EXHIBIT 99.3
NOTICE: THIS IS NOT A SOLICITATION OF ACCEPTANCES OF THE PLAN. 11 U.S.C. SECTION
1125(b) PROHIBITS SOLICITATION OF AN ACCEPTANCE OR REJECTION OF A PLAN OF
REORGANIZATION UNLESS A COPY OF THE PLAN OF REORGANIZATION OR A SUMMARY THEREOF
IS ACCOMPANIED OR PRECEDED BY A COPY OF A DISCLOSURE STATEMENT APPROVED BY THE
BANKRUPTCY COURT. THIS PROPOSED DISCLOSURE STATEMENT HAS NOT YET BEEN APPROVED
BY THE BANKRUPTCY COURT, AND, THEREFORE, THE FILING AND DISSEMINATION OF THIS
PROPOSED DISCLOSURE STATEMENT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED
AS, AN AUTHORIZED SOLICITATION PURSUANT TO 11 U.S.C. SECTION 1125 AND RULE 3017
OF THE FEDERAL RULES OF BANKRUPTCY PROCEDURE. NO SUCH SOLICITATION WILL BE MADE
EXCEPT AS AUTHORIZED PURSUANT TO SUCH LAW AND RULES.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: ) Chapter 11
)
OAKWOOD HOMES CORPORATION, ) Case No. 02-13396 (PJW)
et al.,(1) )
Debtors. ) Jointly Administered
)
) OBJECTIONS DUE: _________________
____________________________________) HEARING DATE: _________________
[PROPOSED] DISCLOSURE STATEMENT FOR JOINT CONSOLIDATED PLAN OF
REORGANIZATION OF OAKWOOD HOMES CORPORATION AND ITS
AFFILIATED DEBTORS AND DEBTORS-IN-POSSESSION
UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
Dated: February 18, 2003
MORRIS, NICHOLS, ARSHT & TUNNELL RAYBURN COOPER & DURHAM, P.A.
Robert J. Dehney (No. 3578) C. Richard Rayburn, Jr.
Derek C. Abbott (No. 3376) Albert F. Durham
Gregory T. Donilon (No. 4244) Patricia B. Edmondson
Daniel B. Butz (No. 4227) 1200 Carillon, 227 West Trade Street
1201 North Market Street, Charlotte, North Carolina 28202-1675
P.O. Box 1347 (704) 334-0891
Wilmington, Delaware 19899-1347
(302) 658-9200
Co-Counsel for Oakwood Homes
Corporation, et al.,
Debtors and Debtors In Possession
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(1) The Debtors are the following entities: Oakwood Homes Corporation,
New Dimension Homes, Inc., Dream Street Company, LLC, Oakwood Shared
Services, LLC, HBOS Manufacturing, LP, Oakwood MHD4, LLC, Oakwood
Acceptance Corporation, LLC, Oakwood Mobile Homes, Inc., Suburban Home
Sales, Inc., FSI Financial Services, Inc., Home Service Contract, Inc.,
Tri-State Insurance Agency, Inc., Golden West Leasing, LLC, Crest
Capital, LLC and Preferred Housing Services, LP.
TABLE OF CONTENTS
I. INTRODUCTION AND SUMMARY INFORMATION. 1
A. Purpose of This Document. 1
B. Summary Information. 3
C. The Confirmation Hearing, Voting Procedures, Bar Dates, 6
And Other Important Deadlines.
D. Important Notice and Cautionary Statement. 11
II. DESCRIPTION OF THE DEBTORS, THEIR BUSINESS OPERATIONS, AND THEIR FINANCIAL CONDITION. 12
A. General. 12
B. Manufactured Homes. 13
C. Sales. 14
D. Retail Financing and Required Capital. 14
E. Independent Dealer Retail Sales Financing. 15
F. Independent Retailer Repurchase Obligations. 15
G. Insurance. 15
H. Competition. 16
I. Regulation. 16
III. PREPETITION DEBT AND EQUITY STRUCTURE OF THE DEBTORS. 17
A. Description of Prepetition Debt Structure of Debtors. 17
B. Description of Prepetition Equity Structure of the Debtors. 19
IV. THE CHAPTER 11 CASES AND SIGNIFICANT POSTPETITION EVENTS. 20
A. Significant Events Leading To The Commencement Of The Chapter 11 Cases. 20
B. The Chapter 11 Filings. 21
C. "First Day" Motions. 21
D. Appointment Of The Official Committee Of Unsecured Creditors. 21
E. Employment Of Professionals. 22
F. Postpetition Debtor-In-Possession Financing And Use Of Cash Collateral. 23
G. Restructuring the Debtors' Servicing Fees on RICs. 23
H. Creation of Alternate Warehouse Trust. 24
I. Filing Of Schedule Of Assets And Liabilities And Statement Of Affairs. 24
J. Actions Implemented To Restructure The Debtors' Business Operations. 24
K. Claims Bar Date And Analysis. 25
V. SUBSTANTIVE CONSOLIDATION. 25
A. Substantive Consolidation for Purposes of the Plan. 25
B. The Substantive Consolidation of the Debtors' Estates. 26
C. Order Granting Substantive Consolidation. 26
VI. THE PLAN OF REORGANIZATION. 27
VII. FINANCIAL PROJECTIONS. 27
VIII. ADDITIONAL CONSIDERATIONS REGARDING RISK. 28
IX. CERTAIN TAX CONSEQUENCES OF THE PLAN. 30
X. CONFIRMATION PROCEDURES. 31
A. Voting And Right To Be Heard At Confirmation. 31
B. Hypothetical Liquidation Analysis. 33
C. Feasibility. 34
D. Alternatives To The Plan. 35
XI. RECOMMENDATION AND CONCLUSION. 35
ii
I. INTRODUCTION AND SUMMARY INFORMATION.
Oakwood Homes Corporation ("Oakwood"), a North Carolina
corporation, and fourteen of its direct and indirect subsidiaries and affiliated
partnerships (the "Affiliated Debtors" and collectively with Oakwood, the
"Debtors") are debtors and debtors-in-possession in jointly-administered chapter
11 cases that currently are pending in the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court"). The Debtors commenced their
respective Chapter 11 Cases(2) by filing voluntary petitions in the Bankruptcy
Court on November 15, 2002.
The Debtors are joint proponents of the Joint Consolidated
Plan of Reorganization of Oakwood Homes Corporations and Its Affiliated Debtors
and Debtors-in-Possession under Chapter 11 of the United States Bankruptcy Code
(the "Plan"), dated February 18, 2003, a copy of which is attached to this
disclosure Statement as Exhibit A. The purpose of the Plan is to, among other
things, (a) restructure, compromise and discharge creditors' Claims against, and
stockholders' Interests in, the Debtors, (b) reorganize the Debtors' financial
affairs and (c) permit the Reorganized Debtors to emerge from the Chapter 11
Cases as ongoing businesses.
A. PURPOSE OF THIS DOCUMENT.
Certain of the Debtors' creditors have a right to vote to
accept or reject the Plan. Moreover, the Debtors' creditors and stockholders
have a right to appear in the Bankruptcy Court and be heard regarding the Plan's
approval (confirmation) by the Bankruptcy Court. The purpose of this Disclosure
Statement is to enable the Debtors' creditors and stockholders to make an
informed judgment about the Plan. This Disclosure Statement summarizes the
provisions of the Plan and provides certain information relating to the Debtors,
their Chapter 11 Cases, the Plan and the process the Bankruptcy Court will
follow in determining whether to confirm the Plan.
The Bankruptcy Court has reviewed this Disclosure Statement
and has determined that it contains adequate information and may be sent to you.
The Bankruptcy Court, however, has not yet made a determination as to whether
the Plan should be confirmed, and has not conducted an independent investigation
of the factual and financial matters described herein.
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(2) Capitalized terms that are not defined in this Disclosure Statement
shall have the meaning assigned to them in the Plan.
READ THIS DISCLOSURE STATEMENT CAREFULLY TO FIND OUT:
1. HOW THE PLAN WILL AFFECT YOUR CLAIMS OR INTERESTS,
2. WHAT RIGHTS YOU HAVE WITH RESPECT TO VOTING FOR OR AGAINST THE
PLAN,
3. HOW AND WHEN TO VOTE FOR OR AGAINST THE PLAN, AND
4. WHAT RIGHTS YOU HAVE WITH RESPECT TO SUPPORTING OR OBJECTING
TO THE PLAN.
YOU SHOULD READ BOTH THIS DISCLOSURE STATEMENT (INCLUDING THE
EXHIBITS) AND THE PLAN (INCLUDING THE PLAN SUPPLEMENT AND THE EXHIBITS) IN THEIR
ENTIRETY. HOWEVER, THIS DISCLOSURE STATEMENT CANNOT TELL YOU EVERYTHING ABOUT
YOUR RIGHTS. YOU SHOULD CONSULT YOUR OWN LEGAL, FINANCIAL AND TAX ADVISORS TO
OBTAIN MORE SPECIFIC ADVICE ON HOW THE PLAN WILL AFFECT YOU AND WHAT IS THE BEST
COURSE OF ACTION FOR YOU.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED BY THE DEBTORS IN
GOOD FAITH AND IN COMPLIANCE WITH APPLICABLE PROVISIONS OF THE BANKRUPTCY CODE.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS BELIEVED TO BE CORRECT
AT THE TIME OF THE FILING OF THE DISCLOSURE STATEMENT BASED UPON THE BEST
INFORMATION THEN CURRENTLY AVAILABLE TO THE DEBTORS. ONCE APPROVED BY THE
BANKRUPTCY COURT, THIS DISCLOSURE STATEMENT WILL NOT BE UPDATED BASED UPON
SUBSEQUENT EVENTS. NO INFORMATION PROVIDED BY ANY PERSON OR ENTITY (INCLUDING
THE DEBTORS' AGENTS, OFFICERS, DIRECTORS, EMPLOYEES, ACCOUNTANTS, FINANCIAL
ADVISORS, ATTORNEYS OR AFFILIATES) CONCERNING THE DEBTORS, THEIR OPERATIONS,
FUTURE REVENUES, PROFITABILITY, VALUATIONS, OR OTHERWISE, OTHER THAN AS SET
FORTH IN THIS DISCLOSURE STATEMENT, HAS BEEN AUTHORIZED. ANY INFORMATION,
REPRESENTATION, OR INDUCEMENT MADE TO SECURE OR OBTAIN ACCEPTANCES OR REJECTIONS
OF THE PLAN THAT ARE OTHER THAN, OR ARE INCONSISTENT WITH, THE INFORMATION
CONTAINED IN THIS DISCLOSURE STATEMENT SHOULD NOT BE RELIED UPON BY ANY PERSON
IN ARRIVING AT A DECISION TO VOTE FOR OR AGAINST THE PLAN. ANY SUCH ADDITIONAL
INFORMATION, REPRESENTATIONS, AND INDUCEMENTS SHOULD BE IMMEDIATELY REPORTED TO
THE ATTENTION OF THE DEBTORS AND THE BANKRUPTCY COURT.
2
B. SUMMARY INFORMATION.
The following information summarizes the terms of the Plan and
discusses your rights to be heard and vote with respect to the Plan.
THE FOLLOWING INFORMATION IS A SUMMARY ONLY AND DOES NOT FULLY
DISCUSS ALL OF YOUR RIGHTS, ALL PROVISIONS OF THE PLAN OR ALL OF THE
CONSEQUENCES CONFIRMATION OF THE PLAN MAY HAVE ON YOUR RIGHTS. YOU ARE STRONGLY
ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY AND
TO CONSULT WITH YOUR LEGAL, FINANCIAL AND TAX ADVISORS PRIOR TO DECIDING WHETHER
TO SUPPORT OR OPPOSE THE PLAN.
THE DEBTORS AND THEIR The Debtors design, manufacture, market and
BUSINESSES: distribute manufactured and modular homes,
as well as finance many of their retail
sales and provide as agent a variety of
insurance products to customers. The Debtors
are among the leading producers of
manufactured homes, retailers of
manufactured homes and originators of
consumer loans. The Debtors' consolidated
financial statements reflect that, for the
fiscal year ended September 30, 2002, the
Debtors, on a consolidated basis, generated
net sales of approximately $927 million. As
of December 31, 2002, the Debtors, on a
consolidated basis, had approximately $812
million in assets and approximately $1.1
billion in liabilities.
PURPOSE OF THE PLAN: The Plan provides for the restructure,
compromise and discharge of the Debtors'
existing creditor Claims and stockholder
Interests in a manner intended to enable the
Debtors to emerge from their Chapter 11
Cases as an integrated viable business in
the form of the Reorganized Debtors.
BASIC STRUCTURE OF THE As described further below, most of the
PLAN: Debtors' creditors will receive
distributions of New Common Stock in the
Reorganized Debtors or other consideration
on or after the Plan's Effective Date. Only
creditors that have valid Allowed Claims
against the Debtors will receive
consideration under the Plan. The amount and
type of consideration a creditor will
receive may depend upon whether the
creditor's Allowed Claim is either (a)
entitled to special priority under the
Bankruptcy Code, (b) a Secured Claim, (c) an
Unsecured Claim or (d) otherwise separately
classified under the Plan.
