EXHIBIT 99.2
NOTICE: THIS IS NOT A SOLICITATION OF ACCEPTANCES OF THE PLAN. 11 U.S.C.
SS. 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. SS. 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: SEPTEMBER 19, 2003 @ 4:00 P.M.
) HEARING DATE: SEPTEMBER 26, 2003 @ 2:30 P.M.
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[PROPOSED] DISCLOSURE STATEMENT FOR REVISED FIRST AMENDED JOINT
CONSOLIDATED PLAN OF REORGANIZATION OF OAKWOOD HOMES CORPORATION
AND ITS AFFILIATED DEBTORS AND DEBTORS-IN-POSSESSION
Dated: September 9, 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
Daniel B. Butz (No. 4227) Patricia B. Edmondson
1201 North Market Street, P.O. Box 1347 1200 Carillon, 227 West Trade Street
Wilmington, Delaware 19899-1347 Charlotte, North Carolina 28202-1675
(302) 658-9200 (704) 334-0891
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,
And Other Important Deadlines. 6
1. Time And Place Of The Confirmation Hearing. 6
2. Entities Entitled To Vote On The Plan. 6
3. Deadline For Voting For Or Against The Plan. 7
4. Deadline For Objecting To Confirmation Of The Plan. 7
5. Deadlines For Parties To Executory Contracts And
Unexpired Leases To Assert Damage Claims And To
Object To The Terms Of Assumption. 8
6. Administrative Claims Bar Date. 8
7. Fee Claims Bar Date. 9
8. Unsecured Claims Bar Date. 9
9. Materials To Be Filed In Support Of Confirmation. 10
10. Information Regarding The Plan. 10
11. Effective Date Of The Plan. 10
D. Important Notice and Cautionary Statement. 10
II. DESCRIPTION OF THE DEBTORS, THEIR BUSINESS OPERATIONS, AND THEIR
FINANCIAL CONDITION. 12
A. General. 12
B. Manufactured Homes. 12
C. Retail Home Sales. 13
D. Retail Financing and Servicing. 14
E. Independent Dealer Retail Sales Financing. 15
F. Independent Retailer Repurchase Obligations. 15
G. Insurance. 15
H. Competition. 15
I. Regulation. 16
III. PREPETITION DEBT AND EQUITY STRUCTURE OF THE DEBTORS. 17
A. Description of Prepetition Debt Structure of Debtors. 17
1. Foothill Prepetition Bank Facility. 17
2. Senior Notes. 17
3. Junior Notes. 17
4. Industrial Revenue Bonds For Plants In Kosciusko
County, And Elkhart County, Indiana. 18
5. Other Secured Debt. 18
6. REMIC Guarantees. 18
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
1. Reorganization And Other Professionals Employed
Pursuant To Bankruptcy Code Section 327. 22
2. Ordinary Course Professionals. 23
ii
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. Senior Management Retention Plan. 25
L. Claims Bar Date And Analysis. 26
M. Filing Of The First Plan and Disclosure Statement. 26
N. Extension of the DIP Financing. 26
O. Alternatives and Exit Financing. 26
V. SUBSTANTIVE CONSOLIDATION. 27
A. Substantive Consolidation for Purposes of the Plan. 27
B. The Substantive Consolidation of the Debtors' Estates. 28
C. Order Granting Substantive Consolidation. 28
VI. THE PLAN OF REORGANIZATION. 28
VII. FINANCIAL PROJECTIONS. 29
VIII. ADDITIONAL CONSIDERATIONS REGARDING RISK. 30
IX. CERTAIN TAX CONSEQUENCES OF THE PLAN. 32
A. General. 32
B. Federal Income Tax Consequences to the Debtors. 33
1. Cancellation of Indebtedness Income. 33
2. IRC Section 382 - Limitations on NOL
Carryforwards. 34
3. Net Unrealized Built-in Loss or Gain. 35
iii
4. Alternative Minimum Tax. 36
C. Federal Income Tax Consequences to Holders of Claims. 36
1. Accrued Interest. 37
2. Market Discount. 37
3. Holders of Class Four Claims. 37
D. Federal Income Tax Consequences to Holders of Non-Debtor-Held
Interests [Class 6A]. 38
E. Information Reporting and Backup Withholding. 39
X. CONFIRMATION PROCEDURES. 39
A. Voting And Right To Be Heard At Confirmation. 39
1. Who May Support Or Object To Confirmation Of The
Plan. 39
2. Who May Vote To Accept Or Reject The Plan. 40
3. What Is An Allowed Claim For Voting Purposes. 40
4. What Is An Impaired Class Of Claims Or Interests. 40
5. Who Is Not Entitled To Vote. 41
6. Votes Necessary To Confirm The Plan. 41
7. Votes Necessary For A Class To Accept The Plan. 41
8. Treatment Of Non-Accepting Classes. 41
9. Request For Confirmation Despite Non-Acceptance
By Impaired Classes. 42
B. Hypothetical Liquidation Analysis. 42
C. Feasibility. 43
D. Alternatives To The Plan. 43
XI. RECOMMENDATION AND CONCLUSION. 44
iv
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 Cases2 by filing voluntary petitions in the Bankruptcy
Court on November 15, 2002.
The Debtors are joint proponents of the Revised First Amended
Joint Consolidated Plan of Reorganization of Oakwood Homes Corporation and Its
Affiliated Debtors and Debtors-in-Possession (the "Plan"), dated September 8,
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 on _________, 2003 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
describes your rights to be heard and vote with respect to the Plan.
THE FOLLOWING INFORMATION IS A SUMMARY ONLY AND DOES NOT FULLY
ADDRESS 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 and market manufactured
BUSINESSES: and modular homes. In addition, they arrange financing
for a portion of their retail sales and, as agent,
provide a variety of insurance products to customers.
The Debtors are among the major producers and retailers
of manufactured homes and historically have originated
consumer loans secured by the manufactured homes. 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 a recapitalization of the Debtors
through 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 Debtors'
PLAN: creditors will receive distributions of New Common Stock
in the Reorganized Debtors or other consideration on or
after the Plan's Effective Date under the
Recapitalization. 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.
3
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 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
consolidated 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 Junior Notes,
Senior 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, but not
limited to, Holders of Senior Note Claims, Holders of
Junior 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 classification and treatment of creditors' Claims and
CREDITORS' CLAIMS AND stockholders' Interests under the Plan. The descriptions
STOCKHOLDERS' INTERESTS in the Summary Table are only summaries and do not
UNDER THE PLAN: 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
- -------------------------------------------------------------------------------------------------------------------
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 Entitled to Vote
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
Class 2L Other Secured and Setoff Claims Unimpaired Not entitled to Vote;
Deemed to Accept
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
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 Holders of Claims
and Interests 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, 4D, 4E and 6A and those Holders who are the beneficial holders of
Allowed Claims in Classes 4A, 4B, and 4C (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 BSI. 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.
TO BE COUNTED, YOUR BALLOT (OR, IN THE CASE OF PUBLICLY HELD
INSTRUMENTS, THE MASTER BALLOT CAST ON YOUR BEHALF) INDICATING ACCEPTANCE OR
REJECTION OF THE PLAN MUST BE RETURNED IN ACCORDANCE WITH THE ACCOMPANYING
INSTRUCTIONS 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. ANY EXECUTED BALLOT THAT
DOES NOT INDICATE EITHER ACCEPTANCE OR REJECTION SHALL NOT BE COUNTED.
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 Holders of Claims or Interests 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, Esq.); (b) counsel for
the Committee (McCarter & English, 919 North Market Street, Suite 1800,
Wilmington, Delaware, 19899, attention: William F. Taylor, Jr., Esq.; and King &
Spalding LLP, 1185 Avenue of the Americas, New York, New York 10036, attention:
Robert J. Stark, Esq.); (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, Esq.; and Kirkland &
Ellis, 777 South Figueroa Street, Los Angeles, California, 90017, attention:
Bennet L. Spiegel, Esq.); and (d) 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 immediately before 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, which may be modified by the
Debtors up to ninety (90) days after the Effective Date, 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
8
services rendered, and personal injury claims); and (ii) all fees and charges
assessed against the 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) 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, without further approval by the Court.
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 have been filed with the
Claims Agent by the general claims bar date established by the Bankruptcy Court,
which was March 27, 2003. The Claims Agent is currently BSI.
9
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 date designated by the Debtors that
is after the date all of the conditions set forth in the Plan have been
satisfied or waived pursuant to the Plan; or (b) if a stay of the Confirmation
Order is in effect, on the date designated by the Debtors that is 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 (or such
later date as may reasonably be agreed by the Debtors and the Creditors'
Committee after the Debtors have issued notice of the Effective Date).
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
10
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.
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:
11
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 arranges financing for a portion of its
retail sales and 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 centers operated
by the Debtors located primarily in the southeastern and southwestern United
States and at wholesale to 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.
B. MANUFACTURED HOMES.
The Debtors manufacture a number of models of single-section
homes as well as 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(C)," "Schult(R),"
"Crest(C)," "Marlette(R)," "Freedom(C)" and as other private label homes.
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.
12
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, 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' 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. The Debtors' modular homes 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 plants located in North Carolina,
Indiana, Oregon, Pennsylvania, Arizona, California, Kansas and Minnesota. As
part of their restructuring efforts, the Debtors have closed a number of plants.
Certain of the closed plants are currently being marketed for sale, while others
have been sold. Currently, the Debtors are operating 14 plants.
The Debtors furnish to each purchaser of a new home
manufactured by the Debtors a limited warranty against defects in materials and
workmanship, excluding equipment and furnishings supplied by others, which are
frequently covered by the supplier's warranties.
C. RETAIL HOME SALES.
The Debtors operate their sales centers primarily under the
names Oakwood(R) Mobile Homes and Freedom Homes(C). Additionally, the Debtors
operated 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 all of the Factory Certified Homes locations, will be or are in the
process of being 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. The Debtors' sales
have traditionally been higher in the period from late spring through early fall
than in the winter months.
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.
13
The Debtors also sell their homes to independent retailers
located throughout the United States. Sales to independent retail dealers
accounted for approximately 70% of sales in fiscal 2003, 44% of sales in fiscal
2002, and 35% in fiscal 2001. The Debtors expect such sales to increase in the
future because this market channel is less capital intensive.
D. RETAIL FINANCING AND SERVICING.
Significant factors affecting sales of manufactured homes are
the availability and terms of financing. Through its finance subsidiary, the
Debtors financed approximately 72% of units sold by their captive retail
organization in 2002. During fiscal 2003, in an effort to maintain satisfactory
liquidity and improve loan performance, the Debtors sharply curtailed internal
financing and substantially raised credit standards for customers they were
willing to finance. As a result, the internal financing percentage has been
reduced drastically and is currently estimated to be less than 15% of homes sold
via the Debtors' own retail channel. The Debtors anticipate that this percentage
will decline further in fiscal 2004. The sales reductions caused by credit
tightening and the necessity to reduce internal financing have been reflected in
the Debtors' year to date operating results as well as their five year forecast.
The Debtors retain a security interest in all homes they
finance with loans documented as either retail installment sales contracts or
traditional mortgages (collectively, "RICs"). Debtor Oakwood Acceptance
Corporation, LLC ("OAC") funds its originations and purchases of RICs by
participating in public and private asset securitization transactions.
Securitization transactions historically have 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.
Interruptions in the public markets for these securitizations were a key reason
for management's decision to limit loan originations.
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 duties, the pooling and servicing
agreements require OAC to make P & I Advances to the securitization trusts. OAC
also is required to make recoverable advances to the trusts for taxes and
insurance to the extent not paid by an obligor of a RIC and to advance
liquidation expenses incurred in connection with the repossession of homes
collateralizing loans that default. Continuing to service securitized RICs with
the enhanced priority of their servicing fee in the securitization proceeds as
restructured pursuant to a Final Order of the Bankruptcy Court has substantial
independent economic value. As a result of the reduction in loan origination
volume, the size of the loan portfolio serviced by the Debtors will diminish,
which will result in reduced servicing income in future years.
Recent developments in the market for asset backed securities,
and particularly those involving manufactured housing loans, have caused the
Debtors to pursue other outlets for the sale of their loans. In March 2003, the
Debtors, through their non-Debtor special purpose affiliates, completed a whole
loan sale and are currently pursuing a whole loan sale to a different purchaser.
In addition, the Debtors have taken steps to reduce reliance on financings
provided by securitizations, including moving most of their mortgage
originations to the conforming loan market with outside lenders.
14
E. INDEPENDENT DEALER RETAIL SALES FINANCING.
The Debtors provide some 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. During fiscal 2003, this percentage has dropped
below 10%.
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
floor plan lender 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. Since the Petition Date, the Debtors have assumed approximately $50
million in repurchase obligations.
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 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 was begun in an attempt to allow 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, and are arranging an
orderly wind-down of their non-Debtor 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. Some 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
15
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 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 provision of insurance products as agent by
the Debtors is 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 RICs, 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.
16
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 $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 Junior Notes, $2.6 million remained outstanding as of November 15,
2002, the balance having been retired in accordance with their terms. The debt
evidenced by the Junior Notes is unsecured.
