenced by their execution
of such Securities.
SECTION 202. INITIAL ISSUANCE TO PROPERTY TRUSTEE.
The Securities initially issued to the Property Trustee of the Trust
shall be in the form of one or more individual certificates in definitive, fully
registered form without distribution coupons and shall bear the restricted
securities legend set forth in Exhibit A-1 (the "Restricted Securities Legend")
unless the Company determines otherwise in accordance with applicable law.
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ARTICLE THREE
The Securities
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Securities that may be authenticated
and delivered under this Indenture is limited to $296,400,000 (including
$38,650,000 purchased by the Trust pursuant to an over-allotment option in
accordance with the terms and provisions of the Purchase Agreement), except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306,
906, 1108 or 1301.
The Securities shall be known and designated as the "6% Convertible
Subordinated Debentures Due 2028" of the Company. Their Stated Maturity shall
be February 15, 2028, and they shall bear interest at the rate of 6% per annum,
from February 10, 1998, or from the most recent Interest Payment Date (as
defined below) to which interest has been paid or duly provided for, as the case
may be, payable quarterly (subject to deferral as set forth herein), in arrears,
on February 15, May 15, August 15 and November 15 (each an "Interest Payment
Date") of each year, commencing May 15, 1998, until the principal thereof is
paid or made available for payment, and they shall be paid to the Person in
whose name the Security is registered at the close of business on the regular
record date for such interest installment, which shall be the date that is 15
days prior to the Interest Payment Date (whether or not a Business Day) (the
"Regular Record Date"). Interest will compound quarterly and will accrue at the
rate of 6% per annum on any interest installment in arrears for more than one
quarter or during an extension of an interest payment period as set forth in
Section 312 hereof.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months, and, for any period of less
than a full calendar month, the actual number of days elapsed in such month. In
the event that any date on which interest is payable on the Securities is not a
Business Day, then payment of interest payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
If at any time while the Property Trustee is the Holder of any
Securities, the Trust or the Property Trustee is required
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to pay any taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States, or any other taxing
authority, then, in any such case, the Company will pay as additional interest
("Additional Interest") on the Securities held by the Property Trustee, to the
extent permitted by applicable law, such additional amounts as shall be required
so that the net amounts received and retained by the Trust and the Property
Trustee after paying such taxes, duties, assessments or other governmental
charges will be equal to the amounts the Trust and the Property Trustee would
have received had no such taxes, duties, assessments or other government charges
been imposed.
The principal of and interest on the Securities shall be payable at
the office or agency of the Company in the United States maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; PROVIDED,
HOWEVER, that payment of interest may be made at the option of the Company by
check mailed to the address of the holder entitled thereto or by wire transfer
to an account in the United States appropriately designated by the holder
entitled thereto prior to the record date for the corresponding interest payment
date. Notwithstanding the foregoing, so long as the holder of any Securities is
the Property Trustee, the payment of principal and interest on the Securities
held by the Property Trustee will be made by wire transfer at such place and to
such account in the United States as may be designated by the Property Trustee.
The Securities shall be redeemable as provided in Article Eleven
hereof.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Twelve hereof.
The Securities shall be convertible as provided in Article Thirteen
hereof.
SECTION 302. DENOMINATIONS.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $50 and integral multiples thereof.
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SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents. The
signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall manually authenticate and make available for
delivery such Securities as in this Indenture provided and not otherwise.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities that are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive
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Securities upon surrender of the temporary Securities, at any office or agency
of the Company designated pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee shall authenticate and
make available for delivery in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
(a) GENERAL.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
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Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906, 1108 or 1301 not involving any transfer.
The Company shall not be required (i) in the case of a partial
redemption of the Securities, to issue, register the transfer of or exchange any
Security during a period beginning at the opening of business 15 days before the
day of the mailing of a notice of redemption of Securities selected for
redemption under Section 1104 and ending at the close of business on the day of
such mailing, or (ii) to register the transfer of or exchange any Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
(b) TRANSFER PROCEDURES AND RESTRICTIONS.
The Securities may not be transferred except in compliance with the
Restricted Securities Legend, unless otherwise determined by the Company in
accordance with applicable law. Upon any distribution of the Securities to the
holders of the Preferred Securities in accordance with the Declaration, the
Company and the Trustee shall enter into a supplemental indenture pursuant to
Section 901(6) to provide for transfer procedures and restrictions with respect
to the Securities substantially similar to those contained in the Declaration to
the extent applicable in the circumstances existing at the time of such
distribution.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity
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as may be required by them to save each of them and any agent of either of them
harmless, then, in the absence of notice to the Company or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and the Trustee shall authenticate and deliver, in lieu of any such destroyed,
lost or stolen Security, a new Security of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
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(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest, which shall be not more than 15
days and not less than 10 days prior to the date of the proposed payment
and not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first-class
postage prepaid, to each Holder at his address as it appears in the
Security Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and, if so
listed, upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to
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accrue (including in each such case Compounded Interest), which were carried by
such other Security.
In the case of any Security that is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is prior to such Interest Payment Date), interest
whose Stated Maturity is on such Interest Payment Date shall be payable on such
Interest Payment Date notwithstanding such conversion, and such interest
(whether or not punctually paid or duly provided for) shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on such Regular Record Date. Except as
otherwise expressly provided in the immediately preceding sentence, in the case
of any Security that is converted, interest whose Stated Maturity is after the
date of conversion of such Security shall not be payable, and the Company shall
not make nor be required to make any other payment, adjustment or allowance with
respect to accrued but unpaid interest (including Additional Payments, if any)
on the Securities being converted, which shall be deemed to be paid in full.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 307) interest (including Additional Payments, if any) on such Security
and for all other purposes whatsoever, whether or not such Security is overdue,
and neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly cancelled by
it. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Securities held by the Trustee shall be disposed of as directed by a Company
Order; PROVIDED, HOWEVER, that the Trustee
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shall not be required to destroy the certificates representing such cancelled
Securities.
SECTION 310. RIGHT OF SETOFF.
Notwithstanding anything to the contrary in this Indenture, the
Company shall have the right to set off any payment it is otherwise required to
make hereunder to the extent the Company has theretofore made, or is
concurrently on the date of such payment making, a payment under the Preferred
Securities Guarantee.
SECTION 311. CUSIP NUMBERS.
At any time when the Securities are not held solely by the Trust, the
Company shall obtain and use "CUSIP" numbers, and the Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders; PROVIDED, that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Securities or as contained in any notice
of a redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
SECTION 312. EXTENSION OF INTEREST PAYMENT PERIOD; NOTICE OF EXTENSION.
(a) So long as the Company shall not be in default in the payment of
interest on the Securities, the Company shall have the right, at any time and
from time to time during the term of the Securities, to defer payments of
interest (including Additional Interest and Liquidated Damages (as defined in
Section 1007), if any) by extending any interest payment period for successive
periods not exceeding 20 consecutive quarters for each such period (an
"Extension Period"). To the extent permitted by applicable law, interest, the
payment of which has been deferred because of the extension of the interest
payment period pursuant to this Section 312, will bear interest at the per annum
rate specified in Section 301 compounded quarterly for each quarter of the
Extension Period ("Compounded Interest"); PROVIDED, that during an Extension
Period, the Company shall be subject to the provisions of Section 1008 hereof.
At the end of the Extension Period, the Company shall pay all interest then
accrued and unpaid on the Securities, including any Additional Payments, that
shall be payable to the Holders of the Securities in whose names the Securities
are registered in the Security Register on the first Regular Record Date after
the end of the Extension Period. Before the termination of any Extension
Period, the Company may further extend such period, PROVIDED, that such period
together
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with all such further extensions thereof shall not exceed 20 consecutive
quarters or extend beyond the maturity of the Securities or end other than on an
Interest Payment Date. Upon the termination of any Extension Period and upon
the payment of all amounts then due on the Securities, including any Additional
Payments, the Company may commence a new Extension Period, subject to the
foregoing requirements. No interest shall be due and payable during an
Extension Period except at the end thereof.
(b) The Company must give the Property Trustee, the Regular Trustees
and the Trustee notice of its election to begin an Extension Period at least one
Business Day Prior to the earliest of (i) the date the Distribution on the
Preferred Securities would have been payable except for the election to begin
such Extension Period or (ii) if applicable, the date the Regular Trustees are
required to give notice to the NYSE, the Nasdaq National Market or other
applicable self-regulatory organization or to holders of such Preferred
Securities of the record date or (iii) the date such Distribution is payable,
but in any event not less than one Business Day prior to the record date. The
Trustee shall give notice of the Company's election to begin an Extension Period
to the holders of the Securities and the Regular Trustees shall give notice of
the Company's election to the holders of the Preferred Securities.
(c) The quarter in which any notice is given pursuant to paragraphs
(b) hereof shall be counted as one of the 20 quarters permitted in the maximum
Extension Period permitted under paragraph (a) hereof.
SECTION 313. PAYING AGENT, SECURITY REGISTRAR AND CONVERSION AGENT.
The Trustee will initially act as Paying Agent, Security Registrar and
Conversion Agent. The Company may change any Paying Agent, Security Registrar,
co-registrar or Conversion Agent without prior notice. The Company or any of
its Affiliates may act in any such capacity.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
On demand and at the expense of the Company this Indenture shall cease
to be of further effect (except as to the obligations to pay Additional Payments
and the rights of
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conversion, registration of transfer or exchange of Securities herein provided
for), and the Trustee, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section 306 and
(ii) Securities for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation (i) have become due and payable, or (ii) will
become due and payable at their Stated Maturity within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company; and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount in U.S. Dollars sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee, for cancellation, for principal (and
premium, if any) and interest (including Compounded Interest,
Additional Interest and Liquidated Damages, if any) to the date of
such deposit (in the case of Securities which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may
be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations
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of the Trustee under Section 402 and the last paragraph of Section 1003 shall
survive. The Company will also continue to be obligated to pay Additional
Payments to the extent the amount thereof exceeds the amount so deposited.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee. All moneys
deposited with the Trustee pursuant to Section 401 (and held by it or any Paying
Agent) for the payment of Securities subsequently converted shall be returned to
the Company upon Company Request.
ARTICLE FIVE
Remedies
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest on the Securities (including
Additional Payments, if any, in respect thereof), when the same shall become due
and payable, and continuance of such default for a period of 30 days, provided
that a valid extension of an interest payment period will not constitute a
default in the payment of any interest (including Additional Interest or
Compounded Interest, if any) for this purpose; or
(2) default in the payment of the principal of or premium, if any, on any
Security when due upon Maturity (whether upon redemption or otherwise);
(3) failure by the Company to deliver any shares of Fleetwood Common Stock
upon an appropriate election by a registered holder of Securities to convert
such Securities,
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provided that such election is made in accordance with applicable provisions of
the Indenture;
(4) default by the Company in the performance, or breach,
of any other covenant or warranty of the Company in this Indenture or a
Security, and continuance of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such notice
is a "Notice of Default" hereunder; or
(5) the voluntary or involuntary dissolution, winding up or termination of
the Trust, except in connection with the distribution of Securities to holders
of Trust Securities in liquidation of the Trust upon the occurrence of a Special
Event, upon the redemption of all of the outstanding Trust Securities, upon the
conversion of all the outstanding Trust Securities, or upon any merger,
consolidation or amalgamation, each as permitted by the Declaration;
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days; or
(7) the commencement by the Company of a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or order
for relief in respect of the Company in an involuntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal or state law, or
the consent by it to the filing of such petition or to
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the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company or of any
substantial part of its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate action by the
Company in furtherance of any such action.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
may declare the principal of all the Securities, and accrued and unpaid
interest, if any (including any Additional Payments), thereon to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by the Holders), and upon any such declaration such principal or such
lesser amount, as the case may be, and such accrued and unpaid interest shall
become immediately due and payable.
At any time after Securities have been accelerated and before a judgment or
decree for payment of the money due has been obtained by the Trustee as
hereinafter in this Article provided, the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(a) the Company has paid or deposited with the Trustee a sum of money
sufficient to pay
(i) all overdue interest on any Securities that have become due
otherwise than by such declaration of acceleration and any Additional
Payments with respect thereto,
(ii) the principal of and any premium on any Securities that have
become due otherwise than by such declaration of acceleration and any
Additional Payments with respect thereto and, to the extent permitted by
applicable law, interest thereon at the rate borne by the Securities,
(iii) to the extent permitted by applicable law, interest upon
installments of any interest, if any, that has become due otherwise than by
such declaration of acceleration and any Additional Payments with respect
thereto at the rate borne by or provided for in the Securities, and
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(iv) all sums paid or advanced by the Trustee hereunder and the
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel and all other amounts due the Trustee under Section 607;
and
(b) all Events of Default, other than the non-payment of the principal of,
any premium and interest on, and any Additional Payments with respect to the
Securities that shall have become due solely by such declaration of
acceleration, shall have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest (including any
Additional Payments) on any Security when such interest becomes due and
payable and such default continues for a period of 30 days (provided that a
valid extension of the interest payment period by the Company pursuant to
this Indenture shall not constitute a default in the payment of any
interest (including any Additional Payments) for this purpose), or
(2) default is made in the payment of the principal of any Security at
the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal and interest (including any Additional
Payments) and, to the extent that payment thereof shall be legally enforceable,
interest on any overdue principal, any premium and on any overdue interest
(including any Additional Interest or Liquidated Damages), at the rate borne by
the Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel and all other amounts due to the Trustee under Section 607.
If the Company fails to pay the money it is required to pay the
Trustee pursuant to the preceding paragraph forthwith upon the demand of the
Trustee, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the money so due and
unpaid, and
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may prosecute such proceeding to judgment or final decree, and may enforce the
same against the Company or any other obligor upon the Securities and collect
the moneys adjudged or decreed to be payable in the manner provided by law out
of the property of the Company or any other obligor upon the Securities,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Securities), its property or its creditors, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee
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without the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities in
respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Subject to Article Twelve, any money collected by the Trustee pursuant
to this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal or interest (including any Additional Payments), upon presentation
of the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid for
principal of, any premium and interest (including any Additional Payments)
on the Securities in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Securities for
principal and premium and interest (including any Compounded Interest),
respectively; and
THIRD: Any remaining amounts shall be repaid to the Company.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the Trustee
to institute proceedings
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in respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against the costs, expenses and liabilities to
be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity satisfactory to the Trustee has failed to institute
any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60 day period by the Holders of a majority in
aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND ANY
PREMIUM AND INTEREST AND TO CONVERT.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, any premium, if any, and (subject to
Section 307) interest (including any Additional Payments) on such Security on
the respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to convert such Security in accordance
with Article Thirteen and to institute suit for the enforcement of any such
payment and right to convert, and such rights shall not be impaired without the
consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their
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former positions hereunder and thereafter all rights and remedies of the Trustee
and the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAYS OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in aggregate principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee; PROVIDED, that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture;
(2) the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction; and
(3) such direction is not unduly prejudicial to the rights of the
other Holders of Securities not joining in such action.
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SECTION 513. WAIVER OF PAST DEFAULTS.
Subject to Section 902 hereof, the Holders of not less than 662/3% in
aggregate principal amount of the Outstanding Securities may, on behalf of the
Holders of all the Securities, waive any past default hereunder and its
consequences, except a default
(1) in the payment of the principal of, premium, if any, or interest
(including any Additional Payments) on any Security (unless such default
has been cured and a sum sufficient to pay all matured installments of
interest (including any Additional Payments) and principal due otherwise
than by acceleration has been deposited with the Trustee); or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
However, while any Preferred Securities are outstanding, an Event of
Default with respect to the Securities may not be waived without the consent of
662/3% in aggregate liquidation amount of the Preferred Securities.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; PROVIDED, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company or the Trustee or in
any suit for the enforcement of the right to receive the principal of and
interest (including any Additional Payments) on any Security or to convert any
Security in accordance with Article Thirteen.
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SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 516. ENFORCEMENT BY HOLDERS OF PREFERRED SECURITIES.
Notwithstanding anything to the contrary contained herein, an event of
default under the Declaration has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest, including any
Additional Payments, or principal on the Securities on the date such interest
and principal is otherwise payable (or in the case of redemption, the redemption
date), a holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder of the principal of or interest, including
any Additional Payments, on the Securities having a principal amount equal to
the aggregate liquidation amount of the Preferred Securities of such holder on
or after the due date specified in the Securities. In connection with such a
direct proceeding, the Company will remain obligated to pay the principal and
interest on the Securities and will be subrogated to the rights of such holders
of Preferred Securities under the Declaration to the extent of any payment made
by the Company to such holder of Preferred Securities in such a direct
proceeding.
ARTICLE SIX
The Trustee
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
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expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
SECTION 602. NOTICE OF DEFAULTS.
The Trustee shall give the Holders notice of any default hereunder as
and to the extent provided by the Trust Indenture Act; PROVIDED, HOWEVER, that
in the case of any default of the character specified in Section 501(4), no such
notice to Holders shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default" means any event
that is, or after notice or lapse of time or both would become, an Event of
Default.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) the Trustee may conclusively rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) shall, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders
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pursuant to this Indenture, unless such Holders shall have offered to the
Trustee reasonable security or indemnity satisfactory to the Trustee
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to reasonable examination of the books, records and
premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with the prior
written consent of the Company and with due care by it hereunder; and
(h) the Trustee shall not be liable for any action taken or omitted to
be taken by it in good faith and reasonably believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Indenture, unless it shall be proven that the Trustee was negligent in
ascertaining the pertinent facts.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
SECURITIES.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the
use or application by the Company of the Securities or the proceeds thereof.
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SECTION 605. MAY HOLD SECURITIES.
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities and, subject to Sections 608 and 613, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Paying Agent, Security Registrar, or such other agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree in writing for all
services rendered by it hereunder;
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or willful
misconduct; and
(3) to indemnify the Trustee, its agents and counsel and any
predecessor Trustee for, and to hold it harmless against, any loss,
liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of
this trust, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder.
SECTION 608. DISQUALIFICATION; CONFLICTING INTEREST.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall; either eliminate such
interest or resign, to the
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extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such and
has a combined capital and surplus of at least $50,000,000. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Person shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in aggregate principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company. If an instrument of
acceptance by a successor Trustee shall not have been delivered to the
Trustee within 30 days after the giving of such notice of removal, the
retiring Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
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(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company may remove the Trustee, or (ii) subject
to Section 514, any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in aggregate principal amount of the Outstanding
Securities delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment,
become the successor Trustee and supersede the successor Trustee appointed by
the Company. If no successor Trustee shall have been so appointed by the
Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the
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rights, powers, trusts and duties of the retiring Trustee; PROVIDED, that on
request of the Company or the successor Trustee, such retiring Trustee shall,
upon payment of its charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder. Upon request of any
such successor Trustee, the Company shall execute any and all instruments
required to more fully and certainly vest in and confirm to such successor
Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
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ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not later than February 15 and August 15 in each
year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of a date not more than 15 days prior
to the delivery thereof, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
EXCLUDING from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. PRESERVATION OF INFORMATION: COMMUNICATIONS TO
HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
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SECTION 703. REPORTS BY TRUSTEE.
(a) Within 60 days after May 15 of each year, commencing May 15, 1998,
the Trustee shall transmit to Holders such reports concerning the Trustee and
its actions under this Indenture as may be required pursuant to the Trust
Indenture Act in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
SECTION 704. REPORTS BY COMPANY.
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; PROVIDED, that any such
information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be
filed with the Trustee within 15 days after the same is so required to be filed
with the Commission.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS.
The Company shall not consolidate with or merge with or into any other
Person or, directly or indirectly, convey, transfer or lease all or
substantially all of its properties and assets on a consolidated basis to any
Person, unless:
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(1) in case the Company shall consolidate with or merge with or into
another Person or convey, transfer or lease all or substantially all of its
properties and assets on a consolidated basis to any Person, the Person
formed by such consolidation or into which the Company is merged or the
Person that acquires by conveyance, transfer or lease, all or substantially
all of the properties and assets of the Company on a consolidated basis
shall be a corporation organized and validly existing under the laws of the
United States of America, any state thereof or the District of Columbia and
shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form reasonably satisfactory to the Trustee,
the due and punctual payment of the principal of, premium, if any, and
interest (including Additional Payments), if any, on all the Securities
outstanding under this Indenture and the performance or observance of the
Company's obligations under this Indenture and the Securities outstanding
hereunder on the part of the Company to be performed or observed and shall
have provided for conversion rights in accordance with Article Thirteen;
(2) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company or a Subsidiary
as a result of such transaction as having been incurred by the Company or
such Subsidiary at the time of such transaction, no Event of Default, and
no event that, after notice or lapse of time or both, would become an Event
of Default, shall have happened and be continuing;
(3) such consolidation or merger or conveyance, transfer or lease of
assets of the Company is permitted under, and does not give rise to any
breach or violation of, the Declaration or the Preferred Securities
Guarantee; and
(4) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture, comply
with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of all or
substantially all the properties and assets of
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the Company on a consolidated basis in accordance with Section 801, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named as the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under this
Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(2) to add to the Events of Default or the covenants of the Company
for the benefit of the Holders, or to surrender any right or power herein
conferred upon the Company; or
(3) to make provision with respect to the conversion rights of Holders
pursuant to the requirements of Article Thirteen; or
(4) to cure any ambiguity, to correct or supplement any provision
herein that may be inconsistent with any other provision herein, or to make
any other provisions with respect to matters or questions arising under
this Indenture which shall not be inconsistent with the provisions of this
Indenture; PROVIDED, that such action pursuant to this clause (4) shall not
adversely affect the interests of the Holders of the Securities or, so long
as any of the Preferred Securities shall remain outstanding, the holders of
the Preferred Securities; or
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(5) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act; or
(6) to make provision for transfer procedures, certification,
book-entry provisions, the form of restricted securities legends, if any,
to be placed on Securities, and all other matters required pursuant to
Section 305(b) or otherwise necessary, desirable or appropriate in
connection with the issuance of Securities to holders of Preferred
Securities in the event of a distribution of Securities by the Trust if a
Special Event occurs and is continuing; or
(7) to comply with the requirements of the New York Stock Exchange or
such other national securities exchange or automated quotation system, if
any, on which the Securities are then listed.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
PROVIDED, HOWEVER, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or premium, if
any, or (except as permitted by Section 312) any installment of interest
(including any Additional Payments) on, any Security, or reduce the
principal amount thereof, or reduce the rate or (except as permitted by
Section 312) extend the time for payment of interest thereon, or reduce any
premium payable upon the redemption thereof, or change the place of payment
where, or the coin or currency in which, any Security or interest thereon
is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case
of redemption, on or after the Redemption Date), or adversely affect the
right to convert any Security as provided in Article Thirteen,
(2) reduce the percentage in aggregate principal amount of the
Outstanding Securities, the consent of whose Holders is required for any
such modification or amendment
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or the consent of whose holders is required for any waiver under this
Indenture or reduce the requirements for a quorum or voting at a meeting of
Holders of the Securities,
(3) modify any of the provisions of Article 12 hereof or the
definition of Senior Indebtedness in a manner adverse to the Holders of the
Securities, or
(4) modify any of the provisions of this Section or Section 513,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby;
PROVIDED, that so long as any of the Preferred Securities remains outstanding,
no waiver of any Event of Default shall be effective, without the prior consent
of the holders of at least 662/3% of the aggregate liquidation amount of the
outstanding Preferred Securities.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record
date, or their duly designated proxies, and only such Persons, shall be entitled
to consent to such supplemental indenture, whether or not such Holders remain
Holders after such record date; PROVIDED, that unless such consent shall have
become effective by virtue of the requisite percentage having been obtained
prior to the date which is 90 days after such record date, any such consent
previously given shall automatically and without further action by any Holder be
cancelled and of no further effect.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Trustee's
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own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. No such supplemental indenture shall directly or
indirectly modify the provisions of Article Twelve in any manner that might
terminate or impair the rights of the Senior Indebtedness pursuant to such
subordination provisions.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE TEN
Covenants; Representations and Warranties
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of, premium, if
any, and interest (including any Additional Payments) on the Securities when due
in accordance with the terms of the Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the United States an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration
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of transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
United States for such purposes. The Company will give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal or interest so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so to
act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be
held as provided by the Trust Indenture Act, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (i) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (ii) during the continuance of any
default by the Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities, upon
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the written request of the Trustee, forthwith pay to the Trustee all sums held
in trust by such Paying Agent as such.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on any
Security and remaining unclaimed for two years after such principal or interest
has become due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust; and the
Holder of any such Security shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease.
SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the
material terms, provisions and conditions of this Indenture (without regard to
any period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge.
SECTION 1005. LIMITATION ON DIVIDENDS; COVENANTS AS TO THE
TRUST.
(a) The Company covenants that, so long as any Securities are
outstanding, if (x) there shall have occurred and be continuing an Event of
Default or event that, with the giving of notice or the lapse of time or both,
would constitute an Event of Default or (y) the Company shall be in default with
respect to its payment of any obligations under the Preferred Securities
Guarantee, then (a) the Company shall not declare or pay dividends on, make any
distribution with respect to, or redeem,
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purchase, acquire or make a liquidation payment with respect to any of its
capital stock (other than (i) purchases or acquisitions of Fleetwood Common
Stock in connection with the satisfaction by the Company of its obligations
under any existing employee benefit plans or future employee benefit plans
established in the ordinary course or the satisfaction by the Company of its
obligations pursuant to any existing contract or security requiring the Company
to purchase Fleetwood Common Stock, (ii) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company's
capital stock, or (iii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged (or make any guarantee payments with respect to the
foregoing)) and (b) the Company shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Company that rank pari passu with or junior to the
Securities; PROVIDED, FURTHER, that the Company may declare and pay a stock
dividend where the dividend stock is the same stock as that on which the
dividend is paid.
(b) The Company also covenants and agrees that, for so long as the
Trust Securities remain outstanding, the Company shall (i) directly or
indirectly maintain 100% ownership of the Common Securities of the Trust;
PROVIDED, HOWEVER, that any permitted successor of the Company hereunder may
succeed to the Company's ownership of such Common Securities, (ii) not cause, as
sponsor of the Trust, or permit, as the holder of the Common Securities, the
termination, dissolution or winding up of the Trust, except in connection with a
distribution of Securities, as provided in the Declaration and in connection
with certain mergers, consolidations or amalgamations as permitted by the
Declaration, and (iii) use its reasonable efforts, consistent with the terms and
provisions of the Declaration, to cause the Trust to (x) remain a statutory
business trust, except in connection with the distribution of the Securities to
the holders of Trust Securities in liquidation of the Trust, the redemption of
all of the Trust Securities of the Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration, and (y) otherwise continue
to be classified as a grantor trust for United States federal income tax
purposes.