The Plan groups most creditors and
stockholders into various Classes of Claims
and Interests and provides for the treatment
of each Class. Certain creditors, such as
Holders of Administrative
3
Claims arising after the commencement of the
Chapter 11 Cases, Holders of Fee Claims, and
Holders of Allowed Priority Tax Claims, are
not grouped in any Class, but nonetheless
will be affected by and receive payment
under the Plan.
Under the Plan, all of the Debtors' assets
and liabilities are deemed substantively
consolidated for purposes of distributions
to the Debtors' creditors. Thus, Holders of
Unsecured Claims of one of the Debtors will
receive the same treatment as Holders of
Unsecured Claims of any of the other
Debtors. Additionally, Holders of Claims
against multiple Debtors on account of
affiliate guarantees and co-obligations of
multiple Debtors will be entitled to only
one distribution from the Debtors'
consolidated Estates.
Upon the Plan's Effective Date, all notes
and Interests will be cancelled. The new
stockholders of the Reorganized Debtors
after the Effective Date initially will
consist of certain of the Debtors'
prepetition creditors, including Holders of
note Claims, Holders of REMIC Guarantee
Claims and Holders of other Unsecured
Claims.
The Plan contains numerous other provisions
governing, among other things, (a) the
assumption, assumption and assignment and
rejection of executory contracts and
unexpired leases, (b) the continuation of
management and the expansion of and addition
of members to the board of directors for the
Reorganized Debtors, (c) the restructuring
of the Debtors' various legal entities, (d)
the resolution of Disputed Claims against
the Debtors, (e) the Bankruptcy Court's
retention of jurisdiction following
confirmation of the Plan and (f) the scope
and nature of the Debtors' discharge
following confirmation. Please refer to the
Plan itself for more detailed information.
CLASSIFICATIONS AND The following Summary Table sets forth the
TREATMENT OF CREDITORS' classification and treatment of creditors'
CLAIMS AND STOCK- Claims and stockholders' Interests under the
HOLDERS' INTERESTS UNDER Plan. The descriptions in the Summary Table
THE PLAN: are only summaries and do not include all
terms and conditions of the Plan. You are
strongly advised to consult the relevant
Plan provisions for a full description of
the respective Classes and corresponding
treatments under the Plan.
4
SUMMARY TABLE - CLAIMS
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CLASS CLAIM STATUS VOTING RIGHTS
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Class 1 Priority Non-Tax Claims Unimpaired Not Entitled to Vote;
Deemed to Accept
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Class 2A Secured Tax Claims Unimpaired Not Entitled to Vote;
Deemed to Accept
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Class 2B 1997 Bonds Secured Claim Unimpaired Not Entitled to Vote;
Deemed to Accept
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Class 2C 1998 Bonds Secured Claim Unimpaired Not entitled to Vote;
Deemed to Accept
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Class 2D Auto Secured Claim Unimpaired Not entitled to Vote;
Deemed to Accept
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Class 2E Carolina Secured Claim Unimpaired Not entitled to Vote;
Deemed to Accept
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Class 2F First American Secured Claim Unimpaired Not entitled to Vote;
Deemed to Accept
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Class 2G Foothill Secured Claim Impaired Not entitled to Vote;
Deemed to Accept
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Class 2H Pulaski Bonds Secured Claim Unimpaired Not entitled to Vote;
Deemed to Accept
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Class 2I Schmittauer Secured Claim Unimpaired Not entitled to Vote;
Deemed to Accept
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Class 2J Thomas Secured Claim Unimpaired Not entitled to Vote;
Deemed to Accept
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Class 2K U.S. Bank Secured Claim Unimpaired Not entitled to Vote;
Deemed to Accept
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Class 2L Other Secured and Setoff Claims Unimpaired Not entitled to Vote;
Deemed to Accept
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Class 3 Convenience Claims Impaired Entitled to Vote
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Class 4A Senior Note Claims Impaired Entitled to Vote
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Class 4B Junior Note Claims Impaired Entitled to Vote
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Class 4C REMIC Guarantee Claims Impaired Entitled to Vote
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Class 4D Litigation Claims Impaired Entitled to Vote
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Class 4E Other Unsecured Claims Impaired Entitled to Vote
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Class 5 Intercompany Claims Substantively Consolidated Not Entitled to Vote
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Class 6A Non-Debtor-Held Interests Impaired Entitled to Vote
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Class 6B Debtor-Held Interests Substantively Consolidated Not Entitled to Vote
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5
C. THE CONFIRMATION HEARING, VOTING PROCEDURES, BAR
DATES, AND OTHER IMPORTANT DEADLINES.
1. TIME AND PLACE OF THE CONFIRMATION HEARING.
The Plan cannot become effective until after it has been
confirmed by the Bankruptcy Court and the conditions to the Effective Date set
forth in the Plan have either been satisfied or waived.
The hearing to determine whether the Bankruptcy Court will
enter the Confirmation Order to confirm the Plan will take place on ___________,
2003 at _____.m. in the Courtroom of the Honorable Peter J. Walsh, Chief Judge,
United States Bankruptcy Court for the District of Delaware, 824 Market Street,
6th Floor, Wilmington, Delaware 19801. The Confirmation Hearing may be
continued from time to time without further notice.
2. ENTITIES ENTITLED TO VOTE ON THE PLAN.
Prior to the Confirmation Hearing, certain creditors will have
an opportunity to vote to accept or reject the Plan. Pursuant to the Bankruptcy
Code, only Holders of Allowed Claims and Interests in Classes 2G, 3, 4A, 4B, 4C,
4D, 4E and 6A (the "Voting Classes") are entitled to vote on the Plan because
these Classes are Impaired under the Plan within the meaning of section 1124 of
the Bankruptcy Code, but will nonetheless receive Distributions under the Plan.
The impairment of a Claim or Interest generally occurs if the legal, equitable,
or contractual rights of the Holder are altered. Classes 1, 2A, 2B, 2C, 2D, 2E,
2F, 2H, 2I, 2J, 2K and 2L are not Impaired and, therefore, are not entitled to
vote and are deemed to have accepted the Plan. Holders of Claims and Interests
in Classes 5 and 6B are Insiders whose Claims or Interests will be substantively
consolidated pursuant to the Substantive Consolidation Order. Holders of Claims
or Interests in these Classes are not entitled to vote on the Plan.
The Plan may be confirmed even if it is not accepted by each
Voting Class. The Bankruptcy Code defines "acceptance" with respect to a Class
of Impaired Claims as acceptance by Holders of at least two-thirds in dollar
amount and more than one-half in number of the Allowed Claims in such Class
whose Holders cast Ballots. In the event that a Voting Class does not accept the
Plan, the Debtors nonetheless will seek to have the Plan confirmed, provided
that the Plan is "fair and equitable" and does not "unfairly discriminate"
against the non-accepting Class of creditors or stockholders, as provided in
section 1129 of the Bankruptcy Code.
THE DEBTORS BELIEVE THAT THE PLAN PROVIDES THE BEST POSSIBLE
RECOVERIES TO THE HOLDERS OF IMPAIRED CLAIMS AND THAT ACCEPTANCE OF THE PLAN IS
IN THE BEST INTEREST OF SUCH HOLDERS. THEY THEREFORE RECOMMEND THAT YOU VOTE TO
ACCEPT THE PLAN.
6
3. DEADLINE FOR VOTING FOR OR AGAINST THE PLAN.
The Debtors are providing copies of this Disclosure Statement
and Ballots, which include detailed voting instructions, to all known Holders of
Claims in the Voting Classes. If you are entitled to vote as the Holder of an
Allowed Claim in one of the Voting Classes, you may vote by completing the
enclosed Ballot and returning the Ballot by the Ballot Deadline in the enclosed
envelope to the Balloting Agent at the address identified on your Ballot.
Initially, the Balloting Agent is Bankruptcy Services LLC. If a Ballot is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation, or other Person acting in a fiduciary or representative capacity,
such Person should indicate such capacity when signing.
YOUR BALLOT MUST BE RETURNED AND RECEIVED BY THE BALLOTING
AGENT NO LATER THAN ___________, 2003 AT __________.M., EASTERN TIME, OR IT WILL
NOT BE COUNTED IN CONNECTION WITH CONFIRMATION OF THE PLAN. IN NO CASE SHOULD A
BALLOT BE DELIVERED EITHER TO THE BANKRUPTCY COURT OR TO THE DEBTORS OR THEIR
ATTORNEYS.
A Ballot cast with respect to the Plan does not result in the
filing or allowance of a Claim. Nor does the casting of a Ballot relieve a
creditor of the obligation to file a proof of Claim in a timely manner. The
Debtors reserve the right to object to any Claims until the Claims Objection
Deadline.
4. DEADLINE FOR OBJECTING TO CONFIRMATION OF
THE PLAN.
As noted, all creditors and stockholders are entitled to be
heard with respect to confirmation of the Plan, even if they are not eligible
to vote to accept or reject the Plan. Objections to confirmation of the Plan
must be filed with the Bankruptcy Court and served upon (a) counsel for the
Debtors (Morris, Nichols, Arsht & Tunnell, 1201 North Market Street, P.O. Box
1347, Wilmington, Delaware, 19899-1347, attention: Robert J. Dehney, Esq.; and
Rayburn Cooper & Durham, P.A., 1200 Carillon, 227 West Trade Street, Charlotte,
North Carolina, 28202-1675, attention: Albert F. Durham); (b) counsel for the
Committee (McCarter & English, 919 North Market Street, Suite 1800, Wilmington,
Delaware, 19899, attention: William F. Taylor, Jr.; and Akin Gump Strauss Hauer
& Feld LLP, 590 Madison Avenue, New York, New York, 10022, attention: Robert J.
Stark); (c) counsel for Greenwich (Pachulski, Stang, Ziehl, Young & Jones P.C.,
919 North Market Street, Suite 1600, P.O. Box 8705, Wilmington, Delaware,
19899, attention: Laura Davis Jones; and Kirkland & Ellis, 777 South Figueroa
Street, Los Angeles, California, 90017, attention: Bennet L. Spiegel); (d) the
Office of the United States Trustee for the District of Delaware, 844 King
Street, Suite 2313, Lockbox 35, Wilmington, Delaware, 19801, attention: Mark S.
Kenney, Esq. and (g) such other parties as are identified in the accompanying
notice of the Confirmation Hearing so that they are received by no later than
____________, 2003, at _________.m., Eastern Time.
7
5. DEADLINES FOR PARTIES TO EXECUTORY CONTRACTS
AND UNEXPIRED LEASES TO ASSERT DAMAGE CLAIMS
AND TO OBJECT TO THE TERMS OF ASSUMPTION.
Section 365 of the Bankruptcy Code allows the Debtors to
assume, assume and assign, or reject executory contracts and unexpired leases to
which the Debtors were parties as of the Petition Date. In order to assume, or
assume and assign, a contract or lease, the Debtors must make provision for the
cure of certain outstanding defaults as required by Section 365 of the
Bankruptcy Code. If the Debtors reject a contract or lease, the contract or
lease is deemed to have been breached by the Debtors as of the Petition Date,
and the non-debtor party to the contract or lease may be entitled to an
Unsecured Claim for damages resulting from such breach.
Under the Plan, on the Effective Date, the Debtors will assume
all executory contracts and unexpired real or personal property leases to which
they are a party, excluding (a) any and all executory contracts or unexpired
leases which are the subject of separate motions filed pursuant to section 365
of the Bankruptcy Code by the Debtors prior to the commencement of the
Confirmation Hearing, (b) such contracts or leases as are listed on the
Executory Contract Schedule filed by the Debtors on or before entry of the
Confirmation Order, all of which contracts or leases shall be deemed rejected
pursuant to the provisions of section 365 and section 1123 of the Bankruptcy
Code, and (c) any and all executory contracts or unexpired leases rejected prior
to entry of the Confirmation Order. Contracts or leases entered into after the
Petition Date will be performed by the Reorganized Debtors in the ordinary
course of their businesses.
If the rejection of any executory contract or unexpired lease
under the Plan gives rise to a Claim by the non-Debtor party or parties to such
contract or lease, such Claim, to the extent that it is timely filed and is an
Allowed Claim, shall be classified in Class 4E; provided, however, that the
Unsecured Claim arising from such rejection shall be forever barred and shall
not be enforceable against the Debtors, the Reorganized Debtors, the Disbursing
Agent, their successors or properties, unless a proof of such Claim is filed and
served on the Disbursing Agent and the Claims Agent within thirty (30) days
after the date of notice of the entry of the order of the Bankruptcy Court
rejecting the executory contract or unexpired lease which may include, if
applicable, the Confirmation Order. FAILURE TO COMPLY WITH THIS DEADLINE SHALL
FOREVER BAR THE HOLDER OF A CLAIM FROM SEEKING PAYMENT THEREOF. See Article IX
of the Plan for more information about how to comply with this deadline and to
determine whether this deadline applies to you.