17
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) to pay all amounts equal to the principal and
interest due under $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. Repayment
of claims arising from the letter of credit is secured by a mortgage from the
Debtors on the plant constructed with 1998 Bond proceeds in Kosciusko County,
Indiana. Fifth Third Bank, Indiana is the trustee under the trust indenture
pursuant to which the 1998 Bonds were 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) to pay all amounts equal to the principal and interest due
under $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. Repayment of claims
arising from the letter of credit is secured by a mortgage from the Debtors on
the plant constructed with 1997 Bond proceeds in Elkhart County, Indiana. Fifth
Third Bank, Indiana is the trustee under the trust indenture pursuant to which
the 1997 Bonds were 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,
originates RICs to finance the purchase of manufactured homes. Historically,
when the aggregate number of RICs OAC had originated reached a critical mass,
typically once every three months, the RICs were securitized and sold into the
asset-backed market through non-Debtor Real Estate Mortgage Investment Conduit
Securitization Trusts ("REMIC Trusts"). The REMIC Trusts are the issuers of
pass-through certificates ("REMIC Certificates") that may pay cash interest on a
fixed or floating rate basis and represented undivided ownership interests in a
pool of underlying RICs in the REMIC Trusts. Each REMIC Trust issues REMIC
Certificates in multiple tranches. Typically, a series identifier will indicate
the year and sequential issue number within each calendar 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, each having specific seniority and
payment terms. While there is no distinction of
18
collateral, as all tranches within a series 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 principal payments after
the principal of senior tranches has been paid in part or in full.
In order to enhance the marketability of one 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 the
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. The
B-2 REMIC Guarantees guaranteed payment of any shortfalls in principal and
interest due to holders of B-Piece REMIC Certificates on any monthly payment
date by Oakwood. The aggregate face value of the B-Piece REMIC Certificates
guaranteed by the B-2 REMIC Guarantees is approximately $274.8 million
representing B-2 tranches from approximately two-thirds of Oakwood's
securitizations. JPMorgan is the REMIC Trustee for individual REMIC Trusts for
which Oakwood has issued B-2 REMIC Guarantees.
Additionally, Oakwood has a further obligation to the holder
of a note secured, in part, by certain B-Piece REMIC Certificates and X REMIC
Certificates (the "Resecuritization Note") to purchase the Resecuritization Note
on each payment date under the Resecuritization Note (the "Payment Date"),
beginning with the Payment Date occurring in September 2011 and ending with the
Payment Date occurring in September 2012 (the "Resecuritization Note Put
Option").
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 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.
19
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 because interest rates for
manufactured housing loans exceed rates for conventional housing loans by an
amount substantially greater than has historically been the case. Additionally,
aggressive lending led to a high level of repossessed homes. 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 which 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 Services 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 performance in declining markets after 1999 could support. Aggressive
underwriting coupled with the current economic slowdown led to an unsustainable
level of loan defaults on securitized RICs. The cost of servicing and the
liquidity requirements for performing servicing duties increased with the
defaults. At the same time, servicing receipts were decreasing due to credit
losses because the servicing fees were subordinated to principal and interest on
the B-Piece REMIC Certificates. 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, the
extremely weak conditions in the manufactured housing industry and the
deteriorating financial 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, Chief United
States Bankruptcy Judge for the District of Delaware.
The Debtors have made 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; and (g) negotiated for additional or substitute Floor
Plan financing. 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
- --------------------------------------------------------------------------------
MEMBER CREDITOR INDIVIDUAL ACTIVELY
PARTICIPATING ON COMMITTEE
- --------------------------------------------------------------------------------
JPMorgan Chase Bank (as Indenture Trustee James R. Lewis
for REMIC Certificates and noteholders)
- --------------------------------------------------------------------------------
U.S. Bank National Association (as Indenture Timothy J. Sandell
Trustee for holders of Senior Notes)
- --------------------------------------------------------------------------------
Absolute Recovery Hedge Funds, Ltd. Wilbur L. Ross, Jr.
- --------------------------------------------------------------------------------
Aegon USA Investment Management, LLC James K. Baskin
- --------------------------------------------------------------------------------
Patrick Industries, Inc. Michael W. Baker
- --------------------------------------------------------------------------------
Carriage Industries, Inc. Charles D. Raley
- --------------------------------------------------------------------------------
LaSalle Bristol LP James Montague
- --------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------
PROFESSIONAL SCOPE OF REPRESENTATION DATE
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
- ----------------------------------------------------------------------------------------------------------
Hunton & Williams Special Counsel to the Debtors 11/15/2002
- ----------------------------------------------------------------------------------------------------------
Kennedy Covington Lobdell & Hickman L.L.P. Special Counsel to the Debtors 11/15/2002
- ----------------------------------------------------------------------------------------------------------
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 Former 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' Committee 12/04/2002
- ----------------------------------------------------------------------------------------------------------
Prime Locations, LLC Real Estate Consultants for the Debtors 02/27/2003
- ----------------------------------------------------------------------------------------------------------
The Core Network Real Estate Consultants for the Debtors 02/27/2003
- ----------------------------------------------------------------------------------------------------------
Andrew Davidson & Co., Inc. Valuation Consultants for the Debtors 04/22/2003
- ----------------------------------------------------------------------------------------------------------
Miller Buckfire Lewis Ying & Co., LLC Financial Advisor and Investment Banker for the 07/21/2003
Debtors
- ----------------------------------------------------------------------------------------------------------
King & Spalding, LLP Replacement Counsel to the Creditors' Committee 08/25/2003
- ----------------------------------------------------------------------------------------------------------
22
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.
Prior to the Petition Date, the Debtors were not receiving
most of this servicing fee from the REMIC Trusts because those fees were
subordinate to payments on the REMIC Certificates. As their annual servicing
costs were substantial--in excess of $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.
After the Petition Date, the Debtors filed a motion for entry
of an order pursuant to Sections 365 and 363(b) and (f) of the Bankruptcy Code
authorizing OAC to, inter alia, (a) assume certain servicing agreements within
the Pooling and Servicing Agreements (the "Servicing Agreements"), (b) assign
its servicing rights under the Pooling and Servicing Agreements to Oakwood
Servicing Holdings, Co., LLC ("OSHC"), a wholly-owned non-debtor subsidiary of
OAC, and (c) enter into and perform its obligations as Subservicer under a
Subservicing Agreement with OSHC.
Because the Servicing Agreements provided that the servicing
fee payable thereunder was subordinate to the right of holders of REMIC
Certificates to receive payments of principal and interest only for so long as
OAC was the Servicer, the assumption and assignment of the Servicing Agreements
to OSHC elevated the servicing fee payable under the Servicing
23
Agreements to senior status. Because OAC's subservicing fee is payable from
OSHC's servicing fees, OAC's subservicing fees effectively also are senior. In
addition, the assumption and assignment of the Servicing Agreements increased
the amount of the servicing fee payable under certain of the Servicing
Agreements.
By the Order dated December 12, 2002, this Court granted the
relief sought in the motion [Docket Number 21].
Oakwood has acknowledged that the elevation of servicing fees
to a senior position in the distribution of cash received by the REMIC trusts
"has the effect of decreasing cash available to pay security holders in the
REMIC trusts." As a result, Oakwood "expects its obligations under the
guarantees of [the B-2 REMIC Certificates] to increase substantially." See
Oakwood's Form 10-Q filed with the Securities and Exchange Commission for the
quarterly period ending December 31, 2002.
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 intended to help 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 reached 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,
24
the Debtors operated the plants at a reduced level in order to reduce inventory
and 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 five 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, the Debtors have turned their focus to those
regions that hold the most promise for the Debtors' long-term success.
In April 2003, the Debtors substantially tightened their
credit standards for retail installment financing and took other steps to reduce
the amount of loans originated. As a result, internal financing of retail sales
has fallen from 72% of unit sales in 2002 to a run rate of less than 15% of
sales in 2003. This trend reduces the Debtors' reliance on securitizations and
its exposure to losses in the sale of retail installment contracts, but reduces
the potential for servicing revenue.
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 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. SENIOR MANAGEMENT RETENTION PLAN
On May 22, 2003, the Bankruptcy Court authorized the Debtors
to implement a management retention plan, indemnification plan and severance
program for certain of the Debtors' officers. The retention plan for these
officers consists of two types of merit-based retention payments: (i) payment of
the officers' previously unpaid performance-based bonuses, as set by the
Debtors' board of directors, for the fiscal 2002 year; and (ii) payment of the
officers' quarterly performance-based bonuses, as set by the Debtors' board of
directors with the consent of the Creditors' Committee. The Creditors' Committee
has agreed to the officers' performance-based bonuses for the second half of
2003. These retention payments are nothing more than the continuation of the
ordinary practice of the Debtors to award the Debtors' officers merit-based
incentive compensation. The severance program is designed to provide these
officers with severance benefits in the event of their termination for any
reason other than for cause. The severance benefits are to be held in an escrow
account until the officers are entitled to receive them. The indemnification
plan consists of $50,000 placed in an escrow account to cover the fees and
expenses of defending the officers pursuant to Oakwood's Articles of
Incorporation and Section 9.5 of Oakwood's By-Laws, if necessary.
25
L. 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.
M. FILING OF THE FIRST PLAN AND DISCLOSURE STATEMENT.
On February 18, 2003, the Debtors filed the [Proposed]
Disclosure Statement For Joint Consolidated Plan Of Reorganization Of Oakwood
Homes Corporation And Its Affiliated Debtors And Debtors-In-Possession (the
"First Disclosure Statement") and the Joint Consolidated Plan Of Reorganization
Of Oakwood Homes Corporation And Its Affiliated Debtors And
Debtors-In-Possession (the "First Plan"). The First Disclosure Statement and
First Plan were filed by the Debtor in compliance with certain provisions of the
Final DIP Agreement, which required that the Debtors file a plan of
reorganization and a disclosure statement before February 18, 2003. On June 19,
2003, the Debtors initially filed this current Plan and Disclosure Statement.
The substance of the Debtors' plan of reorganization has not significantly
changed between the Plan and the First Plan. The revision of the Plan and
Disclosure Statement since June 19, 2003, contains no material changes, just the
addition of certain exhibits and disclosures.
N. EXTENSION OF THE DIP FINANCING.
On July 14, 2003, the Debtors and the DIP Lenders entered into
Amendment No. 4 to the Debtor-in-Possession Financing Agreement (the "DIP
Amendment"). The DIP Amendment replaces all references to the Debtors' original
budget with references to the updated forecast dated July 1, 2003, reduces the
total commitment from $140 million to $90 million, makes corresponding
adjustments to the borrowing base, and extends the deadline for a final order of
confirmation of a Plan of Reorganization to November 15, 2003. The Debtors
believe that this amended facility provides adequate liquidity for the Debtors'
operations under its current business plan and adequate time for the
confirmation of the Plan.
O. ALTERNATIVES AND EXIT FINANCING.
In furtherance of the Debtors' fiduciary duties, the Debtors
considered alternatives to the stand-alone recapitalization as presented in this
Disclosure Statement and Plan. In that regard, the Debtors engaged Miller
Buckfire Lewis & Ying, LLC ("MBLY") to, among other things, analyze and evaluate
the Debtors' business, find potential lenders for the
26
Exit Facility and gauge the interest of various parties to purchase all or
substantially all of the assets of the Debtors. To this end, certain parties
expressed an interest in purchasing the Debtors. However, the Debtors ultimately
decided, in consultation with the Creditors' Committee, that these expressions
of interest failed to yield a recovery to Holders of Allowed Unsecured Claims
commensurate with that under a stand-alone reorganization, due to the cash-flow
positive nature of the Debtors newly-restructured business.
While several parties expressed an interest in purchasing the
Debtors' assets, the Debtors, in consultation with their advisor MBLY and the
Committee, concluded that pursuing a sale at this time was not in the best
interests of the Debtors and their various constituencies.
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.
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.
- ------------
(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.
27
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.
VI. THE PLAN OF REORGANIZATION.
Attached hereto as Exhibit A, in its entirety, is the Revised
First Amended 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 B are financial projections of the
consolidated Debtors containing, among other things: (a) a projected income
statement; (b) a projected balance sheet;
28
and (c) a projected cash flow statement (together, the "Projections"). All of
the Projections are presented on a consolidated basis for the Debtors, and
project financial information on an annual basis for years 2003 through 2008.
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 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
29
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 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
30
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.
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.
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
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
31
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.
IX. CERTAIN TAX CONSEQUENCES OF THE PLAN.
A. GENERAL.
The following discussion is a summary of certain United States
federal income tax consequences of the Plan to the Debtors and certain holders
of Claims and Interests. This description is for informational purposes only
and, due to the lack of definitive judicial or administrative authority or
interpretation, substantial uncertainties exist with respect to various tax
consequences of the Plan as discussed herein. Only the principal United States
federal income tax consequences of the Plan to the Debtors and to holders of
Claims and Interests who are entitled to vote to accept or reject the Plan are
described below. No opinion of counsel has been sought or obtained with respect
to any tax consequences of the Plan. No rulings or determinations of the
Internal Revenue Service ("IRS") or any other tax authorities have been sought
or obtained with respect to any tax consequences of the Plan, and the discussion
below is not binding upon the IRS or such other authorities. No representations
are being made regarding the particular tax consequences of the confirmation and
consummation of the Plan to the Debtors or any holder of a Claim. No assurance
can be given that the IRS would not assert, or that a court would not sustain, a
different position from any discussed herein.
The following United States federal income tax consequences
are based on the Internal Revenue Code of 1986, as amended (the "IRC"), Treasury
Regulations promulgated and proposed thereunder, judicial decisions and
published administrative rules and pronouncements of the IRS as in effect on the
date hereof. Changes in such rules or new interpretations thereof
32
may occur, possibly with retroactive effect, and could significantly affect the
United States federal income tax consequences described below.
This summary does not address foreign, state or local tax
consequences or any non-income tax consequences of the Plan, nor does it purport
to address the federal income tax consequences of the Plan to special classes of
taxpayers (such as foreign taxpayers, broker-dealers, banks, mutual funds,
insurance companies, financial institutions, small business investment
companies, regulated investment companies, tax-exempt organizations, and
investors in REMICs and pass-through entities).