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SECTION 1006. PAYMENT OF EXPENSES OF THE TRUST.
In connection with the offering, sale and issuance of the Securities
to the Property Trustee in connection with the sale of the Trust Securities by
the Trust, the Company shall:
(a) pay for all fees and expenses relating to the offering, sale and
issuance of the Securities and the Preferred Securities, including commissions
to the Initial Purchaser payable pursuant to the Purchase Agreement and
compensation of the Trustee in accordance with the provisions of Section 607;
(b) be responsible for and pay for all debts and obligations (other
than with respect to the Trust Securities) of the Trust, pay for all fees and
expenses of the Trust (including, but not limited to, fees and expenses relating
to the organization of the Trust, the offering, sale and issuance of the Trust
Securities, the fees and expenses of the Property Trustee and the Delaware
Trustee, the fees and expenses relating to the operation of the Trust, including
without limitation, fees and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and computing or
accounting equipment, paying agent(s), registrar(s), transfer agent(s),
duplicating, travel and telephone and other telecommunications expenses and fees
and expenses incurred in connection with the acquisition, financing, and
disposition of Trust assets); and
(c) pay for all fees and expenses related to the retention of the
Property Trustee;
(d) pay for all fees and expenses related to the enforcement by the
Property Trustee of the rights of the holders of the Preferred Securities; and
(e) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and expenses
with respect to such taxes of the Trust.
SECTION 1007. REGISTRATION RIGHTS.
The holders of the Preferred Securities, the Preferred Securities
Guarantee, the Securities and the Fleetwood Common Stock issuable upon
conversion thereof (collectively, the "Registrable Securities") are entitled to
the benefits of a Registration Rights Agreement, dated as of February 10, 1998,
among the Trust, the Company and the Initial Purchaser (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, the Trust and the
Company have agreed for the
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benefit of the holders from time to time of the Registrable Securities that they
will, at the Company's expense, (i) within 90 days after the date of original
issuance of the Preferred Securities, file a shelf registration statement (the
"Shelf Registration Statement") with the Commission with respect to resales of
the Registrable Securities, (ii) use their best efforts to cause the Shelf
Registration Statement to be declared effective by the Commission under the
Securities Act within 150 days of the date of original issuance of the Preferred
Securities, and (iii) use their best efforts to maintain such Shelf Registration
Statement continuously effective under the Securities Act until the date two
years after the date of original issuance of the Preferred Securities or such
earlier date as all Registrable Securities shall have been disposed of or on
which all Registrable Securities held by persons that are not affiliates of the
Company or the Trust may be resold without registration pursuant to Rule 144(k)
under the Securities Act (the "Effectiveness Period").
If (i) on or prior to 90 days following the date of original issuance
of the Preferred Securities, the Shelf Registration Statement has not been filed
with the Commission, (ii) on or prior to the date 150 days following the date of
original issuance of the Preferred Securities, the Shelf Registration Statement
is not declared effective by the Commission, or (iii) after the Shelf
Registration Statement has been declared effective, it ceases to be effective or
usable (subject to certain exceptions specified in the Registration Rights
Agreement) in connection with resales of the Registrable Securities in
accordance with and during the periods specified in the Registration Rights
Agreement (each, a "Registration Default"), additional interest ("Liquidated
Damages") will accrue on the Securities from and including the day following
such Registration Default to but excluding the day on which such Registration
Default has been cured. Liquidated Damages will be paid quarterly in arrears,
with the first quarterly payment due on the first interest payment date in
respect of the Securities following the date on which such Liquidated Damages
begin to accrue, and will accrue at a rate per annum equal to an additional
one-half of one percent (0.50%) of the principal amount of the Securities.
SECTION 1008. LIMITATION OF TRANSACTIONS.
If the Company shall exercise its right to defer payment of interest
as provided in Section 312, then during the Extension Period, (a) the Company
shall not declare or pay any dividend on, make any distributions with respect
to, or redeem, purchase, acquire or make a liquidation payment with respect to,
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any of its capital stock (other than (A)(i) purchases or acquisitions of shares
of the Company's capital stock (or capital stock equivalents) in connection with
the satisfaction by the Company of its obligations under any officers, directors
or employee benefit plans existing on the date of hereof or future officers,
direct or employee benefit plans established in the ordinary course (or any
options or other instruments issued thereunder) or the satisfaction by the
Company of its obligations pursuant to any contract or security requiring the
Company to purchase shares of the Company's capital stock (or capital stock
equivalents), (ii) purchases of shares of the Company's capital stock (or
capital stock equivalents) from officers, directors or employees of the Company
or its subsidiaries pursuant to employment agreements or upon termination of
employment or retirement, (iii) as a result of a reclassification, combination
or subdivision of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (iv) dividends or distributions of shares of
common stock on common stock, (v) the purchase of fractional interests in shares
of the Company's capital stock pursuant to the conversion or exchange provisions
of such capital stock or any security being converted or exchanged into such
capital stock, (vi) dividends or distributions in shares of its capital stock of
the same class on which such dividend or distribution is being made and
conversions or exchanges of common stock of one class into common shares of
another class, (vii) purchases or other acquisitions of common stock in
connection with a dividend reinvestment or other similar plan, or (viii) any
dividend or distribution of capital stock (or capital stock equivalents) in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, or (B) guarantee payments made
with respect to any of the foregoing), (b) the Company shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank PARI PASSU with or
junior to the Securities and (c) the Company shall not make any guarantee
payments with respect to the foregoing (other than pursuant to the Common
Securities Guarantee or the Preferred Securities Guarantee).
SECTION 1009. LISTING OF SECURITIES
If the Securities are distributed to the holders of the Preferred
Securities, the Company will use its best efforts to have the Securities listed
on the New York Stock Exchange or on such other national securities exchange or
similar organization, if any.
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ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. RIGHT OF REDEMPTION.
(a) The Securities may be redeemed at the election of the Company, as
a whole or in part, at any time or from time to time on or after February 15,
2001, at the Redemption Prices set forth in Section 1109 below.
(b) The Securities may be redeemed as provided in Section 1110 of this
Article Eleven as a whole but not in part at the election of the Company at any
time within 90 days following the occurrence of a Tax Event; PROVIDED, HOWEVER,
that, subject to Section 1110 of this Article Eleven, if, at the time there is
available to the Company or the Trust the opportunity to eliminate, within such
90-day period, the Tax Event by taking some ministerial action, including but
not limited to filing a form or making an election, or pursuing some other
similar reasonable measure, which, in the sole judgment of the Company, has or
will cause no adverse effect on the Trust, the Company or the Holders of the
Trust Securities and involves or will involve no material cost, then the Company
or the Trust shall pursue such measure in lieu of redemption.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company, as permitted
by Section 1101, shall be made in accordance with such provision and this
Article.
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days and no more than 90
days prior to the Redemption Date fixed by the Company, notify the Trustee of
such Redemption Date and of the principal amount of Securities to be redeemed
and provide a copy of the notice of redemption given to Holders of Securities to
be redeemed pursuant to Section 1104.
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed (unless such
redemption affects only a single Security), the particular Securities to be
redeemed shall be selected not more than 60 days prior to the Redemption Date by
the Trustee, from
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the Outstanding Securities not previously called for redemption, on a pro rata
basis, in portions equal to $50 (or any integral multiple thereof) of the
principal amount of the Securities.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption as aforesaid and, in case of any Securities
selected for partial redemption as aforesaid, the principal amount thereof to be
redeemed.
The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities that has been or is to be
redeemed.
SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at such Holder's address
appearing in the Security Register.
All notices of redemption shall identify the Securities to be redeemed
(including the CUSIP number) and shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after said date,
(4) the place or places where such Securities are to be surrendered
for payment of the Redemption Price, and
(5) a description of all material conversion features.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at
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the Company's request, by the Trustee in the name and at the expense of the
Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest (including Additional
Payments, if any) on, all the Securities that are to be redeemed on that date.
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
(including Additional Payments, if any) to the Redemption Date; PROVIDED,
HOWEVER, that installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such at the close of business on
the relevant Record Dates according to the terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear interest
from the Redemption Date at the rate borne by the Security.
SECTION 1108. SECURITIES REDEEMED IN PART.
In the event of any redemption in part, the Company shall not be
required to (i) issue, register the transfer of or exchange any Security during
a period beginning at the opening of business 15 days before any selection for
redemption of Securities and ending at the close of business on the earliest
date on which the relevant notice of redemption is deemed to have been given to
all holders of Securities to be so redeemed and (ii) register the transfer of or
exchange any Securities so selected for redemption, in whole or in part, except
for the unredeemed portion of any Securities being redeemed in part.
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Any Security that is to be redeemed only in part shall be surrendered
at a place of payment therefor (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and make available for delivery to the Holder of such
Security without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder, in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered.
SECTION 1109. OPTIONAL REDEMPTION.
(a) Except as provided in Section 1110, the Securities shall not be
subject to redemption at the option of the Company prior to February 15, 2001.
(b) Subject to the provisions of this Article Eleven, the Company
shall have the right to redeem the Securities, in whole or in part, from time to
time, on or after February 15, 2001, upon not less than 30 nor more than 60 days
notice to the Holders of the Securities, at the following prices (expressed as
percentages of the principal amount of the Securities), together (except as
provided below) with accrued and unpaid interest, including, to the extent
permitted by applicable law, Additional Payments, if any, to, but excluding, the
Redemption Date, if redeemed during the 12-month period beginning February 15:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . 103.75%
2002 . . . . . . . . . . . . . . . . . . 103.00%
2003 . . . . . . . . . . . . . . . . . . 102.25%
2004 . . . . . . . . . . . . . . . . . . 101.50%
2005 . . . . . . . . . . . . . . . . . . 100.75%
</TABLE>
and 100% if redeemed on or after February 15, 2006. Notwithstanding the
foregoing provisions of this Section 1109(b), if the Company shall redeem any
Securities pursuant to Section 1110 hereof on or after February 15, 2001, then
the Redemption Price of such Securities shall be the Redemption Price set forth
in Section 1110 and not the Redemption Price set forth in this Section 1109(b).
Without limitation to the proviso to the first paragraph of Section
1107 hereof, if Securities are redeemed on any date in the period beginning on
any record date and ending on
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the next February 15, May 15, August 15 or November 15, accrued and unpaid
interest that is due and payable on such Interest Payment Date shall be payable
to the Holders of record at the close of business on the relevant Regular Record
Date.
So long as any Trust Securities are outstanding, the proceeds from the
redemption of the Securities will be used to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Securities so redeemed.
The Redemption Price for the Securities to be redeemed shall be paid
on the Redemption Date or at such earlier time as the Company determines;
provided that the Company shall deposit with the Trustee an amount sufficient to
pay the Redemption Price on the date such Redemption Price is to be paid.
SECTION 1110. TAX EVENT REDEMPTION.
If a Tax Event has occurred and is continuing and:
(a) the Regular Trustees have received a Redemption Tax Opinion; or
(b) after receiving a Dissolution Tax Opinion, the Regular Trustees
shall have been informed by tax counsel rendering the Dissolution Tax Opinion
that a No Recognition Opinion cannot be delivered to the Trust, then the Company
shall have the right, upon not less than 30 days nor more than 60 days notice to
the Holders of the Securities, to redeem the Securities, in whole or in part for
cash, at a redemption price equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon (including, to the extent permitted by
applicable law, Additional Payments, if any) to but excluding the date of such
redemption, within 90 days following the occurrence of such Tax Event (the
"90-Day Period"); PROVIDED, HOWEVER, that if at the time there is available to
the Company or the Trust the opportunity to eliminate, within such 90-Day
Period, the Tax Event by taking some ministerial action, such as filing a form
or making an election, or pursuing some other similar reasonable measure that in
the sole judgment of the Company has or will cause no adverse effect on the
Company, the Trust or the holders of the Trust Securities and will involve no
material costs, the Company or the Trust will pursue such ministerial action in
lieu of redemption.
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SECTION 1111. CERTAIN LIMITATIONS ON REDEMPTION.
(a) If a partial redemption of the Securities would result in the
delisting of the Preferred Securities issued by the Trust from any national
securities exchange or other organization on which the Preferred Securities are
listed, the Company shall not be permitted to effect such partial redemption and
may only redeem the Securities in whole.
(b) The Company may not redeem any Securities unless all accrued and
unpaid interest thereon (including, to the extent permitted by law, Additional
Payments, if any) has been or is contemporaneously paid (or duly provided for)
for all quarterly interest payment periods terminating on or prior to the date
of notice of redemption.
ARTICLE TWELVE
Subordination of Securities
SECTION 1201. AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each Holder of Securities by
such Holder's acceptance thereof likewise covenants and agrees, that all
Securities shall be issued subject to the provisions of this Article Twelve; and
each Holder of a Security, whether upon original issue or upon transfer or
assignment thereof, accepts and agrees to be bound by such provisions. The
payment by the Company of the principal of, premium, if any, and interest
(including any Additional Payments) on all Securities issued hereunder shall, to
the extent and in the manner hereinafter set forth, be subordinated and junior
in right of payment to the prior payment in full of all Senior Indebtedness,
whether outstanding at the date of this Indenture or thereafter incurred;
PROVIDED, HOWEVER, that no provision of this Article Twelve shall prevent the
occurrence of any default or Event of Default hereunder.
SECTION 1202. DEFAULT ON SENIOR INDEBTEDNESS.
No payment of principal (including redemption payments) of, or
premium, if any, or interest (including any Additional Interest or Compound
Interest) on the Securities may be made if there shall have occurred and be
continuing (i) a default in the payment when due of principal of, premium, if
any, sinking funds, if any, or interest, if any, on any Senior Indebtedness of
the Company and any applicable grace period with respect to such default shall
have ended without such default having been cured or waived or ceasing to exist
or (ii) an event of default with respect to any Senior Indebtedness of the
Company resulting in
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the acceleration of the maturity thereof without such acceleration having been
rescinded or annulled.
In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee when such payment is prohibited by the preceding
paragraph of this Section 1202, such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, but only to the extent
that the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee within 90 days of such payment
of the amounts then due and owing on the Senior Indebtedness and only the
amounts specified in such notice to the Trustee shall be paid to the holders of
Senior Indebtedness.
SECTION 1203. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution winding up, liquidation or reorganization of the
Company, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all amounts (including principal, premium, if
any, and interest) due or to become due upon all Senior Indebtedness shall first
be paid in full, or payment thereof provided for in money in accordance with its
terms, before any payment is made on account of the principal (and premium, if
any) or interest (including any Additional Payments) on the Securities; and upon
any such dissolution winding up, liquidation or reorganization, any payment by
the Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the Holders of the Securities
or the Trustee would be entitled, except for the provisions of this Article
Twelve, shall be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
or by the Holders of the Securities or by the Trustee under this Indenture if
received by them or it, directly to the holders of Senior Indebtedness (pro rata
to such holders on the basis of the respective amounts of Senior Indebtedness
held by such holders, as calculated by the Company) or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay such
Senior Indebtedness in full, in money or money's worth, after giving effect to
any concurrent payment or distribution to
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or for the holders of such Senior Indebtedness, before any payment or
distribution is made to the Holders of Securities or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee or the Holders of the Securities before all Senior Indebtedness is paid
in full, or provision is made for such payment in money in accordance with its
terms, such payment or distribution shall be held in trust for the benefit of
and shall be paid over or delivered to the holders of Senior Indebtedness or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, and their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay such Senior Indebtedness in full
in money in accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.
For purposes of this Article Twelve, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article Twelve with
respect to the Securities to the payment of all Senior Indebtedness that may at
the time be outstanding; PROVIDED, that (i) such Senior Indebtedness is assumed
by the new corporation, if any, resulting from any such reorganization or
readjustment, and (ii) the rights of the holders of such Senior Indebtedness are
not, without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the merger of the
Company with or into, another Person or the liquidation or dissolution of the
Company following the conveyance, transfer or lease of all or substantially all
its properties and assets on a consolidated basis to another Person upon the
terms and conditions provided for in Article Eight hereof shall not be deemed a
dissolution, winding up, liquidation or reorganization for the purposes of this
Section 1203 if such other Person shall, as a part of such consolidation,
merger, conveyance, transfer or lease, comply with the conditions stated in
Article Eight hereof. Nothing in Section 1202 or in this Section 1203 shall
apply to claims of, or payments to, the Trustee under or pursuant to Section 607
hereof.
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SECTION 1204. SUBROGATION.
Subject to the payment in full of all Senior Indebtedness, the rights
of the Holders of the Securities shall be subrogated to the rights of the
holders of such Senior Indebtedness to receive payments or distributions of
cash, property or securities of the Company, as the case may be, applicable to
such Senior Indebtedness until the principal of (and premium, if any) and
interest (including any Additional Payments) on the Securities shall be paid in
full; and, for the purposes of such subrogation, no payments or distributions to
the holders of such Senior Indebtedness of any cash, property or securities to
which the Holders of the Securities or the Trustee would be entitled except for
the provisions of this Article Twelve, and no payment over pursuant to the
provisions of this Article Twelve, to or for the benefit of the holders of such
Senior Indebtedness by Holders of the Securities or the Trustee, shall, as
between the Company, its creditors other than holders of Senior Indebtedness,
and the Holders of the Securities, be deemed to be a payment by the Company to
or on account of such Senior Indebtedness. It is understood that the provisions
of this Article Twelve are and are intended solely for the purposes of defining
the relative rights of the Holders of the Securities, on the one hand, and the
holders of such Senior Indebtedness on the other hand.
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
Holders of the Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including any Additional Payments) on the
Securities as and when the same shall become due and payable in accordance with
their terms (except as permitted by Section 312), or is intended to or shall
affect the relative rights of the Holders of the Securities and creditors of the
Company, as the case may be, other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
Twelve of the holders of such Senior Indebtedness in respect of cash, property
or securities of the Company, as the case may be, received upon the exercise of
any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article Twelve, the Trustee, subject to the provisions of Section 603,
and the Holders of the Securities shall be entitled to rely upon any order or
decree
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made by any court of competent jurisdiction in which such dissolution, winding
up, liquidation or reorganization proceedings are pending, or a certificate of
the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities, for the purposes of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, as the case may be, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article Twelve.
SECTION 1205. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of Securities, by such Holder's acceptance thereof,
authorizes and directs the Trustee, on such Holder's behalf, to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Twelve and appoints the Trustee as such Holder's attorney-in-fact
for any and all such purposes.
SECTION 1206. NOTICE BY THE COMPANY.
The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of moneys to or by the Trustee in respect of the Securities
pursuant to the provisions of this Article Twelve. Notwithstanding the
provisions of this Article Twelve or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment of moneys to or by the Trustee in
respect of the Securities pursuant to the provision of this Article Twelve,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof at the Corporate Trust Office of the Trustee from the
Company or a holder or holders of Senior Indebtedness or from any trustee
therefor; and before the receipt of any such written notice, the Trustee,
subject to the provisions of Section 603 hereof, shall be entitled in all
respects to assume that no such facts exist; PROVIDED, HOWEVER, that if the
Trustee shall not have received the notice provided for in this Section 1206 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of (and premium, if any) or interest (including any
Additional Payments) on any Security), then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purposes for which they were
received, and shall not
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be affected by any notice to the contrary that may be received by it within two
Business Days prior to such date.
The Trustee, subject to the provisions of Section 603, shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee on
behalf of such holder) to establish that such notice has been given by a holder
of such Senior Indebtedness or a trustee on behalf of any such holder or
holders. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Twelve, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
right of such Person under this Article Twelve, and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 1207. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article Twelve in respect of any Senior Indebtedness at
any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
With respect to the holders of Senior Indebtedness of the Company, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are set forth in this Article Twelve, and no implied covenants or
obligations with respect to the holders of such Senior Indebtedness shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Section 603, the Trustee shall not be liable to any
holder of such Senior Indebtedness if it shall pay over or deliver to Holders of
Securities, the Company or any other Person money or assets to which any holder
of such Senior Indebtedness shall be entitled by virtue of this Article Twelve
or otherwise. With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants or obligations as
are specifically set forth in this Article Twelve and no implied covenants or
obligations with respect to holders of Senior
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Indebtedness shall be read into this Indenture against the Trustee.
SECTION 1208. SUBORDINATION MAY NOT BE IMPAIRED.
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such holder may have or
otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligations hereunder of the Holders of the Securities to the
holders of Senior Indebtedness, do any one or more of the following: (i) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, such Senior Indebtedness, or otherwise amend or supplement in any
manner such Senior Indebtedness or any instrument evidencing the same or any
agreement under which such Senior Indebtedness is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Senior Indebtedness; (iii) release any Person liable in
any manner for the collection of such Senior Indebtedness; and (iv) exercise or
refrain from exercising any rights against the Company and any other Person.
ARTICLE THIRTEEN
Conversion of Securities
SECTION 1301. CONVERSION RIGHTS.
Subject to and upon compliance with the provisions of this Article
Thirteen, the Securities are convertible, at the option of the Holders, at any
time prior to the close of business on February 15, 2028 (or in the case of
Securities called for redemption, prior to the close of business on the Business
Day prior to the corresponding Redemption Date), into shares of Fleetwood Common
Stock at an initial conversion price of $48.72 per share of Fleetwood Common
Stock, subject to adjustment as described in this Article Thirteen (the
"Conversion Price"). A
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Holder of Securities may convert any portion of the principal amount of the
Securities (provided that such principal amount is $50 or an integral multiple
thereof) into that number of fully paid and nonassessable shares of Fleetwood
Common Stock obtained by dividing the principal amount of the Convertible
Debentures to be converted by the Conversion Price in effect at the close of
business on the Conversion Date. All calculations under this Article Thirteen
shall be made to the nearest cent or to the nearest 1/100th of a share, as the
case may be, with one-half of a cent and 0.005 of a share being rounded upwards
to the nearest cent and 1/100th of a share, respectively.
SECTION 1302. CONVERSION PROCEDURES.
(a) In order to convert all or a portion of the Securities (provided
that such principal amount is $50 or an integral multiple thereof) the Holder
thereof shall deliver to the Conversion Agent an irrevocable notice of
conversion in substantially the form appearing as part of Exhibit A-1 or A-2
hereto or, in the case of a notice of conversion delivered by a holder of Trust
Securities, in substantially the form appearing in Exhibit A-1 or A-2, as the
case may be, of the Declaration (each, a "Notice of Conversion") setting forth
the principal amount of Securities to be converted, together with the name or
names, if other than the Holder, in which the shares of Fleetwood Common Stock
should be issued upon conversion and, if such Securities are definitive
Securities, surrender to the Conversion Agent the Securities to be converted,
duly endorsed or assigned to the Company or in blank. In addition, a holder of
Trust Securities may exercise its right under the Declaration to convert such
Trust Securities into Fleetwood Common Stock by delivering to the Conversion
Agent an irrevocable Notice of Conversion setting forth the number of Trust
Securities to be redeemed and the other information called for by the preceding
sentence and directing the Conversion Agent (i) to exchange such Trust
Securities for a portion of the Securities held by the Trust (at an exchange
rate of $50 principal amount of Securities for each Trust Security) and (ii) to
convert such Securities as soon as practicable, on behalf of such holder, into
Fleetwood Common Stock pursuant to this Article Thirteen and, if such Trust
Securities are in definitive form, surrendering to the Conversion Agent such
Trust Securities, duly endorsed or assigned to the Company or in blank. So long
as any Trust Securities are outstanding, the Trust shall not convert any
Securities except pursuant to a Notice of Conversion delivered to the Conversion
Agent by a holder of Trust Securities.
(b) If a Security is surrendered for conversion after the close of
business on any record date for payment of interest thereon and before the
opening of business on the corresponding
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payment date (other than a Security or portion of a Security called for
redemption on a Redemption Date occurring after such record date and prior to
such payment date), then, notwithstanding such conversion, the interest payable
on such payment date will be paid to the Trust which will distribute such
interest to the holder of the applicable Trust Securities at the close of
business on the record date or to such other Person in whose name such Security
is registered at the close of business on such record date, as the case may be,
despite such conversion, and (other than a Security or a portion of a Security
called for redemption on a Redemption Date occurring after such record date and
on or prior to such payment date) when so surrendered for conversion, the
Security need not be accompanied by payment of an amount in cash equal to the
interest payable on such payment date. Except as otherwise provided in the
immediately preceding sentence, in the case of any Security that is converted,
interest that would otherwise be due and payable after the date of conversion of
such Security shall not be payable, and the Company shall not make nor be
required to make any other payment, adjustment or allowance with respect to
accrued but unpaid interest on the Securities being converted, which shall be
deemed to be paid in full. Each conversion shall be deemed to have been
effected immediately prior to the close of business on the day (the "Conversion
Date") on which the Notice of Conversion (together with, if required by the
preceding paragraph, certificates, duly endorsed or assigned to the Company or
in blank, evidencing the Trust Securities or Securities, as the case may be,
being surrendered for conversion) was received by the Conversion Agent from (x)
a holder of the Trust Securities effecting a conversion thereof pursuant to its
conversion rights under the Declaration or (y) if the Securities shall have been
distributed to holders of Trust Securities following the occurrence of a Special
Event, when received by the Conversion Agent from the Holder effecting the
conversion thereof pursuant to its conversion rights under the Indenture, as the
case may be. The Person or Persons entitled to receive the Fleetwood Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Fleetwood Common Stock as of the Conversion
Date. As promptly as practicable on or after the Conversion Date, the Company
shall issue and deliver at the office of the Conversion Agent, unless otherwise
directed in the Notice of Conversion, a certificate or certificates for the
number of full shares of Fleetwood Common Stock issuable upon such conversion,
together with the cash payment, if any, in lieu of any fraction of any share to
the Person or Persons entitled to receive the same. The Conversion Agent shall
deliver such certificate or certificates to such Person or Persons.