6. ADMINISTRATIVE CLAIMS BAR DATE.
An Administrative Claim includes: (a) a Secured Claim entitled
to superpriority pursuant to section 364(c) of the Bankruptcy Code and the Final
DIP Agreement; (b) an Unsecured Claim, other than a Fee Claim, for payment of
costs or expenses of administration specified in sections 503(b) and 507(a)(1)
of the Bankruptcy Code, including, without limitation: (i) the actual, necessary
costs and expenses incurred after the Petition Date of preserving the Estates
and operating the businesses of the Debtors (such as wages, salaries,
commissions for services rendered, and personal injury claims); and (ii) all
fees and charges assessed against the
8
Estates pursuant to section 1930 of title 28 of the United States Code; or (c) a
Reclamation Claim that either has been granted priority under section
546(c)(2)(A) of the Bankruptcy Code or which the Debtors elect to treat as
though such priority has been granted.
All parties seeking payment of Administrative Expenses must
file with the Bankruptcy Court and serve upon the Debtors a request for payment
of such Administrative Claims prior to the applicable deadline set forth below,
provided, however, that parties seeking payment of postpetition ordinary course
trade obligations, postpetition payroll obligations incurred in the ordinary
course of the Debtors' postpetition business and amounts arising under
agreements approved by the Bankruptcy Court or the Plan need not file such a
request.
The deadline for filing requests for payment of Administrative
Claims is the date that is the first Business Day after the date that is [20
days after the Effective Date at 4:00 p.m.], Eastern Time. FAILURE TO COMPLY
WITH THESE DEADLINES SHALL FOREVER BAR THE HOLDER OF AN ADMINISTRATIVE CLAIM
FROM SEEKING PAYMENT THEREOF. See Section 2.9 of the Plan for more information
about how to comply with this deadline and to determine whether this deadline
applies to you.
7. FEE CLAIMS BAR DATE.
A Fee Claim includes: (a) a Claim of a professional person
retained by order of the Bankruptcy Court for compensation and/or reimbursement
of expenses pursuant to section 327, 328, 330 or 331 of the Bankruptcy Code in
connection with the Chapter 11 Cases or (b) a Claim of any professional or other
entity seeking compensation or reimbursement of expenses in connection with the
Chapter 11 Cases pursuant to sections 503(b)(3)(F) or 503(b)(4) of the
Bankruptcy Code in which the Holder of the Claim files a timely request unless
otherwise agreed to by the Debtors or the Reorganized Debtors.
All applications for payment of Fee Claims must be filed with
the Bankruptcy Court and served in accordance with the Fee Order by the date
that is 45 days after the Effective Date (or, if such date is not a Business
Day, by the next Business Day thereafter) unless otherwise agreed to by the
Debtors or the Reorganized Debtors. FAILURE TO COMPLY WITH THIS DEADLINE SHALL
FOREVER BAR THE HOLDER OF A FEE CLAIM FROM SEEKING PAYMENT THEREOF. See Section
2.10 of the Plan for more information about how to comply with this deadline and
to determine whether this deadline applies to you.
8. UNSECURED CLAIMS BAR DATE.
An Unsecured Claim includes any claim that is not: (a) an
Administrative Claim; (b) a Priority Non-Tax Claim; (c) a Priority Tax Claim;
(d) a Fee Claim; (e) a Secured Claim; (f) an Intercompany Claim; or (g) an
Interest. All proofs of Claim for Unsecured Claims must be filed with the Claims
Agent by the general claims bar date established by the Bankruptcy Court, which
is March 27, 2003. Initially, the Claims Agent is Bankruptcy Services LLC. Any
documents or other papers required to be filed with the Claims Agent must be
filed in the following manner:
9
IF BY HAND/OVERNIGHT: IF BY MAIL:
Bankruptcy Services LLC Bankruptcy Services LLC
Attn: Oakwood, Claims Processing Oakwood Homes Corporation, et al.,
Department Claims Processing
Heron Tower P.O. Box 5270 FDR Station
70 East 55th Street--6th Floor New York, New York 10150-5270
New York, New York 10022
FAILURE TO COMPLY WITH THIS DEADLINE SHALL FOREVER BAR THE HOLDER OF AN
UNSECURED CLAIM FROM SEEKING PAYMENT THEREOF. See Section 2.11 of the Plan for
more information about how to comply with this deadline and to determine whether
this deadline applies to you.
9. MATERIALS TO BE FILED IN SUPPORT OF
CONFIRMATION.
In support of confirmation of the Plan, the Debtors will file
the Plan Supplement, to the extent not filed simultaneously with the Plan and
the Disclosure Statement, at least five (5) Business Days prior to the
commencement of the Confirmation Hearing. Upon its filing, the Plan Supplement
may be inspected in the offices of the Clerk of the Bankruptcy Court during
normal business hours. A copy of the Plan Supplement shall be mailed to the
Creditors' Committee, and any Holder of a Claim or Interest that makes a written
request for such Plan Supplement to the Debtors. The documents contained in the
Plan Supplement shall be approved by the Bankruptcy Court pursuant to the
Confirmation Order.
10. INFORMATION REGARDING THE PLAN.
NO PERSON IS AUTHORIZED BY THE DEBTORS IN CONNECTION WITH THE
PLAN OR THE SOLICITATION OF VOTES WITH RESPECT TO THE PLAN TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
DISCLOSURE STATEMENT AND THE EXHIBITS HERETO OR INCORPORATED HEREIN BY
REFERENCE, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEBTORS OR APPROVED BY THE
BANKRUPTCY COURT.
11. EFFECTIVE DATE OF THE PLAN.
The Effective Date of the Plan will occur on: (a) if no stay
of the Confirmation Order is in effect, the first Business Day after the date
all of the conditions set forth in the Plan have been satisfied or waived
pursuant to the Plan, or such later date as may reasonably be agreed to by the
Debtors and the Creditors' Committee; or (b) if a stay of the Confirmation Order
is in effect, on the first Business Day (or such later date as may reasonably be
agreed by the Debtors and the Creditors' Committee) after the later of: (i) the
date such stay is vacated; and (ii) the date each condition set forth in the
Plan has been satisfied or waived pursuant to the Plan. Notwithstanding any of
the foregoing, the Debtors may delay the occurrence of the Effective Date for up
to thirty (30) days.
10
D. IMPORTANT NOTICE AND CAUTIONARY STATEMENT.
The historical financial data relied upon in preparing the
Plan and this Disclosure Statement is based on the Debtors' books and records.
The hypothetical liquidation analysis, projections, and other financial
information have been developed by the Debtors with the assistance of their
financial advisors. Nevertheless, the hypothetical liquidation analysis,
projections, and other financial information are estimates only, and the timing,
amount, and value of actual Distributions to creditors may be affected
significantly by many factors that cannot be predicted.
ALTHOUGH THE PROFESSIONAL ADVISORS EMPLOYED BY THE DEBTORS
HAVE ASSISTED IN THE PREPARATION OF THIS DISCLOSURE STATEMENT BASED UPON FACTUAL
INFORMATION AND ASSUMPTIONS RESPECTING FINANCIAL, BUSINESS, REGULATORY, AND
ACCOUNTING DATA PROVIDED BY THE DEBTORS AND THIRD PARTIES, THEY HAVE NOT
INDEPENDENTLY VERIFIED SUCH INFORMATION AND MAKE NO REPRESENTATIONS AS TO THE
ACCURACY THEREOF. IN ADDITION, MUCH OF THE FINANCIAL INFORMATION CONTAINED
HEREIN HAS NOT BEEN SUBJECT TO AN AUDIT. THE DEBTORS ARE UNABLE TO WARRANT OR
REPRESENT THAT THE INFORMATION CONTAINED HEREIN, INCLUDING THE FINANCIAL
INFORMATION, IS WITHOUT INACCURACY OR OMISSION, OR THAT ACTUAL VALUES OR
FINANCIAL PERFORMANCE WILL COMPORT WITH THE ESTIMATES HEREIN.
THE DEBTORS' ACTUAL RESULTS OF OPERATIONS AND THE TIMING,
AMOUNT, AND VALUE OF DISTRIBUTIONS UNDER THE PLAN MAY DIFFER MATERIALLY AND
ADVERSELY FROM THOSE PROJECTED HEREIN. THE DEBTORS' FUTURE OPERATIONS MAY BE
AFFECTED BY NUMEROUS ECONOMIC, COMPETITIVE, REGULATORY, LEGISLATIVE, LEGAL,
OPERATIONAL, AND OTHER FACTORS THAT CANNOT BE PREDICTED.
THIS DISCLOSURE STATEMENT CONTAINS A DISCUSSION OF CERTAIN
RISK FACTORS RELATING TO THE PLAN AND THE DEBTORS' ONGOING BUSINESS OPERATIONS.
THE DEBTORS STRONGLY ADVISE THAT ALL PARTIES IN INTEREST REVIEW THESE RISK
FACTORS CAREFULLY AND CONSULT WITH THEIR ADVISORS BEFORE VOTING ON THE PLAN OR
OTHERWISE DECIDING TO SUPPORT OR OPPOSE CONFIRMATION.
NOTHING CONTAINED HEREIN SHALL CONSTITUTE AN ADMISSION OF ANY
FACT OR LIABILITY BY ANY PARTY, BE ADMISSIBLE IN ANY PROCEEDING INVOLVING THE
DEBTORS OR ANY OTHER PARTY, OR BE DEEMED CONCLUSIVE ADVICE ON THE TAX,
SECURITIES, OR OTHER LEGAL EFFECTS OF THE REORGANIZATION AS TO HOLDERS OF CLAIMS
OR INTERESTS. YOU SHOULD CONSULT YOUR OWN LEGAL COUNSEL OR TAX ADVISOR ON ANY
QUESTIONS OR CONCERNS RESPECTING TAX, SECURITIES, OR OTHER LEGAL CONSEQUENCES OF
THE PLAN.
11
THE NEW COMMON STOCK AND NEW WARRANTS TO BE ISSUED PURSUANT TO
THE PLAN WILL NOT HAVE BEEN, AT THE TIME OF ISSUANCE, THE SUBJECT OF A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES OR "BLUE
SKY" LAW, AND WILL BE ISSUED IN RELIANCE UPON THE EXEMPTION FROM THE SECURITIES
ACT AND EQUIVALENT STATE LAW REGISTRATION PROVIDED BY BANKRUPTCY CODE SECTION
1145(a)(1).
CAUTIONARY STATEMENT:
INFORMATION INCLUDED IN THIS DISCLOSURE STATEMENT REGARDING
THE DEBTORS CONTAINS STATEMENTS THAT MAY CONSTITUTE "FORWARD-LOOKING
INFORMATION," AS THAT TERM IS DEFINED BY THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 ("REFORM ACT"), INCLUDING INFORMATION CONCERNING THE DEBTORS'
PLAN AND PROJECTED FINANCIAL PERFORMANCE FOLLOWING THEIR EMERGENCE FROM
BANKRUPTCY. THE FORWARD-LOOKING STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE
QUALIFIED IN THEIR ENTIRETY BY THE RISK FACTORS SET FORTH IN THIS DISCLOSURE
STATEMENT AND ARE BEING MADE PURSUANT TO THE PROVISIONS OF THE REFORM ACT AND
WITH THE INTENTION OF OBTAINING THE BENEFITS OF THE "SAFE HARBOR" PROVISIONS OF
THE REFORM ACT.
II. DESCRIPTION OF THE DEBTORS, THEIR BUSINESS OPERATIONS, AND
THEIR FINANCIAL CONDITION.
A. GENERAL.
Oakwood, which was founded in 1946, together with its debtor
and non-debtor affiliates and related parties, designs, manufactures and markets
manufactured and modular homes and finances many of its retail sales and a
portion of the retail sales of its homes by its independent dealer network. The
Debtors also act as agent in locating a variety of insurance products for their
customers. Following their emergence from these Chapter 11 Cases, the Debtors
expect to retail their manufactured homes at approximately 120 centers owned and
operated by the Debtors located primarily in the southeastern and southwestern
United States and at wholesale to over 600 independent retailers located
throughout the United States. For customers choosing to purchase insurance, the
Debtors historically assumed a portion of the related underwriting risk through
their non-debtor captive reinsurance business. As part of their restructuring
effort, the Debtors exited this aspect of the insurance business.
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B. MANUFACTURED HOMES.
The Debtors manufacture a number of models of single-section
homes, multi-section and modular homes consisting of two or more component parts
that are joined at the home site. Each home contains a living room, dining area,
kitchen, one, two, three or four bedrooms and one or two bathrooms, and is
equipped with a hot water heater and central heating. Some homes are furnished
with a sofa and matching chairs, dinette set, coffee and end tables, carpeting,
lamps, draperies, curtains and screens. Optional furnishings and equipment
include a range and oven, refrigerator, beds, a fireplace, washing machine,
dryer, microwave oven, dishwasher, air conditioning, intercom, stereo systems,
wet bar, vaulted ceilings, skylights, hardwood cabinetry and energy conservation
items. The homes manufactured by the Debtors are primarily sold under the
registered trademarks "Oakwood(R)," "Golden West(R)," "Schult(R)," "Crest(R),"
"Marlette(R)," "Freedom(R)" and as other private label homes.