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A
SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL
CIRCUMSTANCES PERTAINING TO A HOLDER OF A CLAIM. ALL HOLDERS OF CLAIMS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, FOREIGN, STATE, LOCAL AND
OTHER TAX CONSEQUENCES APPLICABLE UNDER THE PLAN.
B. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS.
1. CANCELLATION OF INDEBTEDNESS INCOME.
Upon implementation of the Plan, the amount of the Debtors'
aggregate outstanding indebtedness will be substantially reduced. In general,
the discharge of a debt obligation in exchange for an amount of cash and other
property having a fair market value (or, in the case of a new debt instrument,
an "issue price") less than the "adjusted issue price" of the debt gives rise to
cancellation of indebtedness ("COD") income to the debtor. However, COD income
that arises in a Title 11 bankruptcy case is not taxable. Instead, such COD
income reduces certain of the debtor's tax attributes, generally in the
following order: (a) net operating losses ("NOLs") for the year of the discharge
and NOL carryforwards to such year; (b) general business credit carryforwards;
(c) minimum tax credit carryforwards; (d) capital loss carryforwards; (e) the
tax basis of the debtor's depreciable and non-depreciable assets (but not below
the amount of the debtor's liabilities immediately after the discharge); and (f)
foreign tax credit carryforwards. To the extent the amount of COD income exceeds
the tax attributes available for reduction, the excess COD income is forgiven. A
debtor may elect to alter the preceding order of attribute reduction and,
instead, first reduce the tax basis of its depreciable assets and, possibly, the
depreciable assets of its subsidiaries. The reduction in tax attributes occurs
after the end of the tax year in which the debt discharge occurs.
On August 29, 2003, the IRS issued temporary and proposed
regulations providing rules regarding the reduction of tax attributes of a group
of affiliated corporations filing a consolidated tax return (such as the
Debtors) when one or more members of the group has COD income. In general, these
regulations provide that the COD income of a member of an affiliated group first
will reduce the NOLs and other tax attributes allocable to that member. If the
amount of COD income exceeds such member's tax attributes, the excess will be
applied to
33
reduce NOLs and certain other tax attributes (other than basis in assets)
allocable to other members of the affiliated group, on a pro rata basis. To the
extent the COD income has the effect of reducing a member's basis in the stock
of a subsidiary, the subsidiary also will be required to reduce its tax
attributes (including basis in assets). The Debtors have not yet determined what
impact these new regulations will have on its NOLs and other tax attributes.
In certain circumstances, COD income realized by a
consolidated subsidiary that has an "excess loss account" ("ELA") may cause the
consolidated group to recognize taxable income. The Debtors have not determined
the existence or amounts of any ELAs, or whether such ELAs would become taxable
income upon implementation of the Plan.
As a result of the discharge of Claims pursuant to the Plan,
the Debtors expect to realize significant COD income. The amount of such COD
income and the extent of the resulting tax attribute reduction will depend, in
part, on the fair market value, as of the Effective Date, of the New Common
Stock distributed to holders of Allowed Claims. Given the magnitude of the
expected COD income, it is possible that the Debtors' NOL and capital loss
carryforwards could be significantly reduced or eliminated and that the
respective Debtors' tax basis in their assets also may be reduced.
2. IRC SECTION 382 - LIMITATIONS ON NOL
CARRYFORWARDS.
The Debtors anticipate that they will experience an "ownership
change" (within the meaning of IRC Section 382) on the Effective Date as a
result of the issuance of New Common Stock to holders of Allowed Claims pursuant
to the Plan.
Under IRC Section 382, if a corporation (or consolidated
group) undergoes an "ownership change," the amount of its pre-change losses
(including certain losses or deductions which are "built-in," i.e., economically
accrued but unrecognized as of the date of the ownership change) that may be
utilized to offset future taxable income generally is subject to an annual
limitation. In general, the amount of the annual limitation to which the losses
are subject is equal to the product of (i) the fair market value of the stock of
the corporation (or, in the case of a consolidated group, the common parent)
immediately before the ownership change (with certain adjustments) multiplied by
(ii) the "long-term tax-exempt rate" in effect for the month in which the
ownership change occurs (4.65% for ownership changes occurring in September
2003). For a corporation (or consolidated group) in bankruptcy that undergoes an
ownership change pursuant to a confirmed bankruptcy plan, the stock value
generally is determined immediately after (rather than before) the ownership
change, also with certain adjustments. The stock value in this case would take
into account any increase in value resulting from the surrender of creditors'
claims. In the case of "built-in" losses and deductions (such as depreciation),
the annual limitation applies only for five years after the ownership change and
only to the extent of the "net" unrealized built-in loss as of the ownership
change.
Any unused limitation may be carried forward, thereby
increasing the annual limitation in the subsequent taxable year. However, if the
corporation (or the consolidated group) does not continue its historic business
or use a significant portion of its historic assets in a
34
new business for two years after the ownership change, the annual limitation
resulting from the ownership change is zero.
The operation and effect of IRC Section 382 will be materially
different from that just described if the Debtors are subject to the special
rule for corporations in bankruptcy provided in IRC Section 382(l)(5). This
special rule may apply where, immediately after a corporation's emergence from
bankruptcy, its shareholders and certain "qualified" creditors own at least 50%
of the stock of the corporation. If this rule were to apply, the Debtors'
ability to utilize their pre-Effective Date NOLs would not be limited as
described above. However, several other limitations would apply to the Debtors
under IRC Section 382(l)(5), including (a) the Debtors' NOLs would be calculated
without taking into account deductions for interest paid or accrued in the
portion of the current tax year ending on the Effective Date and all other tax
years ending during the three-year period prior to the current tax year with
respect to the Claims that are exchanged for New Common Stock pursuant to the
Plan, and (b) if the Debtors undergo another ownership change within two years
after the Effective Date, the Debtors' IRC Section 382 annual limitation with
respect to that ownership change would be zero. A corporation that qualifies for
IRC Section 382(l)(5) may elect not to have its provisions apply, in which case
the annual limitation rules described above would apply. The Debtors have not
determined whether they would qualify for IRC Section 382(l)(5), or if they
would elect to have the IRC Section 382(l)(5) rules apply to the ownership
change that is expected to arise from the consummation of the Plan.
3. NET UNREALIZED BUILT-IN LOSS OR GAIN.
As indicated above, IRC Section 382 can operate to limit
built-in losses recognized subsequent to the date of the ownership change. If a
loss corporation (or consolidated group) has a "net unrealized built-in loss" at
the time of an ownership change (taking into account most assets and items of
"built-in" income and deductions), then any built-in losses recognized during
the following five years (up to the amount of the original net built-in loss)
generally will be treated as pre-change losses and similarly will be subject to
the annual limitation. Conversely, if the loss corporation (or consolidated
group) has a "net unrealized built-in gain" at the time of an ownership change
(taking into account most assets and items of "built-in" income and deductions),
any built-in gains recognized during the following five years (up to the amount
of the original net built-in gain) generally will increase the annual limitation
in the year recognized, such that the loss corporation (or consolidated group)
would be permitted to use its pre-change losses against such built-in gains in
addition to its regular annual allowance. Although the rule applicable to net
unrealized built-in losses generally applies to consolidated groups on a
consolidated basis, certain corporations that join the consolidated group within
the preceding five years may not be able to be taken into account in the group
computation of net unrealized built-in loss. Such corporations would
nevertheless still be taken into account in determining whether the consolidated
group has a net unrealized built-in gain. Thus, a consolidated group can be
considered to have both a net unrealized built-in loss and a net unrealized
built-in gain. In general, a loss corporation's (or consolidated group's) net
unrealized built-in gain or loss will be deemed to be zero unless it is greater
than the lesser of (i) $10 million or (ii) 15% of the fair market value of its
assets (with certain adjustments) before the ownership change. It is expected
that the Debtors will have a net unrealized built-in loss on the Effective Date.
35
4. ALTERNATIVE MINIMUM TAX .
In general, an alternative minimum tax ("AMT") is imposed on a
corporation's alternative minimum taxable income at a 20% tax rate to the extent
such tax exceeds the corporation's regular federal income tax. For purposes of
computing taxable income for AMT purposes, certain tax deductions and other
beneficial allowances are modified or eliminated. For example, a corporation is
generally not allowed to offset more than 90% of its taxable income for AMT
purposes by available NOL carryforwards.
In addition, if a corporation (or consolidated group)
undergoes an ownership change within the meaning of IRC Section 382 and has a
net unrealized built-in loss (as determined for AMT purposes) on the date of the
ownership change, the corporation's (or consolidated group's) aggregate tax
basis in its assets would be reduced for certain AMT purposes to reflect the
fair market value of such assets as of the change date.
Any AMT that a corporation pays generally will be allowed as a
nonrefundable credit against its regular federal income tax liability in future
taxable years when the corporation is no longer subject to AMT.
C. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CLAIMS.
The United States federal income tax consequences of the
transactions contemplated by the Plan to a holder of Allowed Claims (including
the character, timing and amount of income, gain or loss recognized) will depend
upon, among other things, (1) whether the Claim and the consideration received
in respect thereof are "securities" for federal income tax purposes; (2) the
manner in which a holder acquired a Claim; (3) the length of time the Claim has
been held; (4) whether the Claim was acquired at a discount; (5) whether the
holder has taken a bad debt deduction with respect to the Claim (or any portion
thereof) in the current or prior years; (6) whether the holder has previously
included in its taxable income accrued but unpaid interest with respect to the
Claim; (7) the holder's method of tax accounting; and (8) whether the Claim is
an installment obligation for federal income tax purposes. Therefore, holders of
Claims should consult their own tax advisors for information that may be
relevant to their particular situations and circumstances and the particular tax
consequences to them of the transactions contemplated by the Plan. This
discussion assumes that the holder has not taken a bad debt deduction with
respect to a Claim (or any portion thereof) in the current or any prior year and
such Claim did not become completely or partially worthless in a prior taxable
year.
1. ACCRUED INTEREST.
Under the Plan, cash or other property may be distributed or
deemed distributed to certain holders of Claims with respect to their Claims for
accrued interest. Holders of Claims for accrued interest that previously have
not included such accrued interest in taxable income will be required to
recognize ordinary interest income equal to the amount of cash or other property
received with respect to such Claims for accrued interest. Holders of Claims for
accrued interest that have included such accrued interest in taxable income
generally may take an ordinary deduction to the extent that such Claim is not
fully satisfied under the Plan (after allocating the distribution between
principal and accrued interest), even if the underlying Claim is held as a
36
capital asset. The adjusted tax basis of any property received in exchange for a
Claim for accrued interest will equal the fair market value of such property of
the Effective Date, and the holding period for the property will begin on the
day after the Effective Date. The extent to which consideration distributable
under the Plan is allocable to interest is not clear. Holders of Claims are
advised to consult their own tax advisors to determine the amount, if any, of
consideration received under the Plan that is allocable to interest.
2. MARKET DISCOUNT.
The market discount provisions of the IRC may apply to holders
of certain Claims. In general, a debt obligation (other than a debt obligation
with a fixed maturity of one year or less) that is acquired by a holder in the
secondary market (or, in certain circumstances, upon original issuance) is a
"market discount bond" as to that holder if its stated redemption price at
maturity (or, in the case of a debt obligation having original issue discount,
the revised issue price) exceeds the adjusted tax basis of the debt obligation
in the holder's hands immediately after its acquisition. However, a debt
obligation will not be a "market discount bond" if such excess is less than a
statutory de minimis amount. Gain recognized by a creditor with respect to a
"market discount bond" generally will be treated as ordinary interest income to
the extent of the market discount accrued on such bond during the creditor's
period of ownership, unless the creditor elected to include accrued market
discount in taxable income currently. A holder of a market discount bond that is
required under the market discount rules of the IRC to defer deduction of all or
a portion of the interest on indebtedness incurred or maintained to acquire or
carry the bond may be allowed to deduct such interest, in whole or in part, on
the disposition of such bond.
3. HOLDERS OF CLASS FOUR CLAIMS.
A Holder of a Class Four Claim that receives New Common Stock
in exchange for its Claim pursuant to the Plan will realize income, gain or loss
for United States federal income tax purposes in an amount generally equal to
the difference between (1) the fair market value on the Effective Date of the
New Common Stock received in exchange for the Claim and (2) the holder's
adjusted tax basis in its Claim.
Whether such income, gain or loss will be recognized will
depend upon whether the exchange is treated as a "reorganization" for United
States federal income tax purposes. In turn, this depends upon, among other
things, whether any component of the Claim constitutes a "security" for United
States federal income tax purposes. The determination of whether a debt
instrument constitutes a security depends upon an evaluation of the term and
nature of the debt instrument. Generally, corporate debt instruments with
maturities of less than five years when issued are not considered securities,
while corporate debt instruments with maturities of ten years or more when
issued are considered securities.
If an exchange of a Claim for New Common Stock is not treated
as a reorganization, a holder of such Claim generally should, except as
described in the next sentence, recognize gain or loss for United States federal
income tax purposes in an amount equal to the difference, if any, between (1)
the fair market value of the New Common Stock (determined as of the Effective
Date) received in respect of its Claim and (2) the holder's adjusted tax basis
in its
37
Claim. A holder should, however, recognize interest income to the extent it
receives New Common Stock in respect of accrued interest or accrued market
discount that have not already been included in income under the holder's method
of accounting (as described above under the headings "Accrued Interest" and
"Market Discount"). A holder's tax basis in the New Common Stock received in
respect of its Claim generally should be equal to the fair market value of such
New Common Stock on the Effective Date. The holding period for New Common Stock
received pursuant the Plan should begin on the day after the Effective Date. The
character of such gain or loss as capital gain or loss or as ordinary income or
loss will be determined by a number of factors, including the tax status of the
holder, the nature of the Claim in such holder's hands, whether the Claim
constitutes a capital asset in the hands of the holder, whether the Claim was
purchased at a discount, and whether and to what extent the holder previously
claimed a bad debt deduction with respect to its Claim.