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(c) The Company's delivery upon conversion of the fixed number of
shares of Fleetwood Common Stock into which the Securities are convertible
(together with the cash payment, if any, in lieu of fractional shares) shall be
deemed to satisfy the Company's obligation to pay the principal amount at
maturity of the Securities so converted and any unpaid interest (including
Additional Interest) accrued on such Securities at the time of such conversion;
PROVIDED, that if any Security is surrendered for conversion after the close of
business on a record date for payment of interest and before the opening of
business on the corresponding interest payment date, the interest payable on
such interest payment date with respect to such Security shall be paid to the
Trust (which will distribute such interest to the holder of the applicable Trust
Securities at the close of business on such record date) or to such other person
in whose name the Securities are registered at the close of business on such
record date, as the case may be, despite such conversion. The Company will make
no payment or allowance for distributions on the shares of Fleetwood Common
Stock issued upon such conversion, except to the extent that such shares of
Fleetwood Common Stock are held of record on the record date for any such
distributions. Each conversion will be deemed to have been effected immediately
prior to the close of business on the day on which the related conversion notice
was received by the Conversion Agent.
(d) No fractional shares of Fleetwood Common Stock will be issued as
a result of conversion, but in lieu thereof, the Company shall pay to the
Conversion Agent a cash adjustment in an amount equal to the same fraction of
the Closing Price of such fractional interest on the applicable Conversion Date,
or, if such day is not a Trading Day, on the preceding Trading Day, and the
Conversion Agent in turn will make such payment, if any, to the Holder of the
Securities or the holder of the Trust Securities, as the case may be, so
converted.
(e) In the event of the conversion of any Security in part only, a
new Security or Securities for the unconverted portion thereof will be issued in
the name of the Holder thereof upon the cancellation thereof.
(f) In effecting the conversion transactions described in this
Section 1302, the Conversion Agent is acting as agent of the holders of Trust
Securities (in the exchange of Trust Securities for Securities) and as agent of
the Holders of Securities (in the conversion of Securities into Fleetwood Common
Stock), as the case may be. The Conversion Agent is hereby authorized (i) to
exchange Securities held by the Trust from time to time for Trust Securities in
connection with the conversion of such Trust Securities in accordance with this
Article Thirteen and (ii) to convert all or a portion of the Securities into
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Fleetwood Common Stock and thereupon to deliver such shares of Fleetwood Common
Stock in accordance with the provisions of this Article Thirteen and to deliver
to the Person entitled thereto a new Security or Securities for any resulting
unconverted principal amount.
SECTION 1303. CONVERSION PRICE ADJUSTMENTS.
(a) The Conversion Price shall be adjusted from time to time as
follows:
(i) In case the Company shall pay or make a dividend or other
distribution on Fleetwood Common Stock in shares of Fleetwood Common Stock,
then the Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction the numerator of which shall be the
number of shares of Fleetwood Common Stock outstanding at the close of
business on the date fixed for such determination and the denominator of
which shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day
following the date fixed for such determination. For the purposes of this
subparagraph (i), the number of shares of Fleetwood Common Stock at any
time outstanding shall not include shares held in the treasury of the
Company (except to the extent such dividend or distribution is being made
with respect to such shares) but shall include shares issuable in respect
of scrip certificates issued in lieu of fractions of shares of Fleetwood
Common Stock. In the event that an adjustment is made pursuant to this
subparagraph (i) and, thereafter, the relevant distribution or dividend is
not made, the Conversion Price shall again be adjusted to be the Conversion
Price that would then be in effect if no such adjustment had been made.
(ii) In case the outstanding shares of Fleetwood Common Stock
shall be subdivided or reclassified (in a reclassification that does not
constitute a Fundamental Change) into a greater number of shares of
Fleetwood Common Stock, then the Conversion Price in effect at the opening
of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, in
case the outstanding shares of Fleetwood Common Stock shall be combined
into a smaller amount of shares of Fleetwood Common Stock, then the
Conversion Price in effect at the opening of
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business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase,
as the case may be, to become effective immediately after the opening of
business on the day following the day upon which such subdivision or
combination becomes effective.
(iii) In case the Company shall issue rights or warrants to all
holders of Fleetwood Common Stock entitling them (for a period expiring
within 45 days after the record date fixed for a distribution of such
rights or warrants) to subscribe for or purchase shares of Fleetwood Common
Stock at a price per share less than the Current Market Price (as
hereinafter defined) per share (determined as provided in subparagraph
(vii) below) of Fleetwood Common Stock on the date fixed for the
determination of shareholders entitled to receive such rights or warrants
(other than pursuant to a dividend reinvestment or similar plan), then the
Conversion Price in effect at the opening of business on the day following
the date fixed for such determination shall be reduced by multiplying such
Conversion Price by a fraction the numerator of which shall be the number
of shares of Fleetwood Common Stock outstanding at the close of business on
the date fixed for such determination plus the number of shares of
Fleetwood Common Stock which the aggregate of the offering price of the
total number of shares of Fleetwood Common Stock so offered for
subscription or purchase would purchase at such Current Market Price and
the denominator shall be the number of shares of Fleetwood Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Fleetwood Common Stock so
offered for subscription or purchase, such reduction to become effective
immediately after the opening of business on the day following the date
fixed for such determination. For the purposes of this subparagraph (iii),
the number of shares of Fleetwood Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall
include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Fleetwood Common Stock. The Company agrees not to
issue any rights or warrants in respect of shares of Fleetwood Common Stock
held in the treasury of the Company. To the extent that shares of
Fleetwood Common Stock are not delivered after the expiration or redemption
by the Company of such rights or warrants, the Conversion Price shall be
readjusted to the Conversion Price which would then be in effect had the
adjustments made in respect of the issuance of such rights or warrants been
made on the basis of delivery of
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only the number of shares of Fleetwood Common Stock actually delivered.
(iv) Subject to the second sentence of this subparagraph (iv),
in case the Company shall, by dividend or otherwise, distribute to all
holders of Fleetwood Common Stock (A) shares of capital stock of the
Company (other than Fleetwood Common Stock), (B) evidences of indebtedness
of the Company and/or (C) other assets (including securities, but excluding
(1) any rights or warrants referred to in subparagraph (iii) above, (2) any
rights or warrants to acquire capital stock of any Person other than the
Company or any subsidiary of the Company, (3) any dividends or
distributions in connection with the liquidation, dissolution or winding-up
of the Company, (4) any dividends or distributions payable solely in cash
that may from time to time be fixed by the Board of Directors, and (5) any
dividends or distributions referred to in subparagraph (i) or (ii) above,
then in each case (unless the Company makes the election referred to in the
next sentence) the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the effectiveness of the Conversion Price
adjustment contemplated by this subparagraph (iv) by a fraction the
numerator of which shall be the Current Market Price per share (determined
as provided in subparagraph (vii) below) of the Fleetwood Common Stock on
the date fixed for payment of such distribution (the "Reference Date"),
less the fair market value on the Reference Date (as determined in good
faith by the Board of Directors, whose determination shall be conclusive
and shall be described in a statement filed with the Trustee) of the
portion of the shares of capital stock of the Company, evidences of
indebtedness or other assets so distributed (and for which an adjustment to
the Conversion Price has not been made previously pursuant to the terms of
this Article Thirteen) applicable to one share of Fleetwood Common Stock
and the denominator shall be such Current Market Price per share of the
Fleetwood Common Stock, such adjustment to become effective immediately
prior to the opening of business on the day following the Reference Date.
However, the Company may elect, in its sole discretion, in lieu of the
foregoing adjustment, to make adequate provision so that each Holder of
Securities shall have the right to receive upon conversion thereof the
amount and kind of shares of capital stock, evidences of indebtedness or
other assets such Holder would have received had such Holder converted such
shares immediately prior to the Reference Date. In the event that no such
dividend or distribution is so paid or made, the Conversion Price shall
again be
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adjusted to be the Conversion Price that would then be in effect if such
dividend or distribution had not occurred. If the Board of Directors
determines the fair market value of any distribution for purposes of this
subparagraph (iv) by reference to the actual or when issued trading market
for any securities (including shares of capital stock or evidence of
indebtedness of the Company) comprising such distribution, it must in doing
so consider the price in such market over the period used in computing the
Current Market Price of the Fleetwood Common Stock or, if shorter, the
portion of such period during which a trading market for such securities
existed. For purposes of this subparagraph (iv), any dividend or
distribution that includes both (x) any of the items described in clauses
(A), (B) or (C) of the first sentence of this subparagraph (iv) and (y)
Fleetwood Common Stock or rights or warrants to subscribe for or purchase
Fleetwood Common Stock of the type referred to in subparagraph (iii) shall
be deemed to be (1) a dividend or distribution of shares of capital stock
of the Company (other than Fleetwood Common Stock), evidences of
indebtedness of the Company or other assets of the type referred to in
clause (C) of the first sentence of this subparagraph (iv) (making any
Conversion Price reduction required by this subparagraph (iv)) immediately
followed by (2) a dividend or distribution of such Fleetwood Common Stock
or rights or warrants to purchase Fleetwood Common Stock of the type
referred to in subparagraph (iii) (making any further Conversion Price
reduction required by subparagraph (i) or (iii) of this Section 1303(a)),
except (A) the Reference Date of such dividend or distribution as defined
in this subparagraph (iv) shall be substituted for "the date fixed for the
determination of shareholders entitled to receive such dividend or other
distribution", "the date fixed for the determination of shareholders
entitled to receive such rights or warrants" and "the date fixed for such
determination" within the meaning of subparagraphs (i) and (iii) of this
Section 1303(a) and (B) any shares of Fleetwood Common Stock included in
such dividend or distribution shall not be deemed "outstanding at the close
of business on the date fixed for such determination" within the meaning of
subparagraph (i) of this Section 1303(a).
(v) In case the Company shall, by dividend or otherwise, at
any time distribute cash to all holders of Fleetwood Common Stock,
excluding (A) any cash dividends on Fleetwood Common Stock to the extent
that the aggregate cash dividends per share of Fleetwood Common Stock in
any consecutive 12-month period do not exceed the greater of (x) the amount
per share of Fleetwood Common Stock of the cash
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dividends paid on the Fleetwood Common Stock in the immediately preceding
12-month period, to the extent that such dividends for the immediately
preceding 12-month period did not require an adjustment to the Conversion
Price pursuant to this subparagraph (v) (as adjusted to reflect
subdivisions or combinations of the Fleetwood Common Stock) and (y) 15% of
the average of the Current Market Price per share of Fleetwood Common Stock
for the ten consecutive Trading Days immediately prior to the date of
declaration of such dividend and (B) any dividend or distribution in
connection with the liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, or any redemption of Rights (as defined
in subparagraph (viii) below); PROVIDED, HOWEVER, that no adjustment shall
be made pursuant to this subparagraph (v) if such distribution would
otherwise constitute a Fundamental Change (as hereinafter defined)) in
which case (unless the Company makes the election referred to in the
proviso following this clause), the Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the effectiveness of the
Conversion Price reduction contemplated by this subparagraph (v) by a
fraction the numerator of which shall be the Closing Price of a share of
Fleetwood Common Stock on the date fixed for the payment of such
distribution less the amount of cash so distributed (to the extent not
excluded as provided above) applicable to one share of Fleetwood Common
Stock, and the denominator shall be such Closing Price of a share of
Fleetwood Common Stock, such reduction to become effective immediately
prior to the opening of business on the day following the date fixed for
the payment of such distribution; PROVIDED, HOWEVER, that the Company may
elect, in its sole discretion, in lieu of the foregoing adjustment, to make
adequate provision so that each Holder of Securities shall thereafter have
the right to receive upon conversion the amount of cash such Holder would
have received had such Holder converted such Securities immediately prior
to the record date for such distribution of cash. If any adjustment is
required to be made as set forth in this subparagraph (v) as a result of a
distribution that is a dividend described in clause (A) of this
subparagraph (v), such adjustment will be based upon the amount by which
such distribution exceeds the amount of the dividend permitted to be
excluded pursuant to such clause (A) of this subparagraph (v). If an
adjustment is required to be made pursuant to this subparagraph (v) as a
result of a distribution that is not such a dividend, such adjustment would
be based upon the full amount of such distribution. In the event that an
adjustment is made pursuant to this subparagraph (v) and, thereafter, the
relevant distribution or dividend is not
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made, the Conversion Price shall again be adjusted to be the Conversion
Price that would then be in effect if no such adjustment had been made.
(vi) In case of the consummation of a public tender offer or
public exchange offer (other than an odd lot tender offer) made by the
Company or any subsidiary of the Company for Fleetwood Common Stock to the
extent that the cash and fair market value (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and shall
be described in a resolution of such Board) of any other consideration
included in such payment per share of Fleetwood Common Stock at the last
time (the "Expiration Time") tenders or exchanges may be made pursuant to
such tender or exchange offer (as amended if applicable) exceed by more
than 10% (with any smaller excess being disregarded in computing the
adjustment to the Conversion Price provided in this subparagraph (vi)) the
first reported sale price (on the principal national securities exchange or
quotation system on which the Fleetwood Common Stock is then traded) per
share of Fleetwood Common Stock on the Trading Day next succeeding the
Expiration Time, then the Conversion Price shall be reduced so that the
same shall equal the price determined by multiplying the Conversion Price
in effect immediately prior to the Expiration Time by a fraction the
numerator of which shall be the number of shares of Fleetwood Common Stock
outstanding (including any tendered or exchanged shares) at the Expiration
Time multiplied by the first reported sale price (on such principal
exchange or quotation system) of the Fleetwood Common Stock on the Trading
Day next succeeding the Expiration Time and the denominator shall be the
sum of (x) the fair market value (determined as aforesaid and subject to
the last sentence of this paragraph) of the aggregate consideration payable
to shareholders based on the acceptance (up to any maximum specified in the
terms of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (y) the product of the number of shares of Fleetwood Common
Stock outstanding (less any Purchased Shares) at the Expiration Time and
the first reported sale price (on such principal exchange or quotation
system) of the Fleetwood Common Stock on the Trading Day next succeeding
the Expiration Time, such reduction to become effective immediately prior
to the opening of business on the day following the Expiration Time. If an
adjustment is required to be made as set forth in this subparagraph (vi),
the fair market value of the aggregate consideration payable to
shareholders referred to
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in clause (x) of the preceding sentence shall be calculated by including
only that portion of such fair market value of such consideration per share
of Fleetwood Common Stock which exceeds 110% of the first reported sale
price (determined as aforesaid) per share of Fleetwood Common Stock on the
Trading Day next succeeding the Expiration Time.
(vii) For the purpose of any computation under this Article
Thirteen, the "Current Market Price per share" of Fleetwood Common Stock on
any day shall be deemed to be the average of the daily Closing Prices (as
hereinafter defined) per share of Fleetwood Common Stock for the ten
consecutive Trading Days ending on the earlier of the day in question and,
if applicable, the day before the "ex" date (as defined below) with respect
to the issuance or distribution requiring such computation; PROVIDED,
HOWEVER, that if more than one event occurs that would require an
adjustment pursuant to subparagraphs (i) through (vi), inclusive, of this
Section 1303(a), the Board of Directors may make such adjustments to the
Closing Prices during such ten Trading Day period as it deems appropriate
to effectuate the intent of the adjustments in this Section 1303, in which
case any such determination by the Board of Directors shall be set forth in
a Board Resolution and shall be conclusive. For purposes of this
paragraph, the term "ex" date, (1) when used with respect to any issuance
or distribution, means the first date on which the Fleetwood Common Stock
trades regular way on the New York Stock Exchange or on such successor
principal securities exchange as the Fleetwood Common Stock may be listed
or in the relevant market from which the Closing Prices were obtained
without the right to receive such issuance or distribution, and (2) when
used with respect to any tender or exchange offer, means the first date on
which the Fleetwood Common Stock trades regular way on such principal
securities exchange or in such market after the Expiration Time of such
offer.
(viii) No adjustment in the Conversion Price shall be required
pursuant to this Section 1303(a) unless the adjustment would require a
change of at least 1% in the Conversion Price then in effect; PROVIDED,
HOWEVER, that any adjustment that by reason of this subparagraph (viii) is
not required to be made shall be carried forward and taken into account in
any subsequent adjustment. In addition, anything herein to the contrary
notwithstanding, no adjustment to the Conversion Price will be required in
connection with the issuance of rights or other similar instruments
("Rights") pursuant to a shareholder rights plan or similar plan or the
repurchase or redemption of those rights or the issuance of common stock,
options or other securities under any officer,
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director or employee benefit plan in existence on February 4, 1998. Except
as otherwise expressly provided in subparagraph (iv) above, if any action
pursuant to this Section 1303 would require adjustment of the Conversion
Price pursuant to more than one of the provisions described above, only one
adjustment shall be made and such adjustment shall be the amount of the
adjustment that has the highest absolute value to the Holders of the
Securities. All calculations shall be made to the nearest cent (with 1/2
of a cent being rounded upward) or to the nearest 1/100th of a share (with
.005 of a share being rounded upward), as the case may be. Notwithstanding
anything to the contrary in this Article Thirteen, the Company from time to
time may, to the extent permitted by law, reduce the Conversion Price by
any amount for any period of at least 20 Business Days, in which case the
Company shall give at least 15 days' notice of such reduction to the
holders of Securities and the Trustee. In particular, the Company may, at
its option, make such reductions in the Conversion Price in addition to
those set forth in this Article Thirteen, as it considers to be advisable
in order to avoid or diminish any income tax to any holder of shares of
Fleetwood Common Stock resulting from any dividend or distribution of stock
or issuance of rights or warrants to purchase or subscribe for stock or
from any event treated as such for income tax purposes or for any other
reasons. Except as otherwise provided in this Section 1303(a), the
Conversion Price will not be adjusted for the issuance of Fleetwood Common
Stock or any securities convertible into or exchangeable for Fleetwood
Common Stock or carrying the right to purchase any of the foregoing.
(ix) In any case in which this Article Thirteen provides that
an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event (A) issuing
to the holder of any Securities converted after such record date and before
the occurrence of such event the additional shares of Fleetwood Common
Stock or other securities, cash or property issuable upon such conversion
by reason of the adjustment required by such event over and above the
Fleetwood Common Stock issuable upon such conversion before giving effect
to such adjustment and (B) paying to such holder any amount in cash in lieu
of any fractional shares pursuant to this Article Thirteen.
(x) For purposes of this Indenture, "Fleetwood Common Stock"
includes any stock of any class of the Company that has no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and
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which is not subject to redemption by the Company. However, subject to the
provisions of this Article Thirteen, shares issuable on conversion of
Securities shall include only shares of the class designated as the common
stock of the Company on the date of this Indenture or shares of any class
or classes resulting from any reclassification or reclassifications thereof
and that have no preference in respect of dividends or of amounts payable
in the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company and that are not subject to redemption by the
Company; PROVIDED, HOWEVER, that if at any time there shall be more than
one such resulting class, the shares of each such class then so issuable
shall be substantially in the proportion that the total number of shares of
such class resulting from all such reclassifications bears to the total
number of shares of all such classes resulting from all such
reclassifications.
(b) Whenever the Conversion Price is adjusted as herein provided:
(i) the Company shall compute the adjusted Conversion Price
and shall prepare a certificate signed by the Chief Financial Officer or
the Treasurer of the Company setting forth the adjusted Conversion Price
and showing in reasonable detail the facts upon which such adjustment is
based, and such certificate shall forthwith be filed with the Trustee and,
if different, the transfer agent for the Preferred Securities and the
Securities; and
(ii) a notice stating the Conversion Price has been adjusted
and setting forth the adjusted Conversion Price shall as soon as
practicable be mailed by the Company to all record holders of Preferred
Securities and the Securities at their last addresses as they appear upon
the stock transfer books of the Company and the Trust.
SECTION 1304. ADJUSTMENT OF CONVERSION PRICE -- FUNDAMENTAL CHANGE.
(a) In the event that the Company shall be a party to any
transaction or series of transactions constituting a Fundamental Change (as
hereinafter defined) (including, without limitation, (i) any recapitalization or
reclassification of Fleetwood Common Stock (other than a change in par value or
a change from par value to no par value or from no par value to par value, or as
a result of a subdivision or combination of the Fleetwood Common Stock); (ii)
any consolidation or merger of the Company with or into another corporation as a
result of which holders of Fleetwood Common Stock shall be entitled to receive
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securities or other property or assets (including cash) with respect to or in
exchange for Fleetwood Common Stock (other than a merger that does not result in
a reclassification, conversion, exchange or cancellation of the outstanding
Fleetwood Common Stock); (iii) any sale or transfer of all or substantially all
of the assets of the Company; or (iv) any compulsory share exchange) pursuant to
which holders of Fleetwood Common Stock shall be entitled to receive other
securities, cash or other property, then appropriate provision shall be made so
that the holder of each Security then outstanding shall have the right
thereafter to convert such Security only into (A) if any such transaction does
not constitute a Common Stock Fundamental Change (as hereinafter defined), the
kind and amount of the securities, cash or other property that would have been
receivable upon such recapitalization, reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of shares of
Fleetwood Common Stock issuable upon such conversion of such Security
immediately prior to such recapitalization, reclassification, consolidation,
merger, sale, transfer or share exchange, after, in the case of a Non-Stock
Fundamental Change, giving effect to any adjustment in the Conversion Price in
accordance with subparagraph (i) of Section 1304(c), and (B) if any such
transaction constitutes a Common Stock Fundamental Change (as hereinafter
defined), shares of common stock of the kind received by holders of Fleetwood
Common Stock as a result of such Common Stock Fundamental Change in an amount
determined in accordance with subparagraph (ii) of Section 1304(c). The company
formed by such consolidation or resulting from such merger or which acquires
such assets or which acquires the Fleetwood Common Stock, as the case may be,
shall enter into a supplemental indenture with the Trustee, reasonably
satisfactory in form to the Trustee and executed and delivered to the Trustee,
the provisions of which shall establish such right. Such supplemental indenture
shall provide for adjustments that, for events subsequent to the effective date
of such supplemental indenture, shall be as nearly equivalent as practicable to
the relevant adjustments provided for in this Article Thirteen. The above
provisions shall similarly apply to successive recapitalizations,
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
(b) Notwithstanding any other provisions in this Article Thirteen to
the contrary, if any Fundamental Change (as hereinafter defined) occurs, then
the Conversion Price in effect will be adjusted immediately after such
Fundamental Change as described below in Section 1304(c). In addition, in the
event of a Common Stock Fundamental Change, each Security shall be convertible
solely into common stock of the kind received by holders of Fleetwood Common
Stock as the result of such Common
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Stock Fundamental Change as more specifically provided below in Section 1304(c).
(c) For purposes of calculating any adjustment to be made pursuant
to this Article Thirteen in the event of a Fundamental Change, immediately
following such Fundamental Change (and for such purposes a Fundamental Change
shall be deemed to occur on the earlier of (a) the occurrence of such
Fundamental Change and (b) the date, if any, fixed for determination of
shareholders entitled to receive the cash, securities, property or other assets
distributable in such Fundamental Change to holders of the Fleetwood Common
Stock):
(i) in the case of a Non-Stock Fundamental Change, the
Conversion Price per share of Fleetwood Common Stock immediately following
such Non-Stock Fundamental Change shall be the lower of (A) the Conversion
Price in effect immediately prior to such Non-Stock Fundamental Change, but
after giving effect to any other adjustments effected pursuant to this
Article Thirteen, and (B) the product obtained by multiplying the greater
of the Applicable Price (as hereinafter defined) or the then applicable
Reference Market Price (as hereinafter defined) by a fraction of which the
numerator shall be 100.0 and the denominator of which shall be the amount
set forth below based on the date on which such Non-Stock Fundamental
Change occurs. For the twelve month period beginning February 10, 1998 and
ending on February 14, 1999, the denominator shall be 106.0, and for each
succeeding twelve month period beginning February 15 shall be as follows:
<TABLE>
<CAPTION>
Year Denominator
---- -----------
<S> <C>
1999 . . . . . . . . . . . . . . . . 105.25
2000 . . . . . . . . . . . . . . . . 104.50
2001 . . . . . . . . . . . . . . . . 103.75
2002 . . . . . . . . . . . . . . . . 103.00
2003 . . . . . . . . . . . . . . . . 102.25
2004 . . . . . . . . . . . . . . . . 101.50
2005 . . . . . . . . . . . . . . . . 100.75
2006 and thereafter . . . . . . . . 100.00
</TABLE>
(ii) in the case of a Common Stock Fundamental Change, the
Conversion Price per share of Fleetwood Common Stock immediately following
the Common Stock Fundamental Change shall be the Conversion Price in effect
immediately prior to such Common Stock Fundamental Change, but after giving
effect to any other adjustments effected pursuant to this
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Article Thirteen, multiplied by a fraction, the numerator of which is the
Purchaser Stock Price (as hereinafter defined) and the denominator of which
is the Applicable Price; PROVIDED, HOWEVER, that in the event of a Common
Stock Fundamental Change in which (A) 100% of the value of the
consideration received by a holder of Fleetwood Common Stock is common
stock of the successor, acquiror or other third party (and cash, if any,
paid with respect to any fractional interests in such common stock
resulting from such Common Stock Fundamental Change) and (B) all of the
Fleetwood Common Stock shall have been exchanged for, converted into, or
acquired for common stock (and cash, if any, with respect to fractional
interests) of the successor, acquiror or other third party, the Conversion
Price per share of Fleetwood Common Stock immediately following such Common
Stock Fundamental Change shall be the Conversion Price in effect
immediately prior to such Common Stock Fundamental Change divided by the
number of shares of common stock of the successor, acquiror, or other third
party received by a holder of one share of Fleetwood Common Stock as a
result of such Common Stock Fundamental Change.
(d) The following definitions shall apply to terms used in this
Article Thirteen:
"Applicable Price" means (A) in the event of a
Non-Stock Fundamental Change in which the holders of Fleetwood Common Stock
receive only cash, the amount of cash receivable by a holder of one share
of Fleetwood Common Stock; and (B) in the event of any other Fundamental
Change, the average of the Closing Prices (as hereinafter defined) for one
share of Fleetwood Common Stock during the ten Trading Days immediately
prior to the record date for the determination of the holders of Fleetwood
Common Stock entitled to receive cash, securities, property or other assets
in connection with such Fundamental Change or, if there is no such record
date, prior to the date upon which the holders of Fleetwood Common Stock
shall have the right to receive such cash, securities, property or other
assets.
"Closing Price" with respect to any securities on any day
shall mean the last reported sale price, regular way, on such day or, in
case no such sale takes place on such day, the average of the last reported
closing bid and asked prices on such day, regular way, in each case on the
New York Stock Exchange or, if such security is not listed or admitted to
trading on the New York Stock Exchange, on the principal national
securities exchange or quotation system on which such security is quoted or
listed or admitted to trading or, if not quoted or
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listed or admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked prices of such
security in the over-the-counter market on the date in question as reported
by the National Quotation Bureau Incorporated, or a similarly generally
accepted reporting service or, if not so available in such manner, as
furnished by any New York Stock Exchange member firm selected from time to
time by the Board of Directors for that purpose or a price determined in
good faith by the Board of Directors.