The Debtors' manufactured homes are constructed and furnished
at the Debtors' manufacturing facilities and transported on wheels to the home
sites. These homes are normally occupied as permanent residences but can be
transported on wheels to new home sites. In addition to traditional manufactured
homes, the Debtors also manufacture modular homes that are built in accordance
with state or local building codes and therefore are similar in specifications
and design to site-built homes. The Debtors' modular homes range in size from
960 square feet to 3,355 square feet and include a variety of single story ranch
homes, one-and-a-half-story homes, two-story homes, townhouses and duplex units,
all of which can include attached garages built at the site by others.
The Debtors formerly manufactured homes at thirty-two plants
located in North Carolina, Texas, Georgia, Indiana, Oregon, Pennsylvania,
Arizona, California, Colorado, Kansas, Minnesota, and Tennessee. Pursuant to the
Plan, the Debtors will continue to operate fourteen plants located in Arizona,
California, Oregon, Indiana, Pennsylvania, North Carolina, Minnesota and Kansas.
As part of their restructuring efforts, the Debtors have been offering and
holding the closed plants for sale.
The Debtors purchase components and materials used in the
manufacture of their homes on the open market and are not dependent upon any
particular raw material supplier. However, if faced with a scarcity of certain
raw materials, the Debtors may experience supplier allocation issues. The
principal raw materials purchased by the Debtors for use in the construction of
its homes are lumber, steel, aluminum, galvanized pipe, insulating materials,
drywall and plastics. Steel I-beams, axles, wheels and tires, roof and ceiling
materials, home appliances, plumbing fixtures, furniture, floor coverings,
windows, doors and decorator items are purchased or fabricated by the Debtors
and are assembled and installed at various stages on the assembly line.
The Debtors furnish to each purchaser of a new home
manufactured by the Debtors a five-year limited warranty against defects in
materials and workmanship, excluding equipment and furnishings supplied by
others, which are frequently covered by the supplier's warranties.
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C. SALES.
The Debtors operate their sales centers primarily under the
names Oakwood(R) Mobile Homes and Freedom Homes(R). Additionally, the Debtors
operate Factory Certified Homes sales centers that sell primarily repossessed
homes. Since 1999, the Debtors have been scaling back operations, closing both
sales centers and manufacturing facilities. Although the Debtors will retain
many of the sales centers pursuant to the Plan, some of the sales centers,
including the Factory Certified Homes locations, will be closed as part of the
Debtors' reorganization. During the fiscal year ended September 30, 2002,
substantially all of the Debtors' retail sales of new homes were homes
manufactured by the Debtors.
Each of the Debtors' sales centers hires and trains sales
personnel. Generally, each salesperson is paid a commission based on the gross
margin of his or her sales and certain volume targets, and each general manager
is paid compensation based on performance as measured by the profits of the
sales center.
The Debtors also sell their homes to approximately 600
independent retailers located throughout the United States. Sales to independent
retail dealers accounted for approximately 44% of sales in fiscal 2002, up from
35% in fiscal 2001. Such sales are expected to increase in the future because
this market channel is less capital intensive. The Debtors' sales have
traditionally been higher in the period from late spring through early fall than
in the winter months.
D. RETAIL FINANCING AND REQUIRED CAPITAL.
Significant factors affecting sales of manufactured homes are
the availability and terms of financing. Approximately 72% of the units sold
through the Debtors' retail centers in fiscal 2002 were financed by installment
sale contracts or loans arranged by the Debtors, each of which provided for
monthly payments generally over a period of 5 to 30 years. The remaining 28% of
retail unit sales were paid for with cash or financing obtained from other
sources.
The Debtors retain a security interest in all homes they
finance with loans documented as either installment sales contracts or
traditional mortgages (collectively, "RICs").
Because traditional financing sources are insufficient to
sustain the manufacturing and sales volume the Debtors historically have
experienced, the Debtors with retail sales operations and various independent
dealers (collectively, "Retailers") provide financing options to their customers
through Oakwood Acceptance Corporation, LLC ("OAC"). OAC originates the mortgage
loan RICs and purchases at cost the other RICs originated by the Retailers on a
non-recourse basis. OAC funds its originations and purchases of RICs by
participating in public and private asset securitization transactions.
Securitization transactions have historically provided the most effective and
least expensive financing technique for satisfying OAC's liquidity needs and may
remain the least expensive method of financing for the Debtors' operations.
As part of the securitization process, OAC historically
retained the contractual right to service all securitized RICs in exchange for a
monthly fee. As part of its servicing
14
duties, certain pooling and servicing agreements require OAC to make P & I
Advances to certain securitization trusts. OAC also is required to make
recoverable advances to the trusts for reasonable and customary costs and
expenses (including reasonable legal fees) incurred in the performance of its
servicing obligations.
Continuing to service securitized RICs, including making
advances when and if required, substantially decreases the costs of
securitization transactions and increases the liquidity available to the Debtors
through securitization. As a result, OAC's continued performance of its
servicing and related advance obligations is critical to ensuring the Debtors'
ability to continue engaging in securitization transactions on favorable terms.
In addition, the Debtors believe that the enhanced priority of their servicing
fee in the securitization proceeds as restructured pursuant to a Final Order of
the Bankruptcy Court may have substantial independent economic value.
Recent developments in the market for asset backed securities,
and particularly those involving manufactured housing RICs, have caused the
Debtors to consider other sources of financing such as sales of loans. The
Debtors have already taken steps to reduce reliance on financings provided by
OAC, but that effort is made more challenging by the business failure of one
major market participant and the withdrawal of another.
E. INDEPENDENT DEALER RETAIL SALES FINANCING.
The Debtors provide permanent financing for homes sold by
certain independent dealers that sell the Debtors' manufactured homes. During
fiscal 2002, the Debtors financed approximately 38% of their manufactured units
sold by independent dealers.
F. INDEPENDENT RETAILER REPURCHASE OBLIGATIONS.
Substantially all of the independent retailers who purchase
homes from the Debtors finance new home inventories through wholesale credit
lines (the "Floor Plans") provided by third parties. In these arrangements, a
financial institution typically provides the retailer with a credit line for the
purchase price of the home and maintains a security interest in the home as
collateral. The retailer uses a Floor Plan to finance the acquisition of its
display models, as well as to finance the initial purchase of a home from a
manufacturer until a home buyer obtains permanent financing or otherwise pays
the dealer for the installed home. Many of the Floor Plan lenders require the
Debtors to enter into repurchase agreements under which the Debtors are
obligated, upon default by the retailer, to repurchase any of the homes financed
by the Floor Plan lender. Under the terms of such repurchase agreements, the
Debtors typically agree to repurchase homes at prices scaled to the age of the
units. As of the Petition Date, the Debtors estimate that their contingent
liability under these repurchase agreements was approximately $101 million.
Historically, the Debtors' losses under these arrangements have not been
significant.
G. INSURANCE.
In order to, among other things, facilitate retail purchases
of their homes, the Debtors historically have sold, as agent for an unrelated
domestic insurance company, property
15
and casualty insurance to certain customers in connection with their purchase of
a home. In addition, the Debtors entered the reinsurance business directly
through their own captive, Bermuda-based reinsurer during 1997, when it, as a
reinsurer, accepted certain risk of policies it had written as agent, in
exchange for standard reinsurance premiums. This venture allowed the Debtors to
participate more fully in the profitable income streams associated with the
property and casualty insurance and service contract business. Shortly before
the Petition Date, the Debtors exited the third party reinsurance business in
order to relocate capital to the Debtors' core businesses, and are arranging an
orderly wind-down of their insurance subsidiary.
H. COMPETITION.
The Debtors face serious competition in three major aspects of
their operations: manufacturing, marketing and finance. There are numerous firms
producing manufactured homes in the Debtors' market areas, many of which are
direct competitors. Several of these manufacturers, which sell the majority of
their homes through independent dealers, are larger than the Debtors and have
greater financial resources. Historically, certain of the financing sources in
the industry were also larger than the Debtors and also had greater financial
resources. Finally, there are numerous retail dealers in most locations where
the Debtors conduct retail and financing operations. The Debtors compete with
other manufacturers, retailers and finance companies on the basis of reputation,
quality, financing ability, services, features offered and price.
In addition, manufactured homes are a form of permanent,
low-cost housing and therefore compete with other forms of housing, including
site-built and prefabricated homes and apartments. Historically, manufactured
homes have been financed as personal property with shorter term and higher
interest financing than was available for site-built homes. In recent years,
however, there has been a growing trend toward financing manufactured housing
with maturities equal to those in traditional residential real estate finance,
especially when the manufactured housing is attached to permanent foundations on
individually-owned lots, as is frequently the case in the Debtors' growing
multi-section and modular homes markets. As a result, maturities for certain
manufactured housing loans have moved closer to those for site-built housing.
I. REGULATION.
A variety of laws affect the financing of manufactured homes
by the Debtors. The Federal Consumer Credit Protection Act (Truth-in-Lending)
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 charge. The Federal Fair Credit Reporting Act
also requires certain disclosures to potential customers concerning credit
information used as a basis to deny credit. The Federal Equal Credit Opportunity
Act and Regulation B promulgated thereunder prohibit discrimination against any
credit applicant based on certain specified grounds. The Federal Trade
Commission has adopted or proposed various Trade Regulation Rules dealing with
unfair credit and collection practices and the preservation of consumer claims
and defenses. The Federal Trade Commission's Rules also require disclosure of a
manufactured home's insulation specification. Installment sale contracts and
loans eligible for inclusion in the GNMA Program are subject to the credit
underwriting requirements of the FHA. A variety of
16
state laws also regulate the form of the installment sale contracts and loan
documents and the allowable deposits, finance charges and fees chargeable
pursuant to installment sale contracts and loan documents. The former provision
of insurance products as agent by the Debtors was subject to various state
insurance laws and regulations which govern allowable charges and other
insurance practices.
The Debtors are also subject to the provisions of the Fair
Debt Collection Practices Act, which regulates the manner in which the Debtors
collect payments on installment sale contracts, and the Magnuson-Moss
Warranty-Federal Trade Commission Improvement Act, which regulates descriptions
of warranties on products. The descriptions and substance of the Debtors'
warranties are also subject to state laws and regulations. The Debtors'
manufacture of homes generally is subject to the National Manufactured Housing
Construction and Safety Standards Act of 1974. In 1976, the Department of
Housing and Urban Development promulgated regulations, which have been amended
from time to time, under this Act establishing comprehensive national
construction standards covering many aspects of manufactured home construction
and installation, including structural integrity, fire safety, wind loads and
thermal protection. The Debtors' modular homes are subject to state and local
building codes.
The Debtors' transportation of manufactured homes on highways,
which is provided by unrelated third-party vendors, is subject to regulation by
various federal, state and local authorities. Such regulations may prescribe
size and road use limitations and impose lower than normal speed limits and
various other requirements. Manufactured homes are also subject to local zoning
and other regulations.
III. PREPETITION DEBT AND EQUITY STRUCTURE OF THE DEBTORS.
A. DESCRIPTION OF PREPETITION DEBT STRUCTURE OF DEBTORS.
1. FOOTHILL PREPETITION BANK FACILITY.
Prior to the Petition Date, the Debtors partially funded their
operations through a $65 million credit facility established under the
Prepetition Loan Agreement, dated January 22, 2002, by and among the Debtors, as
borrowers, Foothill, as a lender and agent for the lenders, and certain other
lenders specified therein (as amended by the First Amendment to Loan Agreement,
dated July 2002 and the Second Amendment to Loan Agreement, dated July 31,
2002). As of the Petition Date, borrowings and letters of credit under this
facility totaled approximately $52 million. The credit facility under the
Prepetition Loan Agreement was secured by substantially all of the Debtors'
assets both tangible and intangible, real and personal, excluding loans held for
sale.
2. SENIOR NOTES.
The Debtors issued 7.875% Senior Notes in the aggregate
principal amount of $125 million due March 2004, and 8.125% Senior Notes in the
aggregate principal amount of
17
$175 million due March 2009 pursuant to an Indenture and First Supplemental
Indenture, both dated March 2, 1999, between the Debtors and Bank One, N.A.,
f/k/a The First National Bank of Chicago. The debt under the Senior Notes is
unsecured. U.S. Bank National Association was substituted as Indenture Trustee
on January 10, 2000.
3. JUNIOR NOTES.
The Debtors issued 8% Junior Notes in the original principal
amount of $17 million due June 1, 2007 pursuant to an Indenture and a First
Supplemental Indenture, both dated March 1, 1992, and Junior Notes in the
original principal amount of $23 million due June 1, 2007 pursuant to a Second
Supplemental Indenture dated July 15, 1992, between the Debtors and First Union
National Bank, f/k/a Delaware Trust Company. U.S. Bank Trust National
Association was substituted as Indenture Trustee on April 2, 2001. Of the
original Debentures, $2.6 million remained outstanding as of November 15, 2002,
the balance having been retired in accordance with their terms. The debt under
the Junior Notes is unsecured.