If, on the other hand, a Claim is treated as a "security" and
the receipt of New Common Stock in respect of such Claim were treated as a
"reorganization" then, except as described below, (1) a holder would not
recognize any gain or loss, with respect to all or part of its Claim, (2) its
tax basis in the consideration received would reflect its tax basis in its
Claim, and (3) its holding period with respect to such consideration would
include the holding period of its Claim. A holder should, however, recognize
interest income to the extent it receives New Common Stock in respect of accrued
interest or accrued market discount that have not already been included in
income under the holder's method of accounting (as described above under the
headings "Accrued Interest" and "Market Discount"). The precise treatment of the
exchange would depend, in part, on which components of the Claim were treated as
"securities" for federal income tax purposes.
D. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF
NON-DEBTOR-HELD INTERESTS [CLASS 6A].
The receipt of New Warrants in exchange for Non-Debtor-Held
Interests pursuant to the Plan generally should be treated as a "reorganization"
for United States federal income tax purposes. Accordingly, a Holder of a
Non-Debtor-Held Interest should not recognize gain or loss for federal income
tax purposes as a result of the exchange of such Interests pursuant to the Plan.
In addition, such a holder's tax basis in the New Warrants received pursuant to
the Plan should be equal to the aggregate tax basis in its Non-Debtor-Held
Interests surrendered in exchange therefor. A holder's holding period for its
New Warrants received pursuant to the Plan should include the holding period of
its Non-Debtor-Held Interests surrendered in exchange therefor.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING.
Certain payments, including payments in respect of accrued
interest or market discount, are generally subject to information reporting by
the payor to the IRS. Moreover, such reportable payments are subject to backup
withholding under certain circumstances. Under the IRC's backup withholding
rules, a United States holder may be subject to backup withholding at the
applicable rate with respect to certain distributions or payments pursuant to
the Plan, unless the holder (a) comes within certain exempt categories (which
generally include corporations) and, when required, demonstrates this fact or
(b) provides a correct United States taxpayer
38
identification number and certifies under penalty of perjury that the holder is
a United States person, the taxpayer identification number is correct and that
the holder is not subject to backup withholding because of a failure to report
all dividend and interest income.
Backup withholding is not an additional tax. Amounts withheld
under the backup withholding rules may be credited against a holder's United
States federal income tax liability, and a holder may obtain a refund of any
excess amounts withheld under the backup withholding rules by filing an
appropriate Claim for refund with the IRS.
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.
39
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, only Holders of Allowed Claims and Interests
in Classes 2G, 3, 4D, 4E and 6A and those Holders who are the beneficial holders
of Allowed Claims in Classes 4A, 4B, and 4C (the aforementioned "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 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,
40
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
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.
41
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.
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 C. 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 C to
this Disclosure Statement projects that Holders of Unsecured Claims and Holders
of Interests would receive less consideration in the event the Debtors were to
be liquidated under chapter 7 of the Bankruptcy Code than under this Plan.
Moreover, it is projected that Holders of Secured Claims would
42
receive less than payment in full. 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.
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 B
hereto, which show continued availability under the Debtors' revolving line of
credit and net operating income in years 2003 through 2008, 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 NOTED 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.
43
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.
Dated: September 9, 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: Oakwood Mobile Homes, Inc., General
Partner
By: /s/ Robert A. Smith
------------------------------------
Name: Robert A. Smith
Title: Vice President
44
OAKWOOD MHD4, LLC
By: /s/ Robert A. Smith
------------------------------------
Name: Robert A. Smith
Title: Vice President
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
SUBURBAN HOME SALES, INC.
By: /s/ Robert A. Smith
------------------------------------
Name: Robert A. Smith
Title: Vice President
45
FSI FINANCIAL SERVICES, INC.
By: /s/ Robert A. Smith
------------------------------------
Name: Robert A. Smith
Title: Vice President
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: Vice President
CREST CAPITAL, LLC
By: /s/ Randelle R. Smith
------------------------------------
Name: Randelle R. Smith
Title: Vice President
46
PREFERRED HOUSING SERVICES, LP
By: Oakwood Mobile Homes, Inc., General
Partner
By: /s/ Robert A. Smith
------------------------------------
Name: Robert A. Smith
Title: Vice President
-and-
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ Daniel B. Butz
----------------------------------------
Robert J. Dehney (No. 3578)
Derek C. Abbott (No. 3376)
Michael G. Busenkell (No. 3933)
Gilbert R. Saydah, Jr. (No. 4304)
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
47
EXHIBIT A
[see Revised First Amended Plan of Reorganization
attached to this Form 8-K as Exhibit 99.2]
EXHIBIT B
[OAKWOOD HOMES LOGO]
===============================================================================
[OAKWOOD HOMES LOGO]
FINANCIAL ANALYSIS
===============================================================================
Page 1
[OAKWOOD HOMES LOGO]
TABLE OF CONTENTS
INTRODUCTION.............................................................................................3
BASIS OF PRESENTATION....................................................................................4
SALES VOLUME AND PRICING - RETAIL AND MANUFACTURING...................................................5
FINANCE REVENUE - OAKWOOD ACCEPTANCE CORPORATION......................................................6
INSURANCE COMMISSIONS.................................................................................7
COST OF GOODS SOLD AND GROSS MARGIN...................................................................7
SELLING AND GENERAL ADMINISTRATIVE EXPENSES...........................................................7
WHOLE LOAN SALES / SECURITIZATIONS....................................................................8
FEDERAL INCOME TAXES..................................................................................8
WORKING CAPITAL.......................................................................................8
CAPITAL EXPENDITURES..................................................................................9
FINANCIAL ANALYSIS......................................................................................10
SCHEDULE 1 - INCOME STATEMENT........................................................................11
SCHEDULE 2 - PRO FORMA FRESH START BALANCE SHEET.....................................................12
SCHEDULE 3 - BALANCE SHEET...........................................................................13
SCHEDULE 4 - DEBT BALANCE SUMMARY................................................................... 14
SCHEDULE 5 - STATEMENTS OF CASH FLOWS................................................................15
SCHEDULE 6 - CONSOLIDATED RECOVERY...................................................................16
Page 2
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INTRODUCTION
Oakwood, which was founded in 1946, designs, manufactures and markets
manufactured and modular homes and arranges financing for a portion of its
retail and independent dealer network sales. The Company also acts as agent in
providing a variety of insurance products for its customers. Prior to 2003, the
Company had a captive reinsurance subsidiary located in Bermuda.
The Company operates three distinct and inter-related business divisions: (i)
manufacturing, (ii) retail and (iii) consumer finance. Vertical integration of
these segments enables the Company to address and control the primary factors
that shape a customer's home buying decision, including product features and
design, quality of materials and workmanship, the retail selling process and
the availability of financing options and service after each sale.
The Company currently operates 14 manufacturing plants and 99 Company-owned and
operated sales centers across the U.S. In addition, Oakwood sells its homes
through approximately 600 independent retailers located throughout the U.S.
Oakwood finances or arranges financing for certain of its retail unit sales
through its consumer finance subsidiary Oakwood Acceptance Corp. ("OAC"). For
those homes financed through OAC, the Company securitizes these loans in the
asset-backed securities market or sells the loans in whole loan transactions.
OAC's activities include both the origination and servicing of manufactured
home loans.
The Company is headquartered in Greensboro, NC and as of May 31, 2003, had
5,254 employees.
Page 3
[OAKWOOD HOMES LOGO]
BASIS OF PRESENTATION
The Forecast for 2003 through 2008 has been prepared by management based upon
assumptions they believe represent the most likely of many possible outcomes
for a number of key issues and events critical to Oakwood's future. The
following reflect the significant assumptions included in the Financial
Analysis:
- Management assumes the confirmation of the Plan in accordance
with its terms and that all transactions contemplated by the
Plan will be consummated on or about the Effective Date of
November 15, 2003. Payments to selected creditors to date and
over time are reflected in existing court orders and in
accordance with the terms of the Plan.
- The Plan contemplates that the creditors will receive more
than 50% of equity and thus there will be a change in control
upon emergence from Chapter 11. Therefore in accordance with
Statement of Position 90-7, issued by the American Institute
of Certified Public Accountants, Oakwood Homes will adopt
fresh-start accounting.
- Although the fiscal year end has been changed to June 30, the
forecast has been prepared on a September year-end for ease
of comparability to reported historical results.
- The year ended September 30, 2003 includes a combination of
actual results through May 2003 and forecasted financial
results through the remainder of the year.
- The rate of inflation in the forecast is assumed to be 3%
each year during the Forecast period.
- The Forecast reflects Oakwood operating as a single
enterprise.
- The forecast includes information presented on a same sales
center and same plant basis for sake of comparability and for
a clearer understanding of the significant restructuring
Oakwood has undertaken. Oakwood is currently operating 99
sales centers. Oakwood has closed 5 of 19 plants since the
beginning of FY 2003 and anticipates the idling of an
additional plant in FY 2004.
- Retail sales consist of sales to consumers from company-owned
sales centers. Wholesale sales consist of sales to
independent dealers.
- The following chart reflects a summary P&L for Oakwood with
forecasts from 2003 through 2008.
Page 4
[OAKWOOD HOMES LOGO]
CONSOLIDATED INCOME STATEMENT - SUMMARY
($'s in thousands)
ACTUAL ACTUAL FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST
FYE SEPTEMBER 30 2001 2002 2003 2004 2005 2006 2007 2008
---------- ---------- ---------- -------- -------- -------- -------- --------
REVENUE
Net Sales
Retail $ 653,515 $ 515,849 $ 307,814 $249,307 $286,631 $306,945 $328,741 $355,665
Wholesale 351,605 410,686 317,709 327,908 363,570 383,051 403,586 425,285
Net Sales 1,005,120 926,535 625,524 577,215 650,201 689,996 732,327 780,950
Financial Services
Income
Consumer Finance 42,352 (37,412) (73,030) 53,935 50,064 47,753 46,890 49,797
Insurance 38,948 29,938 8,111 4,278 4,066 3,945 3,884 3,852
Financial Services
Income 81,300 (7,474) (64,920) 58,214 54,131 51,699 50,774 53,649
Other Income 9,285 7,553 9,804 4,941 5,704 6,104 6,533 7,064
---------- ---------- ---------- -------- -------- -------- -------- --------
TOTAL REVENUES $1,095,705 $ 926,614 $ 570,408 $640,369 $710,035 $747,798 $789,634 $841,664
---------- ---------- ---------- -------- -------- -------- -------- --------
Gross Profit
Percent Based
on Net Sales 20.9% 23.5% 18.9% 24.6% 25.5% 25.8% 26.2% 26.7%
---------- ---------- ---------- -------- -------- -------- -------- --------
TOTAL COST AND
EXPENSES $ 442,486 $ 417,451 $ 265,013 $199,538 $198,214 $200,131 $201,946 $208,545
---------- ---------- ---------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME
TAXES (176,049) (271,780) (410,088) 3,830 27,558 35,530 47,564 60,915
---------- ---------- ---------- -------- -------- -------- -------- --------
Provision for Income
Taxes -- (78,729) -- 4,272 11,023 14,212 19,026 24,366
---------- ---------- ---------- -------- -------- -------- -------- --------
NET INCOME $ (176,049) $ (193,051) $ (410,088) $ (442) $ 16,535 $ 21,318 $ 28,538 $ 36,549
========== ========== ========== ======== ======== ======== ======== ========
PRINCIPAL ASSUMPTIONS
SALES VOLUME AND PRICING - RETAIL AND MANUFACTURING
Manufacturing sales include both external wholesale sales to independent
dealers and internal sales to company owned sales centers (such internal sales
being eliminated in the Company's consolidated financial statements) The
manufacturing forecast assumes a marginal price increase for external sales
from 2003 to 2004 and then 2% price increases through 2008. External shipments
of floors are forecast to grow by 3.9%, on average, per annum from 2003 through
2008. The Company forecasts a modest recovery in the manufacturing housing
industry by mid 2005.
SAME PLANT/SAME STORE SUMMARY INFORMATION
($ in millions)
ACTUAL FORECAST
---------------- -------------------------------------------------------------
FYE SEPTEMBER 30 2001 2002 2003 2004 2005 2006 2007 2008
------ ------ ------ ------ ------ ------ ------ ------
FINANCIAL DATA
External Manufacturing Sales $280.5 $332.1 $294.6 $327.9 $363.6 $383.1 $403.6 $425.3
Retail Sales 238.7 284.8 230.0 248.0 286.6 306.9 328.7 355.7
MFG. SALES + RETAIL SALES $628.7 $665.5 $524.6 $576.0 $650.2 $690.0 $732.3 $781.0
% growth (External Sales) -15.9% -21.2% 9.8% 12.9% 6.1% 6.1% 6.6%
As consumer demand is moving to more upscale models with more amenities, the
retail forecast assumes a 2.6%, on average, per annum same store price increase
from 2003 to 2008, based on the 99 remaining stores. While unit sales are
projected to be down 35% from 2003 to 2004 in absolute terms because of the
impact of store closings, on a same store basis, units are projected to grow by
6.0%, on average, per annum. Retail sales also
Page 5
[OAKWOOD HOMES LOGO]
include the sales of used units and other miscellaneous revenue generally
associated with insurance commissions, collectively representing less than 2%
of retail sales.