"Common Stock Fundamental Change" means any Fundamental
Change in which more than 50% of the value (as determined in good faith by
the Board of Directors) of the consideration received by the holders of
Fleetwood Common Stock pursuant to such transactions consists of shares of
common stock that, for the ten consecutive Trading Days immediately prior
to such Fundamental Change, has been admitted for listing or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on the Nasdaq National Market; PROVIDED, HOWEVER, that a Fundamental
Change shall not be a Common Stock Fundamental Change unless either (A) the
Company continues to exist after the occurrence of such Fundamental Change
and the outstanding Preferred Securities continue to exist as outstanding
Preferred Securities (or, if the Securities have been distributed to
holders of Trust Securities following a Dissolution Event, the outstanding
Securities continue to exist as outstanding Securities), or (B) the
outstanding Preferred Securities continue to exist as Preferred Securities
and are convertible into shares of common stock of the successor to the
Company (or, if the Securities have been distributed as aforesaid, the
outstanding Securities continue to exist as Securities and are convertible
into shares of common stock of the successor to the Company).
"Fundamental Change" means the occurrence of any transaction
or event or series of transactions or events pursuant to which all or
substantially all of the Fleetwood Common Stock shall be exchanged for,
converted into, acquired for or constitutes solely the right to receive
cash, securities, property or other assets (whether by means of an exchange
offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise); PROVIDED, HOWEVER, in the
case of any such series of transactions or events for purposes of
adjustment of the Conversion Price, such Fundamental Change shall be deemed
to have occurred when substantially all of the Fleetwood Common Stock had
been exchanged for, converted into, or acquired for or
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constitutes solely the right to receive cash, securities, property or other
assets, but the adjustment shall be based upon the consideration the
holders of Fleetwood Common Stock received in such transaction or event as
a result of which more than 50% of the Fleetwood Common Stock shall have
been exchanged for, converted into, or acquired for, or shall constitute
solely the right to receive cash, securities, property or other assets.
"Non-Stock Fundamental Change" means any Fundamental Change
other than a Common Stock Fundamental Change.
"Purchaser Stock Price" means, with respect to any Common
Stock Fundamental Change, the average of the Closing Prices for one share
of the common stock received by holders of Fleetwood Common Stock in such
Common Stock Fundamental Change during the ten Trading Days immediately
prior to the record date for the determination of the holders of Fleetwood
Common Stock entitled to receive such shares of common stock or, if there
is no such record date, prior to the date upon which the holders of
Fleetwood Common Stock shall have the right to receive such shares of
common stock.
"Reference Market Price" shall initially mean $26.625 and,
in the event of any adjustment to the Conversion Price other than as a
result of a Fundamental Change, the Reference Market Price shall also be
adjusted so that the ratio of the Reference Market Price to the Conversion
Price after giving effect to any such adjustment shall always be the same
as the ratio of the initial Reference Market Price of $26.625 to the
initial Conversion Price of $4872.
(e) In determining the amount and type of consideration received by a
holder of Fleetwood Common Stock in the event of a Fundamental Change,
consideration received by a holder of Fleetwood Common Stock pursuant to a
statutory right of appraisal will be disregarded.
SECTION 1305. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
In case:
(i) the Company shall declare a dividend (or any other
distribution) on Fleetwood Common Stock that would cause an adjustment to
the Conversion Price of the Securities pursuant to Section 1303 (including
such an
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adjustment that would occur but for the terms of the first sentence of
Section 1303(a)(viii) above); or
(ii) the outstanding shares of Fleetwood Common Stock
shall be subdivided into a greater number of shares of Fleetwood Common
Stock or combined into a smaller number of shares of Fleetwood Common
Stock; or
(iii) the Company shall authorize the granting to the
holders of Fleetwood Common Stock generally of rights or warrants (for a
period expiring within 45 days after the record date fixed for a
distribution of such rights and warrants) to subscribe for or purchase any
shares of the Company's capital stock or other capital stock of any class
or of any other rights (excluding any Rights); or
(iv) of any reclassification of Fleetwood Common Stock
(other than a subdivision or combination of the outstanding shares of
Fleetwood Common Stock), or of any consolidation, merger or share exchange
to which the Company is a party and for which approval of any shareholders
of the Company is required, or of the sale or transfer of all or
substantially all of the assets of the Company or a compulsory share
exchange; or
(v) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then the Company shall (a) if any Preferred Securities are outstanding, cause to
be filed with the transfer agent for the Preferred Securities and, except in a
case described in paragraph (i) above, cause to be mailed to the holders of
record of the Preferred Securities, at their last addresses as they shall appear
upon the stock transfer books of the Trust, or (b) if the Securities shall have
been distributed to holders of the Trust Securities in accordance with the terms
of the Declaration following a Dissolution Event, cause to be mailed to all
Holders at their last addresses as they shall appear in the Security Register,
at least 15 days prior to the applicable record or effective date hereinafter
specified, a notice stating (I) the date on which a record (if any) is to be
taken for the purpose of such dividend, distribution, rights or warrants or, if
a record is not to be taken, the date as of which the holders of Fleetwood
Common Stock of record to be entitled to such dividend, distribution, rights or
warrants are to be determined or (II) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up is expected to become effective, and the date as of which it is
expected that holders of Fleetwood Common Stock of record shall be entitled to
exchange their shares of Fleetwood Common Stock
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for securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up (but no failure to mail such notice or any defect therein or in
the mailing thereof shall affect the validity of the corporate action required
to be specified in such notice).
SECTION 1306. COMPANY TO PROVIDE STOCK.
The Company shall reserve, free from preemptive rights, out of its
authorized but unissued shares, sufficient shares to provide for the conversion
of the Securities from time to time as such Securities are presented for
conversion, provided, that nothing contained herein shall be construed to
preclude the Company from satisfying its obligations in respect of the
conversion of Securities by delivery of repurchased shares of Fleetwood Common
Stock that are held in the treasury of the Company.
If any shares of Fleetwood Common Stock to be reserved for the purpose
of conversion of Securities hereunder require registration with or approval of
any governmental authority under any federal or state law before such shares may
be validly issued or delivered upon conversion, then the Company covenants that
it will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be, provided, however, that nothing in
this Section 1306 shall be deemed to affect in any way the obligations of the
Company to convert Securities into Fleetwood Common Stock as provided in this
Article Thirteen.
Before taking any action that would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the Fleetwood Common
Stock, the Company will take all corporate action that may, in the Opinion of
Counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Fleetwood Common Stock at such adjusted
Conversion Price.
The Company covenants that all shares of Fleetwood Common Stock that
may be issued upon conversion of Securities will upon issue be fully paid and
nonassessable by the Company and free of preemptive rights.
SECTION 1307. EMPLOYEE BENEFIT PLANS.
Notwithstanding the provisions of this Article Thirteen, the issuance
of any shares of Fleetwood Common Stock or options or other securities pursuant
to any option, warrant, right or exercisable, exchangeable or convertible
security
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outstanding as of the date of this Indenture or pursuant to any present or
future officer, director or employee benefit plan or program of the Company
shall not give rise to an adjustment in the Conversion Price pursuant to this
Article Thirteen. There shall also be no adjustment of the Conversion Price (i)
in case of the issuance of any stock (or securities convertible into or
exchangeable for stock) of the Company except as specifically described in this
Article Thirteen, (ii) as the result of the issuance of Fleetwood Common Stock
upon conversion of the Trust Securities or the Securities or (iii) as the result
of the issuance or redemption of Rights.
SECTION 1308. CERTAIN ADDITIONAL RIGHTS.
In case the Company shall, by dividend or otherwise, declare or make a
distribution on the Fleetwood Common Stock referred to in Section 1303(a)(iv)
and (v) (including, without limitation, dividends or distributions referred to
in the last sentence of Section 1303(a)(iv)), the Holder of the Securities, upon
the conversion thereof subsequent to the close of business on the date fixed for
the determination of stockholders entitled to receive such distribution and
prior to the effectiveness of the Conversion Price adjustment in respect of such
distribution, shall also be entitled to receive for each share of Fleetwood
Common Stock into which the Convertible Debentures are converted, the portion of
the shares of Fleetwood Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash and assets so distributed applicable
to one share of Fleetwood Common Stock; PROVIDED, HOWEVER, that, at the election
of the Company (whose election shall be evidenced by a resolution of the Board
of Directors) with respect to all Holders so converting, the Company may, in
lieu of distributing to such Holders any portion of such distribution not
consisting of cash or securities of the Company, pay such Holders an amount in
cash equal to the fair market value thereof (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors). If any conversion of Securities
described in the immediately preceding sentence occurs prior to the payment date
for a distribution to holders of Fleetwood Common Stock that the Holder of
Securities so converted is entitled to receive in accordance with the
immediately preceding sentence, the Company may elect (such election to be
evidenced by a resolution of the Board of Directors) to distribute to such
Holder a due bill for the shares of Fleetwood Common Stock, rights, warrants,
evidences of indebtedness, shares of capital stock, cash or assets to which such
Holder is so entitled, provided, that such due bill (a) meets any applicable
requirements of the principal national securities exchange or other principal
securities market on which
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the Fleetwood Common Stock is then traded and (b) requires payment or delivery
of such shares of Fleetwood Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash or assets no later than the date of
payment or delivery thereof to holders of shares of Fleetwood Common Stock
receiving such distribution.
SECTION 1309. RESTRICTIONS ON COMMON STOCK ISSUABLE UPON CONVERSION.
(a) Shares of Fleetwood Common Stock to be issued upon conversion of
a Security in respect of Restricted Preferred Securities (as defined in the
Declaration) shall bear a restrictive legend to the following effect:
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER
OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS
AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THE CONVERTIBLE
SUBORDINATED DEBENTURES UPON THE CONVERSION OF WHICH THE COMMON STOCK
EVIDENCED HEREBY WAS ISSUED AND THE LAST DATE ON WHICH FLEETWOOD
ENTERPRISES, INC. (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS
THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE
"RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
COMMON STOCK EVIDENCED HEREBY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR
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FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR", FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR
(F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE
TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER
AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
(b) If shares of Fleetwood Common Stock to be issued upon conversion
of a Security in respect of Restricted Preferred Securities are to be registered
in a name other than that of the Holder of such Restricted Preferred Security,
then the Person in whose name such shares of Fleetwood Common Stock are to be
registered must deliver to the Conversion Agent a certificate satisfactory to
the Company and signed by such Person, as to compliance with the restrictions on
transfer applicable to such Restricted Preferred Security. Neither the Trustee
nor any Conversion Agent or Registrar shall be required to register in a name
other than that of such Holder shares of Fleetwood Common Stock issued upon
conversion of any such Security in respect of such Preferred Securities not so
accompanied by a properly completed certificate.
SECTION 1310. TRUSTEE NOT RESPONSIBLE FOR DETERMINING CONVERSION PRICE OR
ADJUSTMENTS.
Neither the Trustee nor any Conversion Agent shall at any time be
under any duty or responsibility to any Holder of any Security to determine
whether any facts exist that may require any adjustment of the conversion price,
or with respect to the nature or extent of any such adjustment when made, or
with respect to the method employed herein or in any supplemental indenture
provided to be employed, in making the same. Neither the Trustee nor any
Conversion Agent shall be accountable with respect to the validity or value (or
the kind of account) of any shares of Fleetwood Common Stock or of any
securities or property, which may at any time be issued or delivered upon the
conversion of any Security; and neither the Trustee nor any Conversion Agent
makes any representation with respect thereto. Neither the Trustee nor any
Conversion Agent shall be responsible
90
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for any failure of the Company to make any cash payment or to issue, transfer or
deliver any shares of Fleetwood Common Stock or stock certificates or other
securities or property upon the surrender of any Security for the purpose of
conversion, or, except as expressly herein provided, to comply with any of the
covenants of the Company contained in Article Ten or this Article Thirteen.
ARTICLE FOURTEEN
Section 1401. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of the Securities may be called at any time and from
time to time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other Act provided by this
Indenture to be made, given or taken by Holders of the Securities.
Section 1402. CALL, NOTICE AND PLACE OF MEETINGS.
(1) The Trustee may at any time call a meeting of Holders of Securities
for any purpose specified in Section 1401, to be held at such time and at such
place in the Borough of Manhattan, The City of New York as the Trustee shall
determine. Notice of every meeting of Holders of Securities, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be given, in the manner provided in Section 106,
not less than 21 nor more than 180 days prior to the date fixed for the meeting.
(2) In case at any time the Company (by or pursuant to a Board Resolution)
or the Holders of at least 10% in principal amount of the Outstanding Securities
shall have requested the Trustee to call a meeting of the Holders of Securities
for any purpose specified in Section 1401, by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed notice of or made the first publication of the
notice of such meeting within 21 days after receipt of such request (whichever
shall be required pursuant to Section 106) or shall not thereafter proceed to
cause the meeting to be held as provided herein, then the Company or the Holders
of Securities in the amount above specified, as the case may be, may determine
the time and the place in the Borough of Manhattan, The City of New York and may
call such meeting for such purposes by giving notice thereof as provided in
clause (1) of this Section.
91
<PAGE>
Section 1403. PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities, a Person
shall be (1) a Holder of one or more Outstanding Securities, or (2) a Person
appointed by an instrument in writing as proxy for a Holder or Holders of one or
more Outstanding Securities by such Holder or Holders. The only Persons who
shall be entitled to be present or to speak at any meeting of Holders of
Securities shall be the Persons entitled to vote at such meeting and their
counsel, any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
Section 1404. QUORUM; ACTION.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities shall constitute a quorum for a meeting of Holders of
Securities; PROVIDED, HOWEVER, that if any action is to be taken at such
meeting with respect to a consent or waiver which this Indenture expressly
provides may be given by the Holders of at least 66-2/3% in principal amount of
the Outstanding Securities, the Persons entitled to vote 66-2/3% in principal
amount of the Outstanding Securities shall constitute a quorum. In the absence
of a quorum within 30 minutes after the time appointed for any such meeting, the
meeting shall, if convened at the request of Holders of Securities, be
dissolved. In any other case the meeting may be adjourned for a period of not
less than 10 days as determined by the chairman of the meeting prior to the
adjournment of such meeting. In the absence of a quorum at any such adjourned
meeting, such adjourned meeting may be further adjourned for a period of not
less than 10 days as determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting. Notice of the reconvening of any
adjourned meeting shall be given as provided in Section 1402(1), except that
such notice need be given only once not less than five days prior to the date on
which the meeting is scheduled to be reconvened. Notice of the reconvening of
an adjourned meeting shall state expressly the percentage, as provided above, of
the principal amount of the Outstanding Securities which shall constitute a
quorum.
Except as limited by the proviso to Section 902, any resolution presented
to a meeting or adjourned meeting duly reconvened at which a quorum is present
as aforesaid may be adopted only by the affirmative vote of the Holders of a
majority in principal amount of the Outstanding Securities; PROVIDED, HOWEVER,
that, except as limited by the proviso to Section 902, any resolution with
respect to any consent or waiver which this Indenture expressly provides may be
given by the Holders of at least 66-2/3% in principal amount of the Outstanding
Securities
92
<PAGE>
may be adopted at a meeting or an adjourned meeting duly convened and at which a
quorum is present as aforesaid only by the affirmative vote of the Holders of at
least 66-2/3% in principal amount of the Outstanding Securities; and PROVIDED,
FURTHER, that, except as limited by the proviso to Section 902, any resolution
with respect to any request, demand, authorization, direction, notice, consent,
waiver or other Act which this Indenture expressly provides may be made, given
or taken by the Holders of a specified percentage, which is less than a
majority, in principal amount of the Outstanding Securities may be adopted at a
meeting or an adjourned meeting duly reconvened and at which a quorum is present
as aforesaid by the affirmative vote of the Holders of such specified percentage
in principal amount of the Outstanding Securities.
Any resolution passed or decision taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities, whether or not such Holders were present or represented
at the meeting.
Section 1405. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF
MEETINGS.
(1) Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities in regard to proof of the holding of Securities and of the
appointment of proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates and other
evidence of the right to vote, and such other matters concerning the conduct of
the meeting as it shall deem appropriate. Except as otherwise permitted or
required by any such regulations, the holding of Securities shall be proved in
the manner specified in Section 104 and the appointment of any proxy shall be
proved in the manner specified in Section 104. Such regulations may provide
that written instruments appointing proxies, regular on their face, may be
presumed valid and genuine without the proof specified in Section 104 or other
proof.
(2) The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Holders of Securities as provided in Section 1402(2), in which
case the Company or the Holders of Securities calling the meeting, as the case
may be, shall in like manner appoint a temporary chairman. A permanent chairman
and a permanent secretary of the meeting shall be elected by vote of the Persons
entitled to vote a majority in principal amount of the Outstanding Securities
represented at the meeting.
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<PAGE>
(3) At any meeting, each Holder of a Security or proxy shall be entitled
to one vote for each $1,000 principal amount of Securities held or represented
by him; PROVIDED, HOWEVER, that no vote shall be cast or counted at any meeting
in respect of any Security challenged as not Outstanding and ruled by the
chairman of the meeting to be not Outstanding. A Holder of a Security in a
principal amount of less than $1,000 shall be entitled to a fraction of one vote
which is equal to the fraction that the principal amount of such Security bears
to $1,000. The chairman of the meeting shall have no right to vote, except as a
Holder of a Security or proxy.
(4) Any meeting of Holders of Securities duly called pursuant to Section
1402 at which a quorum is present may be adjourned from time to time by Persons
entitled to vote a majority in principal amount of the Outstanding Securities
represented at the meeting; and the meeting may be held as so adjourned without
further notice.
Section 1406. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy and
the principal amounts and serial numbers of the Outstanding Securities held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in triplicate of all votes cast at the meeting.
A record, at least in triplicate, of the proceedings of each meeting of Holders
of Securities shall be prepared by the secretary of the meeting and there shall
be attached to said record the original reports of the inspectors of votes on
any vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 1402 and, if
applicable, Section 1404. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
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<PAGE>
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
FLEETWOOD ENTERPRISES, INC.
By: /s/ Nelson W. Potter
------------------------------------
Name: Nelson W. Potter
Title: President
THE BANK OF NEW YORK,
not in its individual capacity
but solely as Trustee
By: /s/ Mary Beth Lewicki
------------------------------------
Name: Mary Beth Lewicki
Title: Assistant Vice President
<PAGE>
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
FLEETWOOD ENTERPRISES, INC.
By: /s/ Nelson W. Potter
------------------------------------
Name: Nelson W. Potter
Title: President
THE BANK OF NEW YORK,
not in its individual capacity
but solely as Trustee
By: /s/ Mary Beth Lewicki
------------------------------------
Name: Mary Beth Lewicki
Title: Assistant Vice President
<PAGE>
EXHIBIT A-1
FORM OF SECURITY
[FORM OF FACE OF SECURITY]
THIS SECURITY AND ANY COMMON STOCK TO BE ISSUED ON CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH FLEETWOOD ENTERPRISES, INC. (THE "COMPANY")
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THE SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE"), ONLY
(A) TO THE COMPANY, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (a)(l), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES
ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F), TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE
OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
<PAGE>
FLEETWOOD ENTERPRISES, INC.
6% Convertible Subordinated Debenture Due 2028
No.________ $_____
CUSIP No. _____
FLEETWOOD ENTERPRISES, INC., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to _______________, or registered
assigns, the principal sum [indicated on Schedule A hereof]* [of ___________
Dollars** ($ )] on February 15, 2028.
Interest Payment Dates: February 15, May 15, August 15 and November 15,
commencing May 15, 1998
Regular Record Dates: except as otherwise provided in the Indenture, the
date 15 days prior to each Interest Payment Date
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
- ---------------
* Applicable to Global Securities only.
** Applicable to certificated Securities only.
A-1-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.
FLEETWOOD ENTERPRISES, INC.
By:
-------------------------------------
Name:
Dated: ,
-------- ----
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
not in its individual
capacity but solely
as Trustee
By:
----------------------
Authorized Signatory
Dated: , 1998
-------------
A-1-3
<PAGE>
[FORM OF REVERSE OF SECURITY]
FLEETWOOD ENTERPRISES, INC.
6% Convertible Subordinated Debenture Due 2028
(1) INTEREST. Fleetwood Enterprises, Inc., a Delaware corporation
(the "Company"), is the issuer of this 6% Convertible Subordinated Debenture Due
2028 (the "Security") limited in aggregate principal amount to $296,400,000
(including $38,900,000 pursuant to the exercise of the over-allotment option),
issued under the Indenture hereinafter referred to. The Company promises to pay
interest on the Securities in cash from February 10, 1998 or from the most
recent interest payment date to which interest has been paid or duly provided
for, quarterly (subject to deferral for up to 20 consecutive quarters as
described in Section 3 hereof) in arrears on February 15, May 15, August 15 and
November 15 of each year (each such date, an "Interest Payment Date"),
commencing May 15, 1998, at the rate of 6% per annum (subject to increase as
provided in Section 12 hereto) plus Additional Interest (as defined below) and
Liquidated Damages (as defined in the Indenture (as defined below)), if any,
until the principal hereof shall have become due and payable.
The amount of interest payable for any period will be computed on the
basis of twelve 30-day months and a 360-day year. To the extent lawful, the
Company shall pay interest on overdue installments of interest (without regard
to any applicable grace period) at the rate borne by the Securities, compounded
quarterly. Any interest paid on this Security shall be increased to the extent
necessary to pay Additional Interest as set forth in this Security.
(2) ADDITIONAL INTEREST. The Company shall pay to Fleetwood Capital
Trust (and its permitted successors or assigns under the Declaration) (the
"Trust") such additional amounts as may be necessary in order that the amount of
dividends or other distributions then due and payable by the Trust on the
Preferred Securities that at any time remain outstanding in accordance with the
terms thereof shall not be reduced as a result of any taxes, duties, assessments
or governmental charges of whatever nature (other than withholding taxes)
imposed by the United States or any other taxing authority ("Additional
Interest").
(3) EXTENSION OF INTEREST PAYMENT PERIOD. The Company shall have the
right, at any time during the term of this Security, from time to time to defer
payments of interest (including Compounded Interest (as defined below),
Additional Interest and Liquidated Damages (as defined below), if any) by
A-1-4
<PAGE>
extending the interest payment period of such Security for up to 20 consecutive
quarters (each an "Extension Period"). To the extent permitted by applicable
law, interest, the payment of which has been deferred because of the extension
of the interest payment period pursuant to Section 312 of the Indenture, will
bear interest thereon at 6% compounded quarterly for each quarter of the
Extension Period ("Compounded Interest"); provided, that during an Extension
Period the Company, the Company shall be subject to the provisions of Section
1008 of the Indenture. At the end of the Extension Period, the Company shall
pay all interest then accrued and unpaid on the Securities, including any
Additional Payments, that shall be payable to the holders of the Securities in
whose names the Securities are registered in the Security Register ("Holders")
on the first Regular Record Date after the end of the Extension Period. Before
the termination of any Extension Period, the Company may further extend such
period, provided that such period together with all such further extensions
thereof shall not exceed 20 consecutive quarters or extend beyond the maturity
of the Securities or end other than on an Interest Payment Date. Upon the
termination of any Extension Period and upon the payment of all amounts then due
on the Securities, including any Additional Payments, the Company may commence a
new Extension Period, subject to the foregoing requirements. No interest shall
be due and payable during an Extension Period except at the end thereof.
The Company must give the Property Trustee, the Regular Trustees and the
Trustee notice of its election to begin an Extension Period at least one
Business Day Prior to the earliest of (i) the date the distribution on the
Preferred Securities would have been payable except for the election to begin
such Extension Period or (ii) if applicable, the date the Regular Trustees are
required to give notice to the New York Stock Exchange, the Nasdaq National
Market or other applicable self-regulatory organization or to holders of such
Preferred Securities of the record date or (iii) the date such distribution is
payable, but in any event not less than one Business Day prior to the record
date. The Trustee shall give notice of the Company's election to begin an
Extension Period to the holders of the Securities and the Regular Trustees shall
give notice of the Company's election to the holders of the Preferred
Securities.
The quarter in which any notice is given pursuant to the second paragraph
of this Section 3 shall be counted as one of the 20 quarters permitted in the
maximum Extension Period permitted under the first paragraph of this Section 3.
(4) METHOD OF PAYMENT. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in
A-1-5
<PAGE>
whose name this Security (or one or more Predecessor Securities (as defined in
the Indenture)) is registered at the close of business on the Regular Record
Date for such interest installment, which, except as otherwise provided in the
Indenture, shall be the date 15 days prior to each Interest Payment Date
(whether or not a Business Day) (the "Regular Record Date"), commencing May 15,
1998. Any such interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
The principal of and interest on the Securities shall be payable at
the office or agency of the Company in the United States maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; PROVIDED,
HOWEVER, that payment of interest may be made at the option of the Company by
check mailed to the address of the holder entitled thereto or by wire transfer
to an account in the United States appropriately designated by the holder
entitled thereto prior to the record date for the corresponding interest payment
date. Notwithstanding the foregoing, so long as the holder of any Securities is
the Property Trustee, the payment of principal and interest on the Securities
held by the Property Trustee will be made by wire transfer at such place and to
such account in the United States as may be designated by the Property Trustee.
(5) PAYING AGENT AND SECURITY REGISTRAR. The Trustee will act as
Paying Agent, Security Registrar and Conversion Agent. The Company may change
any Paying Agent, Security Registrar, co-registrar or Conversion Agent without
prior notice. The Company or any of its Affiliates (as defined in the
Indenture) may act in any such capacity.
(6) INDENTURE. The Company issued the Securities under an indenture,
dated as of February 10, 1998 (the "Indenture"), between the Company and The
Bank of New York, not in its individual capacity but solely as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures
A-1-6
<PAGE>
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Trustee,
the Company and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb)
("TIA") as in effect on the date of the Indenture. The Securities are subject
to, and qualified by, all such terms, certain of which are summarized herein,
and Holders are referred to the Indenture and the TIA for a more complete
statement of such terms. The Securities are unsecured general obligations of
the Company limited to $296,400,000 in aggregate principal amount (including
$38,900,000 pursuant to the exercise of the over-allotment option) and
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company. No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Security when due at the times, place and rate, and in the coin
or currency, herein prescribed or to convert this Security as provided in the
Indenture.