4. INDUSTRIAL REVENUE BONDS FOR PLANTS IN
KOSCIUSKO COUNTY, AND ELKHART COUNTY,
INDIANA.
The Debtors are obligated under a loan agreement dated
February 1, 1998, between Kosciusko County, Indiana and Schult Operating Company
(now HBOS Manufacturing, LP) for $6,200,000 Variable Rate Demand Economic
Development Revenue Bonds Series 1998 (the "1998 Bonds"). The 1998 Bonds are
secured by a letter of credit in the amount of $4,766,356.16 issued by Wells
Fargo Bank, N.A. and a letter of credit mortgage secured by the Debtor's plant
in Kosciusko County, Indiana. Fifth Third Bank, Indiana is the trustee under the
trust indenture pursuant to which the loan agreement was issued. At the Petition
Date, the amount outstanding on the 1998 Bonds was $4.6 million.
The Debtors are also obligated under a loan agreement dated
October 1, 1997, between Elkhart County, Indiana and Schult Operating (now HBOS
Manufacturing, LP) for $1,500,000 Variable Rate Demand Economic Development
Revenue Bonds, Series 1997 (the "1997 Bonds"). The 1997 Bonds are secured by a
letter of credit in the amount of $896,282.19 issued by Wells Fargo Bank, N.A.
and a letter of credit mortgage secured by one of the Debtors' plants in Elkhart
County, Indiana. Fifth Third Bank, Indiana is the trustee under the trust
indenture pursuant to which the loan agreement was issued. At the Petition Date,
the amount outstanding on the 1997 Bonds was $865,000.
5. OTHER SECURED DEBT.
There are a number of other creditors secured by certain
discrete real and personal property assets of the Debtors.
6. REMIC GUARANTEES.
Oakwood, through its wholly-owned finance subsidiary, OAC,
provides RICs to finance the purchase of manufactured homes. When the aggregate
number of RICs OAC has originated reaches a critical mass, typically once every
three months, the RICs are securitized
18
and sold into the asset-backed market through non-Debtor Real Estate Mortgage
Investment Conduit Securitization Trusts ("REMIC Trust"). The REMIC Trusts are
the issuers of monthly pass-through certificates ("REMIC Certificates") that may
pay cash interest on a fixed or floating rate basis and are backed by a
collateral pool of underlying RICs in the REMIC Trusts. Each REMIC Trust issues
REMIC Certificates representing different tranches. Typically, a series
identifier will indicate the year and sequential issue number within each year.
For example, "1997-A" would indicate the first OAC securitization in 1997 and
"1997-B" would indicate the second securitization in 1997.
As previously noted, within a given series, the REMIC
Certificates are separated into tranches, which indicate the seniority and the
credit quality of the security. While there is no distinction of collateral, as
all tranches are supported by the same pool of loans, the credit quality of a
particular tranche is determined by a payment priority structure. Accordingly,
holders of subordinated tranches generally receive higher interest rates, but
will only receive payments after all senior tranches receive payment.
In order to enhance the marketability of the most subordinated
tranches of REMIC Certificates, Oakwood, in certain cases, provided a corporate
guarantee (the "B-2 REMIC Guarantees") that effectively guaranteed distributions
on these tranches of REMIC Certificates (the "B-piece REMIC Certificates"). The
provisions of the REMIC Guarantees are complex, but, in general, if the
underlying RICs held by the REMIC Trusts do not generate enough cash to service
the B-piece REMIC Certificates, Oakwood is obligated to fund certain shortfalls.
Prior to the Petition Date, Oakwood provided corporate
guarantees of the collateral pools backing payments under the B-piece REMIC
Certificates in twenty REMIC Trusts. Oakwood's B-2 REMIC Guarantees apply to the
issues of B-piece REMIC Certificates in the following REMIC Trusts: 1997-A,
1997-B, 1997-C, 1997-D, 1998-B, 1998-C, 1998-D, 1999-A, 1999-B, 1999-C, 1999-D,
1999-E, 2000-A, 2000-B, 2001-B, 2001-C, 2001-D, 2001-E, 2002-A and 2002-B. These
B-2 REMIC Guarantees are contingent and unliquidated. The aggregate face value
of the B-piece REMIC Certificates by Oakwood is approximately $274.8 million and
includes B-2 tranches from approximately two-thirds of Oakwood's
securitizations. Chase Manhattan Bank, [Wells Fargo and Bank of New York] are
the REMIC Trustees for individual REMIC Trusts for which Oakwood has issued B-2
REMIC Guarantees.
B. DESCRIPTION OF PREPETITION EQUITY STRUCTURE OF THE
DEBTORS.
As of December 1, 2002, Oakwood had issued and outstanding
9,537,000 shares of Old Common Stock, par value $0.50 per share. Oakwood also
granted options to purchase shares of Old Common Stock and other equity related
securities. On or about the Petition Date, the New York Stock Exchange, Inc.
(the "NYSE") announced that trading of the Old Common Stock on the NYSE should
be suspended immediately based upon the failure to meet certain financial
criteria. Subsequently, the NYSE submitted an application to the Securities and
Exchange Commission to delist the Old Common Stock from the NYSE. The delisting
of the Old Common Stock became effective on December 30, 2002. Oakwood has not
paid dividends
19
on the Old Common Stock during the past two fiscal years and the Old Common
Stock is currently traded in the over-the-counter market. As of December 1,
2002, the Debtors estimate that there are 21,000 beneficial holders of Old
Common Stock.
IV. THE CHAPTER 11 CASES AND SIGNIFICANT POSTPETITION EVENTS.
A. SIGNIFICANT EVENTS LEADING TO THE COMMENCEMENT OF THE
CHAPTER 11 CASES.
The manufactured housing industry as a whole expanded
aggressively into an economic downturn that has been particularly severe for its
traditional customer of modest means. At the same time, mortgage rates for
site-built homes were, and still are, at a thirty-year low, which offset many of
the cost advantages of manufactured homes as cost savings were offset by the
traditionally higher interest rates for manufactured home buyers. Additionally,
aggressive lending led to a high level of repossessed homes--a level estimated
to reach 90,000 in the current year. The remarketing of these homes in
competition with new homes depresses new home sales volume.
In addition, many traditional industry lenders, including both
Floor Plan lenders and retail lenders who provide financing to homebuyers, have
left the industry over the last few years or have significantly curtailed
operations. This includes leading industry lenders such as Conseco Finance
Corporation, which filed for relief under chapter 11 on December 18, 2002, and
Deutsche Financial Service Corporation, which exited the industry. This
reduction in available financing has led to a contraction of the dealer network
and a sharp reduction in manufactured home sales.
Through 1999, the Debtors expanded and leveraged themselves
aggressively to support their rapid growth, which resulted in a heavier debt
load than existing performance could support. Aggressive underwriting coupled
with the current economic slowdown led to an unsustainable level of loan
defaults on securitized RICs. The cost of servicings and the liquidity
requirements for performing servicing duties increased with the defaults. At the
same time, receipts were decreasing as such fees were subordinated to credit
losses. Despite taking measures to counter negative pressures, the Debtors
continued to experience financial difficulties.
The Debtors decided to file for reorganization under Chapter
11 in order to restructure their balance sheet and access new working capital
while continuing to operate in the ordinary course of business. This decision
was based primarily upon the continued poor performance of loans originated in
2000 and before, the extremely weak conditions in the manufactured housing
industry and the deteriorating terms in the asset-backed securitization market
into which the Debtors sell their loans. Other factors contributing to the
decision to file included the general economic recession, declining recovery
rates in the repossession market, the substantial reduction in loan servicing
fees received and the withdrawal of manufactured housing Floor Plan lenders
offering financing to many of the Debtors' wholesale dealers.
20
B. THE CHAPTER 11 FILINGS.
The Debtors commenced their respective Chapter 11 Cases by
filing voluntary petitions under chapter 11 of the Bankruptcy Code on November
15, 2002 (the aforementioned "Petition Date"). The Debtors' Chapter 11 Cases are
jointly administered and assigned to the Honorable Peter J. Walsh, United States
Bankruptcy Chief Judge for the District of Delaware.
The Debtors have made substantial progress toward their goal
of reorganization during their respective Chapter 11 Cases. Among other things,
the Debtors have: (a) maintained operations and negotiated new agreements with
vendors and suppliers of critical goods and services; (b) obtained debtor-in-
possession financing to enable the Debtors to continue operations; (c) developed
a new business plan, which has been discussed extensively with the Debtors'
principal creditor constituencies and forms the basis for the Plan; (d)
implemented significant improvements to the Debtors' business operations,
including reducing overhead and greatly improving the priority of servicing
fees; (e) substantially completed the closure of certain plants, retail sales
centers and offices; (f) negotiated the sale of certain surplus assets to reduce
costs and generate cash; (g) negotiated for additional or substitute Floor Plan
financing; and (h) otherwise complied with the multitude of requirements imposed
by the Bankruptcy Code. Moreover, the Debtors have devoted significant efforts
to the development, negotiation, and filing of the Plan that is the subject of
this Disclosure Statement, which Plan the Debtors believe provides for the fair
and equitable treatment of creditors and will enable the Debtors to emerge from
their Chapter 11 Cases as viable businesses.
C. "FIRST DAY" MOTIONS.
On or after the Petition Date, the Debtors filed several
"first day" motions relating to the ordinary course operations of their
businesses. The Bankruptcy Court has entered Final Orders granting the Debtors'
motions either as requested or modified to some extent, but in either event
permitting the Debtors to continue operations during the Chapter 11 Cases. The
"first day" orders enable the Debtors to, among other things: (a) preserve
customer relationships by authorizing the Debtors to honor certain obligations
and continue certain programs and practices; (b) maintain employee morale and
confidence by authorizing the Debtors to pay prepetition employment Claims and
all costs and expenses incident thereto; (c) maintain critical vendor and
supplier relationships and confidence by authorizing the Debtors to pay certain
prepetition Claims; (d) ensure the continuation of the Debtors' cash management
systems and other business operations without interruption; and (e) establish
certain other administrative procedures to promote a smooth transition into
Chapter 11.
D. APPOINTMENT OF THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS.
On December 2, 2002, the United States Trustee appointed the
Official Committee of Unsecured Creditors (the "Creditors' Committee") pursuant
to section 1002 of the Bankruptcy Code [Docket No. 97]. To date, the United
States Trustee has appointed no other committees. The members of the Creditors'
Committee currently are:
21
- ---------------------------------------------------------------------------------------------------
INDIVIDUAL ACTIVELY PARTICIPATING ON
MEMBER CREDITOR COMMITTEE AND ADDRESS THEREOF
- ---------------------------------------------------------------------------------------------------
JP Morgan Chase Bank (as Trustee) James R. Lewis
4 New York Plaza, 15th Floor
New York, NY 10004
- ---------------------------------------------------------------------------------------------------
U.S. Bank National Association Timothy J. Sandell
180 East Fifth Avenue, 4th Floor
St. Paul, MN 55101
- ---------------------------------------------------------------------------------------------------
Absolute Recovery Hedge Funds, Ltd. Wilbur L. Ross, Jr.
c/o WL Ross & Co., LLC
101 East 52nd Street, 19th Floor
New York, NY 10022
- ---------------------------------------------------------------------------------------------------
Aegon USA Investment Management, LLC James K. Baskin
400 West Market Street, 10th Floor
Louisville, KY 40202
- ---------------------------------------------------------------------------------------------------
Patrick Industries, Inc. Michael W. Baker
P.O. Box 638
Elkhart, IN 46515
- ---------------------------------------------------------------------------------------------------
Carriage Industries, Inc. Charles D. Raley
P.O Box 12542
Calhoun, GA 30703
- ---------------------------------------------------------------------------------------------------
LaSalle Bristol LP James Montague
P.O. Box 98
Elkhart, IN 46515
- ---------------------------------------------------------------------------------------------------
E. EMPLOYMENT OF PROFESSIONALS.
1. REORGANIZATION AND OTHER PROFESSIONALS
EMPLOYED PURSUANT TO BANKRUPTCY CODE
SECTION 327.
Pursuant to section 327 of the Bankruptcy Code, a debtor in
possession or creditors' committee may employ, after notice and a hearing,
attorneys, financial advisors, and other professionals at the expense of the
bankruptcy estate. The Debtors and the Creditors' Committee have employed the
following professionals in the Chapter 11 Cases with the Bankruptcy Court's
approval:
- ------------------------------------------------------------------------------------------------------------------
EMPLOYED PROFESSIONALS
- ------------------------------------------------------------------------------------------------------------------
DATE
PROFESSIONAL SCOPE OF REPRESENTATION APPROVED
- ------------------------------------------------------------------------------------------------------------------
Morris, Nichols, Arsht & Tunnell Bankruptcy Counsel to the Debtors 11/15/2002
- ------------------------------------------------------------------------------------------------------------------
Rayburn, Cooper & Durham, P.A. Bankruptcy Counsel to the Debtors 11/15/2002
- ------------------------------------------------------------------------------------------------------------------
22
- ------------------------------------------------------------------------------------------------------------------
Hunton & Williams Special Counsel to the Debtors 11/15/2002
- ------------------------------------------------------------------------------------------------------------------
Kennedy Covington Lobdell & Hickman Special Counsel to the Debtors 11/15/2002
L.L.P.