FINANCE REVENUE - OAKWOOD ACCEPTANCE CORPORATION
Oakwood Acceptance Corporation (OAC) has two primary sources of income;
servicing income from loans that are securitized and serviced by OAC and
interest income. As part of the securitization process, OAC historically has
retained the contractual right to service all securitized loans in exchange for
a monthly cash servicing fee generally between 1.0%-1.5% (on an annualized
basis) of the principal balance of loans being serviced. The pooling and
servicing agreements between the Company and the REMIC trusts historically
mandated that the servicing fee be subordinated to all payments to REMIC
bondholders, resulting in a substantially lower percentage of fees actually
being collected by the Company.
In December 2002 and January 2003, the Bankruptcy Court entered into a final
order authorizing OAC to elevate its servicing fees to a senior position which
has materially increased the cash servicing fees received by the Company. OAC
is expected to continue receiving a servicing fee of approximately 1.10% (on an
annualized basis) on its securitized loan portfolio from 2003 through 2008.
Interest income is derived from three main sources: interest on loans held for
sale; interest on REMIC Regular Interests, and interest income on REMIC
Residual Interests. As Oakwood originates loans, the balance of the loans held
for sale increases incrementally.
FINANCE DIVISION SUMMARY INCOME INFORMATION
($ millions)
ACTUALS FORECAST
------------------ ------------------------------------------------------------------
FYE SEPTEMBER 30 2001 2002 2003 2004 2005 2006 2007 2008
------ ------ ------ ------ ------ ------ ------ ------
Financial Services
Revenues
Interest Income $ 38.8 $ 18.0 $ 22.9 $ 14.3 $ 15.7 $ 15.6 $ 16.4 $ 20.3
Servicing Fees 29.5 40.2 46.5 33.4 32.4 30.6 29.2 27.8
Gain/(Loss) on Sale
of Loans (5.5) (95.2) (48.1) 3.9 0.0 0.0 0.0 0.0
Other Income 1.7 0.6 0.4 2.3 2.0 1.6 1.3 1.7
LOCOM Adjustment 0.0 0.0 (88.3) 0.0 0.0 0.0 0.0 0.0
Residual Charges (22.1) (1.0) (6.4) 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------ ------ ------ ------
Total Financial
Services Revenue $ 42.4 $(37.4) $(73.0) $ 53.9 $ 50.1 $ 47.8 $ 46.9 $ 49.8
SERVICING FEES DETAIL
Cash Servicing Fees $ 38.9 $ 32.6 $ 52.5 $ 42.8 $ 39.7 $ 36.8 $ 34.8 $ 32.9
Amortization of
Servicing Asset/Liab (9.4) 7.6 (6.0) (9.4) (7.3) (6.2) (5.7) (5.1)
------ ------ ------ ------ ------ ------ ------ ------
Servicing Fees $ 29.5 $ 40.2 $ 46.5 $ 33.4 $ 32.4 $ 30.6 $ 29.2 $ 27.8
Average Portfolio Size 4,819 5,008 4,821 4,001 3,644 3,390 3,201 3,047
New Originations 864 768 391 182 205 217 231 246
Implied Servicing
Basis Points 0.81% 0.65% 1.09% 1.07% 1.09% 1.09% 1.09% 1.08%
Page 6
[OAKWOOD HOMES LOGO]
INSURANCE COMMISSIONS
In early FY2003, the Company decided to exit the third party reinsurance
business in order to reallocate capital to the Company's core businesses.
Effective November 1, 2002, the Company's captive reinsurance subsidiary ceased
to underwrite new policies.
Following the closure of its captive insurance business in November 2002, the
capital requirements and administrative costs of the Company's insurance
operations have been substantially reduced relative to historical levels.
The Company has arranged for a 30% commission on all insurance policies
referred to a large insurer for the remainder of FY 2003 through FY 2008.
COST OF GOODS SOLD AND GROSS MARGIN
Oakwood's gross profit as a percentage of sales is forecasted to improve from
18.9% in 2003 to 24.6% in 2004. Gross profit margin for 2002 was 23.5%. The
increase in gross profit is driven by three main factors:
- Increases in prices at both manufacturing and retail due to a
shift in product mix;
- The reduction in bulk and closeout sales as seen in 2003 due
to the closure of sales centers and plants; and,
- Cost reductions and the closure of inefficient plants and
sales centers.
From 2004 through 2008, gross profit is assumed to improve from 24.6% in 2004
to 26.7% in 2008.
On a same store, same plant basis, pro forma basis, 2002 gross profit was
25.9%, 2003 is forecasted to be 23.5% and 2004 is forecasted to be 24.6%. The
increase from 2003 to 2004 is primarily attributed to the write down of PP&E
and depreciation associated with fresh-start accounting and increases in
average selling price.
SELLING AND GENERAL ADMINISTRATIVE EXPENSES
Selling and General Administrative Expenses (SG&A) for the Housing Division,
which includes Retail, Manufacturing and Corporate is forecasted to grow at 5%
annually from 2004 through 2008. Headcount at corporate has been reduced from
204 in 2002 to 152 in 2003. Overall, the operational restructuring has caused
the Company's headcount to be reduced from 7,466 on October 1, 2002 to 5,254 as
of May 31, 2003. The reductions have primarily occurred in the Company's retail
and manufacturing operating divisions as a result of closing stores and plants.
SG&A for the Finance division is forecasted to decline with the reduction in
the size of the loan portfolio being serviced and reduced loan originations.
Loans underwritten to higher credit standards should also have lower default
rates and lower servicing costs.
Page 7
[OAKWOOD HOMES LOGO]
WHOLE LOAN SALES/SECURITIZATIONS
As part of the securitization/whole loan sales process, Oakwood forecasts
whole loan sales for the remainder of 2003 and selling loans on a servicing
released basis for all of 2004. For the years 2005 through 2008, Oakwood
forecasts securitizing loans with 90% cash proceeds, 8% creation of
subordinated Residual Assets and a 2% Servicing Asset.
FINANCE DIVISION SECURITIZATION SUMMARY
($ millions)
ACTUALS FORECAST
------------------- ------------------------------------------------------------------
FYE SEPTEMBER 30 2001 2002 2003 2004 2005 2006 2007 2008
------ ------ ------ ------ ---- ---- ---- ----
% Retail Units Financed 67.7% 67.6% 30.1% 25.9% 25.9% 25.9% 25.9% 25.9%
% Wholesale Units Financed 26.6% 38.7% 29.7% 21.0% 21.0% 21.0% 21.0% 21.0%
Securitizations/Whole
Loan Sales
Amount of
Securitizations ($) $ 735 $ 800 $ 260 $ 258 269 215 24O 233
% Cash Proceeds 95.1% 93.0% 80.5% 90.0% 90.0% 90.0% 90.0% 90.0%
% B/X Pieces 5.3% 6.0% 0.0% 8.0% 8.0% 8.0% 8.0% 8.0%
% Servicing Asset 1.2% 1.0% 0.0% 2.0% 2.0% 2.0% 2.0% 2.0%
% Gain (Loss) 1.6% 0.1% -19.5% 0.0% 0.0% 0.0% 0.0% 0.0%
Originations are forecasted to decline significantly due to the brokerage of
land home loans, tightening of credit and reduction of overall sales volumes
due to the closure of retail centers and manufacturing plants. The percent of
retail units/wholesale units financed is forecasted to declined significantly
as illustrated above.
INCOME TAXES
The effective tax rate is projected to be 40% post emergence in November 2003
through FY 2008.
WORKING CAPITAL
Working capital borrowings are based on timing of loan securitizations/ whole
loan sales, other working capital items and can fluctuate significantly. Note
that there are $10 to $20 million intra month fluctuations due to the timing of
loan originations, servicing advances and loan eligibility in the warehouse.
This swing is usually resolved by the end of the month. These requirements are
to be met through availability of either cash or working capital requirements.
The working capital borrowing balance is initially calculated to be the amount
(in round millions) necessary to maintain month end cash balance of $20
million.
The Company's LCs are currently cash collaterized. To the extent an exit
facility is used to collateralize the LCs, the restricted cash would be
available for alternative uses. Although the Company is negotiating an exit
financing facility through which it hopes to eliminate cash collaterization of
LCs, the forecast currently assumes that the LCs continue to be cash
collaterized. The cash collateralizing the LCs in the projected balance sheet
is included in Other Assets.
Page 8
[OAKWOOD HOMES LOGO]
CAPITAL EXPENDITURES
Capital expenditures for continuing operations were approximately $11.8 million
for the year ending September 2002 and $14.3 million for the year ending
September 2001. Forecasted capital expenditures are listed in the following
chart:
CAPITAL EXPENDITURES
($ millions)
FORECAST
-------------------------------------------------------
2003 2004 2005 2006 2007 2008
---- ---- ---- ---- ---- ----
Capital Expenditures $2.6 $8.0 $10.0 $12.0 $14.0 $16.0
* No asset sales are assumed in 2004 through 2008 forecast and are not
included in the presented 2003 number.
Page 9
[OAKWOOD HOMES LOGO]
FINANCIAL ANALYSIS
INCOME STATEMENT SCHEDULE 1
Consolidated Statements of Income of the Company presents: (1) historical
actual statement of income for the fiscal years ended September 2001 and
September 2002; and (2) forecasted statements of income for the fiscal year
ending September 2003 through 2008. Fiscal year 2003 includes 8 months of
actual results and 4 months of forecasted results.
PRO FORMA FRESH START BALANCE SHEET SCHEDULE 2
Forecasted Pro Forma Balance Sheet reflects the fresh start balance sheet as of
November 1, 2003.
BALANCE SHEET SCHEDULE 3
Consolidated Balance Sheets present historical actual balance sheets for the
fiscal years ending September 2001 and September 2002. Forecasted September
2003 balance sheets reflect Oakwood's balance sheet before fresh start
adjustments. September 2004 through September 2008 reflect the forecasted
balance sheets post fresh start accounting.
DEBT SCHEDULE SCHEDULE 4
The debt schedule presents forecasted balances, principal payments and interest
payments, resulting from the consummation of the Plan for the fiscal years
ending 2003 through 2008.
STATEMENT OF CASH FLOWS SCHEDULE 5
Consolidated Cash Flow Statement presents historical cash flows for the fiscal
years ended September 2001 and September 2002 and forecasted cash flows for the
fiscal years ending September 2003 through 2008. Fiscal 2003 includes 8 months
of actual results and 4 months of forecasted results.
ANALYSIS OF RECOVERIES SCHEDULE 6
Type and Treatment of Classes reflects claims by class, estimated claim amounts
by class, type and amount of consideration to be received by each class, in
accordance with the Plan.