(7) OPTIONAL REDEMPTION. The Securities are redeemable, in whole or
in part, at the Company's option at any time and from time to time after
February 15, 2001, upon not less than 30 or more than 60 days' notice, at the
following Redemption Prices, expressed as a percentage of the principal amount
of the Securities, if redeemed during the 12-month period beginning February 15
of the applicable year set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . . 103.75%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . 103.00%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . 102.25%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . 101.50%
2005 . . . . . . . . . . . . . . . . . . . . . . . . . 100.75%
2006 and thereafter. . . . . . . . . . . . . . . . . . 100.00%
</TABLE>
plus, in each case, accrued and unpaid interest, including Additional Payments,
if any, to the Redemption Date (subject to the right of Holders of record on the
relevant record date to receive interest due on the Interest Payment Date).
From and after the Redemption Date, interest will cease to accrue on the
Securities, or portion thereof, called for redemption.
A-1-7
<PAGE>
(8) OPTIONAL REDEMPTION UPON TAX EVENT. The Securities are subject
to redemption in whole, but not in part, at the Company's option at any time
within 90 days, if a Tax Event (as defined in the Declaration) shall occur and
be continuing, at a redemption price equal to 100% of the principal amount
thereof plus accrued but unpaid interest thereon (including, to the extent
permitted by applicable law, Additional Payments, if any) to the Redemption
Date. Any redemption pursuant to this Section 8 will be made upon not less than
30 nor more than 60 days' notice.
(9) NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of the Securities to be redeemed at his address of record. In the event
of a redemption of less than all of the Securities, the Securities will be
chosen for redemption by the Trustee in accordance with the Indenture. On and
after the Redemption Date, interest ceases to accrue on the Securities or
portions thereof called for redemption.
If this Security is redeemed subsequent to a Regular Record Date with
respect to any Interest Payment Date specified above and on or prior to such
Interest Payment Date, then any accrued interest will be paid to the person in
whose name this Security is registered at the close of business on such record
date.
(10) MANDATORY REDEMPTION. The Securities will mature on February 15,
2028. There are no sinking fund payments with respect to the Securities.
(11) SUBORDINATION. The payment of the principal of, premium (if
any), interest on or any other amounts due on the Securities is subordinated and
junior in right of payment to all existing and future Senior Indebtedness (as
defined below) of the Company, as described in the Indenture. Each Holder, by
accepting a Security, agrees to such subordination and authorizes and directs
the Trustee on its behalf to take such action as may be necessary or appropriate
to effectuate the subordination so provided and appoints the Trustee as its
attorney-in-fact for such purpose.
In addition, no payment of principal (including redemption payments)
of, premium, if any, or interest (including any Additional Interest or
Compounded Interest) on the Securities may be made if there shall have occurred
and be continuing (i) a default in the payment when due of principal of,
premium, if any, sinking funds, if any, or interest, if any, on any Senior
Indebtedness of the Company and any applicable grace period with respect to such
default shall have ended without such default
A-1-8
<PAGE>
having been cured or waived or ceasing to exist or (ii) an event of default with
respect to any Senior Indebtedness of the Company resulting in the acceleration
of the maturity thereof without such acceleration having been rescinded or
annulled.
"Senior Indebtedness" means (a) any liability of the Company (1) for
borrowed money or under any reimbursement obligation relating to a letter of
credit, surety bond or similar instrument, or (2) evidenced by a bond, note,
debenture or similar instrument, or (3) for obligations to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business, or (4) for the payment of money relating to a
capitalized lease obligation, or (5) for the payment of money under any Swap
Agreement, (b) any liability of others described in the preceding clause (a)
that the Company has guaranteed or that is otherwise its legal liability; and
(c) any deferral, renewal, extension or refunding of any liability of the types
referred to in clauses (a) and (b) above, unless, in the instrument creating or
evidencing any such liability referred to in clause (a) or (b) above or any such
deferral, renewal, extension or refunding referred to in clause (c) above or
pursuant to which the same is outstanding, it is expressly provided that such
liability, deferral, renewal, extension or refunding is subordinate in right of
payment to all other indebtedness of the Company or is not senior or prior in
right of payment to the Securities or ranks PARI PASSU with or subordinate to
the Securities in right of payment; PROVIDED that the Securities shall not
constitute Senior Indebtedness; and PROVIDED, FURTHER, the Senior Indebtedness
shall not include any indebtedness or guarantees between or among the Company or
its affiliates, including all debt securities or guarantees in respect of those
debt securities issued to any trust (including the Trust), trustee of a trust
(including the Trust), partnership, limited liability company or other person
affiliated with the Company that is a financing vehicle of the Company
(a"Financing Entity") in connection with the issuance by such Financing Entity
of preferred securities unless otherwise expressly provided in the instrument
creating or evidencing such indebtedness, debt securities or guarantees, as the
case may be, or pursuant to which the same is outstanding.
(12) CONVERSION. Subject to and in compliance with the
provisions of the Indenture, the Holder of any Security has the right,
exercisable at any time prior to the close of business (New York time) on the
date of the Security's maturity (or, in the case of Securities called for
redemption, prior to the close of business on the Business Day prior to the
corresponding Redemption Date), to convert the principal amount thereof (or any
portion thereof that is an integral multiple of $50) into shares of Fleetwood
Common Stock at the initial
A-1-9
<PAGE>
conversion price of $48.72 per share of Fleetwood Common Stock, subject to
adjustment under certain circumstances.
To convert a Security, a Holder must (1) complete and sign a conversion
notice substantially in the form attached hereto, (2) surrender the Security to
a Conversion Agent, (3) furnish appropriate endorsements or transfer documents
if required by the Security Registrar or Conversion Agent and (4) pay any
transfer or similar tax, if required. Upon conversion, no adjustment or payment
will be made for interest or dividends, but if any Holder surrenders a Security
for conversion after the close of business on the Regular Record Date for the
payment of an installment of interest and prior to the opening of business on
the next Interest Payment Date, then, notwithstanding such conversion, the
interest payable on such Interest Payment Date will be paid to the Trust (which
will distribute such interest to the holder of the applicable Trust Securities
at the close of business on such record date) or to such other person in whose
name the Securities are registered at the close of business on such record date,
as the case may be, despite such conversion. In such event, such Security, when
surrendered for conversion, need not be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date on the portion so
converted. The number of shares issuable upon conversion of a Security is
determined by dividing the principal amount of the Security converted by the
conversion price in effect on the Conversion Date. No fractional shares will be
issued upon conversion but a cash adjustment will be made for any fractional
interest. The outstanding principal amount of any Security shall be reduced by
the portion of the principal amount thereof converted into shares of Common
Stock.
(13) REGISTRATION RIGHTS. The holders of the Preferred Securities,
the Preferred Securities Guarantee, the Securities and the Fleetwood Common
Stock issuable upon conversion thereof (collectively, the "Registrable
Securities") are entitled to the benefits of a Registration Rights Agreement,
dated as of February 10, 1998, among the Trust, the Company and the Initial
Purchaser (the "Registration Rights Agreement"). Pursuant to the Registration
Rights Agreement, the Trust and the Company have agreed for the benefit of the
holders from time to time of the Registrable Securities that they will, at the
Company's expense, (i) within 90 days after the date of original issuance of the
Preferred Securities, file a shelf registration statement (the "Shelf
Registration Statement") with the Commission with respect to resales of the
Registrable Securities, (ii) use their best efforts to cause the Shelf
Registration Statement to be declared effective by the Commission under the
Securities Act within 150 days of the date of original issuance of the Preferred
Securities, and (iii) use their best efforts to
A-1-10
<PAGE>
maintain such Shelf Registration Statement continuously effective under the
Securities Act until the date two years after the date of original issuance of
the Preferred Securities or such earlier date as is provided in the Registration
Rights Agreement.
If (i) on or prior to 90 days following the date of original issuance
of the Preferred Securities, the Shelf Registration Statement has not been filed
with the Commission, (ii) on or prior to the 150th day following the filing of
such Shelf Registration Statement, such Shelf Registration Statement is not
declared effective or (iii) after the Shelf Registration Statement has been
declared effective, it ceases to be effective or usable (subject to certain
exceptions specified in the Registration Rights Agreement) in connection with
resales of the Registrable Securities in accordance with and during the periods
specified in the Registration Rights Agreement (each, a "Registration Default"),
additional interest ("Liquidated Damages") will accrue on the Securities from
and including the day following such Registration Default to but excluding the
day on which such Registration Default has been cured. Liquidated Damages will
be paid quarterly in arrears, with the first quarterly payment due on the first
interest payment date in respect of the Securities following the date on which
such Liquidated Damages begin to accrue, and will accrue at a rate per annum
equal to an additional one-half of one percent (0.50%) of the principal amount
of the Securities.
Each Holder of Securities, by its acceptance thereof, agrees to be
bound by the terms of the Registration Rights Agreement relating to the
Securities and the Fleetwood Common Stock issuable upon conversion thereof.
(14) REGISTRATION, TRANSFER EXCHANGE AND DENOMINATIONS. As provided
in the Indenture and subject to certain limitations therein set forth, the
transfer of this Security is registrable in the Security Register, upon
surrender of this Security for registration of transfer at the office or agency
of the Company designated for such purpose, duly endorsed by, or accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $50 and integral multiples thereof. No service charge shall be
made for any such registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any tax or other
A-1-11
<PAGE>
governmental charge payable in connection therewith. Prior to due presentment
of this Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name this
Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Company, the Trustee nor any such agent
shall be affected by notice to the contrary. In the event of redemption or
conversion of this Security in part only, a new Security or Securities for the
unredeemed or unconverted portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
(15) PERSONS DEEMED OWNERS. The registered Holder of a Security may
be treated as its owner for all purposes.
(16) UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company at its written request. After that, Holders
of Securities entitled to the money must look to the Company for payment unless
an abandoned property law designates another Person and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
(17) DEFAULTS AND REMEDIES. The Securities shall have the Events of
Default as set forth in Section 501 of the Indenture. Subject to certain
limitations in the Indenture, if an Event of Default occurs and is continuing,
then the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities, and
accrued and unpaid interest, if any (including any Additional Payments), thereon
to be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by the Holders), and upon any such declaration such
principal or such lesser amount, as the case may be, and such accrued and unpaid
interest (including any Additional Payments) shall become immediately due and
payable.
The Holders of not less than a majority in aggregate principal amount
of the Securities then outstanding by written notice to the Trustee may rescind
an acceleration and its consequences if the rescission would not conflict with
any judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration. Holders may not enforce the Indenture or the
Securities except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the then outstanding
Securities issued under the Indenture may direct the Trustee in its exercise of
any trust or power. The Company must
A-1-12
<PAGE>
furnish annually compliance certificates to the Trustee. The above description
of Events of Default and remedies is qualified in its entirety by reference to,
and subject to, the more complete description thereof contained in the
Indenture.
(18) AMENDMENTS, SUPPLEMENTS AND WAIVERS. The Indenture permits, with
certain exceptions as therein provided, the amendment thereof and the
modification of the rights and obligations of the Company and the rights of the
Holders of the Securities under the Indenture at any time by the Company and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange heretofore or in lieu hereof, whether or not notation of
such consent or waiver is made upon this Security.
(19) TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its
individual or any other capacity may become the owner or pledgee of the
Securities and may otherwise deal with the Company or an Affiliate with the same
rights it would have, as if it were not Trustee, subject to certain limitations
provided for in the Indenture and in the TIA. Any Agent may do the same with
like rights.
(20) NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of the Securities by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
(21) GOVERNING LAW. THE INDENTURE AND THE SECURITIES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(22) AUTHENTICATION. The Securities shall not be valid until
authenticated by the manual signature of an authorized officer of the Trustee.
A-1-13
<PAGE>
(23) ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder of the Securities upon written
request and without charge a copy of the Indenture. Request may be made to:
Fleetwood Enterprises, Inc.
3125 Myers Street
Riverside, CA 92513
Attn: General Counsel
A-1-14
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Your Signature:
-----------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Security)
Date:
------------------------
Signature Guarantee:*
--------------------------------------------------
[Include the following if the Security bears a Restricted Securities Legend --
In connection with any transfer of any of the Securities evidenced by this
certificate, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW
(1) / / exchanged for the undersigned's own account without transfer; or
(2) / / transferred pursuant to and in compliance with Rule 144A under
the Securities Act of 1933; or
- ---------------
* Signature must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the [Registrar], which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
[Registrar] in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-1-15
<PAGE>
(3) / / transferred pursuant to and in compliance with Regulation S under
the Securities Act of 1933; or
(4) / / transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; PROVIDED, HOWEVER, that if box (3) or (4) is
checked, the Trustee may require, prior to registering any such transfer of the
Securities such legal opinions, certifications and other information as the
Company has reasonably requested to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, such as the exemption
provided by Rule 144 under such Act.
----------------------------------
Signature
Signature Guarantee:*
- ---------------------------- ----------------------------------]
Signature must be guaranteed Signature
- --------------------------------------------------------------------------------
[TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
- ------------------
* Signature must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the [Registrar], which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
[Registrar] in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-1-16
<PAGE>
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
---------------------- -----------------------------------
NOTICE: To be executed by an executive
officer]
A-1-17
<PAGE>
(TO BE ATTACHED TO GLOBAL SECURITIES)
SCHEDULE A
The initial principal amount of this Global Security shall be $______.
The following increases or decreases in the principal amount of this Global
Security have been made:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
| Amount of increase in | | | |
| Principal Amount of this | | Principal Amount of | |
| Global Security including | Amount of decrease in | this Global Security | Signature of authorized |
| upon exercise of over- | Principal Amount of | following such | officer of Trustee or |
Date Made | allotment option | this Global Security | decrease or increase | Securities Custodian |
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
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| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1-18
<PAGE>
ELECTION TO CONVERT
To: Fleetwood Enterprises, Inc.
The undersigned owner of this Security hereby irrevocably exercises
the option to convert this Security, or the portion below designated, into
Common Stock of FLEETWOOD ENTERPRISES, INC. ("Fleetwood Common Stock") in
accordance with the terms of the Indenture referred to in this Security, and
directs that the shares issuable and deliverable upon conversion, together with
any check in payment for fractional shares, be issued in the name of and
delivered to the undersigned, unless a different name has been indicated in the
assignment below. If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto.
Any Holder, upon the exercise of its conversion rights in accordance
with the terms of the Indenture and the Security, agrees to be bound by the
terms of the Registration Rights Agreement relating to the Fleetwood Common
Stock issuable upon conversion of the Securities.
Date: __ , ____
in whole __
Portions of Security to be converted (or
integral multiples thereof):
$_________
-------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number
-------------------------------
-------------------------------
-------------------------------
Signature Guarantee:*
- -------------------
* Signature must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the [Registrar], which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
[Registrar] in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-1-19
<PAGE>
EXHIBIT A-2
FORM OF EXCHANGE SECURITY
[FORM OF FACE OF SECURITY]
FLEETWOOD ENTERPRISES, INC.
6% Convertible Subordinated Debenture Due 2028
No.________ $________
CUSIP No. _____
FLEETWOOD ENTERPRISES, INC., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to _______________, or registered
assigns, the principal sum [indicated on Schedule A hereof]* [of ___________
Dollars** ($ )] on February 15, 2028.
Interest Payment Dates: February 15, May 15, August 15 and November 15,
commencing May 15, 1998
Regular Record Dates: except as otherwise provided in the Indenture, the date
15 days prior to each Interest Payment Date
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
<PAGE>
- -----------------
* Applicable to Global Securities only.
** Applicable to certificated Securities only.
IN WITNESS WHEREOF, the Company has caused this instrument to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its corporate seal to be affixed hereto or imprinted hereon.
FLEETWOOD ENTERPRISES, INC.
By:
------------------------------------
Name:
Dated: ,
--------- -----
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
not in its individual
capacity but solely
as Trustee
By:
---------------------------
Authorized Signatory
Dated: , 1998
-------------
A-2-2
<PAGE>
[FORM OF REVERSE OF SECURITY]
FLEETWOOD ENTERPRISES, INC.
6% Convertible Subordinated Debenture Due 2028
(1) INTEREST. Fleetwood Enterprises, Inc., a Delaware corporation
(the "Company"), is the issuer of this 6% Convertible Subordinated Debenture Due
2028 (the "Security") limited in aggregate principal amount to $296,400,000
(including $38,900,000 pursuant to the exercise of the over-allotment option),
issued under the Indenture hereinafter referred to. The Company promises to pay
interest on the Securities in cash from February 10, 1998 or from the most
recent interest payment date to which interest has been paid or duly provided
for, quarterly (subject to deferral for up to 20 consecutive quarters as
described in Section 3 hereof) in arrears on February 15, May 15, August 15 and
November 15 of each year (each such date, an "Interest Payment Date"),
commencing May 15, 1998, at the rate of 6% per annum (subject to increase as
provided in Section 12 hereto) plus Additional Interest (as defined below) and
Liquidated Damages (as defined in the Indenture (as defined below)), if any,
until the principal hereof shall have become due and payable.
The amount of interest payable for any period will be computed on the
basis of twelve 30-day months and a 360-day year. To the extent lawful, the
Company shall pay interest on overdue installments of interest (without regard
to any applicable grace period) at the rate borne by the Securities, compounded
quarterly. Any interest paid on this Security shall be increased to the extent
necessary to pay Additional Interest as set forth in this Security.
(2) ADDITIONAL INTEREST. The Company shall pay to Fleetwood Capital
Trust (and its permitted successors or assigns under the Declaration) (the
"Trust") such additional amounts as may be necessary in order that the amount of
dividends or other distributions then due and payable by the Trust on the
Preferred Securities that at any time remain outstanding in accordance with the
terms thereof shall not be reduced as a result of any taxes, duties, assessments
or governmental charges of whatever nature (other than withholding taxes)
imposed by the United States or any other taxing authority ("Additional
Interest").
(3) EXTENSION OF INTEREST PAYMENT PERIOD. The Company shall have the
right, at any time during the term of this Security, from time to time to defer
payments of interest (including Compounded Interest (as defined below),
Additional Interest and Liquidated Damages (as defined below), if any) by
A-2-3
<PAGE>
extending the interest payment period of such Security for up to 20 consecutive
quarters (each an "Extension Period"). To the extent permitted by applicable
law, interest, the payment of which has been deferred because of the extension
of the interest payment period pursuant to Section 312 of the Indenture, will
bear interest thereon at 6% compounded quarterly for each quarter of the
Extension Period ("Compounded Interest"); provided, that during an Extension
Period the Company, the Company shall be subject to the provisions of Section
1008 of the Indenture. At the end of the Extension Period, the Company shall
pay all interest then accrued and unpaid on the Securities, including any
Additional Payments, that shall be payable to the holders of the Securities in
whose names the Securities are registered in the Security Register ("Holders")
on the first Regular Record Date after the end of the Extension Period. Before
the termination of any Extension Period, the Company may further extend such
period, provided that such period together with all such further extensions
thereof shall not exceed 20 consecutive quarters or extend beyond the maturity
of the Securities or end other than on an Interest Payment Date. Upon the
termination of any Extension Period and upon the payment of all amounts then due
on the Securities, including any Additional Payments, the Company may commence a
new Extension Period, subject to the foregoing requirements. No interest shall
be due and payable during an Extension Period except at the end thereof.
The Company must give the Property Trustee, the Regular Trustees and the
Trustee notice of its election to begin an Extension Period at least one
Business Day Prior to the earliest of (i) the date the distribution on the
Preferred Securities would have been payable except for the election to begin
such Extension Period or (ii) if applicable, the date the Regular Trustees are
required to give notice to the New York Stock Exchange, the Nasdaq National
Market or other applicable self-regulatory organization or to holders of such
Preferred Securities of the record date or (iii) the date such distribution is
payable, but in any event not less than one Business Day prior to the record
date. The Trustee shall give notice of the Company's election to begin an
Extension Period to the holders of the Securities and the Regular Trustees shall
give notice of the Company's election to the holders of the Preferred
Securities.
The quarter in which any notice is given pursuant to the second paragraph
of this Section 3 shall be counted as one of the 20 quarters permitted in the
maximum Extension Period permitted under the first paragraph of this Section 3.
(4) METHOD OF PAYMENT. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in
A-2-4
<PAGE>
whose name this Security (or one or more Predecessor Securities (as defined in
the Indenture)) is registered at the close of business on the Regular Record
Date for such interest installment, which, except as otherwise provided in the
Indenture, shall be the date 15 days prior to each Interest Payment Date
(whether or not a Business Day) (the "Regular Record Date"), commencing May 15,
1998. Any such interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
The principal of and interest on the Securities shall be payable at
the office or agency of the Company in the United States maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; PROVIDED,
HOWEVER, that payment of interest may be made at the option of the Company by
check mailed to the address of the holder entitled thereto or by wire transfer
to an account in the United States appropriately designated by the holder
entitled thereto prior to the record date for the corresponding interest payment
date. Notwithstanding the foregoing, so long as the holder of any Securities is
the Property Trustee, the payment of principal and interest on the Securities
held by the Property Trustee will be made by wire transfer at such place and to
such account in the United States as may be designated by the Property Trustee.
(5) PAYING AGENT AND SECURITY REGISTRAR. The Trustee will act as
Paying Agent, Security Registrar and Conversion Agent. The Company may change
any Paying Agent, Security Registrar, co-registrar or Conversion Agent without
prior notice. The Company or any of its Affiliates (as defined in the
Indenture) may act in any such capacity.
(6) INDENTURE. The Company issued the Securities under an indenture,
dated as of February 10, 1998 (the "Indenture"), between the Company and The
Bank of New York, not in its individual capacity but solely as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures
A-2-5
<PAGE>
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Trustee,
the Company and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb)
("TIA") as in effect on the date of the Indenture. The Securities are subject
to, and qualified by, all such terms, certain of which are summarized herein,
and Holders are referred to the Indenture and the TIA for a more complete
statement of such terms. The Securities are unsecured general obligations of
the Company limited to $296,400,000 in aggregate principal amount (including
$38,900,000 pursuant to the exercise of the over-allotment option) and
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company. No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Security when due at the times, place and rate, and in the coin
or currency, herein prescribed or to convert this Security as provided in the
Indenture.
(7) OPTIONAL REDEMPTION. The Securities are redeemable, in whole or
in part, at the Company's option at any time and from time to time after
February 15, 2001, upon not less than 30 or more than 60 days' notice, at the
following Redemption Prices, expressed as a percentage of the principal amount
of the Securities, if redeemed during the 12-month period beginning February 15
of the applicable year set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 103.75%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 103.00%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 102.25%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 101.50%
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 100.75%
2006 and thereafter. . . . . . . . . . . . . . . . . . . 100.00%
</TABLE>
plus, in each case, accrued and unpaid interest, including Additional Payments,
if any, to the Redemption Date (subject to the right of Holders of record on the
relevant record date to receive interest due on the Interest Payment Date).
From and after the Redemption Date, interest will cease to accrue on the
Securities, or portion thereof, called for redemption.
A-2-6
<PAGE>
(8) OPTIONAL REDEMPTION UPON TAX EVENT. The Securities are subject
to redemption in whole, but not in part, at the Company's option at any time
within 90 days, if a Tax Event (as defined in the Declaration) shall occur and
be continuing, at a redemption price equal to 100% of the principal amount
thereof plus accrued but unpaid interest thereon (including, to the extent
permitted by applicable law, Additional Payments, if any) to the Redemption
Date. Any redemption pursuant to this Section 8 will be made upon not less than
30 nor more than 60 days' notice.
(9) NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of the Securities to be redeemed at his address of record. In the event
of a redemption of less than all of the Securities, the Securities will be
chosen for redemption by the Trustee in accordance with the Indenture. On and
after the Redemption Date, interest ceases to accrue on the Securities or
portions thereof called for redemption.
If this Security is redeemed subsequent to a Regular Record Date with
respect to any Interest Payment Date specified above and on or prior to such
Interest Payment Date, then any accrued interest will be paid to the person in
whose name this Security is registered at the close of business on such record
date.
(10) MANDATORY REDEMPTION. The Securities will mature on February 15,
2028. There are no sinking fund payments with respect to the Securities.
(11) SUBORDINATION. The payment of the principal of, premium (if
any), interest on or any other amounts due on the Securities is subordinated and
junior in right of payment to all existing and future Senior Indebtedness (as
defined below) of the Company, as described in the Indenture. Each Holder, by
accepting a Security, agrees to such subordination and authorizes and directs
the Trustee on its behalf to take such action as may be necessary or appropriate
to effectuate the subordination so provided and appoints the Trustee as its
attorney-in-fact for such purpose.
In addition, no payment of principal (including redemption payments)
of, premium, if any, or interest (including any Additional Interest or
Compounded Interest) on the Securities may be made if there shall have occurred
and be continuing (i) a default in the payment when due of principal of,
premium, if any, sinking funds, if any, or interest, if any, on any Senior
Indebtedness of the Company and any applicable grace period with respect to such
default shall have ended without such default
A-2-7
<PAGE>
having been cured or waived or ceasing to exist or (ii) an event of default with
respect to any Senior Indebtedness of the Company resulting in the acceleration
of the maturity thereof without such acceleration having been rescinded or
annulled.
"Senior Indebtedness" means (a) any liability of the Company (1) for
borrowed money or under any reimbursement obligation relating to a letter of
credit, surety bond or similar instrument, or (2) evidenced by a bond, note,
debenture or similar instrument, or (3) for obligations to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business, or (4) for the payment of money relating to a
capitalized lease obligation, or (5) for the payment of money under any Swap
Agreement, (b) any liability of others described in the preceding clause (a)
that the Company has guaranteed or that is otherwise its legal liability; and
(c) any deferral, renewal, extension or refunding of any liability of the types
referred to in clauses (a) and (b) above, unless, in the instrument creating or
evidencing any such liability referred to in clause (a) or (b) above or any such
deferral, renewal, extension or refunding referred to in clause (c) above or
pursuant to which the same is outstanding, it is expressly provided that such
liability, deferral, renewal, extension or refunding is subordinate in right of
payment to all other indebtedness of the Company or is not senior or prior in
right of payment to the Securities or ranks PARI PASSU with or subordinate to
the Securities in right of payment; PROVIDED that the Securities shall not
constitute Senior Indebtedness; and PROVIDED, FURTHER, the Senior Indebtedness
shall not include any indebtedness or guarantees between or among the Company or
its affiliates, including all debt securities or guarantees in respect of those
debt securities issued to any trust (including the Trust), trustee of a trust
(including the Trust), partnership, limited liability company or other person
affiliated with the Company that is a financing vehicle of the Company
(a "Financing Entity") in connection with the issuance by such Financing Entity
of preferred securities unless otherwise expressly provided in the instrument
creating or evidencing such indebtedness, debt securities or guarantees, as the
case may be, or pursuant to which the same is outstanding.