- ------------------------------------------------------------------------------------------------------------------
FTI Consulting, Inc. Restructuring Advisors for the Debtors 11/15/2002
- ------------------------------------------------------------------------------------------------------------------
PricewaterhouseCoopers LLP Accountants for the Debtors 11/15/2002
- ------------------------------------------------------------------------------------------------------------------
Akin Gump Strauss Hauer & Feld LLP Counsel to the Creditors' Committee 12/02/2002
- ------------------------------------------------------------------------------------------------------------------
McCarter & English, LLP Counsel to the Creditors' Committee 12/02/2002
- ------------------------------------------------------------------------------------------------------------------
Deloitte & Touche LLP Financial Advisors for the Creditors' 12/04/2002
Committee
- ------------------------------------------------------------------------------------------------------------------
Prime Locations, LLC Real Estate Consultants for the Debtors
- ------------------------------------------------------------------------------------------------------------------
The Core Network Real Estate Consultants for the Debtors
- ------------------------------------------------------------------------------------------------------------------
Pursuant to Final Orders, each of the professionals employed
at the expense of the Debtors' Estates are able to file monthly fee applications
seeking reimbursement for all of the fees and expenses incurred during the
applicable month. If no objection to a fee application is received on or before
the applicable objection deadline, the Debtors are permitted to make payment of
the fees and expenses incurred by the relevant professional. The Bankruptcy
Court may schedule a hearing to determine whether payment of the fees and the
expenses incurred is appropriate. All fees and expenses paid to professionals
are subject to final review and allowance, after notice and a hearing, in
accordance with Bankruptcy Code section 330.
2. ORDINARY COURSE PROFESSIONALS.
Additionally, on December 18, 2002, the Bankruptcy Court
entered a Final Order [Docket No. 271] permitting the Debtors to employ
professionals utilized in the ordinary course of business.
F. POSTPETITION DEBTOR-IN-POSSESSION FINANCING AND USE
OF CASH COLLATERAL.
Pursuant to a Final Order [Docket No. 328] entered on
December 31, 2002, the Bankruptcy Court approved debtor-in-possession financing
in the amount of $215 million from Greenwich. This facility provides needed
liquidity and expands the borrowing base by including in it certain financial
assets created by OAC in servicing the REMIC Trusts.
G. RESTRUCTURING THE DEBTORS' SERVICING FEES ON RICS.
As previously discussed, prior to the Petition Date, the
Debtors were not receiving material servicing fee income as those fees were
subordinate to, and being consumed by, credit losses. As their annual servicing
costs were substantial--approximately $30 million--the Debtors needed to modify
these arrangements in order to sustain their servicing operations. As a result,
the Debtors sought to maintain their servicing operations while moving the
payment of servicing fees to a priority position [Docket Number 21].
23
H. CREATION OF ALTERNATE WAREHOUSE TRUST.
Pursuant to a Final Order [Docket No. 473] entered on January
23, 2003, the Bankruptcy Court granted the Debtors the authority to sell RICs to
a limited purpose trust owned by an indirect downstream affiliate of OAC. This
loan warehousing arrangement provides interim funding for RICs generated by OAC
and is structured to preserve the Debtors' access to the securitization markets
and other potential financing sources.
I. FILING OF SCHEDULE OF ASSETS AND LIABILITIES AND
STATEMENT OF AFFAIRS.
Sections 521(1) and 1106(a)(2) of the Bankruptcy Code and
Bankruptcy Rule 1007 require the Debtors to file a schedule of assets and
liabilities and statement of financial affairs, which contain information
regarding the Debtor's assets, liabilities, income, and other matters. The
Debtors, individually, filed their Schedules of Assets and Liabilities and
Statements of Financial Affairs on January 31, 2003.
J. ACTIONS IMPLEMENTED TO RESTRUCTURE THE DEBTORS'
BUSINESS OPERATIONS.
Leading up to and subsequent to the Petition Date, the Debtors
and their professionals have evaluated the Debtors' operations and financial
condition in order to develop and implement a reorganization strategy that will
enable the Debtors to emerge from chapter 11 as a profitable enterprise. Going
forward, the Debtors are focused on enhancing the profitability of all their
operations.
On October 4, 2002, the Debtors announced the closing of forty
retail sales centers. These closures continued a downsizing from a peak of 412
retail sales centers that began in 1999. At or around the same time, the Debtors
idled or closed a number of manufacturing facilities, reducing the number of
active plants to nineteen from a peak of thirty-two in 1999. Historically, the
Debtors operated the plants to support the demand of both their captive retail
centers and the independent retailer base. From the middle of 1999 until the end
of fiscal 2002, the Debtors operated the plants at a reduced level in order to
reduce inventory to reflect lower demand.
Pursuant to the operational restructuring plan implemented on
the Petition Date, the Debtors announced the closing of seventy-five additional
retail sales centers in eighteen states and the closing of fourteen additional
manufacturing facilities. The Debtors have hired two real-estate firms to
dispose of the properties and leases related to the closings. With the
completion of these closings expected by Spring 2003, the Debtors have turned
their focus to those regions that hold the most promise for the Debtors'
long-term success.
The implementation of the Debtors' operational restructuring
plan is ongoing and entails the following: (a) the closing of most, if not all,
retail sales centers that have demonstrated consistently poor operating
performance, poor credit performance and high incidence of customer litigation,
as well as the manufacturing facilities that supply these stores; (b) the review
of remaining retail sales centers on a store-by-store basis followed by the
closing of those stores that consistently generate poor operating results or are
located in areas that will be negatively
24
impacted by tightening credit standards; (c) the adjustment of manufacturing
capacity to a level commensurate with expected future sales and the closing of
plants with marginal current sales levels and the potential to become
unprofitable following the closing of certain retail sales centers; (d) the
closing of one loan origination location in Austin, Texas; (e) a significant
reduction in the number of employees; and (f) a reduction of corporate overhead
commensurate with a downsized company.
K. CLAIMS BAR DATE AND ANALYSIS.
Pursuant to the Bar Date Order, the Bankruptcy Court
established a general claims bar date in the Debtors' Chapter 11 Cases of March
27, 2003. The Debtors also have scheduled certain Claims with respect to which
no proofs of Claim have been filed. The Debtors believe that the total amount of
Allowed Claims against their respective estates will be significantly lower than
the amount asserted. Because of the large number of proofs of Claim filed, the
complexity of many of these Claims, and the fact that many of the Claims are
disputed and/or unliquidated, the Debtors will not have completed their analysis
of all Claims prior to the Plan's Effective Date.
THE DEBTORS RESERVE ALL RIGHTS AND DEFENSES WITH RESPECT TO
THE ALLOWANCE OR DISALLOWANCE OF ANY CLAIM NOT PREVIOUSLY ALLOWED BY A FINAL
ORDER OF THE BANKRUPTCY COURT OR PURSUANT TO THE TERMS OF THE PLAN, AND FURTHER
WITH RESPECT TO THE SECURED OR PRIORITY STATUS THEREOF.
V. SUBSTANTIVE CONSOLIDATION.
A. SUBSTANTIVE CONSOLIDATION FOR PURPOSES OF THE PLAN.
Substantive consolidation is an equitable remedy which a
bankruptcy court may be asked to apply in certain chapter 11 cases involving
affiliated debtors. As contrasted with procedural consolidation,(3) substantive
consolidation may affect the substantive rights and obligations of creditors and
debtors. Substantive consolidation involves the pooling and merging of the
assets and liabilities of the affected debtors; all of the debtors in the
substantively consolidated group are treated as if they were a single
corporate/economic entity. Consequently, a creditor of one of the substantively
consolidated debtors is treated as a creditor of the substantively consolidated
group of debtors and issues of individual corporate ownership of property and
individual corporate liability on obligations are ignored. However, substantive
consolidation does not affect the debtors' separate corporate existence or
independent ownership of property for any purposes other than for making
distributions of property under a plan of reorganization or otherwise as
necessary to implement such plan.
- ------------------------
(3) Procedural consolidation is the administrative process (contemplated
by Bankruptcy Rule 1015(b)) whereby the proceedings of two or more
affiliated debtors are conducted as part of a single proceeding for the
convenience of the bankruptcy court and parties in interest. Procedural
consolidation does not affect the substantive rights of the debtors or
their respective creditors and interest holders.
25
Entry of the Confirmation Order will constitute the approval,
pursuant to section 105(a) of the Bankruptcy Code, effective as of the Effective
Date, of the substantive consolidation of the Debtors for all purposes related
to the Plan including, without limitation, for purposes of voting, confirmation
and distribution. For purposes of distributions on account of Allowed Claims,
the Debtors will be considered to be a single legal entity. This substantive
consolidation has three major effects. First, it eliminates Intercompany Claims
and Debtor-Held Interests from the treatment scheme. Second, it eliminates
guarantees of the obligations of one Debtor by another Debtor. Finally, each
Claim filed against any of the Debtors will be considered to be a single Claim
against the consolidated Debtors.
B. THE SUBSTANTIVE CONSOLIDATION OF THE DEBTORS'
ESTATES.
The Plan contemplates and is predicated upon entry of the
Substantive Consolidation Order, which shall effect the substantive
consolidation of the Chapter 11 Cases into a single Chapter 11 Case solely for
the purposes of all actions associated with confirmation and consummation of the
Plan. Pursuant to the Substantive Consolidation Order, on the Confirmation Date
or such other date as my be set by a final order of the Court, but subject to
the occurrence of the Effective Date: (a) all Intercompany Claims shall be
eliminated; (b) all assets and liabilities of the Debtors shall be merged or
treated as though they were merged; (c) all prepetition and postpetition
cross-corporate guarantees of the Debtors shall be eliminated; (d) all Claims
based upon guarantees of collection, payment or performance made by one or more
Debtors as to the obligations of another Debtor or of any other Person shall be
discharged, released and of no further force and effect; (e) any obligation of
any Debtor and all guarantees thereof executed by one or more of the Debtors
shall be deemed to be one obligation of Reorganized Oakwood; (f) any Claims
filed or to be filed in connection with any such obligation and such guarantees
shall be deemed one Claim against Reorganized Oakwood; and (g) each and every
Claim filed in the individual Chapter 11 Case of any of the Debtors shall be
deemed filed against Reorganized Oakwood in the consolidated Chapter 11 Cases
and shall be deemed a single obligation of Reorganized Oakwood under the Plan on
and after the Confirmation Date.
C. ORDER GRANTING SUBSTANTIVE CONSOLIDATION.
Unless substantive consolidation has been approved by a prior
order of the Bankruptcy Court, the Plan shall serve as a motion seeking entry of
an order substantively consolidating the Chapter 11 Cases. Unless an objection
to substantive consolidation is made in writing by any creditor affected by the
Plan as provided in the Plan on or before the Ballot Deadline, or such other
date as may be fixed by the Bankruptcy Court, the Substantive Consolidation
Order (which may be the Confirmation Order) may be entered by the Bankruptcy
Court. In the event any such objections are timely filed, a hearing with respect
thereto shall be scheduled by the Bankruptcy Court, which hearing may, but need
not, coincide with the Confirmation Hearing.
26
VI. THE PLAN OF REORGANIZATION.
Attached hereto as Exhibit A, in its entirety, is the Joint
Consolidated Plan Of Reorganization Of Oakwood Homes Corporation And Its
Affiliated Debtors And Debtors-In-Possession, which is fully incorporated herein
and shall be considered a portion of this Disclosure Statement. HOLDERS OF
CLAIMS AND INTERESTS AND OTHER INTERESTED PARTIES MUST READ THE PLAN IN ITS
ENTIRETY TO MAKE AN INFORMED JUDGMENT CONCERNING THE PLAN.
VII. FINANCIAL PROJECTIONS.
Attached hereto as Exhibit [__] are financial projections of
the consolidated Debtors containing: (a) a projected income statement; (b) a
projected balance sheet; and (c) a projected cash flow statement (together, the
"Projections"). All of the Projections are presented on a consolidated basis for
the Debtors, and all projected financial information (x) on a quarterly basis
for [____], and (y) on an annual basis for years [____] through [____].
The Projections have been prepared by or under the direction
of the Debtors' management and have not been audited. The Projections present,
to the best of the Debtors' management's current belief, the expected financial
results for the periods projected, subject to the various assumptions set forth
therein. Readers are urged to review carefully all of the notes and assumptions
included in the Projections and to consult with their own financial, legal, and
tax advisors regarding the same.