Page 10
[OAKWOOD HOMES LOGO]
SCHEDULE 1 - INCOME STATEMENT
CONSOLIDATED INCOME STATEMENT
($'s in thousands)
ACTUAL ACTUAL FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST
FYE SEPTEMBER 30 2001 2002 2003 2004 2005 2006 2007 2008
---------- ---------- ---------- -------- -------- -------- -------- --------
REVENUE
Net Sales
Retail $ 653,515 $ 515,849 $ 307,814 $249,307 $286,631 $306,945 $328,741 $355,665
Wholesale 351,605 410,686 317,709 327,908 363,570 383,051 403,586 425,285
Net Sales 1,005,120 926,535 625,524 577,215 650,201 689,996 732,327 780,950
Financial Services
Income
Consumer Finance 42,352 (37,412) (73,030) 53,935 50,064 47,753 46,890 49,797
Insurance 38,948 29,938 8,111 4,278 4,066 3,945 3,884 3,852
Financial Services
Income 81,300 (7,474) (64,920) 58,214 54,131 51,699 50,774 53,649
Other Income 9,285 7,553 9,804 4,941 5,704 6,104 6,533 7,064
---------- ---------- ---------- -------- -------- -------- -------- --------
TOTAL REVENUES $1,095,705 $ 926,614 $ 570,408 $640,369 $710,035 $747,798 $789,634 $841,664
---------- ---------- ---------- -------- -------- -------- -------- --------
COST AND EXPENSES
Cost of Sales 794,634 708,953 507,240 435,350 484,264 512,138 540,125 572,204
Gross Profit Percent 20.9% 23.5% 18.9% 24.6% 25.5% 25.8% 26.2% 26.7%
General &
Administrative
Expenses 61,206 52,404 50,388 36,475 37,722 38,893 40,213 42,638
as a percent of sales 5.6% 5.7% 8.8% 5.7% 5.3% 5.2% 5.1% 5.1%
Service Expenses
(including warranty) 61,714 45,580 34,773 26,285 29,648 31,435 33,334 35,515
as a percent of sales 5.6% 4.9% 6.1% 4.1% 4.2% 4.2% 4.2% 4.2%
Selling Expenses 187,867 161,865 86,739 68,674 73,214 75,805 78,561 81,820
as a percent of sales 17.1% 17.5% 15.2% 10.7% 10.3% 10.1% 9.9% 9.7%
Consumer Finance
Operating Expenses 52,681 51,453 45,667 40,253 37,636 35,292 33,411 32,454
Insurance Operating
Expenses 15,468 13,511 3,622 456 456 456 456 456
Provision for Losses
on Credit Sales 8,447 52,512 7,603 2,182 2,458 2,608 2,768 2,952
Interest Expenses 55,103 40,126 36,222 25,214 17,082 15,642 13,201 12,709
---------- ---------- ---------- -------- -------- -------- -------- --------
TOTAL COST AND EXPENSES $ 442,486 $ 417,451 $ 265,013 $199,538 $198,214 $200,131 $201,946 $208,545
---------- ---------- ---------- -------- -------- -------- -------- --------
Restructuring Costs &
Impairment Costs 17,768 71,990 37,011 -- -- -- -- --
Recapture of Servicing
Liabilities -- -- (87,790) -- -- -- -- --
Impairment of REMIC
Regular Interests -- -- 1,209 -- -- -- -- --
Impairment of
Guarantee
Liabilities -- -- 235,776 -- -- -- -- --
Loss Due to
Accounting Change 16,866
Professional Fees -- -- 22,037 1,650 -- -- -- --
---------- ---------- ---------- -------- -------- -------- -------- --------
TOTAL RESTRUCTURING
COSTS & IMPAIRMENT
COSTS $ 34,634 $ 71,990 $ 208,243 $ 1,650 $ -- $ -- $ -- $ --
---------- ---------- ---------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES (176,049) (271,780) (410,088) 3,830 27,558 35,530 47,564 60,915
---------- ---------- ---------- -------- -------- -------- -------- --------
Provision for Income
Taxes -- (78,729) -- 4,272 11,023 14,212 19,026 24,366
---------- ---------- ---------- -------- -------- -------- -------- --------
NET INCOME $ (176,049) $ (193,051) $ (410,088) $ (442) $ 16,535 $ 21,318 $ 28,538 $ 36,549
========== ========== ========== ======== ======== ======== ======== ========
Page 11
[OAKWOOD HOMES LOGO]
SCHEDULE 2 - PRO FORMA FRESH START BALANCE SHEET
PROFORMA PROJECTED CONVERSION PROJECTED PROFORMA
PRIOR TO EXIT OF UNSECURED FRESH START AFTER APPLYING
PLAN COSTS CLAIMS TO EQUITY ADJUSTMENTS FRESH START
--------- --------- ---------------- ----------- --------------
ASSETS
Cash and Cash Equivalents $ 20,000 $ -- $ -- $ -- $ 20,000
Loans and Investments -- --
Loans Held for Sale 94,007 94,007
Retained Interests 21,048 21,048
Less: Reserve for
Uncollectible (5,626) (5,626)
--------- -------- --------- --------- ---------
TOTAL LOANS AND INVESTMENTS 109,429 -- -- -- 109,429
Other Receivables -- --
Trade Accounts Receivable 22,506 22,506
Escrow Advances Receivable 16,141 16,141
Extensions Receivable 33,699 33,699
Income Taxes Receivable -- --
Other 37,713 37,713
--------- -------- --------- --------- ---------
TOTAL OTHER RECEIVABLES 110,059 -- -- -- 110,059
Inventories --
Manufactured Homes - New,
Used and Repossessed 87,552 87,552
Raw Materials and Supplies 15,615 15,615
Work-in-Process 3,610 3,610
Land/Homes Under Development 10,099 10,099
--------- -------- --------- --------- ---------
TOTAL INVENTORIES 116,877 -- -- -- 116,877
Properties and Facilities, Net 118,153 (5,741) 112,413
Loan Servicing Assets 21,480 21,480
Other Assets 69,711 69,711
--------- -------- --------- --------- ---------
TOTAL ASSETS $ 565,709 $ -- $ -- $ (5,741) $ 559,969
========= ======== ========= ========= =========
LIABILITIES AND SHAREHOLDERS
Liabilities Not Subject
To Compromise
Short-Term Borrowings --
CS First Boston Loan Purchase 48,215 48,215
Facility
GCM Tranche A 26,468 (26,468)
GCM Tranche B -- -- --
Fresh Start Tranche A Debt -- 56,768 -- 56,768
Fresh Start Tranche B Debt -- --
--------- -------- --------- --------- ---------
TOTAL SHORT-TERM BORROWINGS 74,683 30,000 104,983
Accounts Payable and Accrued
Liabilities -- --
Accounts Payable 32,405 -- 32,405
Servicing -- --
Accrued Warranty 6,642 6,642
Accrued Compensation 6,996 6,996
Other 97,586 (27,300) 70,286
--------- -------- --------- --------- ---------
TOTAL ACCTS PAYABLE AND
ACCRUED LIAB. 143,629 (27,300) -- -- 116,329
Insurance Reserves and
Unearned Premiums 66 66
Deferred Income Taxes 5,776 5,776
Liabilities Subject To
Compromise
Notes and Bonds Payable 314,053 (306,538) 7,515
Accounts Payable and Accrued
Liabilities 110,329 (20,000) (90,329) --
Other Long-Term Obligations 274,764 (274,764) --
Shareholders Equity (357,590) 17,000 0 340,590 --
Fresh Start Shareholders
Equity -- 671,631 (346,331) 325,300
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND $ 565,709 $ -- $ -- $ (5,741) $ 559,969
========= ========= ========= ========= =========
New Revolver of $56.8M comprised of payoff of Tranche A of DIP of $26.5, $3M
related to convenience claims, and exit costs of $27.3M comprised of
professional fee payout of $8.3M, $6.5M of exit financing and miscellaneous
costs, $5.0M of priority taxes, $4.5M of Warn costs and $3.0M of reclamation
claims.
Page 12
[OAKWOOD HOMES LOGO]
SCHEDULE 3 - BALANCE SHEET
CONSOLIDATED BALANCE SHEET
($'s in thousands)
Actual Actual Forecast Forecast Forecast Forecast Forecast Forecast
- --------------------------------------------------------------------------------------------------------------------------------
FYE September 30 FYE FYE FYE FYE FYE FYE FYE FYE
2001 2002 2003 2004 2005 2006 2007 2008
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and Cash Equivalents $ 44,246 $ 20,107 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 21,762
Loans and Investments
Loans Held for Sale 166,059 153,078 210,030 133,688 69,177 71,595 62,631 75,818
Retained Interests 36,575 28,120 21,048 31,095 53,310 70,494 89,769 108,278
Less: Reserve for
Uncollectible Receivables (3,231) (5,333) (12,311) (5,076) (4,476) (3,876) (3,276) (2,676)
--------- --------- --------- --------- --------- --------- --------- ---------
Loans and Investments 199,403 175,865 218,767 159,706 118,011 138,213 149,123 181,420
Other Receivables
Trade Accounts Receivable 27,262 27,847 22,733 27,160 30,583 32,471 34,439 36,739
Escrow Advances Receivable 13,491 16,120 15,982 16,960 17,998 19,099 20,268 21,508
Extensions Receivable 27,946 45,432 34,039 30,172 26,744 23,705 21,012 18,625
Other 56,108 48,886 44,298 36,806 35,872 34,993 34,165 33,386
--------- --------- --------- --------- --------- --------- --------- ---------
Other Receivables 124,807 158,707 117,051 111,097 111,196 110,269 109,884 110,258
Inventories
Manufactured Homes - New & Used 184,989 133,687 91,173 84,672 85,754 86,879 88,174 89,215
Raw Materials and Supplies 25,572 26,905 17,960 15,102 15,295 15,495 15,726 15,912
Work-in-Process 5,241 5,218 4,421 3,492 3,536 3,583 3,636 3,679
Land/Homes Under Development 12,770 12,485 11,233 9,767 9,034 7,849 6,643 6,722
--------- --------- --------- --------- --------- --------- --------- ---------
Inventories 228,572 178,295 124,787 113,032 113,619 113,806 114,180 115,528
Properties and Facilities, Net 208,798 177,212 118,621 111,502 112,707 115,560 120,000 125,961
Loan Servicing Assets 8,311 6,330 22,611 15,800 13,883 11,962 11,099 10,634
Other Assets 108,153 43,932 69,683 70,024 70,369 70,717 71,068 71,423
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL ASSETS $ 922,290 $ 760,448 $ 691,519 $ 601,162 $ 559,785 $ 580,526 $ 595,354 $ 636,986
========= ========= ========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS
EQUITY
Liabilities Not Subject
To Compromise
Short-Term Borrowings
CS First Boston Loan Purchase
Facility 47,500 49,000 138,501 86,552 35,676 37,247 29,933 39,837
Revolver 0 10,000 44,430 0 0 0 0 0
Fresh Start Revolver 0 61,801 38,681 28,520 14,113 0
--------- --------- --------- --------- --------- --------- --------- ---------
Short-Term Borrowings 47,500 49,000 138,501 148,353 74,356 65,767 44,046 39,837
Accounts Payable and Accrued
Liabilities
Accounts Payable 100,169 88,080 30,519 37,550 46,479 49,164 51,822 54,903
Servicing Liability 27,954 62,071 0 0 0 0 0 0
Accrued Warranty 15,274 12,521 6,881 6,349 7,152 7,590 8,056 8,590
Accrued Compensation 12,676 14,316 8,230 6,340 6,820 7,092 7,366 7,706
Other 94,585 74,179 78,586 61,449 66,527 70,710 74,867 79,672
--------- --------- --------- --------- --------- --------- --------- ---------
Accounts Payable and Accrued
Liabilities 250,658 251,167 124,216 111,688 126,978 134,556 142,110 150,871
Insurance Reserves and Unearned
Premiums 17,322 16,274 66 66 66 66 66 66
Deferred Income Taxes 6,169 6,169 5,676 6,266 7,061 7,497 7,953 8,484
Liabilities Subject To Compromise
Notes and Bonds Payable 323,120 309,167 308,840 7,515 7,515 7,515 7,515 7,515
Accounts Payable and Accrued
Liabilities 0 0 65,109 0 0 0 0 0
Other Long-Term Obligations 38,750 77,374 375,073 0 0 0 0 0
Shareholders Equity 238,771 41,297 (370,393) 0 0 0 0 0
Fresh Start Shareholders Equity 0 327,273 343,808 365,126 393,664 430,213
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES AND SHE $ 922,290 $ 760,448 $ 691,519 $ 601,162 $ 559,785 $ 580,526 $ 595,354 $ 636,986
========= ========= ========= ========= ========= ========= ========= =========
Page 13
[OAKWOOD HOMES LOGO]
SCHEDULE 4 - DEBT BALANCE SUMMARY
DEBT BALANCES
($'s in thousands)
FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST
- -----------------------------------------------------------------------------------------------------------------------
FYE September 30 2003* 2004 2005 2006 2007 2008
--------- --------- --------- --------- --------- ---------
FRESH START REVOLVER
Beginning Balance $ 10,000 $ 44,430 $ 61,801 $ 38,681 $ 28,520 $ 14,113
Net Borrowings (payments) 34,430 17,371 (23,120) (10,161) (14,407) (14,113)
--------- --------- --------- --------- --------- ---------
Ending Balance $ 44,430 $ 61,801 $ 38,681 $ 28,520 $ 14,113 $ --
--------- --------- --------- --------- --------- ---------
Average Borrowing Base 49,333 63,027 54,441 43,178 29,724 18,637
Interest Rate 9.50% 9.50% 9.50% 9.50% 9.50% 9.50%
Interest Expense 4,687 5,988 5,172 4,102 2,824 1,771
WAREHOUSE
Beginning Balance $ 49,000 $ 138,501 $ 86,552 $ 35,676 $ 37,247 $ 29,933
Net Borrowings (payments) 89,501 (51,949) (50,877) 1,572 (7,314) 9,903
--------- --------- --------- --------- --------- ---------
Ending Balance $ 138,501 $ 86,552 $ 35,676 $ 37,247 $ 29,933 $ 39,837
--------- --------- --------- --------- --------- ---------
Average Borrowing Base 127,473 66,546 56,808 44,687 33,388 49,590
Interest Rate 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Interest Expense 3,824 1,996 1,704 1,341 1,002 1,488
--------- --------- --------- --------- --------- ---------
Interest Expense Only $ 8,511 $ 7,984 $ 6,876 $ 5,443 $ 3,825 $ 3,258
--------- --------- --------- --------- --------- ---------
Total Projected Interest Expense 36,222 25,214 17,082 15,642 13,201 12,709
* Note that 2003 reflects 8 months of actual results.
** Note that Interest Expense does not include facility fees, other
facility charges, and an off balance sheet servicing facility with
anticipated average of $20 million outstanding monthly.
*** For 2003, October and November Revolver Balances reflect loans
associated with Foothill Capital.