(12) CONVERSION. Subject to and in compliance with the
provisions of the Indenture, the Holder of any Security has the right,
exercisable at any time prior to the close of business (New York time) on the
date of the Security's maturity (or, in the case of Securities called for
redemption, prior to the close of business on the Business Day prior to the
corresponding Redemption Date), to convert the principal amount thereof (or any
portion thereof that is an integral multiple of $50) into shares of Fleetwood
Common Stock at the initial
A-2-8
<PAGE>
conversion price of $48.72 per share of Fleetwood Common Stock, subject to
adjustment under certain circumstances.
To convert a Security, a Holder must (1) complete and sign a conversion
notice substantially in the form attached hereto, (2) surrender the Security to
a Conversion Agent, (3) furnish appropriate endorsements or transfer documents
if required by the Security Registrar or Conversion Agent and (4) pay any
transfer or similar tax, if required. Upon conversion, no adjustment or payment
will be made for interest or dividends, but if any Holder surrenders a Security
for conversion after the close of business on the Regular Record Date for the
payment of an installment of interest and prior to the opening of business on
the next Interest Payment Date, then, notwithstanding such conversion, the
interest payable on such Interest Payment Date will be paid to the Trust (which
will distribute such interest to the holder of the applicable Trust Securities
at the close of business on such record date) or to such other person in whose
name the Securities are registered at the close of business on such record date,
as the case may be, despite such conversion. In such event, such Security, when
surrendered for conversion, need not be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date on the portion so
converted. The number of shares issuable upon conversion of a Security is
determined by dividing the principal amount of the Security converted by the
conversion price in effect on the Conversion Date. No fractional shares will be
issued upon conversion but a cash adjustment will be made for any fractional
interest. The outstanding principal amount of any Security shall be reduced by
the portion of the principal amount thereof converted into shares of Common
Stock.
(13) REGISTRATION, TRANSFER EXCHANGE AND DENOMINATIONS. As provided
in the Indenture and subject to certain limitations therein set forth, the
transfer of this Security is registrable in the Security Register, upon
surrender of this Security for registration of transfer at the office or agency
of the Company designated for such purpose, duly endorsed by, or accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $50 and integral multiples thereof. No service charge shall be
made for any such registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any tax or other
A-2-9
<PAGE>
governmental charge payable in connection therewith. Prior to due presentment
of this Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name this
Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Company, the Trustee nor any such agent
shall be affected by notice to the contrary. In the event of redemption or
conversion of this Security in part only, a new Security or Securities for the
unredeemed or unconverted portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
(14) PERSONS DEEMED OWNERS. The registered Holder of a Security may
be treated as its owner for all purposes.
(15) UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company at its written request. After that, Holders
of Securities entitled to the money must look to the Company for payment unless
an abandoned property law designates another Person and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
(16) DEFAULTS AND REMEDIES. The Securities shall have the Events of
Default as set forth in Section 501 of the Indenture. Subject to certain
limitations in the Indenture, if an Event of Default occurs and is continuing,
then the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities, and
accrued and unpaid interest, if any (including any Additional Payments), thereon
to be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by the Holders), and upon any such declaration such
principal or such lesser amount, as the case may be, and such accrued and unpaid
interest (including any Additional Payments) shall become immediately due and
payable.
The Holders of not less than a majority in aggregate principal amount
of the Securities then outstanding by written notice to the Trustee may rescind
an acceleration and its consequences if the rescission would not conflict with
any judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration. Holders may not enforce the Indenture or the
Securities except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the then outstanding
Securities issued under the Indenture may direct the Trustee in its exercise of
any trust or power. The Company must
A-2-10
<PAGE>
furnish annually compliance certificates to the Trustee. The above description
of Events of Default and remedies is qualified in its entirety by reference to,
and subject to, the more complete description thereof contained in the
Indenture.
(17) AMENDMENTS, SUPPLEMENTS AND WAIVERS. The Indenture permits, with
certain exceptions as therein provided, the amendment thereof and the
modification of the rights and obligations of the Company and the rights of the
Holders of the Securities under the Indenture at any time by the Company and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange heretofore or in lieu hereof, whether or not notation of
such consent or waiver is made upon this Security.
(18) TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its
individual or any other capacity may become the owner or pledgee of the
Securities and may otherwise deal with the Company or an Affiliate with the same
rights it would have, as if it were not Trustee, subject to certain limitations
provided for in the Indenture and in the TIA. Any Agent may do the same with
like rights.
(19) NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of the Securities by accepting a Security waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
(20) GOVERNING LAW. THE INDENTURE AND THE SECURITIES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(21) AUTHENTICATION. The Securities shall not be valid until
authenticated by the manual signature of an authorized officer of the Trustee.
A-2-11
<PAGE>
(22) ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder of the Securities upon written
request and without charge a copy of the Indenture. Request may be made to:
Fleetwood Enterprises, Inc.
3125 Myers Street
Riverside, CA 92513
Attn: General Counsel
A-2-12
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Your Signature:
----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Security)
Date:
--------------
Signature Guarantee:*
-------------------------------------------------------
- --------------------
* Signature must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the [Registrar], which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
[Registrar] in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-2-13
<PAGE>
(TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE A
The initial principal amount of this Global Security shall be $______.
The following increases or decreases in the principal amount of this Global
Security have been made:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
| Amount of increase in | | | |
| Principal Amount of this | | Principal Amount of | |
| Global Security including | Amount of decrease in | this Global Security | Signature of authorized |
| upon exercise of over- | Principal amount of | following such | officer of Trustee or |
Date Made | allotment option | this Global Security | decrease or increase | Securities Custodian |
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
- ----------------------------------------------------------------------------------------------------------------------
| | | | |
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| | | | |
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| | | | |
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| | | | |
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| | | | |
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| | | | |
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</TABLE>
A-2-14
<PAGE>
ELECTION TO CONVERT
To: Fleetwood Enterprises, Inc.
The undersigned owner of this Security hereby irrevocably exercises
the option to convert this Security, or the portion below designated, into
Common Stock of FLEETWOOD ENTERPRISES, INC. ("Fleetwood Common Stock") in
accordance with the terms of the Indenture referred to in this Security, and
directs that the shares issuable and deliverable upon conversion, together with
any check in payment for fractional shares, be issued in the name of and
delivered to the undersigned, unless a different name has been indicated in the
assignment below. If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto.
Any Holder, upon the exercise of its conversion rights in accordance
with the terms of the Indenture and the Security, agrees to be bound by the
terms of the Registration Rights Agreement relating to the Fleetwood Common
Stock issuable upon conversion of the Securities.
Date: ,
------- ----
in whole __
Portions of Security to be converted ($__ or
integral multiples thereof):
$
---------
---------------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number
---------------------------------------------
---------------------------------------------
---------------------------------------------
Signature Guarantee:*
----------------------
- -------------------
* Signature must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the [Registrar], which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
[Registrar] in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
A-2-15
<PAGE>
EXECUTION COPY
FLEETWOOD CAPITAL TRUST
6% Convertible Trust Preferred Securities
guaranteed by and convertible into shares of
Common Stock of Fleetwood Enterprises, Inc.
REGISTRATION RIGHTS AGREEMENT
February 10, 1998
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Fleetwood Capital Trust, a statutory business trust formed under the
laws of the State of Delaware (the "Trust") by Fleetwood Enterprises, Inc., a
Delaware corporation ("Fleetwood"), proposes to issue and sell to you (the
"Initial Purchaser") upon the terms set forth in a purchase agreement dated
February 4, 1998 (the "Purchase Agreement"), among the Initial Purchaser,
Fleetwood and the Trust, 6% Convertible Trust Preferred Securities (liquidation
amount $50 per Convertible Trust Preferred Security) (the "Preferred
Securities"). As an inducement to the Initial Purchaser to enter into the
Purchase Agreement and in satisfaction of a condition to the obligations of the
Initial Purchaser thereunder, the Trust and Fleetwood agree with you, (i) for
the benefit of the Initial Purchaser and (ii) for the benefit of the holders
from time to time of the Preferred Securities, the 6% Convertible Subordinated
Debentures due 2028 (the "Convertible Subordinated Debentures") and the common
stock of Fleetwood, par value $1.00 per share (the "Fleetwood Common Stock")
initially issuable upon conversion of the Preferred Securities or the
Convertible Subordinated Debentures (collectively, together with any security
issued with respect thereto upon any stock dividend, split or similar event and
the guarantee of Fleetwood under certain conditions of payments by the Trust
with respect to the Preferred Securities (the "Guarantee"), the "Registrable
Securities"), including the Initial Purchaser (each of the foregoing a "Holder"
and together the "Holders"), as follows:
1. DEFINITIONS. Capitalized terms used herein without definition
shall have their respective meanings set forth in or pursuant to the Purchase
Agreement or the Offering Memorandum dated February 4, 1998, in respect of the
Preferred Securities. As used in this Registration Rights Agreement (this
<PAGE>
-2-
"Agreement"), the following capitalized defined terms shall have the following
meanings:
"Act" or "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated by the Commission thereunder.
"Affiliate" of any specified person means any other person which,
directly or indirectly through one or more intermediaries, is in control of, is
controlled by, or is under common control with such specified person. For
purposes of this definition, control of a person means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such person whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Commission" means the Securities and Exchange Commission.
"Declaration" means the Amended and Restated Declaration of Trust
dated February 10, 1998, as amended and restated.
"DTC" means The Depository Trust Company.
"Effectiveness Period" has the meaning set forth in Section 2(b)
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the Commission thereunder.
"Indenture" means the Indenture dated February 10, 1998, between
Fleetwood and The Bank of New York, as Trustee, pursuant to which the
Convertible Subordinated Debentures are being issued.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten offering,
if any, as set forth in Section 6 hereof.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Prospectus" means the prospectus included in any Shelf Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement
<PAGE>
-3-
in reliance upon Rule 430A under the Act), as amended or supplemented by any
amendment or prospectus supplement,including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus with respect to the terms of the offering of any portion of the
Registrable Securities.
"Shelf Registration" means a registration effected pursuant to Section
2 hereof.
"Shelf Registration Statement" means a "shelf" registration statement
of the Trust and Fleetwood pursuant to the provisions of Section 2 hereof filed
with the Commission which covers some or all of the Registrable Securities, as
applicable, on Form S-3 under Rule 415 under the Act, or any similar rule that
may be adopted by the Commission, amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Underwriter" means any underwriter of Registrable Securities in
connection with an offering thereof under a Shelf Registration Statement.
2. SHELF REGISTRATION. (a) The Trust and Fleetwood shall, (i)
within 90 days following the date of original issuance (the "Issue Date") of the
Preferred Securities, file with the Commission a Shelf Registration Statement
relating to the offer and sale of the Registrable Securities by the Holders from
time to time in accordance with the methods of distribution elected by such
Holders and set forth in such Shelf Registration Statement; and (ii) use their
best efforts to cause such Shelf Registration Statement to be declared effective
under the Act within 150 calendar days after the date of original issuance of
the Preferred Securities; PROVIDED, HOWEVER, that no Holder shall be entitled to
have the Registrable Securities held by it covered by such Shelf Registration
unless such Holder is in compliance with Section 3(m) hereof.
(b) The Trust and Fleetwood shall each use its best efforts (i) to
keep the Shelf Registration Statement continuously effective in order to permit
the Prospectus forming part thereof to be usable by Holders for a period of two
years after the date of original issuance of the Preferred Securities or such
shorter period that will terminate upon the earlier of the following: (A) when
all the Registrable Securities covered by the Shelf Registration Statement have
been disposed of pursuant to the Shelf Registration Statement and (B) when, in
the written opinion of counsel to the Trust and Fleetwood, all outstanding
Registrable Securities held by persons that are not affiliates of the Trust or
Fleetwood may be resold without registration under
<PAGE>
-4-
the Act pursuant to Rule 144(k) under the Act or any successor provision thereto
(in any such case, such period being called the "Effectiveness Period"); and
(ii) after the effectiveness of the Shelf Registration Statement, promptly upon
the request of any Holder to take any action reasonably necessary to register
the sale of any Registrable Securities of such Holder and to identify such
Holder as a selling securityholder. The Trust and Fleetwood shall be deemed not
to have used their best efforts to keep the Shelf Registration Statement
effective during the requisite period if either the Trust or Fleetwood
voluntarily takes any action that would result in Holders of Registrable
Securities covered thereby not being able to offer and sell any such Registrable
Securities during that period, unless (i) such action is required by applicable
law, (ii) upon the occurrence of any event contemplated by paragraph
3(c)(2)(iii) below, and such action is taken by the Trust or Fleetwood in good
faith and for valid business reasons or (iii) the continued effectiveness of the
Shelf Registration Statement would require Fleetwood to disclose material
non-public information, including without limitation information regarding a
material financing, acquisition or other corporate event, transaction or
development, and the Board of Directors of Fleetwood shall have determined in
good faith that such disclosure is not in the best interests of Fleetwood and
its stockholders, and, in the case of clause (i) or (ii) above, the Trust and
Fleetwood thereafter promptly comply with the requirements of paragraph 3(i)
below.
3. REGISTRATION PROCEDURES. In connection with any Shelf
Registration Statement, the following provisions shall apply in addition to
those provisions contained in the Declaration and the Indenture:
(a) The Trust and Fleetwood shall furnish to the Initial Purchaser,
prior to the filing thereof with the Commission, a copy of any Shelf
Registration Statement and each amendment thereof, and each amendment or
supplement, if any, to the Prospectus included therein (other than
documents that would be incorporated or deemed to be incorporated therein
by reference and that Fleetwood or the Trust is required by applicable
securities laws or stock exchange requirements to file), and each of the
Trust and Fleetwood shall use its best efforts to reflect in each such
document, when so filed with the Commission, such comments as the Initial
Purchaser reasonably may propose.
(b) The Trust and Fleetwood shall take such action as may be
necessary so that (i) any Shelf Registration Statement and any amendment
thereto, and any Prospectus forming part thereof and any amendment or
supplement thereto, and each report or other document incorporated therein
by reference in each case, complies in all material respects with the
Securities Act and the Exchange Act and
<PAGE>
-5-
the respective rules and regulations thereunder, (ii) any Shelf
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any Prospectus forming part of
any Shelf Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not misleading.
(c) (1) Fleetwood shall advise the Initial Purchaser, Brown & Wood
LLP, counsel to the Initial Purchaser ("Counsel to the Initial Purchaser")
and, in the case of clause (i) below, the Holders, and, if requested by the
Initial Purchaser or any Holder, confirm such advice in writing:
(i) when a Shelf Registration Statement and any amendment
thereto has been filed with the Commission and when the Shelf
Registration Statement or any post-effective amendment thereto has
become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the Prospectus
included therein or for additional information.
(2) Fleetwood shall advise the Initial Purchaser, Counsel to the
Initial Purchaser and the Holders, and, if requested by the Initial
Purchaser or any Holder, confirm such advice in writing of:
(i) the issuance by the Commission of any stop order suspending
effectiveness of the Shelf Registration Statement or the initiation of
any proceedings for that purpose;
(ii) the receipt by the Trust or Fleetwood of any notification
with respect to the suspension of the qualification of the Registrable
Securities included therein for sale in any jurisdiction or the
initiation of any proceeding for such purpose;
(iii) the happening of any event that requires the making of any
changes in the Shelf Registration Statement or the Prospectus so that,
as of such date, the Shelf Registration Statement and the Prospectus
do not contain an untrue statement of a material fact and do not omit
to state a material fact required to be
<PAGE>
-6-
stated therein or necessary to make the statements therein (in the
case of the Prospectus, in light of the circumstances under which they
were made) not misleading (which advice shall be accompanied by an
instruction to suspend the use of the Prospectus until the requisite
changes have been made); and
(iv) the event that the continued effectiveness of the Shelf
Registration Statement would require Fleetwood to disclose material
non-public information, including without limitation information
regarding a material financing, acquisition or other corporate event,
transaction or development, and the Board of Directors of Fleetwood
shall have determined in good faith that such disclosure is not in the
best interests of Fleetwood and its stockholders (which advice shall
be accompanied by an instruction to suspend the use of the Prospectus
until the Holder is advised in writing by Fleetwood that the
Prospectus may be used and has received copies of any additional or
supplemental filings that are incorporated by reference in such
Prospectus).
(d) Fleetwood shall use its best efforts to prevent the issuance,
and, if issued, to obtain the withdrawal, of any order suspending the
effectiveness of any Shelf Registration Statement at the earliest possible
time.
(e) The Trust and Fleetwood shall furnish to the Initial Purchaser
and each Holder of Registrable Securities included within the coverage of
any Shelf Registration Statement, without charge, at least one copy of such
Shelf Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so
requests in writing, all reports, other documents and exhibits (including
those incorporated by reference).
(f) The Trust and Fleetwood shall, during the Effectiveness Period,
deliver to the Initial Purchaser and each Holder of Registrable Securities
included within the coverage of any Shelf Registration Statement, without
charge, as many copies of the Prospectus (including each preliminary
Prospectus) included in such Shelf Registration Statement and any amendment
or supplement thereto as the Initial Purchaser and each Holder may
reasonably request; and each of the Trust and Fleetwood consents (except
upon and during the continuance of any event described in paragraph
3(c)(2)(iii) or paragraph 3(c)(2)(iv) above) to the use of the Prospectus
and any amendment or supplement thereto by each of the selling Holders of
Registrable Securities in connection with the offering and sale of the
<PAGE>
-7-
Registrable Securities covered by the Prospectus or any amendment or
supplement thereto during the Effectiveness Period.
(g) Prior to any offering of Registrable Securities pursuant to any
Shelf Registration Statement, the Trust and Fleetwood shall register or
qualify or cooperate with the Holders of Registrable Securities included
therein and their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions as any such Holders
reasonably request in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions
of the Registrable Securities covered by such Shelf Registration Statement;
PROVIDED, HOWEVER, that in no event shall the Trust or Fleetwood be
obligated to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required to
so qualify but for this Section 3(g), (ii) file any general consent to
service of process in any jurisdiction where it is not as of the date
hereof then so subject or (iii) subject itself to taxation in any such
jurisdiction if it is not so subject.
(h) Unless the Registrable Securities shall be in book-entry only
form, the Trust and Fleetwood shall cooperate with the Holders of
Registrable Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold pursuant to any
Shelf Registration Statement free of any restrictive legends and in such
permitted denominations and registered in such names as Holders may request
in connection with the sale of Registrable Securities pursuant to such
Shelf Registration Statement.
(i) Upon the occurrence of any event contemplated by paragraph
3(c)(2)(iv) above, Fleetwood may elect to delay resales of Registrable
Securities until such information has been publicly released. Upon the
occurrence of any event contemplated by paragraph 3(c)(2)(iii) above, and
if required upon the occurrence of any event contemplated by paragraph
3(c)(2)(iv), the Trust and Fleetwood shall promptly prepare a
post-effective amendment to the Shelf Registration Statement or an
amendment or supplement to the related Prospectus or file any other
required document so that, as thereafter delivered to purchasers of the
Registrable Securities included therein, the Shelf Registration Statement
and the Prospectus do not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus,
<PAGE>
-8-
in the light of the circumstances under which they were made) not
misleading. If the Trust or Fleetwood notifies the Holders of the
occurrence of any event contemplated by paragraphs 3(c)(2)(iii) or
3(c)(2)(iv) above, the Holders shall suspend the use of the Prospectus
until the requisite changes to the Prospectus have been made or until the
Holders are advised in writing by Fleetwood that the Prospectus may be
used.
(j) Not later than the effective date of any Shelf Registration
Statement hereunder, the Trust and Fleetwood shall provide a CUSIP number
for the Preferred Securities registered under such Shelf Registration
Statement; in the event of and at the time of any distribution of the
Convertible Subordinated Debentures to Holders, Fleetwood shall provide a
CUSIP number for the Convertible Subordinated Debentures and provide the
applicable trustee with certificates for such Registrable Securities, in a
form eligible for deposit with DTC.
(k) The Trust and Fleetwood shall use their best efforts to comply
with all applicable rules and regulations of the Commission and to make
generally available to their security holders, or otherwise provide in
accordance with Section 11(a) of the Securities Act, as soon as practicable
after the effective date of the applicable Shelf Registration Statement, an
earnings statement satisfying the provisions of Section 11(a) of the
Securities Act.
(l) The Trust and Fleetwood shall cause the Indenture, the
Declaration and the Guarantee to be qualified under the Trust Indenture Act
in a timely manner.
(m) The Trust and Fleetwood may require each Holder of Registrable
Securities to be sold pursuant to any Shelf Registration Statement to
furnish to the Trust and Fleetwood such information regarding the Holder
and the distribution of such Registrable Securities as the Trust and
Fleetwood may from time to time reasonably require for inclusion in such
Shelf Registration Statement, and Fleetwood and the Trust may exclude from
such registration the Registrable Securities of any Holder that fails to
furnish such information within a reasonable time after receiving such
request. Each Holder of Registrable Securities as to which any Shelf
Registration Statement is being effected, severally and not jointly, agrees
promptly to furnish to Fleetwood and the Trust all information required to
be disclosed in order to make the information previously furnished to
Fleetwood and the Trust by such Holder not misleading. Any sale of any
Registrable Securities by any Holder shall constitute a representation and
warranty by such Holder, severally and not jointly, that the information
<PAGE>
-9-
relating to such Holder is as set forth in the Prospectus delivered by such
Holder in connection with such disposition, that such Prospectus does not
as of the time of such sale contain any untrue statement of a material fact
relating to such Holder and that such Prospectus does not as of the time of
such sale omit to state any material fact relating to such Holder necessary
to make the statements in such Prospectus, in the light of the
circumstances under which they were made, not misleading.
(n) In the event of an underwritten offering, as set forth in Section
6, the Trust and Fleetwood shall, if requested, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to a
Shelf Registration Statement, such information as the Managing Underwriters
reasonably agree should be included therein and to which the Trust and
Fleetwood do not reasonably object, and shall make all required filings of
such Prospectus supplement or post-effective amendment as soon as
practicable after they are notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment.
(o) The Trust and Fleetwood shall enter into such customary
agreements (including underwriting agreements in customary form) that are
reasonably acceptable to the Trust and Fleetwood and take all other
appropriate actions in connection therewith in order to expedite or
facilitate the registration or the disposition of the Registrable
Securities, and in connection therewith, if an underwriting agreement is
entered into, cause the same to contain indemnification provisions and
procedures substantially identical to those set forth in Section 5 (or such
other provisions and procedures acceptable to the Managing Underwriters, if
any) with respect to all parties to be indemnified pursuant to Section 5.
(p) If requested in connection with a disposition of Registrable
Securities pursuant to the Shelf Registration Statement, the Trust and
Fleetwood shall (i) make reasonably available for inspection by the Holders
of Registrable Securities to be registered thereunder, any underwriter
participating in any disposition pursuant to such Shelf Registration
Statement, and any attorney, accountant or other agent retained by any such
Holder or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Trust and Fleetwood and
its subsidiaries; (ii) cause Fleetwood's officers, directors and employees
and the Regular Trustees to make reasonably available for inspection all
relevant information reasonably requested by such Holders or any such
underwriter, attorney, accountant or agent in connection
<PAGE>
-10-
with any such Shelf Registration Statement, in each case as is customary
for similar due diligence examinations subject to reasonable assurances by
each such person that such information will only be used in connection with
matters relating to such Shelf Registration Statement; PROVIDED, HOWEVER,
that any information that is designated in writing by the Trust and
Fleetwood, in good faith, as confidential at the time of delivery of such
information shall be kept confidential by such Holders or any such
underwriter, attorney, accountant or agent, unless such disclosure is made
in connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a third
party without an accompanying obligation of confidentiality; and PROVIDED
FURTHER that the foregoing inspection and information gathering shall, to
the greatest extent possible, be coordinated on behalf of the Holders and
the other parties entitled thereto by one counsel designated by and on
behalf of such Holders and other parties; (iii) make such representations
and warranties, subject to the ability of Fleetwood and the Trust to do so,
to the Holders of Registrable Securities registered thereunder and the
underwriters, if any, in form, substance and scope as are customarily made
by registrants to underwriters in primary underwritten offerings and
covering matters including, but not limited to, those set forth in the
Purchase Agreement; (iv) obtain opinions of counsel to the Trust and
Fleetwood (who may be the general counsel of Fleetwood) and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the Managing Underwriters, if any) in customary
form addressed to each selling Holder and the underwriters, if any,
covering such matters as arecustomarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters (it being agreed that the
matters to be covered by such opinion or a written statement by such
counsel delivered in connection with such opinions shall include, without
limitation, as of the date of the opinion and as of the effective date of
the Shelf Registration Statement or most recent post-effective amendment
thereto, as the case may be, the absence from such Shelf Registration
Statement and the Prospectus included therein, as then amended or
supplemented, including the documents incorporated by reference therein, of
an untrue statement of a material fact or the omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading; (v) obtain "cold
comfort" letters and updates thereof from the independent public
accountants of Fleetwood (and, if necessary, any other independent public
accountants of any subsidiary of Fleetwood or of any
<PAGE>
-11-
business acquired by Fleetwood for which financial statements and financial
data are, or are required to be, included in the Shelf Registration
Statement), addressed to each such Holder of Registrable Securities
registered thereunder and the underwriters, if any, in customary form and
covering matters of the type customarily covered in "cold comfort" letters
in connection with primary underwritten offerings; and (vi) deliver such
other customary documents and certificates as may be reasonably requested
by any such Holders and the Managing Underwriters, if any, including those
to evidence compliance with Section 3(i) and with any customary conditions
contained in the underwriting agreement or other agreement entered into by
registrants in primary underwritten offerings, subject to the
confidentiality provisions and coordination provisions stated in clause
(ii) above. The foregoing actions set forth in clauses (iii), (iv), (v)
and (vi) of this Section 3(p) shall be performed at each closing under any
underwritten offering to the extent required thereunder.
(q) The Trust and Fleetwood will each use its best efforts to cause
the Common Stock issuable upon conversion of (i) the Preferred Securities
and (ii) the Convertible Subordinated Debentures to be listed on the New
York Stock Exchange on or prior to the effective date of any Shelf
Registration Statement hereunder.