THE PROJECTIONS ARE BASED UPON A VARIETY OF ESTIMATES AND
ASSUMPTIONS, WHICH THOUGH CONSIDERED REASONABLE BY THE DEBTORS AT THE TIME THEY
WERE PREPARED, MAY NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT
BUSINESS, ECONOMIC, REGULATORY, LEGISLATIVE, AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE DEBTORS' CONTROL. THE DEBTORS
CAUTION THAT NO REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF THE
PROJECTIONS OR THE REORGANIZED DEBTORS' ABILITY TO ACHIEVE THE PROJECTED
RESULTS. SOME ASSUMPTIONS WILL INEVITABLY NOT MATERIALIZE, AND EVENTS AND
CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON WHICH THESE PROJECTIONS WERE
PREPARED, OR THAT WERE NOT THEN KNOWN TO THE DEBTORS, MAY BE MATERIALLY
DIFFERENT FROM THOSE ASSUMED. THE PROJECTIONS THEREFORE MAY NOT BE RELIED UPON
AS A GUARANTEE OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR.
INFORMATION INCLUDED IN THE PROJECTIONS CONTAINS FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD LOOKING
INFORMATION IS BASED ON INFORMATION AVAILABLE WHEN SUCH STATEMENTS ARE MADE AND
IS SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE
27
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE STATEMENTS.
THE DEBTORS DO NOT, AS A MATTER OF COURSE, PUBLISH THEIR
BUSINESS PLANS AND STRATEGIES OR PROJECTIONS OF THEIR ANTICIPATED FINANCIAL
POSITION OR RESULTS OF OPERATIONS. ACCORDINGLY, THE DEBTORS DO NOT INTEND TO,
AND DISCLAIM ANY OBLIGATION TO, FURNISH UPDATED BUSINESS PLANS OR PROJECTIONS AT
ANY TIME PRIOR TO OR AFTER THE EFFECTIVE DATE.
VIII. ADDITIONAL CONSIDERATIONS REGARDING RISK.
The following disclosures are not intended to be inclusive and
should be read in connection with the other disclosures contained in this
Disclosure Statement and the Exhibits hereto. You should consult your legal,
financial, and tax advisors regarding the risks associated with the Plan and the
distributions you may receive thereunder.
RISKS ASSOCIATED WITH CONCENTRATED OWNERSHIP OF THE NEW COMMON
STOCK AND NEW WARRANTS: If the Plan is confirmed, ownership of a substantial
number and percentage of shares of the New Common Stock will be concentrated
among a relatively small number of holders. Sales of or offers to sell a
substantial number of shares of New Common Stock, or the perception by
investors, investment professionals, and securities analysts of the possibility
of such sales, could affect adversely the market for and price of the New Common
Stock to be issued under the Plan.
LACK OF TRADING; MARKET VOLATILITY: There can be no assurance
that a market will develop for the New Common Stock issued pursuant to the Plan
(or for any other security issued pursuant to the Plan). Although the Debtors
will use reasonable efforts to cause the New Common Stock to be listed on a
national securities exchange, it is unlikely that initial listing requirements
will be satisfied on the Effective Date. Even if such securities are
subsequently listed, there is no assurance that an active market for such New
Common Stock will develop or, if any such market does develop, that it will
continue to exist, or as to the degree of price volatility in any such market
that does develop. Accordingly, no assurance can be given as to the liquidity of
the market for the New Common Stock or the price at which any sales may occur.
Finally, any creditor or stockholder who may be considered an "underwriter"
under section 1145(b) of the Bankruptcy Code may not be able to resell the New
Common Stock (or any other securities received under the Plan) without
registration under securities laws, except in certain "ordinary course"
transactions.
CERTAIN RISKS ASSOCIATED WITH THE CHAPTER 11 CASES: The
Debtors are parties to various material contractual arrangements under which the
commencement of transactions contemplated by the Plan could, subject to the
Debtors' rights and powers under sections 362 and 365 of the Bankruptcy Code:
(a) result in a breach, violation, default, or conflict; (b) give other parties
thereto rights of termination or cancellation; or (c) have other adverse
consequences on the operations of the Debtors or the Reorganized Debtors. The
magnitude of any such adverse consequences may depend upon, among other factors,
the diligence and vigor with which the
28
other parties to such contracts may seek to assert any such rights and pursue
any such remedies in respect to such matters, and the ability of the Debtors or
Reorganized Debtors to resolve such matters on acceptable terms through
negotiations with such other parties or otherwise.
RISKS RELATING TO THE PROJECTIONS: The Debtors have prepared
projections in connection with the development of the Plan and to present the
projected effects of the Plan and the projected results of operations following
the Effective Date of the Plan. These projections assume the Plan and
transactions contemplated thereby will be implemented in accordance with their
terms. The assumptions and estimates underlying such projections are inherently
uncertain and are subject to, among other factors, business, economic,
legislative, and competitive risks and uncertainties that could cause actual
results to differ materially from those projected. Such uncertainties and other
factors include approval by the Bankruptcy Court of the Plan and potential
objections of third parties. Accordingly, the projections herein are not
necessarily indicative of the future financial condition, results of operations,
or equity value of the Reorganized Debtors, which may vary materially from those
projections. Consequently, the projections contained herein should not be
regarded as a representation or guarantee by the Debtors, the Debtors' advisors,
or any other person that the projections herein can or will be achieved.
ASSUMPTIONS REGARDING VALUE OF DEBTORS' ASSETS: It has been
assumed in the preparation of the projections included in this Disclosure
Statement that the historical book value of the Debtors' assets generally
approximates the fair value thereof, except for specific adjustments discussed
in the notes thereto. For financial reporting purposes, the fair value of the
assets of the Debtors (including deferred tax assets) must be determined as of
the Effective Date. Although such valuation is not presently expected to result
in values that are materially different than the values assumed in the
preparation of the projections herein, there can be no assurance with respect
thereto.
LEVERAGE, LIQUIDITY, AND CAPITAL REQUIREMENTS: In addition to
Cash generated by operations, the Debtors' principal sources of liquidity
following their emergence from bankruptcy will be the proceeds of loan
dispositions, exit financing in amounts necessary to repay the debtor-in-
possession financing and Cash accumulated by the Debtors during the Chapter 11
Cases. After the Effective Date of the Plan, the Debtors expect that in addition
to working capital requirements, repayment of the Debtors' obligations under the
exit financing and any notes issued pursuant to the Plan will impose liquidity
requirements on the Debtors. Any increase in the interest rate pertaining to
this indebtedness may reduce the funds available to the Debtors for their future
operations. While the Debtors believe that they will have adequate liquidity to
meet requirements following the Effective Date of the Plan, no assurances can be
had in this regard. Any inability of the Debtors to service their indebtedness,
obtain additional financing, as needed, or comply with the financial covenants
contained in the debt instruments issued pursuant to the Plan could have a
material adverse effect on the Debtors.
CERTAIN RISKS OF NON-CONFIRMATION: There can be no assurance
that the requisite acceptances to confirm the Plan will be received. Even if the
requisite acceptances are received, there can be no assurance that the
Bankruptcy Court will confirm the Plan. A non-accepting Holder of Claims or
Interests might challenge the adequacy of the Disclosure Statement or the
29
balloting procedures and results as not being in compliance with the Bankruptcy
Code and/or Bankruptcy Rules. Even if the Bankruptcy Court were to determine
that the balloting procedures and results were appropriate, the Bankruptcy Court
could still decline to confirm the Plan if it were to find that any of the
statutory requirements for confirmation had not been met. Section 1129 of the
Bankruptcy Code sets forth the requirements for confirmation and requires, among
other things, a finding by the Bankruptcy Court that the confirmation of the
Plan is not likely to be followed by a liquidation or a need for further
financial reorganization and that the value of Distributions to non-accepting
Holders of Claims and Interests within a particular Class under the Plan will
not be less than the value of Distributions such Holders would receive if the
Debtors were liquidated under chapter 7 of the Bankruptcy Code. While there can
be no assurance that the Bankruptcy Court will conclude that these requirements
have been met, the Debtors believe that the Plan will not be followed by a need
for further financial reorganization and that non-accepting Holders within each
Class under the Plan will receive Distributions at least as great as would be
received following a liquidation pursuant to chapter 7 of the Bankruptcy Code
when taking into consideration all administrative expenses and costs associated
with any such chapter 7 case, as set forth further in the discussion of the
Liquidation Analysis in Section X of the Disclosure Statement.
The confirmation and consummation of the Plan are also subject
to certain conditions. If the Plan were not to be confirmed, it is unclear
whether the restructuring could be implemented and what distribution Holders of
Claims or Interests ultimately would receive with respect to their Claims or
Interests. If an alternative plan of reorganization could not be agreed to and
confirmed, it is possible that the Debtors would have to liquidate their assets,
in which case the Debtors believe that it is likely that Holders of Claims or
Interests would receive substantially less than the treatment they will receive
pursuant to the Plan.
RISING COST AND AVAILABILITY OF LABOR: There can be no
assurances that rising labor costs will not have a material adverse effect on
the Debtors in the future.
RISING COST AND AVAILABILITY OF SUPPLIERS AND RAW MATERIALS:
There can be no assurances that rising supplier and raw material costs will not
have a material adverse effect on the Debtors in the future.
HIGHLY COMPETITIVE INDUSTRY: There can be no assurance that
increased competition in the future will not adversely affect the Debtors'
financial condition and results of operations.
IX. CERTAIN TAX CONSEQUENCES OF THE PLAN.
The implementation of the Plan may have federal, state and
local tax consequences to the Debtors and the Debtors' creditors and
stockholders. At the present time, no tax opinion has been sought or is expected
to be sought or obtained with respect to any tax consequences of the Plan. This
Disclosure Statement does not constitute and is not intended to constitute
either a tax opinion or tax advice to any Person and is provided for
informational purposes only.
30
HOLDERS OF CLAIMS AND INTERESTS ARE ADVISED TO CONSULT WITH
THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM AND TO DEBTORS OF
THE TRANSACTIONS CONTEMPLATED BY THE PLAN, INCLUDING FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES.
X. CONFIRMATION PROCEDURES.
PERSONS CONCERNED WITH CONFIRMATION OF THE PLAN SHOULD CONSULT
WITH THEIR OWN ATTORNEYS BECAUSE THE LAW ON CONFIRMING A PLAN OF REORGANIZATION
IS VERY COMPLEX. The following discussion is intended solely for the purpose of
alerting readers about certain basic Plan confirmation issues, which they may
with to consider. The Debtors CANNOT and DO NOT represent that the discussion
contained below is a comprehensive summary of the law on this topic.
Many requirements must be met before the Bankruptcy Court can
confirm the Plan. Some of the requirements discussed in this Disclosure
Statement include acceptance of the Plan by the Voting Classes, whether the Plan
can be confirmed even if one or more classes do not accept the Plan, whether the
Plan pays creditors at least as much as creditors would receive in a Chapter 7
liquidation, and whether the Plan is feasible. These requirements, however, are
not the only requirements for confirmation.
A. VOTING AND RIGHT TO BE HEARD AT CONFIRMATION.
1. WHO MAY SUPPORT OR OBJECT TO CONFIRMATION OF
THE PLAN.
Any party in interest may support or object to the
confirmation of the Plan. As explained in further detail below, entities that
may not have a right to vote (e.g., entities whose Claims or Interests belong to
an Unimpaired Class or to a Class that will receive no Distribution under the
Plan) may still have a right to support or object to the confirmation of the
Plan.
2. WHO MAY VOTE TO ACCEPT OR REJECT THE PLAN.
A creditor generally has a right to vote for or against the
Plan if that creditor has a Claim that is both "allowed" for purposes of voting
and classified in an Impaired Class. Notwithstanding the foregoing, under
section 1126(g) of the Bankruptcy Code, impaired classes that will neither
receive nor retain any consideration under a plan are deemed to have rejected
the plan and do not vote.
Under the Plan, holders of Allowed Claims in Classes 2G, 3,
4A, 4B, 4C, 4D, 4E and 6A (the "Voting Classes") are entitled to vote on the
Plan. Holders of Claims in Classes 1, 2A, 2B, 2C, 2D, 2E, 2F, 2H, 2I, 2J, 2K and
2L are Unimpaired and deemed to have accepted the Plan. Holders of Claims and
Interests in Classes 5 and 6B are Insiders whose Claims or Interests
31
will be substantively consolidated pursuant to the Substantive Consolidation
Order and are not entitled to vote on the Plan.
3. WHAT IS AN ALLOWED CLAIM FOR VOTING
PURPOSES.
As noted above, a creditor's Claim must be "allowed" for
purposes of voting in order for such creditor to have the right to vote.
Generally, for voting purposes a Claim is deemed "allowed," absent an objection
to the Claim, if: (a) a proof of Claim was timely filed, or (b) if no proof of
Claim was filed, the Claim is identified in the Debtors' Schedule of Assets and
Liabilities as other than "disputed," "contingent," or "unliquidated," and an
amount of the Claim is specified in the Schedules of Assets and Liabilities, in
which case the Claim will be deemed allowed for the specified amount. In either
case, when an objection to a Claim is filed, the creditor holding the Claim
cannot vote unless the Bankruptcy Court, after notice and hearing, either
overrules the objection, or allows the Claim for voting purposes. Moreover,
Bankruptcy Rule 3018(a) provides that, with respect to Holders of Senior Notes,
Junior Notes, B-Piece Certificates and Old Common Stock, such Holders must be of
record on the date that the Disclosure Statement is approved under section 1125
of the Bankruptcy Code in order to vote on the Plan.