**** For FY 2004, a fresh start revolver is assumed to commence on November
1, 2003
Page 14
[OAKWOOD HOMES LOGO]
SCHEDULE 5 - STATEMENTS OF CASH FLOWS
CONSOLIDATED CASH FLOW
($'s in thousands)
ACTUAL ACTUAL FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST
- ---------------------------------------------------------------------------------------------------------------------------------
FYE SEPTEMBER 30 2001 2002 2003 2004 2005 2006 2007 2008
--------- --------- --------- --------- --------- --------- --------- ---------
Operating Activities
Net Income/(Loss) $(176,049) $(193,051) $(410,088) $ (442) $ 16,535 $ 21,318 $ 28,538 $ 36,549
Cumulative Effect of Accounting
Change 16,866 -- -- -- -- -- -- --
Depreciation and Amortization 57,401 28,717 26,391 9,378 8,795 9,146 9,561 10,039
Non Cash Asset Impairment/
Restructuring Charges 50,200 168,318 250,661 -- -- -- -- --
(Gains) Losses on Sale of
Securities (10,275) (855) 71,740 (16,250) -- -- -- --
(Increase)/Decrease in Retained
Interests (707) 2,011 (956) (10,047) (22,215) (17,184) (19,275) (18,509)
Reserve for Uncollectible
Receivables 8,447 954 6,880 (7,235) (600) (600) (600) (600)
Other Receivables (9,975) (31,084) 46,794 12,765 1,817 2,849 1,247 92
Change in Inventory 128,682 40,023 53,152 11,755 (587) (187) (374) (1,349)
Accounts Payable & Accrued
Liabilities (26,682) (25,918) 1,315 (33,936) 15,290 7,578 7,553 8,762
Insurance Reserves and Unearned
Premiums (27,280) (1,048) (16,208) -- -- -- -- --
Deferred Income Taxes -- -- (493) 590 795 435 456 531
Other Assets (18,133) (10,047) (31,086) -- -- -- -- --
Other Long-Term Obligations (2,805) 3,951) (2,245) (341) (345) (348) (351) (355)
--------- --------- --------- --------- --------- --------- --------- ---------
Cash Provided by Operations $ (10,310) $ (25,931) $ (4,142) $ (33,765) $ 19,486 $ 23,008 $ 26,756 $ 35,159
Loans Originated (847,005) (815,520) (346,172) (181,823) (204,813) (217,349) (230,683) (245,999)
Principal receipts on loans/Sale
of Loans 8,641 16,604 16,733 -- -- -- -- --
Sale of Loans 896,142 821,882 198,216 258,165 269,324 214,930 239,648 232,812
Purchase of Loans and Securities -- (9,405) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Cash Provided/(Used) by Operating
Activities $ 47,468 $(l2,370) $(l35,365) $ 42,578 $ 83,997 $ 20,589 $ 35,721 $ 21,971
--------- --------- --------- --------- --------- --------- --------- ---------
Investing Activities
Acquisition of Properties &
Facilities (11,144) (8,722) 11,674 (8,000) (10,000) (12,000) (14,000) (16,000)
Other 10,348 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Cash Provided/(Used) by Investing
Activities $ (796) $ (8,722) $ 11,674 $ (8,000) $ (10,000) $ (12,000) $ (14,000) $ (16,000)
--------- --------- --------- --------- --------- --------- --------- ---------
Financing Activities
Net Borrowings/(Repayments) on
Short-Term Credit Facilities (18,000) 11,500 89,501 (51,949) (50,877) 1,572 (7,314) 9,903
Net Borrowings/(Repayments) on
Revolver -- (14,557) 34,431 (17,512) -- -- -- --
Net Borrowings/(Repayments) on
Fresh Start Revolver -- -- -- 34,884 (23,120) (10,161) (14,407) (14,113)
Payments on notes and bonds (6,974) -- (347) -- -- -- -- --
Other 25 10 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Cash Provided/(Used) by Financing
Activities $ (24,949) $ (3,047) $ 123,586 $ (34,578) $ (73,997) $ (8,589) $ (21,721) $ (4,210)
--------- --------- --------- --------- --------- --------- --------- ---------
Cash and Cash Equivalents
Beginning of Period 22,523 44,246 20,107 20,000 20,000 20,000 20,000 20,000
Net Increase/(Decrease) in Cash
and Cash Equivalents 21,723 (24,139) (107) 0 0 (0) 0 1,762
--------- --------- --------- --------- --------- --------- --------- ---------
End of Period $ 44,246 $ 20,107 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 21,762
========= ========= ========= ========= ========= ========= ========= =========
Page 15
[OAKWOOD HOMES LOGO]
SCHEDULE 6 - CONSOLIDATED RECOVERY
Enterprise Value $ 350.0
Plus Cash Left Behind 91.6
--------
Net Enterprise Value $ 441.6
========
CLASS BALANCE RECOVERY % RECOVERY TREATMENT
- -------- ---------- ---------- ---------- -----------------------
Admin Tranche A of DIP $ (26.5) 100.0% $ (26.5) Paid at Effective Date
Admin Tranche B of DIP (52.0) 100.0% (52.0) Paid at Effective Date
Admin Exit Revolver/Misc. Costs (6.5) 100.0% (6.5) Paid at Effective Date
Admin Priority Taxes (5.0) 100.0% (5.0) Paid at Effective Date
Admin Reclamation Claims (3.0) 100.0% (3.0) Paid at Effective Date
Admin Professional Fees (8.3) 100.0% (8.3) Paid at Effective Date
--------- ------- --------
(101.3) 100.0% (101.3)
1 Priority Non-Tax (Warn) (4.5) 100.0% (4.5) Paid at Effective Date
2A Secured Tax -- 100.0% --
2B 1997 Bonds Secured (0.9) 100.0% (0.9) Paid in Normal Course
2C 1998 Bonds Secured (4.7) 100.0% (4.7) Paid in Normal Course
2D Auto Secured (0.1) 100.0% (0.1) Paid in Normal Course
2E Carolina Secured (0.8) 100.0% (0.8) Paid in Normal Course
2F First American Secured (0.1) 100.0% (0.1) Paid in Normal Course
2G Foothill Secured -- 100.0% --
2H Pulaski Bonds Secured -- 100.0% --
2I Schmittauer Secured -- 100.0% --
2J Thomas Secured (0.3) 100.0% (0.3) Paid in Normal Course
2K US Bank Secured (0.6) 100.0% (0.6) Paid in Normal Course
2L Other Secured/Setoff -- 100.0% --
------------------------------------------------------------------------
(7.5) 100.0% (7.5)
3 Convenience (20.0) 15.0% (3.0) Paid at Effective Date
4A Senior Notes (303.8) 48.4% (147.2) Converted to Equity
4B Junior Notes (2.7) 48.4% (1.3) Converted to Equity
4C REMIC Guarantee (1) (274.8) 48.4% (133.1) Converted to Equity
4D Litigation (35.0) 48.4% (17.0) Converted to Equity
4E Other Unsecured (55.3) 48.4% (26.8) Converted to Equity
------------------------------------------------------------------------
(671.6) 48.4% (325.3)
-------- --------
Total $ (804.9) $ (441.6)
======== ========
Note
- ----
(1) The REMIC Guarantee claim estimate of $274.8M is based on the face
value of the obligations.
(2) The $52M of Tranche B will be satisfied with restricted cash and
principal and interest receivables. The projected balance sheets have
been prepared excluding principal & interest receivables and restricted
cash for satisfaction of the Tranche B facility.
16
MILLER BUCKFIRE LEWIS YING & CO., LLC VALUATION STATEMENT
The Debtors have been advised by MBLY with respect to the range of
estimated reorganization value of the Reorganized Debtors. The midpoint of the
total reorganization value range, which includes all of Oakwood's operating
businesses, was estimated by MBLY to be approximately $350 million as of
September 30, 2003. The total reorganization value does not include the value of
any excess cash distributable to claimholders, although the Company is currently
not projected to possess excess cash. The midpoint of the reorganization common
equity value range, which takes into account the estimated debt balances at the
Effective Date, was estimated by the Company and MBLY to be approximately $330
million as of an assumed Effective Date of September 30, 2003. The foregoing
reorganization equity value (ascribed as of the date of this Disclosure
Statement) reflects, among other factors discussed below, current financial
market conditions and the inherent uncertainty as to the achievement of the
Projections.
Based on the assumed reorganization common equity value set forth
above, the midpoint value of the approximately 10 million shares of New Common
Stock to be issued to the holders of Allowed Claims under the Plan is estimated
to be approximately $33 per share. The foregoing valuations also reflect a
number of assumptions, including a successful reorganization of the Debtors'
businesses and finances in a timely manner, the forecasts reflected in the
Projections, the amount of available cash, market conditions and the Plan
becoming effective in accordance with its terms on a basis consistent with the
estimates and other assumptions discussed herein.
In preparing the estimated reorganization equity value, MBLY: (a)
reviewed certain historical financial information of Oakwood for recent years
and interim periods; (b) reviewed certain internal financial and operating data
of Oakwood; (c) met with certain members of senior management of Oakwood to
discuss Oakwood's operations and future prospects; (d) reviewed publicly
available financial data and considered the market values of public companies
that MBLY deemed generally comparable to the operating businesses of Oakwood;
(e) reviewed the financial terms, to the extent publicly available, of certain
acquisitions of companies that MBLY believes were comparable to the operating
businesses of Oakwood; (f) considered certain economic and industry information
relevant to Oakwood's operating businesses; and (g) reviewed certain analyses
prepared by other firms retained by the Debtors and conducted such other
analyses as MBLY deemed appropriate. Although MBLY conducted a review and
analysis of Oakwood's businesses, operating assets and liabilities and business
plans, MBLY assumed and relied on the accuracy and completeness of all (a)
financial and other information furnished to it by the Debtors and by other
firms retained by the Debtors and (b) publicly available information. In
addition, MBLY did not independently verify the assumptions underlying the
Projections in connection with such valuation. No independent evaluations or
appraisals of the Debtors' assets were sought or were obtained in connection
therewith.
Estimates of reorganization equity value do not purport to be
appraisals, nor do they necessarily reflect the values that might be realized if
assets were to be sold. The estimates of reorganization equity value prepared by
MBLY assume that the Reorganized Debtors will continue as the owner and operator
of their businesses and assets. Such estimates were developed solely for
purposes of formulation and negotiation of a plan of reorganization and analysis
of implied relative recoveries to creditors thereunder. Such estimates do not
purport to reflect or constitute appraisals, liquidation values or estimates of
the actual market value that may be realized through the sale of any securities
to be issued pursuant to the Plan, which may be significantly different from the
amounts set forth herein. Such estimates reflect computations of the estimated
reorganization equity value of Oakwood through the application of various
valuation techniques, including, among others: (a) a comparable company
analysis, in which MBLY analyzed the enterprise value of public companies that
MBLY deemed generally comparable to the operating businesses of Oakwood as a
multiple of revenues and of earnings before interest, taxes, depreciation and
amortization ("EBITDA") and then applied multiples provided by such analysis to
the projected revenues and EBITDA of Reorganized Oakwood; (b) a discounted cash
flow analysis, in which MBLY, using a weighted average cost of capital, computed
the present value of free cash flows and terminal value of Oakwood; and (c) a
comparable acquisitions analysis, in which MBLY analyzed the financial terms of
certain acquisitions of
companies that MBLY believed were comparable to the operating businesses of
Oakwood and then applied the EBITDA multiples provided by such analysis to the
projected EBITDA of Reorganized Oakwood. An estimate of reorganization equity
value is not entirely mathematical, but rather it involves complex
considerations and judgments concerning various factors that could affect that
value of an operating business. Moreover, the value of an operating business is
subject to uncertainties and contingencies that are difficult to predict and
will fluctuate with changes in factors affecting the financial conditions and
prospects of such a business. As a result, the estimate of reorganization equity
value set forth herein is not necessarily indicative of actual outcomes, which
may be significantly more or less favorable than those set forth herein. Because
such estimates are inherently subject to uncertainties, none of Oakwood, MBLY or
any other person assumes responsibility for their accuracy. Depending on the
results of the Debtors' operations or changes in the financial markets, MBLY's
valuation analysis as of the Effective Date may differ from that disclosed
herein.
In addition, the valuation of newly issued securities is subject to
additional uncertainties and contingencies, all of which are difficult to
predict. Actual market prices of such securities at issuance will depend upon,
among other things, prevailing interest rates, conditions in the financial
markets, the anticipated initial securities holding of prepetition creditors,
some of which may prefer to liquidate their investment rather than hold it on a
long-term basis, and other factors that generally influence the prices of
securities. Actual market prices of such securities also may be affected by the
Debtors' history in chapter 11, conditions affecting the Debtors' competitors or
the industry generally in which the Debtors participate or by other factors not
possible to predict. Accordingly, the reorganization equity value estimated by
MBLY does not necessarily reflect, and should not be construed as reflecting,
values that will be attained in the public or private markets. The equity value
ascribed in the analysis does not purport to be an estimate of the
post-reorganization market trading value. Such trading value may be materially
different from the reorganization equity value ranges associated with MBLY's
valuation analysis. Indeed, there can be no assurance that a trading market will
develop for the New Common Stock.
Furthermore, in the event that the actual distributions to Claim
holders differ from those assumed by the Debtors in their recovery analysis, the
actual recoveries realized by holders of Claims could be significantly higher or
lower than estimated by the Debtors.
EXHIBIT C
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FINANCIAL ANALYSIS - LIQUIDATION
Page 1
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TABLE OF CONTENTS
INTRODUCTION .............................................................. 3
BASIS OF PRESENTATION ..................................................... 4
OTHER ASSUMPTIONS ......................................................... 5
RECOVERIES AND DISTRIBUTIONS .............................................. 7
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INTRODUCTION
Section 1129(a)(7)(A) of the Bankruptcy Code provides that the Bankruptcy Court
shall not confirm a plan of reorganization as to creditors' and equity interest
holders who do not vote to accept the plan unless it will provide such creditors
and equity holders at least the amount or value they would receive if the Debtor
were liquidated in a hypothetical case under Chapter 7 of the Bankruptcy Code,
commonly referred to as the "Best Interest of Creditors Test".
The liquidation analysis (the "Analysis") presents estimated amounts that would
be paid to claimants and equity interest holders under a hypothetical Chapter 7
liquidation period. The assumptions and estimates utilized in this Analysis are
considered reasonable by management of the Debtor and are described below.
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BASIS OF PRESENTATION
The Analysis has been prepared on a consolidated basis as of May 2003,
reflecting value for both bankrupt and non-bankrupt entities. This Analysis does
not take into account the effect of operating results subsequent to May 2003, or
changes in assets and liabilities after date except for specific adjustments
made to reflect the sale of property, plant and equipment. Additionally, the
projected asset and liability balances as of October 31,2003 were assumed for
the loans held for sale of $94M, the warehouse facility liability of $48.2M, and
the DIP facility liability of $26.5M.
As part of the Company's closing of sales centers and manufacturing facilities,
as well as securing financing, the Company has obtained appraisals for inventory
and most of its real estate. These values, adjusted based on actual sales
experience, are described in the footnotes of this analysis and form the basis
of the realizable value for real property.
The most significant liability for a non-debtor entity is the warehouse line.
For purposes of this Analysis, it is assumed that the loans held for sale that
support the warehouse borrowings are sold or securitized to satisfy the
warehouse obligation at the projected date of October 31, 2003. Since the
petition date, the Debtor has entered into three sales transactions and is in
the process of completing a third to sell loans in the warehouse with differing
prices. For purposes of this Analysis, it is assumed in liquidation that the
Debtor would be able to realize 87.7% of the projected loan balance based on the
expected yield currently being considered in the transaction as of August 18,
2003. To the extent that a gain or loss is incurred, actual recoveries to
creditors would be directly impacted.