(r) In the event that any broker-dealer registered under the Exchange
Act shall underwrite any Registrable Securities or participate as a member
of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of the Rules of Fair Practice and the
By-Laws of the National Association of Securities Dealers, Inc. ("NASD")
(the "Rules and By-Laws")) thereof, whether as a Holder of such Registrable
Securities or as an underwriter, a placement or sales agent or a broker or
dealer in respect thereof, or otherwise, the Trust and Fleetwood will
assist such broker-dealer in complying with the requirements of such Rules
and By-Laws, including, without limitation, by (i) if such Rules or By-Laws
shall so require, engaging a "qualified independent underwriter" (as
defined in Rule 2720 of the Rules and By-Laws) to participate in the
preparation of the Shelf Registration Statement relating to such
Registrable Securities and to exercise usual standards of due diligence in
respect thereto, (ii) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters provided
in Section 5 hereof and (iii) providing such information to such
broker-dealer as may be required in order for such broker-dealer to comply
with the requirements of the Rules of Fair Practice of the NASD.
<PAGE>
-12-
(s) The Trust and Fleetwood shall use their best efforts to take all
other steps necessary to effect the registration, offering and sale of the
Registrable Securities covered by the Shelf Registration Statement
contemplated hereby.
4. REGISTRATION EXPENSES. Except as otherwise provided in Section
6, Fleetwood shall bear all fees and expenses incurred in connection with the
performance of its and the Trust's obligations under Sections 2 and 3 hereof and
shall bear or reimburse the Holders for the reasonable fees and disbursements of
Brown & Wood LLP, special counsel to the Holders in connection with the matters
contemplated hereunder, or such other firm of counsel designated by the Initial
Purchaser and reasonably acceptable to Fleetwood to act as counsel therefor in
connection therewith.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Trust and the Company, jointly and severally, will indemnify and
hold harmless the Initial Purchaser, each Holder, each underwriter who
participates in an offering of Registrable Securities, each person, if any, who
controls such parties within the meaning of Section 15 of the Act or Section 20
of the Exchange Act and each of their respective directors, officers, employees,
trustees and agents (each of the foregoing being hereinafter referred to as an
"Indemnified Person"), from and against any and all losses, claims, liabilities,
expenses and damages (including, but not limited to, any and all investigative,
legal and other expenses reasonably incurred in connection with, and any and all
amounts paid in settlement of, any action, suit or proceeding between any of the
Indemnified Persons and any indemnifying parties or between any Indemnified
Person and any third party, or otherwise, or any claim asserted), as and when
incurred, to which any Indemnified Person may become subject under the Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, liabilities, expenses or
damages arise out of or are based on (i) any untrue statement or alleged untrue
statement of a material fact contained in any Shelf Registration Statement or in
any application or other document executed by or on behalf of Fleetwood or based
on written information furnished by or on behalf of Fleetwood filed in any
jurisdiction in order to qualify the Registrable Securities under the securities
laws thereof or filed with the Commission, (ii) the omission or alleged omission
to state in such document a material fact required to be stated in it or
necessary to make the statements in it not misleading or (iii) any act or
failure to act or any alleged act or failure to act by any Indemnified Person in
connection with, or relating in any manner to, the Registrable Securities or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, liability,
<PAGE>
-13-
expense or damage arising out of or based upon matters covered by clause (i) or
(ii) above (provided that the Trust or Fleetwood shall not be liable under this
clause (iii) to the extent it is finally judicially determined by a court of
competent jurisdiction that such loss, claim, liability, expense or damage
resulted directly form any such acts or failures to act undertaken or omitted to
be taken by such Indemnified Person through its gross negligence or willful
misconduct); provided that neither Fleetwood nor the Trust will be liable to the
extent that such loss, claim, liability, expense or damage arises from the sale
of the Registrable Securities to any person by the Indemnified Person and is
based on an untrue statement or omission or alleged untrue statement or omission
made in reliance on and in conformity with information relating to the
Indemnified Person furnished in writing to Fleetwood or the Trust by the
Indemnified Person expressly for inclusion in the Shelf Registration Statement.
This indemnity agreement will be in addition to any liability which the Trust
and Fleetwood might otherwise have including under this Agreement.
(b) Each Holder will indemnify and hold harmless (i) the Trust,
the Trustees, its officers and any person controlling the Trust within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii)
Fleetwood, its directors, its officers and each other person, if any, who
controls the Fleetwood within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, in each case to the same extent as the foregoing indemnity
from the Trust and Fleetwood to the Indemnified Persons, but only insofar as
losses, liabilities, claims, expenses or damages arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission, made
in reliance on and in conformity with written information relating to the
Indemnified Person furnished to the Trust or Fleetwood by the Indemnified Person
expressly for use in the Shelf Registration Statement. This indemnity will be
in addition to any liability that the Indemnified Person may otherwise have;
provided, however, that in no case shall any Indemnified Person be liable or
responsible for any amount in excess of the amount of net proceeds received by
such Holder from the sale of Registrable Securities pursuant to the Shelf
Registration Statement.
(c) Any party that proposes to assert the right to be
indemnified under this Section 5 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 5, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve it from any liability that it may have to any indemnified party
under the foregoing provisions of this Section 5 unless, and only to the
<PAGE>
-14-
extent that, such omission results in the forfeiture of substantive rights or
defenses by the indemnifying party. If any such action is brought against any
indemnified party and it notifies the indemnifying party of its commencement,
the indemnifying party will be entitled to participate in and, to the extent
that it elects by delivering written notice to the indemnified party promptly
after receiving notice of the commencement of the action from the indemnified
party, jointly with any other indemnifying party similarly notified, to assume
the defense of the action, with counsel satisfactory to the indemnified party,
and after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on advice of counsel) that there may be
legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (3) a conflict
or potential conflict exists (based on advice of counsel to the indemnified
party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party), or (4) the indemnifying party has
not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld). No indemnifying party shall, without the prior written consent of
each indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated by this Section 5 (whether or not any indemnified party
is a party thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified
<PAGE>
-15-
party from all liability arising or that may arise out of such claim, action or
proceeding. Notwithstanding any other provision of this Section 5(c), if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 5 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Trust and Fleetwood or the Initial
Purchaser, the Trust, Fleetwood and any Indemnified Persons shall contribute to
the aggregate losses, claims, liabilities, expenses and damages (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claims asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Trust or Fleetwood, any contribution
received by the Trust or Fleetwood from persons other than the Indemnified
Person, such as persons who control the Trust or Fleetwood within the meaning of
the Act and directors and officers of Fleetwood, who may also be liable for
contribution) to which the Trust, Fleetwood and the Indemnified Person may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Trust and Fleetwood on the one hand and the Indemnified Person
on the other from the transactions in connection with which such liabilities
arose. If, but only if, the allocation provided by the foregoing sentence is
not permitted by applicable law, the allocation of contribution shall be made in
such proportion as is appropriate to reflect not only the relative benefits
referred to in the foregoing sentence but also the relative fault of the Trust
and Fleetwood on the one hand and any Indemnified Persons on the other with
respect to the statements or omissions which resulted in such loss, claim,
liability, expense or damage, or action in respect thereof, as well as any other
relevant equitable considerations with respect to such offering. Such relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact related to information supplied by the Trust
or Fleetwood or the Indemnified Person, the intent of the parties and their
relative knowledge, access to
<PAGE>
-16-
information and opportunity to correct or prevent such statement or omission.
The Trust, Fleetwood and the Indemnified Person agree that it would not be just
and equitable if contributions pursuant to this Section 5(d) were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above in
this Section 5(d) shall be deemed to include, for purpose of this Section 5(d),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5(d), Holders shall not be
required to contribute any amount in excess of the amount of net proceeds
received by such Holder from the sale of Registrable Securities pursuant to the
Shelf Registration Statement, and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 5(d), any person who controls a
party to this Agreement within the meaning of the Act will have the same rights
to contribution as that party, and each officer of the Trust and Fleetwood will
have the same rights to contribution as the Trust and Fleetwood, respectively,
subject in each case to the provisions hereof. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 5(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 5(d). Except for a settlement entered
into pursuant to the last sentence of Section 5(c) hereof, no party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).
6. UNDERWRITTEN OFFERING. The Holders of Registrable Securities
covered by the Shelf Registration Statement who desire to do so may sell such
Registrable Securities in an underwritten offering. In any such underwritten
offering, the investment banker or bankers and manager or managers that will
administer the offering will be selected by, and the underwriting arrangements
with respect thereto will be approved by, the Holders of a majority of the
Registrable Securities to be included in such offering; PROVIDED, HOWEVER, that
(i) such investment bankers and managers and underwriting arrangements must be
reasonably satisfactory to Fleetwood and the Trust and (ii) Fleetwood shall not
be obligated to arrange for more than one underwritten offering during the
Effectiveness Period. No Holder may participate in any underwritten offering
contemplated
<PAGE>
-17-
hereby unless such Holder (a) agrees to sell such Holder's Registrable
Securities in accordance with any approved underwriting arrangements,
(b) completes and executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents
required under the terms of such approved underwriting arrangements and (c) at
least 20% of the outstanding Registrable Securities are included in such
underwritten offering. The Holders participating in any underwritten offering
shall be responsible for any expenses customarily borne by selling
securityholders, including underwriting discounts and commissions and fees and
expenses of counsel to the selling securityholders and shall reimburse the Trust
and Fleetwood for the fees and disbursements of their counsel, their independent
public accountants and any printing expenses incurred in connection with such
underwritten offering. Notwithstanding the foregoing or the provisions of
Section 3(n) hereof, upon receipt of a request from the Managing Underwriter or
a representative of Holders of a majority of the Registrable Securities
outstanding to prepare and file an amendment or supplement to the Shelf
Registration Statement and Prospectus in connection with an underwritten
offering, Fleetwood may delay the filing of any such amendment or supplement for
up to 90 days if Fleetwood in good faith has a valid business reason for such
delay.
7. MISCELLANEOUS.
(a) OTHER REGISTRATION RIGHTS. Fleetwood may grant registration
rights that would permit any Person that is a third party the right to
piggy-back on any Shelf Registration Statement; PROVIDED that if the Managing
Underwriter, if any, of such offering delivers an opinion to the selling Holders
that the total amount of securities which they and the holders of such
piggy-back rights intend to include in any Shelf Registration Statement is so
large as to materially adversely affect the success of such offering (including
the price at which such securities can be sold), then only the amount, number or
kind of securities to be offered for the account of holders of such piggy-back
rights will be reduced to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount, number or kind
recommended by the Managing Underwriter prior to any reduction in the amount of
Registrable Securities to be included.
(b) MAJORITY HOLDERS. To the extent that this Agreement provides for
any action, decision or determination to be taken or made by Holders of a
majority or a certain percentage or all the Registrable Securities, the
determination of such majority or certain percentage of Holders shall be made by
deeming the Holders of Convertible Preferred Securities to be the Holders of the
number of outstanding shares of underlying Fleetwood Common Stock into which
such Convertible Preferred
<PAGE>
-18-
Securities are convertible or exchangeable and, in the event that the
Convertible Subordinated Debentures have been distributed to Holders, by deeming
the Holders of Convertible Subordinated Debentures to be Holders of the number
of outstanding shares of underlying Fleetwood Common Stock into which such
Convertible Subordinated Debentures are convertible.
(c) AMENDMENTS AND WAIVERS. The provision of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Trust and Fleetwood have obtained
the written consent of the Initial Purchaser.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier, or air courier guaranteeing overnight delivery:
1. if to a Holder, at the most current address given by such Holder
to Fleetwood in accordance with the provisions of this Section 7(c);
2. if to the Initial Purchaser, initially at the address set forth
in the Purchase Agreement; and
3. if to the Trust or Fleetwood, initially at its address set forth
in the Purchase Agreement.
4. All such notices and communications shall be deemed to have been
given when received in person, telecopied with receipt confirmed, or mailed by
first class mail or air courier guaranteeing overnight delivery, postage
prepaid, except that if a notice or other document is refused delivery or cannot
be delivered because of a changed address of which no notice was given, such
notice or other document shall be deemed to have been delivered on the date of
such refusal or inability to deliver.
The Initial Purchaser, the Trust and Fleetwood, by notice to the
other, may designate additional or different addresses for subsequent notices or
communications.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
and the Holders, including, without the need for an express assignment or any
consent by the Trust or Fleetwood thereto, subsequent Holders of Registrable
Securities. The Trust and Fleetwood hereby agree to extend the benefits of this
Agreement to any Holder of Registrable Securities and any such Holder may
specifically enforce the provisions of this Agreement as if an original party
hereto.
<PAGE>
-19-
(f) COUNTERPARTS. This agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
(i) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
(j) ENTIRE AGREEMENT. This Agreement and the agreements contemplated
by the Offering Memorandum dated February 4, 1998, relating to the offering of
Preferred Securities, are intended by the parties as a final expression of their
agreement with respect to the subject matter contained herein and the
registration rights granted by Fleetwood and the Trust with respect to the
Registrable Securities and supersede all prior agreements and undertakings among
the parties with respect to such registration rights.
(k) TERMINATION. This Agreement and the obligations of the parties
hereunder shall terminate upon the end of the Effectiveness Period, except for
any liabilities or obligations under Sections 4 and 5 hereof, and such portions
of Section 6 as referred to in Section 4, each of which shall survive any such
termination.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between Fleetwood, the Trust and you.
Very truly yours,
FLEETWOOD CAPITAL TRUST
By: /s/ Paul M. Bingham
--------------------------------
Name: Paul M. Bingham
Title: Regular Trustee
FLEETWOOD ENTERPRISES, INC.
By: /s/Nelson W. Potter
-------------------------------
Name: Nelson W. Potter
Title: President
Confirmed and agreed as of
the date first above-written
PAINEWEBBER INCORPORATED
By: /s/ James S. Murphy
-------------------------
Authorized Signatory
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between Fleetwood, the Trust and you.
Very truly yours,
FLEETWOOD CAPITAL TRUST
By: /s/ Paul M. Bingham
--------------------------------
Name: Paul M. Bingham
Title: Regular Trustee
FLEETWOOD ENTERPRISES, INC.
By: /s/Nelson W. Potter
-------------------------------
Name: Nelson W. Potter
Title: President
Confirmed and agreed as of
the date first above-written
PAINEWEBBER INCORPORATED
By: /s/ James S. Murphy
-------------------------
Authorized Signatory
<PAGE>
------------------------------------
------------------------------------
PREFERRED SECURITIES GUARANTEE AGREEMENT
FLEETWOOD CAPITAL TRUST
Dated as of February 10, 1998
------------------------------------
------------------------------------
<PAGE>
PREFERRED SECURITIES GUARANTEE AGREEMENT
This PREFERRED SECURITIES GUARANTEE AGREEMENT (the "Preferred
Securities Guarantee"), dated as of February 10, 1998, is executed and delivered
by Fleetwood Enterprises, Inc., a Delaware corporation (the "Guarantor"), and
The Bank of New York, a New York banking corporation, not in its individual
capacity but solely as trustee (the "Preferred Guarantee Trustee") for the
benefit of the Holders (as defined herein) from time to time of the Preferred
Securities (as defined herein) of Fleetwood Capital Trust, a Delaware statutory
business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of February, 1998, among the trustees of the Issuer
named therein, the Guarantor, as Sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing on the date hereof 5,750,000 preferred securities, having an aggregate
stated liquidation amount of $287,500,000, designated the 6% Convertible Trust
Preferred Securities (including 750,000 Convertible Trust Preferred Securities,
having an aggregate liquidation amount of $37,500,000, issued pursuant to the
exercise of the over-allotment option) (collectively the "Preferred
Securities");
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth herein;
and
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "Common Securities Guarantee") in substantially identical terms
to this Preferred Securities Guarantee for the benefit of the holders of the
Common Securities (as defined herein), except that if an event of default under
the Indenture has occurred and is continuing, the rights of holders of the
Common Securities (as defined herein) to receive Guarantee Payments under the
Common Securities Guarantee are subordinated to the rights of Holders of
Preferred Securities to receive Guarantee Payments under this Preferred
Securities Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS AND INTERPRETATION.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) Capitalized terms used in this Preferred Securities Guarantee but
not defined in the preamble above have the respective meanings
assigned to them in this Section 1.1;
(b) a term defined anywhere in this Preferred Securities Guarantee
has the same meaning throughout;
(c) all references to "the Preferred Securities Guarantee" or "this
Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(d) all references in this Preferred Securities Guarantee to Articles
and Sections are to Articles and Sections of this Preferred
Securities Guarantee unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Preferred Securities Guarantee unless otherwise
defined in this Preferred Securities Guarantee; and
(f) a reference to the singular includes the plural and vice versa.
"AFFILIATE" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"COMMON SECURITIES" means the convertible common securities
representing common undivided beneficial interests in the assets of the Issuer.
"COVERED PERSON" means any Holder or beneficial owner of Preferred
Securities.
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"DEBENTURES" means the series of convertible subordinated debt
securities of the Guarantor designated the 6% Convertible Subordinated
Debentures Due 2028 held by the Property Trustee of the Issuer.
"EVENT OF DEFAULT" means (a) the failure by the Guarantor to perform
any of its payment or other obligations under this Preferred Securities
Guarantee or (b) if applicable, the failure by the Guarantor to deliver Common
Stock or other applicable securities upon an appropriate election by the Holder
or Holders of the Preferred Securities to convert the Preferred Securities into
shares of Fleetwood Common Stock or other applicable securities, as the case may
be.
"FLEETWOOD COMMON STOCK" means shares of Fleetwood Enterprises, Inc.
common stock, par value $1.00 per share.
"GUARANTEE PAYMENTS" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Issuer: (i) any accumulated and unpaid Distributions (as
defined in the Declaration) that are required to be paid on the Preferred
Securities to the extent the Issuer shall have funds available therefor; (ii)
the amount payable upon redemption of the Preferred Securities payable out of
funds of the Issuer available therefor with respect to any Preferred Securities
called for redemption by the Issuer; and (iii) upon a liquidation of the Issuer,
the lesser of (a) the aggregate of the liquidation amount and all accumulated
and unpaid Distributions on the Preferred Securities to the date of payment, to
the extent the Issuer has funds available therefor, and (b) the amount of assets
of the Issuer remaining available for distribution to Holders of the Preferred
Securities. If an event of default under the Indenture has occurred and is
continuing, the rights of holders of the Common Securities to receive payments
under the Common Securities Guarantee are subordinated to the rights of Holders
of Preferred Securities to receive Guarantee Payments.
"HOLDER" shall mean any holder, as registered on the books and records
of the Issuer, of any Preferred Securities; PROVIDED, HOWEVER, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.
"INDEMNIFIED PERSON" means the Preferred Guarantee Trustee, any
Affiliate of the Preferred Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives or agents of the
Preferred Guarantee Trustee.
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<PAGE>
"INDENTURE" means the Indenture dated as of February, 1998, by and
between the Guarantor (the "Debenture Issuer") and The Bank of New York, not in
its individual capacity but solely as trustee, and any indenture supplemental
thereto pursuant to which the Debentures are to be issued to the Property
Trustee of the Issuer.
"LIQUIDATION DISTRIBUTION" means an amount equal to the aggregate of
the stated liquidation amount of $50 per Security plus accumulated and unpaid
Distributions thereon to the date of payment, which the Holders of Securities
will be entitled to receive on the date of dissolution, in the event of any
voluntary or involuntary dissolution of the Trust, out of the assets of the
Trust available for distribution, after the Trust has paid or made reasonable
provision to pay all claims and obligations of the Trust in accordance with
Section 3808(e) of the Business Trust Act.
"MAJORITY IN LIQUIDATION AMOUNT OF THE PREFERRED SECURITIES" means,
except as provided by the Trust Indenture Act, Holders of Preferred Securities,
voting separately as a class, representing more than 50% of the stated
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all Preferred
Securities then outstanding.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by two Responsible Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
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<PAGE>
"PERSON" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"PREFERRED GUARANTEE TRUSTEE" means The Bank of New York, not in its
individual capacity but solely as trustee, until a Successor Preferred Guarantee
Trustee has been appointed and has accepted such appointment pursuant to the
terms of this Preferred Securities Guarantee and thereafter means each such
Successor Preferred Guarantee Trustee.
"RESPONSIBLE OFFICER" means, with respect to a Person, the chairman of
the board of directors, the president, any vice-president, any assistant
vice-president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, any trust officer or assistant trust officer or any other
officer of the Person customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of that officer's knowledge of and familiarity with the
particular subject.
"SECURITIES" means the Preferred Securities and the Commons
Securities.
"SENIOR INDEBTEDNESS" means (a) any liability of the Guarantor (1) for
borrowed money or under any reimbursement obligation relating to a letter of
credit, surety bond or similar instrument, or (2) evidenced by a bond, note,
debenture or similar instrument, or (3) for obligations to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business, or (4) for the payment of money relating to a
capitalized lease obligation, or (5) for the payment of money under any Swap
Agreement; (b) any liability of others described in the preceding clause (a)
that the Guarantor has guaranteed or that is otherwise its legal liability; and
(c) any deferral, renewal, extension or refunding of any liability of the types
referred to in clauses (a) and (b) above, unless, in the instrument creating or
evidencing any such liability referred to in clause (a) or (b) above or any such
deferral, renewal, extension or refunding referred to in clause (c) above or
pursuant to which the same is outstanding, it is expressly provided that such
liability, deferral, renewal, extension or refunding is subordinate in right of
payment to all other indebtedness of the Guarantor or is not senior or prior in
right of payment to the Debentures or ranks PARI PASSU with or subordinate to
the Debentures in right of payment; and PROVIDED
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<PAGE>
that the Debentures shall not constitute Senior Indebtedness; and
PROVIDED,FURTHER, that Senior Indebtedness shall not include any indebtedness or
guarantees between or among the Guarantor or its Affiliates, including all debt
securities or guarantees in respect of those debt securities issued to any trust
(including the Issuer), trustee of a trust (including the Issuer), partnership,
limited liability company or other person affiliated with the Guarantor that is
a financing vehicle of the Guarantor (a "Financing Entity") in connection with
the issuance by such Financing Entity of preferred securities unless otherwise
expressly provided in the instrument creating or evidencing such indebtedness,
debt securities or guarantees, as the case may be, or pursuant to which the same
is outstanding. The Indenture does not limit or prohibit the incurrence of
Senior Indebtedness by the Guarantor. Senior Indebtedness may include debt
securities, indebtedness and other obligations that constitute "Senior
Indebtedness" for purposes of (and which are therefore senior in right of
payment to) the Debentures but which are subordinate in right of payment to
certain other indebtedness and obligations of the Guarantor. In that regard,
the Guarantor may issue other debt securities or incur other indebtedness or
obligations which are referred to or designated as "subordinated" securities,
indebtedness or obligations but which may constitute Senior Indebtedness for
purposes of the Indenture.
"SUCCESSOR PREFERRED GUARANTEE TRUSTEE" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"SWAP AGREEMENT" means any financial agreement designed to manage the
Guarantor's exposure to fluctuations in interest rates or credit conditions,
currency exchange rates or commodity prices, including without limitation swap
agreements, option agreements, cap agreements, floor agreements, collar
agreements, credit swaps and forward purchase agreements.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Preferred Securities Guarantee is subject to the provisions
of the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee, which are
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<PAGE>
incorporated by reference herein, and shall, to the extent applicable, be
governed by such provisions; and
(b) if and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) The Guarantor shall provide the Preferred Guarantee Trustee (i)
within 14 days after January 1 and June 30 of each year, a list, in such form as
the Preferred Guarantee Trustee may reasonably require, of the names and
addresses of the Holders of the Preferred Securities ("List of Holders") as of
such date; PROVIDED, that the Guarantor shall not be obligated to provide such
List of Holders at any time the List of Holders does not differ from the most
recent List of Holders given to the Preferred Guarantee Trustee by the
Guarantor, and (ii) at any other time, within 30 days of receipt by the
Guarantor of a written request for a List of Holders as of a date no more than
14 days before such List of Holders is given to the Preferred Guarantee Trustee.
The Preferred Guarantee Trustee may destroy any List of Holders previously given
to it on receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations
under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 REPORTS BY THE PREFERRED GUARANTEE TRUSTEE.
Within 60 days after May 15 of each year, the Preferred Guarantee
Trustee shall provide to the Holders of the Preferred Securities such reports as
are required by Section 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by Section 313 of the Trust Indenture Act. The Preferred
Guarantee Trustee shall also comply with the requirements of Section 313(d) of
the Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE.
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information (if any) and the compliance certificate
required by Section 314 of the Trust Indenture Act in the form, in the manner
and at the times required by Section 314 of the Trust Indenture Act.
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SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) of the Trust
Indenture Act may be given in the form of an Officers' Certificate.
SECTION 2.6 EVENTS OF DEFAULT; WAIVER.
The Holders of a Majority in liquidation amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default and its consequences. Upon such
waiver, any such Event of Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured, for every purpose of this
Preferred Securities Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default known to the Preferred Guarantee Trustee, unless such defaults have been
cured before the giving of such notice, provided, that the Preferred Guarantee
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of directors
and/or Responsible Officers of the Preferred Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default except any Event of Default as to which the
Preferred Guarantee Trustee shall have received written notice or a Responsible
Officer charged with the administration of the Declaration shall have obtained
written notice.
SECTION 2.8 CONFLICTING INTERESTS.