Note that the definition of "Allowed Claim" used in the Plan
for purposes of determining whether creditors are entitled to receive
Distributions thereunder may differ materially from that used by the Bankruptcy
Court to determine whether a particular Claim is "allowed" for purposes of
voting. Holders of Claims are advised to review the definitions of "Allowed
Claim" and "Disputed Claim" in the Plan to determine whether they may be
entitled to receive distributions under the Plan.
4. WHAT IS AN IMPAIRED CLASS OF CLAIMS OR
INTERESTS.
As noted above, a Claim or Interest that is "allowed" for
voting purposes only has the right to vote if it is in a Class that is Impaired
under the Plan and if that Class will receive or retain any consideration under
the Plan. A Class is Impaired if the Plan alters the legal, equitable, or
contractual rights of the Holders of Claims or Interests of that Class. As
noted, under the Plan, all Classes are Impaired except Classes 1, 2A, 2B, 2C,
2D, 2E, 2F, 2H, 2I, 2J, 2K and 2L.
5. WHO IS NOT ENTITLED TO VOTE.
The holders of the following types of Claims are not entitled
to vote: (a) Claims that have been disallowed; (b) Claims that are subject to a
pending objection and that have not been allowed for voting purposes; (c) Claims
in Unimpaired Classes; (d) Claims entitled to priority pursuant to sections
507(a)(1), 507(a)(2), and 507(a)(7) of the Bankruptcy Code; and (e) Claims in
Classes that do not receive or retain any property under the Plan. Holders of
Claims and Interests in Unimpaired Classes are not entitled to vote because such
Classes are deemed to have accepted the Plan. Holders of Claims entitled to
priority pursuant to sections 507(a)(1), 507(a)(2), and 507(a)(7) of the
Bankruptcy Code are not entitled to vote because such Claims are not placed in
Classes and they are required to receive certain treatment specified by the
32
Bankruptcy Code. Claims and Interests in Classes that do not receive or retain
any property under the Plan do not vote because such Classes are deemed to have
rejected the Plan. Even if your Claim or Interest is of the type described
above, you may still have a right to support or object to the confirmation of
the Plan.
6. VOTES NECESSARY TO CONFIRM THE PLAN.
The Court cannot confirm the Plan unless: (a) at least one
Impaired Class has accepted the Plan without counting the votes of any Insiders
within that Class; and (b) either all Impaired Classes have voted to accept the
Plan, or the Plan is eligible to be confirmed by "cramdown" with respect to any
dissenting Impaired Class as discussed in section 1129(b) of the Bankruptcy
Code.
7. VOTES NECESSARY FOR A CLASS TO ACCEPT THE
PLAN.
A Class of Claims is considered to have accepted the Plan when
more than one-half (1/2) in number and at least two-thirds (2/3) in dollar
amount of the Claims that actually voted have voted in favor of the Plan.
8. TREATMENT OF NON-ACCEPTING CLASSES.
As noted above, even if all Impaired Classes do not accept the
proposed Plan, the Bankruptcy Court may nonetheless confirm the Plan if the
non-accepting Classes are treated in the manner required by the Bankruptcy Code.
The process by which a Plan is confirmed despite rejections by non-accepting
Classes and made binding on those Classes is commonly referred to as a
"cramdown." The Bankruptcy Code allows the Plan to be "crammed down" on
non-accepting Classes of Claims or Interests if the Plan meets the requirements
of section 1129(a)(1) through (a)(7) and 1129(a)(9) through (a)(13) of the
Bankruptcy Code and if the Plan does not "discriminate unfairly" and is "fair
and equitable" with respect to non-accepting Classes as those terms are defined
in section 1129(b) of the Bankruptcy Code section.
9. REQUEST FOR CONFIRMATION DESPITE NON-
ACCEPTANCE BY IMPAIRED CLASSES.
The Debtors have asked the Bankruptcy Court to confirm this
Plan by cramdown on any Classes that are deemed to have rejected the Plan and
on any Impaired Voting Class that does not vote to accept the Plan.
B. HYPOTHETICAL LIQUIDATION ANALYSIS.
Another confirmation requirement is the "Best Interest Test"
or "Hypothetical Liquidation Test" incorporated in section 1129(a)(7) of the
Bankruptcy Code. The test applies to individual Holders of Unsecured Claims and
Holders of Interests that are both (i) in Impaired Classes under the Plan, and
(ii) do not vote to accept the Plan. Section 1129(a)(7) of the Bankruptcy Code
requires that such Holders of Unsecured Claims and Holders of Interests receive
or retain an amount under the Plan not less than the amount that such Holders
would receive or retain if the Debtors were to be liquidated under chapter 7 of
the Bankruptcy Code.
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The Debtors do not intend that their Chapter 11 Cases actually
will be converted to chapter 7 liquidations. However, in order to apply the Best
Interest Test, the Debtors have prepared a hypothetical liquidation analysis
attached hereto as Exhibit [___]. The hypothetical liquidation analysis projects
an estimate of what Holders of Unsecured Claims and Holders of Interests might
receive in the event the Debtors' Chapter 11 Cases were to be converted to
chapter 7 cases and the Debtors' assets subsequently liquidated. THE DEBTORS'
HYPOTHETICAL LIQUIDATION ANALYSIS IS BASED UPON ASSUMPTIONS THAT THE DEBTORS
BELIEVE TO BE REASONABLE BASED UPON THE BEST INFORMATION AVAILABLE TO THEM.
HOWEVER, THERE ARE NUMEROUS ECONOMIC, LEGAL, OPERATIONAL, AND OTHER
UNCERTAINTIES THAT COULD DRAMATICALLY CHANGE THE RESULTS IN AN ACTUAL
LIQUIDATION. MOREOVER, BECAUSE THE BUSINESSES IN WHICH THE DEBTORS' OPERATE ARE
HIGHLY REGULATED, THERE MAY BE SIGNIFICANT REGULATORY CONSEQUENCES AND
RESTRICTIONS IN A LIQUIDATION THAT CANNOT BE PREDICTED WITH ANY CERTAINTY. THUS,
THERE CAN BE NO GUARANTY THAT AN ACTUAL LIQUIDATION OF THE DEBTORS WOULD RESULT
IN THE PROJECTED RECOVERIES FOR HOLDERS OF UNSECURED CLAIMS AND HOLDERS OF
INTERESTS.
In a typical chapter 7 case, a trustee is elected or appointed
to liquidate the debtor's assets for distribution to creditors in accordance
with the priorities set forth in the Bankruptcy Code. Secured creditors
generally are paid first from the sales proceeds of properties securing their
liens. If any assets are remaining in the bankruptcy estates after the
satisfaction of secured creditors' claims from their collateral, administrative
expenses generally are next to receive payment. Unsecured creditors are paid
from any remaining sales proceeds, according to their respective priorities.
Unsecured creditors with the same priority share in proportion to the amount of
their allowed claims in relationship to the total amount of allowed claims held
by all unsecured creditors with the same priority. Finally, equity interest
holders receive the balance that remains, if any, after all creditors are paid.
The hypothetical liquidation analysis included in Exhibit
[___] to this Disclosure Statement projects that Holders of Unsecured Claims and
Holders of Interests would receive no consideration whatsoever in the event the
Debtors were to be liquidated under chapter 7 of the Bankruptcy Code. Moreover,
it is projected that Holders of Administrative Claims, Holders of Priority
Non-Tax Claims, and most Holders of Secured Claims would receive far less than
payment in full, or no consideration at all. By contrast, under the Plan,
Holders of Priority Non-Tax Claims will receive payment in full, and Most
Holders of Unsecured Claims will receive Distributions of New Common Stock or
Cash. Thus, the Debtors believe that all creditors will receive at least as
favorable treatment under the Plan as they would in a hypothetical liquidation,
and in fact, most creditors will receive far better treatment under the Plan.
Holders of Old Common Stock will receive New Warrants under either the Plan or
in a hypothetical liquidation, and thus would not be better off in a
liquidation.
C. FEASIBILITY.
The Bankruptcy Code requires that, in order for the Plan to be
confirmed, the Debtors must demonstrate that consummation of the Plan is not
likely to be followed by the liquidation or the need for further financial
reorganization of the Debtors.
34
For purposes of determining whether the Plan meets the
feasibility requirement, the Debtors have analyzed their ability to meet their
obligations under the Plan. Based upon the Projections set forth in Exhibit
[___] hereto, which show continued availability under the Debtors' revolving
line of credit and net operating income in years [___] through [___], the
Debtors believe that the Plan is feasible and that they will be able to make all
payments required to be made pursuant to the Plan. HOLDERS OF CLAIMS AND
INTERESTS ARE ADVISED TO REVIEW CAREFULLY THE CAUTIONARY STATEMENTS INCLUDED IN
SECTION I OF THIS DISCLOSURE STATEMENT AND THE ASSUMPTIONS INCLUDED IN THE
PROJECTIONS IN CONNECTION WITH THEIR REVIEW OF THE SAME. AS NOTE THEREIN, ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED.
D. ALTERNATIVES TO THE PLAN.
If the Plan is not confirmed, in which case the Debtors
default under the terms of the Final DIP Agreement, the Debtors (or if the
Debtors' exclusive period in which to file a plan has expired, any other party
in interest) could attempt to formulate a different plan. Such a plan might
involve a sale or an orderly liquidation of the Debtors assets. The Debtors have
explored various alternatives in connection with the formulation and development
of the Plan. They believe that the Plan, as described herein, enables creditors
to realize the most value under the circumstances. In a liquidation under
chapter 11, the Debtors' assets could be sold in an orderly fashion over a more
extended period of time than in a liquidation under chapter 7, possibly
resulting in somewhat greater (but indeterminate) recoveries than would be
obtained in a chapter 7 case, and the expenses for professional fees would most
likely be lower than those incurred in a chapter 7 case. Although preferable to
a chapter 7 liquidation, the Debtors believe that a liquidation under chapter 11
is a much less attractive alternative to creditors than the Plan because of the
greater returns potentially provided by the Plan.
The likely form of any liquidation would be the sale of
individual assets. Based on this analysis, it is likely that a liquidation of
the Debtors' assets would produce less value for distribution to creditors than
that recoverable in each instance under the Plan. In the opinion of the Debtors,
the recoveries projected to be available in liquidation are not likely to afford
Holders of Claims as great a realization potential as does the Plan.
XI. RECOMMENDATION AND CONCLUSION.
The Debtors believe that confirmation and implementation of
the Plan are preferable to any of the feasible alternatives because the Plan
will provide substantially greater recoveries for creditors. ACCORDINGLY, THE
DEBTORS URGE HOLDERS OF IMPAIRED CLAIMS TO VOTE TO ACCEPT THE PLAN BY SO
INDICATING ON THEIR BALLOTS AND RETURNING THEM AS SPECIFIED IN THIS DISCLOSURE
STATEMENT AND ON THE BALLOTS.
35
Dated: February 18, 2003 NEW DIMENSION HOMES, INC.
Wilmington, Delaware
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
DREAM STREET COMPANY, LLC
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
OAKWOOD SHARED SERVICES, LLC
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
HBOS MANUFACTURING, LP
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
OAKWOOD MHD4, LLC
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
36
OAKWOOD ACCEPTANCE CORPORATION, LLC
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
OAKWOOD HOMES CORPORATION
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Executive Vice President
OAKWOOD MOBILE HOMES, INC.
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
SURBURBAN HOME SALES, INC.
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
FSI FINANCIAL SERVICES, INC.
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
37
HOME SERVICE CONTRACT, INC.
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
TRI-STATE INSURANCE AGENCY, INC.
By: /s/ Robert A. Smith
----------------------------------------
Name: Robert A. Smith
Title: Vice President
GOLDEN WEST LEASING, LLC
By: /s/ Randelle R. Smith
----------------------------------------
Name: Randelle R. Smith
Title: Asst. Treasurer
CREST CAPITAL, LLC
By: /s/ Randelle R. Smith
----------------------------------------
Name: Randelle R. Smith
Title: Asst. Treasurer
PREFERRED HOUSING SERVICES, LP
By: Oakwood Mobile Homes, Inc.,
Its general partner
By: /s/ Robert A. Smith
------------------------------------
Name: Robert A. Smith
Title: Vice President
-and-
38
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ Gregory T. Donilon
-----------------------------------------
Robert J. Dehney (No. 3578)
Derek C. Abbott (No. 3376)
Gregory T. Donilon (No. 4244)
Daniel B. Butz (No. 4227)
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
(302) 658-9200
- and -
RAYBURN COOPER & DURHAM, P.A.
C. Richard Rayburn, Jr.
Albert F. Durham
Patricia B. Edmondson
1200 Carillon, 227 West Trade Street
Charlotte, North Carolina 28202-1675
(704) 334-0891
39