The wind down period for the Analysis is assumed to be six months. In an actual
liquidation the period would vary thereby impacting recoveries to creditors. The
Analysis is also based upon assumptions with regard to management decisions that
may be subject to change in an actual liquidation of the Company. Accordingly,
there can be no assurance that the values reflected in this analysis would be
realized if the Debtor were, in fact, to undergo such liquidation.
Furthermore, it should be noted that the potential for significant contingent
and other claims, litigation, additional rejection costs, and the final
determination of the allowed claims could substantially impact both the timing
and amount of the distribution of the asset proceeds to the claim holders.
This analysis is believed to reflect all relevant information known to
management as of the date of this Disclosure Statement. The Debtor is not aware
of any events subsequent to such date that would materially affect this
analysis. There can be no assurance that the assumptions underlying this
analysis would be made or accepted by the Bankruptcy Court in an actual Chapter
7 proceeding. Additionally, no recovery or related litigation costs attributed
to any preference or fraudulent transfer recoveries are assumed.
The liquidation values contained herein have been prepared solely for the
purposes of estimating the proceeds available in a hypothetical Chapter 7
liquidation. Nothing contained in these valuation assumptions is intended to be
or constitutes a concession or admission of the Debtor for any other purpose nor
is it intended to bind any other party.
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OTHER ASSUMPTIONS
The following notes describe the significant assumptions:
- A total of $57.2M in Repurchase Obligations held by the
floorplan lenders is offset by $5.3M in trade receivables,
$3.7M in Bombardier deposit, $4.0M Textron deposit and $24M in
estimated recovery on the sale of the floorplanned inventory
for a next administrative claim of $20.2M. An additional $1M,
not shown below, in estimated pre-petition floorplan rejection
claims would be a general unsecured claim. The inventory that
would be returned by the dealers is considered new home
inventory. However, since it has been moved offsite to the
dealers' lots and may be slightly older, a 10% reduction on
the assumed new home recovery rate of 60% included herein was
assumed for a net 50% recovery rate on the book
value/inventory cost of the floorplanned inventory.
- Operating Cash and Cash held in Investment & Securities
accounts are assumed to be unrestricted in nature and are
considered 100% recoverable. However, Restricted Cash at May
30, 2003 is comprised of cash held that is restricted in
nature and is not considered available to the creditors of the
Company.
- The majority of Accounts Receivable is comprised of trade
receivables due from floorplan lenders with repurchase
obligations and other third party lending institutions. It is
assumed that under a liquidation scenario the Debtor would not
exist to service the housing and therefore it is assumed that
dealers and lenders will not close on all deals in process,
necessitating alternate sources of financing.
- This results in an assumed recovery rate of 75% on
non-floorplan lender receivables. The trade receivables due
from one of the three floorplan lenders are assumed to offset
the repurchase obligations that are part of the general
unsecured claimant class. The balance of the receivables are
comprised primarily of miscellaneous vendor, dealer and
employee receivables that have an assumed recovery rate of 0%
due to the nature of the receivable or they offset related
general unsecured claims.
- The Loan and Loan Servicing Assets are comprised primarily of
the Deferred Servicing Asset, Advance Receivables, and
Retained REMIC Interest.
- It is assumed that the Loans Held for Sale that
support the warehouse borrowings are sold or
securitized to satisfy the warehouse obligation at
the projected date of October 31, 2003 and therefore
the projected balance as of that date of $94M is
assumed. Since the petition date, the Debtor has
entered into three sales transactions to sell loans
in the warehouse with differing prices. For purposes
of this Analysis, it is assumed in a liquidation that
the Debtor would be able to realize 87.7% of the
projected loan balance based on the most recent
transaction being negotiated as of August 18, 2003.
It also assumed that the related Deferred Mortgage
Fees, which are the closing costs on the loans, are
estimated at 3% of the projected loan balance and
would be paid at 100%.
- The value of the Deferred Servicing Asset of $42.2M
assumes an estimate of discounted cash flow value
based on the value of each servicing portfolio
assuming a discount rate of 20%, servicing cost of 63
basis points. The short-term receivable for the A/R
REMIC (service fee income) is the current portion of
the Deferred Servicing Asset that is due upon the
next distribution date and is considered liquid with
a recovery of 100%.
- The Advance Receivables include receivables for
Corporate Advances, Repossession Expenses, Escrow,
and Principal and Interest ("P&I"). The Corporate
Advances are primarily comprised of servicer payments
of an obligor's principal, tax or interest payment,
with respect to a loan extension, recoverable either
from the obligor's payments during the
Page 5
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OTHER ASSUMPTIONS - CONTINUED
extension period, from the related REMIC pool, or
from subsequent collections on the related asset. The
Repossession Expenses include servicer payments for
repossession, rehabilitation and resale costs,
recoverable from subsequent collections on the
related asset. The Escrow Advances are primarily
comprised of servicer payments to cover forceplaced
insurance. The recovery rate on each of these assets,
excluding the P&I Advance receivable, assumes the
estimated values attributed to each asset in the
Borrowing Base calculation.
- The P&I Advances are comprised of servicer payments
of a defaulting obligor's monthly principal and
interest payment that are recoverable, depending upon
the deal, from the related REMIC pool, or from
subsequent collections on the related manufactured
home. The P&I Advances are pledged against the
servicer advance facility and are reflected with a
recovery rate of 0% as 100% of the net asset value
offsets the servicer advance liability with the
balance of the advances that did not qualify for the
facility valued at an assumed recovery rate of 0% as
well.
- The value of the Regular and Residual Retained REMIC
interests assume an estimate of discounted cash flow
value based on the value of each portfolio assuming a
discount rate of 20% and 30%, respectively.
- The balance of the Loan Servicing Assets assumes
management's historical loss and collection
experience.
- Inventory is comprised of raw materials, work in process, and
mobile homes. Raw Materials and Supplies are valued based on a
category analysis as of May 2003 and management's experience.
Work-in-Process less than 90% complete has an assumed recovery
rate of 10% to account for any scrap value with the balance
valued at the same rate as New Homes which assumes the
estimated recovery rate methodology experienced by the Debtor
and obtained in an independent valuation. Used Homes have an
assumed recovery of book value.
- The Debtor is currently in the process of selling a number of
its plants and retail sales centers. The Debtors' recent sales
experience and appraisals were used in this Analysis to
estimate the recovery on Real Property in a liquidation
scenario.
- The Debtor has assumed that all equipment, excluding one
airplane, would have a recovery rate of 5% based on
management's experience in selling equipment or scrap value.
The recovery value on net realized proceeds from the sale of
the airplane was utilized in this analysis.
- Prepaids and Deposits are assumed to either have no value in a
liquidation scenario or offset at 100% related general
unsecured claims.
- Other Assets, which are comprised primarily of the investment
in joint ventures, deferred tax asset, and deferred bond
issuance charges, were valued based on the nature of the asset
and management's expected recovery under a liquidation
scenario.
- The proceeds from a Chapter 7 liquidation that would be
available to the claim holders would be reduced by the
administrative costs incurred during the wind-down of
operations and the sale of assets. These costs include
professional and trustee fees, real estate commissions,
salaries, severance, retention and possible Warn Act wages,
occupancy and other wind-down costs. These costs were only
estimated for the six-month liquidation period and if the sale
of assets exceeds this period, actual administrative costs may
be in excess of the estimate included in this analysis.
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RECOVERIES AND DISTRIBUTIONS
The following notes describe the significant assumptions: The following
tables highlight the estimated asset recoveries by asset category and the
estimated distributions available to each class of claim. To the extent that
proceeds remain after satisfaction of all secured claims and administrative
expenses, the following analyses assume the application of the rule of absolute
priority for distribution with respect to the remaining sale proceeds of the
Debtor.
ADJUSTED BALANCE AS ESTIMATED RECOVERY ESTIMATED
OF MAY 2003 RATE AFTER OFFSETS LIQUIDATION VALUE
------------------- ------------------ -----------------
LIQUIDATED ASSETS
Cash (Restricted & Unrestricted) $113,125 57% $ 65,036
Accounts Receivable 29,392 47% 13,687
Loans and Related Assets 92,366 87% 80,804
Loan Servicing Assets 157,438 79% 123,738
Inventory 127,196 59% 74,467
Real Property 91,070 33% 29,758
Equipment 34,946 6% 2,212
Prepaid Expenses 14,936 0% --
Other Assets 29,733 7% 2,047
-------- -------- --------
Total Assets Available for Distribution $690,202 57% $391,749
======== ======== ========
Administrative Costs - Wind-down 62,681
--------
Total Assets Available for Distribution
After Administrative Costs for Wind-down $329,067
========
The recovery distribution analysis by class of claims is shown on the
following page.
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LIQUIDATION ANALYSIS
(000'S)
SUMMARY
CREDITOR RECOVERY
ESTIMATED ALLOWED LIQUIDATION ESTIMATED ALLOWED RESTRUCTURED COMPANY
CLAIMS-LIQUIDATION ESTIMATED RECOVERY CLAIMS-RESTRUCTURED ESTIMATED RECOVERY
------------------- ------------------ ------------------- --------------------
ASSETS/VALUES AVAILABLE FOR
DISTRIBUTION $ 329,067 $ 441,600
Administrative Claims
Non-Winddown Administrative Claims $163,319 (1) $36,460 (9)
Non-Debtor Administrative Claims 51,076 (2) 51,536 (10)
Repurchase Obligations, Net 20,189 (3) --
Post Petition Professional Fees 8,304 8,304
Priority Tax 5,000 5,000
---------- --------- -------- ---------
Total Administrative Claims 247,888 247,888 100% 101,300 101,300 100%
Class 1 Debt -Priority Non-Tax
Prepetition WARN Act Claims 4,500 4,500 100% 4,500 4,500 100%
Class 2 Debt - Secured Debt
Secured Debt 7,515 (4) 7,515 100% 7,515 7,515 100%
Class 3 Debt - Convenience Class
Convenience Class 20,000 (5) 2,012 10% 20,000 3,000 15%
Class 4 Debt - Non-Priority Unsecured
Notes Payable 306,538 306,538
Repurchase Obligations, Net 1,000 (3) 1,000 (3)
REMIC Guarantee 274,764 (6) 274,764
Litigation 35,000 (7) 35,000
Other General Unsecured 50,068 (8) 54,330
---------- --------- -------- ---------
TOTAL NON-PRIORITY UNSECURED
CLAIMS 667,370 67,152 10% 671,632 325,285 48%
---------- --------- -------- ---------
TOTAL CLAIMS RECOVERED (9) $ 947,273 $ 329,067 $804,947 $ 441,600
========== ========= ======== =========
(1) Non-Winddown Administrative Claims under the liquidation scenario are
primarily comprised of $105.7M in post-petition accounts payable and accrued
liabilities that includes $8.5M in accrued warranty claims, $26.5M related to
the DIP facility, $27.1M in Tarheel workers' compensation claims that are
administrative in nature, $2.9M in estimated reclamation claims, and $6.5M of
DIP facility fees. The administrative claims are reduced by $5.4M in restricted
cash held against customer deposit claims in the liquidation scenario that
offsets at 100% the related liability.
(2) Non-Debtor Administrative Claims are comprised primarily of the servicer
advance facility of $51.5M and the warehouse facility of $48.2M that relate to
the core assets being liquidated. Under a liquidation scenario, the Non-Debtor
Liabilities are reduced by asset offsets. The advance facility liabilities
totalling $52.6M are assumed to be offset at 100% by restricted cash and the
net P&I advance receivable.
(3) A total of $58.2M in repurchase obligations held by the floorplan lenders
is offset by $5.3M in trade receivables, $3.7M in restricted cash, $4.0M Textron
deposit and $24M in floorplanned inventory sales. An assumed recovery rate of
50% of the floorplanned inventory cost, of $48M, is assumed. Of the $21.2M in
adjusted repurchase obligations, $1M in estimated pre-petition floorplan
rejection claims would be considered a general unsecured claim and the balance
of the claims at $20.2M would be considered an administrative claim under the
liquidation scenario.
(4) Secured Debt is comprised of $5.6M in IRBs and $1.9M in various secured debt
including Auto, Carolina, Thomas, First American and US Bank.
(5) Under both scenarios, $20M of unsecured claims have been reclassified to the
convenience class. The planned recovery rate under the going concern scenario
for this class of claims is 15%.
(6) The REMIC guarantee claims estimate of $274M is based on the face value of
the obligations. To date, claims of $1B have been filed and these claims will be
estimated by the Bankruptcy Court.
(7) A total of 1,733 litigation claims have been received for over $300M,
excluding cross case duplicates. For purposes of this analysis, $35M in claims
have been assumed.
(8) Other General Unsecured claims of $54.3M includes $12M in estimated
lease rejection claims and $500K of unsecured WARN Act claims. Under a
liquidation scenario the balance is offset by $7.2M of receivables, prepaids,
and other assets and includes $3M of additional estimated lease rejection
claims. No claim for Wachovia cash management services is estimated in the above
claims.
(9) The Non-Winddown Administrative claims under the going concern scenario are
comprised of $26.5M related to the DIP facility, $6.5M in DIP facility fees and
$3M in reclamation claims.
(10) The Non-Debtor Administrative claims under the going concern scenario are
comprised solely of the servicer advance facility, or Tranche B of the DIP
facility.
(11) The analysis was prepared on a consolidated basis and the intercompany
claims are not assumed to be receive recoveries. Additionally, no value was
assigned to the interest holders.