The Declaration shall be deemed to be specifically described in this
Preferred Securities Guarantee for the purposes
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of clause (i) of the first proviso contained in Section 310(b) of the Trust
Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 POWERS AND DUTIES OF THE
PREFERRED GUARANTEE TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the
Preferred Guarantee Trustee for the benefit of the Holders of the Preferred
Securities, and the Preferred Guarantee Trustee shall not transfer this
Preferred Securities Guarantee to any Person except a Holder of Preferred
Securities exercising his or her rights pursuant to Section 5.4(b) or to a
Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred
Guarantee Trustee of its appointment to act as Successor Preferred Guarantee
Trustee. The right, title and interest of the Preferred Guarantee Trustee shall
automatically vest in any Successor Preferred Guarantee Trustee, and such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered pursuant to the appointment of such
Successor Preferred Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the
Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee
for the benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Preferred Securities Guarantee, and no implied covenants shall be
read into this Preferred Securities Guarantee against the Preferred Guarantee
Trustee. In case an Event of Default has occurred (that has not been cured or
waived pursuant to Section 2.6), the Preferred Guarantee Trustee shall exercise
such of the rights and powers vested in it by this Preferred Securities
Guarantee, and use the same degree of care and skill in its exercise thereof, as
a prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
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(i) prior to the occurrence of any Event of Default and after
the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Preferred Guarantee
Trustee shall be determined solely by the express provisions of this
Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall
not be liable except for the performance of such duties and obligations as
are specifically set forth in this Preferred Securities Guarantee, and no
implied covenants or obligations shall be read into this Preferred
Securities Guarantee against the Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or opinions furnished
to the Preferred Guarantee Trustee and conforming to the requirements of
this Preferred Securities Guarantee; but in the case of any such
certificates or opinions that by any provision hereof are specifically
required to be furnished to the Preferred Guarantee Trustee, the Preferred
Guarantee Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Preferred
Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the
Preferred Guarantee Trustee, unless it shall be proved that the Preferred
Guarantee Trustee was negligent in ascertaining the pertinent facts upon
which such judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a Majority in
liquidation amount of the Preferred Securities at the time outstanding,
relating to the time, method and place of conducting any proceeding for any
remedy available to the Preferred Guarantee Trustee, or exercising any
trust or power conferred upon the Preferred Guarantee Trustee under this
Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall
require the Preferred Guarantee Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance of any of
its duties
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or in the exercise of any of its rights or powers, if the Preferred
Guarantee Trustee shall have reasonable grounds for believing that the
repayment of such funds or liability is not reasonably assured to it under
the terms of this Preferred Securities Guarantee or adequate indemnity
against such risk or liability is not reasonably assured to it.
SECTION 3.2 CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this
Preferred Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever, in the administration of this Preferred Securities
Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a
matter be proved or established before taking, suffering or omitting any
action hereunder, the Preferred Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its
part, request and rely upon an Officers' Certificate which, upon receipt of
such request, shall be promptly delivered by the Guarantor;
(iv) the Preferred Guarantee Trustee shall have no duty to see to
any recording, filing or registration of any instrument (or any
rerecording, refiling or re-registration thereof);
(v) the Preferred Guarantee Trustee may consult with counsel,
and the written advice or opinion of such counsel with respect to legal
matters shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and
in accordance with such advice or opinion. Such counsel may be counsel to
the Guarantor or any of its Affiliates and may include any of the
Guarantor's employees. The Preferred Guarantee Trustee shall have the right
at any time to seek instructions concerning the administration of
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this Preferred Securities Guarantee from any court of competent
jurisdiction;
(vi) the Preferred Guarantee Trustee shall be under no obligation
to exercise any of the rights or powers vested in it by this Preferred
Securities Guarantee at the request or direction of any Holder, unless such
Holder shall have provided to the Preferred Guarantee Trustee such adequate
security and indemnity as would satisfy a reasonable person in the position
of the Preferred Guarantee Trustee, against the costs, expenses (including
attorneys' fees and expenses) and liabilities that might be incurred by it
in complying with such request or direction, including such reasonable
advances as may be requested by the Preferred Guarantee Trustee; PROVIDED,
that nothing contained in this Section 3.2(a)(vi) shall be taken to relieve
the Preferred Guarantee Trustee, upon the occurrence of an Event of
Default, of its obligation to exercise the rights and powers vested in it
by this Preferred Securities Guarantee;
(vii) the Preferred Guarantee Trustee shall not be bound to make
any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Preferred Guarantee
Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit;
(viii) the Preferred Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly
or by or through agents or attorneys, and the Preferred Guarantee Trustee
shall not be responsible for any misconduct or negligence on the part of
any agent or attorney appointed with due care by it hereunder;
(ix) any action taken by the Preferred Guarantee Trustee or its
agents hereunder shall bind the Holders of the Preferred Securities, and
the signature of the Preferred Guarantee Trustee or its agent alone shall
be sufficient and effective to perform any such action. No third party
shall be required to inquire as to the authority of the Preferred Guarantee
Trustee to so act or as to its compliance with any of the terms and
provisions of this Preferred Securities Guarantee, both of which shall be
conclusively evidenced by the Preferred Guarantee Trustee's or its agent's
taking such action; and
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(x) whenever in the administration of this Preferred Securities
Guarantee the Preferred Guarantee Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or right or
taking any other action hereunder, the Preferred Guarantee Trustee (A) may
request instructions from the Holders of the Preferred Securities or the
Guarantor, (B) may refrain from enforcing such remedy or right or taking
such other action until such instructions are received, and (C) shall be
protected in acting in accordance with such instructions.
(b) No provision of this Preferred Securities Guarantee shall be
deemed to impose any duty or obligation on the Preferred Guarantee Trustee to
perform any act or acts or exercise any right, power, duty or obligation
conferred or imposed on it, in any jurisdiction in which it shall be illegal, or
in which the Preferred Guarantee Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts or to exercise
any such right, power, duty or obligation. No permissive power or authority
available to the Preferred Guarantee Trustee shall be construed to be a duty.
SECTION 3.3 NOT RESPONSIBLE FOR RECITALS
OR ISSUANCE OF GUARANTEE.
The recitals contained in this Preferred Securities Guarantee shall be
taken as the statements of the Guarantor, and the Preferred Guarantee Trustee
does not assume any responsibility for their correctness. The Preferred
Guarantee Trustee makes no representations as to the validity or sufficiency of
this Preferred Securities Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Preferred Guarantee Trustee that
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws
of the United States of America or any state or territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Securities and Exchange Commission to act as an institutional trustee under
the Trust Indenture Act, authorized under such laws to exercise corporate
trust powers, having a combined capital
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and surplus of at least 50 million dollars ($50,000,000), and subject to
supervision or examination by federal, state, territorial or District of
Columbia authority. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the supervising
or examining authority referred to above, then, for the purposes of this
Section 4.1(a)(ii), the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
SECTION 4.2 APPOINTMENT, REMOVAL AND RESIGNATION
OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has
been appointed and has accepted such appointment by written instrument executed
by such Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may resign
from office (without need for prior or subsequent accounting) by an instrument
in writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this
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Section 4.2 within 60 days after delivery to the Guarantor of an instrument of
resignation, the resigning Preferred Guarantee Trustee may petition any court of
competent jurisdiction for such appointment of a Successor Preferred Guarantee
Trustee. Such court may thereupon, after prescribing such notice, if any, as it
may deem proper, appoint a Successor Preferred Guarantee Trustee.
ARTICLE V
GUARANTEE
SECTION 5.1 GUARANTEE.
The Guarantor irrevocably and unconditionally agrees, to the extent
set forth herein, to pay in full to the Holders the Guarantee Payments (without
duplication of amounts theretofore paid by the Issuer), as and when due,
regardless of any defense, right of set-off or counterclaim that the Issuer may
have or assert. The Guarantor's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Guarantor to the
Holders or by causing the Issuer to pay such amounts to the Holders.
SECTION 5.2 SUBORDINATION.
If an event of default under the Indenture, has occurred and is
continuing, the rights of Holders of the Common Securities to receive Guarantee
Payments under the Common Securities Guarantee are subordinated to the rights of
Holders of Preferred Securities to receive Guarantee Payments under this
Preferred Securities Guarantee.
SECTION 5.3 WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 5.4 OBLIGATIONS NOT AFFECTED.
The obligations, covenants, agreements and duties of the Guarantor
under this Preferred Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
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(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, the amount payable upon redemption, Liquidation
Distribution or any other sums payable under the terms of the Preferred
Securities or the extension of time for the performance of any other obligation
under, arising out of, or in connection with, the Preferred Securities (other
than an extension of time for payment of Distributions, the amount payable upon
redemption, Liquidation Distribution or other sum payable that results from the
extension of any interest payment period on the Debentures permitted by the
Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Issuer granting indulgence or extension of any
kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, arrangement, composition or readjustment of debt
of, or other similar proceedings affecting the Issuer or any of the assets of
the Issuer;
(e) any invalidity of, or defect or deficiency in the Preferred
Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.4 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders or any other Person to
give notice to, or obtain consent of, the Guarantor with respect to the
happening of any of the foregoing.
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SECTION 5.5 RIGHTS OF HOLDERS.
(a) The Holders of a Majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of this Preferred Securities Guarantee or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this Preferred Securities
Guarantee.
(b) If the Preferred Guarantee Trustee fails to enforce this
Preferred Securities Guarantee, any Holder of Preferred Securities may institute
a legal proceeding directly against the Guarantor to enforce the Preferred
Guarantee Trustee's rights under this Preferred Securities Guarantee, without
first instituting a legal proceeding against the Issuer, the Preferred Guarantee
Trustee or any other Person.
SECTION 5.6 GUARANTEE OF PAYMENT.
This Preferred Securities Guarantee creates a guarantee of payment and
not of collection.
SECTION 5.7 SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the
Holders of Preferred Securities against the Issuer in respect of any amounts
paid to such Holders by the Guarantor under this Preferred Securities Guarantee;
PROVIDED, HOWEVER, that the Guarantor shall not (except to the extent required
by mandatory provisions of law) be entitled to enforce or exercise any right
that it may acquire by way of subrogation or any indemnity, reimbursement or
other agreement, in all cases as a result of payment under this Preferred
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Preferred Securities Guarantee. If any amount shall be
paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.
SECTION 5.8 INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Preferred
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Preferred
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.4 hereof.
17
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SECTION 5.9 CONVERSION.
The Guarantor acknowledges its obligation to issue and deliver shares
of Fleetwood Common Stock upon the conversion of the Preferred Securities.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 LIMITATION OF TRANSACTIONS.
So long as any Preferred Securities remain outstanding, if (i) the
Guarantor has exercised its option to defer interest payments on the Debentures
and such deferral is continuing, (ii) the Guarantor shall be in default with
respect to its payment or other obligations under this Preferred Securities
Guarantee or any event of default under the Declaration or (iii) there shall
have occurred and be continuing any event that, with the giving of notice or the
lapse of time or both, would constitute an event of default under the Indenture,
then (a) the Guarantor shall not declare or pay dividends on, or make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (A)
(i) purchases or acquisitions of shares of the Guarantor's capital stock (or
capital stock equivalents) in connection with the satisfaction by the Guarantor
of its obligations under any officers, directors or employee benefit plans
existing on the date hereof (or any options or other instruments issued
thereunder) or the satisfaction by the Guarantor of its obligations pursuant to
any contract or security requiring the Guarantor to purchase shares of the
Guarantor's capital stock (or capital stock equivalents), (ii) purchases of
shares of the Guarantor's capital stock (or capital stock equivalents) from
officers, directors or employees of the Guarantor or its subsidiaries pursuant
to employment agreements existing on the date hereof or upon termination of
employment or retirement, (iii) as a result of a reclassification, combination
or subdivision of the Guarantor's capital stock or the exchange or conversion of
one class or series of the Guarantor's capital stock for another class or series
of the Guarantor's capital stock, (iv) dividends or distributions of shares of
common stock on common stock, (v) the purchase of fractional interests in shares
of the Guarantor's capital stock pursuant to the conversion or exchange
provisions of such capital stock or any security being converted or exchanged
into such capital stock, (vi) purchases or other acquisitions of common stock in
connection with a dividend reinvestment or other similar plan existing on the
date hereof, or (vii) any dividend or
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distribution of capital stock (or capital stock equivalents) in connection with
the implementation of a stockholders rights plan existing on the date hereof, or
the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, or (B) guarantee payments made
with respect to any of the foregoing), (b) the Guarantor shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any Debentures issued by the Guarantor that rank PARI PASSU with or
junior to the Debentures and (c) the Guarantor shall not make any guarantee
payments with respect to the foregoing (other than pursuant hereto or to the
Common Securities Guarantee).
SECTION 6.2 RANKING.
This Preferred Securities Guarantee will constitute an unsecured obligation
of the Guarantor and will rank (i) subordinate and junior in right of payment to
all Senior Indebtedness of the Guarantor, (ii) PARI PASSU in right of payment
with the most senior preferred or preference stock now or hereafter issued by
the Guarantor, of which, as of the date hereof, there is none outstanding, and
with any guarantee now or hereafter entered into by the Guarantor in respect of
any preferred or preference stock of any affiliate of the Guarantor and (iii)
senior to Fleetwood Common Stock. The terms of the Preferred Securities provide
that each holder of Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the Guarantee relating thereto.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION.
This Preferred Securities Guarantee shall terminate as to each Holder
upon (a) full payment of the amount payable upon redemption of such Holder's
Preferred Securities, (b) the distribution of Fleetwood Common Stock to such
Holder in respect of the conversion of such Holder's Preferred Securities into
Fleetwood Common Stock or other securities (c) the distribution of the
Debentures held by the Trust to the Holders of all of the Preferred Securities,
and will terminate completely upon full payment of the amounts payable in
accordance with the Declaration upon liquidation of the Issuer. Notwithstanding
the foregoing, this Preferred Securities Guarantee will continue to be effective
or will be reinstated, as the case may be, if at any time any Holder of
Preferred Securities must restore payment of any sums paid under the Preferred
Securities or under this Preferred Securities Guarantee.
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ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith in accordance with this Preferred
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Preferred Securities Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.2 INDEMNIFICATION.
(a) To the fullest extent permitted by applicable law, the Guarantor
shall indemnify and hold harmless each Indemnified Person from and against any
loss, damage or claim incurred by such Indemnified Person by reason of any act
or omission performed or omitted by such Indemnified Person in good faith in
accordance with this Preferred Securities Guarantee and in a manner such
Indemnified Person reasonably believed to be within the scope of authority
conferred on such Indemnified Person in accordance with this Preferred
Securities Guarantee, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such Indemnified
Person by reason of negligence or willful misconduct with respect to such acts
or omissions.
(b) To the fullest extent permitted by applicable law, expenses
(including legal fees and expenses) incurred by an
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Indemnified Person in defending any claim, demand, action, suit or proceeding
shall, from time to time, be advanced by the Guarantor prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
the Guarantor of an undertaking by or on behalf of the Indemnified Person to
repay such amount if it shall be determined that the Indemnified Person is not
entitled to be indemnified as authorized in Section 8.2(a).
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding. Except in connection with any
permitted merger or consolidation of the Guarantor with or into another entity
or any permitted sale, transfer or lease of all or substantially all of the
Guarantor's assets to another entity, the Guarantor may not assign its rights or
delegate its obligations under the Preferred Securities Guarantee without the
prior approval of the Holders of at least 66-2/3% of the aggregate stated
liquidation amount of the Preferred Securities then outstanding.
SECTION 9.2 AMENDMENTS.
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Preferred Securities Guarantee may be amended only with the
prior approval of the Holders of at least 66-2/3% in aggregate stated
liquidation amount of all the outstanding Preferred Securities. The provisions
of Section 12.2 of the Declaration with respect to meetings of Holders of the
Securities apply to the giving of such approval.
SECTION 9.3 NOTICES.
All notices provided for in this Preferred Securities Guarantee shall
be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by registered or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below
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(or such other address as the Preferred Guarantee Trustee may give notice of to
the Holders of the Preferred Securities):
The Bank of New York
101 Barclay Street
21 West
New York, New York 10286
Attention: Corporate Trust Administration
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities):
Fleetwood Enterprises, Inc.
3125 Myers Street
P.O. Box 7638
Riverside, California 92513-7638
Attention: General Counsel
(c) If given to any Holder of Preferred Securities, at the address
set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 9.4 BENEFIT.
This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1(a), is not
separately transferable from the Preferred Securities.
SECTION 9.5 GOVERNING LAW.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
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THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year
first above written.
FLEETWOOD ENTERPRISES, INC.,
as Guarantor
By: /s/ Nelson W. Potter
------------------------------------
Name:
Title:
THE BANK OF NEW YORK, not in its
individual capacity but solely as
Preferred Guarantee Trustee
By: /s/ Mary Beth Lewicki
------------------------------------
Name: Mary Beth Lewicki
Title: Assistant Vice President
<PAGE>
THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year
first above written.
FLEETWOOD ENTERPRISES, INC.,
as Guarantor
By: /s/ Nelson W. Potter
------------------------------------
Name: Nelson W. Potter
Title: President
THE BANK OF NEW YORK, not in its
individual capacity but solely as
Preferred Guarantee Trustee
By: /s/ Mary Beth Lewicki
------------------------------------
Name: Mary Beth Lewicki
Title: Assistant Vice President
<PAGE>
EXHIBIT 5.1
GIBSON, DUNN & CRUTCHER LLP
4 PARK PLAZA, SUITE 1700
IRVINE, CALIFORNIA 92614
April 9, 1998
C 29003-00719
Fleetwood Enterprises, Inc.
3125 Myers Street
Riverside, CA 92503-5527
Re: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in
connection with the filing by Fleetwood Enterprises, Inc., a Delaware
corporation (the "Company"), of a Registration Statement on Form S-4 (the
"Registration Statement"), with the Securities and Exchange Commission (the
"Commission"), including a proxy statement/prospectus to be filed with the
Commission pursuant to Rule 424 of Regulation C promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and the issuance
of up to 3,620,300 shares of the Company's Common Stock, par value $1.00 per
share (the "Securities"), to the stockholders of HomeUSA, Inc., a Delaware
corporation ("HomeUSA"), in exchange for shares of capital stock of HomeUSA
upon consummation of the merger of HomeUSA with and into HUSA Acquisition
Company, a Delaware corporation and wholly owned subsidiary of the Company
("Acquisition Sub").
In connection with this opinion, we have examined the Registration
Statement, the Company's Restated Certificate of Incorporation and Bylaws,
each as amended to the date hereof, and the records of corporate proceedings
and other actions taken by the Company in connection with the merger and the
authorization and issuance of the Securities. In connection with our
examination of such documents, we have assumed the genuineness of all
signatures on, and the authenticity of, all documents submitted to us as
originals and the conformity to the original documents of all documents
submitted to us as copies. With respect to agreements and instruments
executed by natural persons, we have assumed the legal competency and
authority of
<PAGE>
Fleetwood Enterprises, Inc.
April 9, 1998
Page 2
such persons. As to facts material to the opinions expressed herein that were
not independently established or verified, we have relied upon oral or
written statements and representations of the Company.
Based upon the foregoing and in reliance thereon, we are of the opinion
that the Securities, when issued in accordance with (i) the terms and
conditions of that certain Agreement and Plan of Merger dated February 17,
1998, by and among the Company, HomeUSA and Acquisition Sub, (ii) applicable
state securities laws, (iii) the Registration Statement and pertinent
exhibits thereto, and (iv) an order from the Commission declaring the
Registration Statement effective, will be legally issued, fully paid and
non-assessable.
Our opinions do not address or include the accuracy, completeness,
fairness or adequacy of the disclosures contained in the Registration
Statement under the securities or other laws and regulations of the United
States or any state or other jurisdiction. In addition, we express no opinion
as to matters involving the laws of any jurisdiction other than the States of
California and Delaware and the United States of America. We are not admitted
to practice law in the State of Delaware, but we are generally familiar with
the Delaware General Corporation Law as presently in effect and have made
such inquiries as we considered necessary to render our opinion. The opinion
set forth in this letter is limited to the present laws of the State of
California, the present federal laws of the United States, and, to the
limited extent set forth above, the present laws of the State of Delaware. No
opinion is expressed by us as to the matters of conflict or choice of law. We
undertake no obligation to advise you as a result of developments occurring
after the date hereof or as a result of facts or circumstances brought to our
attention after the date hereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to he use of our name under
the caption "Legal Matters" in the Registration Statement and in the proxy
statement/prospectus that forms a part thereof. In giving this consent, we do
not thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act or the Rules and Regulations
of the Commission.
Very truly yours,
GIBSON, DUNN & CRUTCHER LLP
RED/MDL
<PAGE>
EXHIBIT 10.2
INDEMNITY AGREEMENT
This agreement is made as of the ____ day of _____________, 19__,
between Fleetwood Enterprises, Inc., a Delaware corporation (the
"Corporation"), and the undersigned ("Agent"), with reference to the
following facts:
RECITALS
A. The Agent is currently serving as an Officer of the Corporation and
the Corporation wishes the Agent to continue in such capacity.
The Agent is willing under certain circumstances, to continue in such
capacity.
B. The Corporation and the Agent are of the belief that the indemnities
available under the Corporation's bylaws and available insurance may
not be adequate to protect the Agent against the risks associated with
the Agent's service to the Corporation.
AGREEMENT
In order to induce the Agent to continue to serve as an Officer of the
Corporation and in consideration for his continued service, the Corporation
hereby agrees to indemnify the Agent as follows:
1. The Corporation will pay on behalf of the Agent, and his
executors, administrators or assigns, any amount which he
is or becomes legally obligated to pay because of any claim or
claims made against him 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 an Officer of the
Corporation and solely because of his being an Officer. The
payments which the Corporation will be obligated to make
hereunder shall include, inter alia, damages, judgments,
settlements and costs, cost of investigation (excluding
salaries of officers or employees of the Corporation) and costs
of defense of legal actions, claims or proceedings and appeals
therefrom, and costs of attachment or similar bonds; provided
however, that the Corporation shall not be obligated to pay
fines or obligations or fees imposed by law or otherwise made
any payments hereunder which it is prohibited by applicable law
from paying as indemnity or for any other reason.
<PAGE>
2. If a Claim under this Agreement is not paid by the Corporation,
or on its behalf, within ninety days after a written claim has
been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and if successful in whole or in
part, the claimant shall be entitled to be paid also the
expense of prosecuting such claim.
3. In the event of payment under this Agreement, the Corporation
shall be subrogated to the extent of such payment to all of the
rights of recovery of the Agent, who shall execute all papers
required and shall do everything that may be necessary to secure
such rights, including the execution of such documents necessary
to enable the Corporation effectively to bring suit to enforce
such rights.
4. The Corporation shall not be liable under this Agreement to make
any payment in connection with any claim made against the Agent:
(a) for which payment is actually made to the Agent under a
valid and collective insurance policy, except in respect of
any excess beyond the amount of payment under such
insurance;
(b) for which the Agent is entitled to indemnity and/or payment
by reason of having given notice of any circumstance which
might give rise to a claim under any policy of insurance,
the terms of which have expired prior to the effective date
of this Agreement;
(c) for which the Agent is indemnified by the Corporation
otherwise than pursuant to this Agreement;
(d) based upon or attributable to the Agent gaining in fact any
personal profit or advantage to which he was not legally
entitled;
(e) for an accounting of profits made from the purchase or sale
by the Agent of securities of the Corporation within the
meaning of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any
state statutory law or common law; or
<PAGE>
(f) brought about or contributed to by the dishonesty of the
Agent seeking payment hereunder; however, notwithstanding
the foregoing, the Agent shall be protected under this
Agreement as to any claims upon which suit may be brought
against him by reason of any alleged dishonesty on his
part, unless a judgment or other final adjudication thereof
adverse to the Agent shall establish that he committed (i)
acts of active and deliberate dishonesty (ii) with actual
dishonest purpose and intent, which acts were material to
the cause of action so adjudicated.
5. No costs, charges or expense for which indemnity shall be sought
hereunder shall be incurred without the Corporation's consent,
which consent shall not be unseasonably withheld.
6. The Agent, as a condition precedent to his right to be
indemnified under this Agreement, shall give the Corporation
notice in writing as soon as practicable for any claim made
against him for which indemnity will or could be sought under
this Agreement. Notice to the Corporation shall be directed to
the Corporation at its Corporate Headquarters, attention: The
Corporate Secretary (or such address as to the Corporation shall
designate in writing to the Agent); notice shall be deemed
received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Agent
shall give the Corporation such information and cooperation as
it may reasonably require and as shall be within the Agent's
power.
7. Costs and expenses (including attorney's fees) incurred by the
Agent in defending or investigating any action, suit, proceeding
or investigation shall be paid by the Corporation in advance of
the final disposition of such matter, if the Agent shall
undertake in writing to repay any such advances in the event
that it is ultimately determined that the Agent is not entitled
to indemnification under the terms of this Agreement.
Notwithstanding the foregoing or any other provision of this
Agreement, no advance shall be made by the Corporation if a
determination is reasonably and promptly made by the board of
directors by a majority vote of a quorum of disinterested
directors, or (if such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs) by
independent legal counsel, that, based upon the facts known to
the board of counsel at the time such determination is made, (a)
the Agent
<PAGE>
acted in bad faith or deliberately breached his duty to the
corporation or its stockholders, and (b) as a result of such
actions by the Agent, it is more likely than not that it will
ultimately be determined that the Agent is not entitled to
indemnification under the terms of this Agreement.
8. Nothing herein shall be deemed to diminish or otherwise restrict
the Agent's right to indemnification under any provision of the
certificate of incorporation or bylaws of the Corporation or
under Delaware law.
9. This Agreement shall be governed by and construed in accordance
with Delaware law.
10. This Agreement shall be binding upon all successors and assigns
of the Corporation (including any transferee of all or
substantially all of its assets and any successor by merger or
operation of law) and shall inure to the benefit of the heirs,
personal representatives and estate of the Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
FLEETWOOD ENTERPRISES, INC.
By: ________________________________
________________________________
Agent
<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
April 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
April 8, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
Fleetwood Enterprises, Inc., to be filed on or about April 9, 1998, of our
report dated October 24, 1997, on our audits of the financial statements of
McDonald Mobile Homes, Inc.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
April 8, 1998
<PAGE>
EXHIBIT 23.6
Board of Directors
HomeUSA, Inc.
3 Riverway, Suite 550
Houston, Texas 77056
Members of the Board:
We hereby consent to the inclusion of (i) our opinion letter, dated February
17, 1998, to the Board of Directors of HomeUSA, Inc. (the "Company") as
Appendix B of the Proxy Statement/Prospectus contained in the Registration
Statement of Fleetwood Enterprises, Inc. on Form S-4 (the "Registration
Statement") relating to the proposed merger involving the Company and
Fleetwood Enterprises, Inc., and (ii) references made to our firm and such
opinion in the Registration Statement under the captions entitled "SUMMARY -
The Merger - Opinion of Financial Advisor to HomeUSA," "BACKGROUND OF AND
REASONS FOR THE MERGER - Background of the Merger," "BACKGROUND OF AND
REASONS FOR THE MERGER - Recommendation of the HomeUSA Board; HomeUSA's
Reasons for the Merger - BT Alex. Brown Opinion" and "BACKGROUND OF AND
REASONS FOR THE MERGER - Opinion of BT Alex. Brown, Financial Advisor to
HomeUSA." In giving such consent, we do not admit that we come within the
category of persons whose consent is required under, nor do we admit that we
are "experts" for purposes of, the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
BT ALEX. BROWN INCORPORATED
April 9, 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, JUNE 25, 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 June 25, 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
