The Exchange Offer: Preserving Liquidity and Minimizing Dilution

Fleetwood may use cash, stock, or a combination of both to meet its 5% debenture repurchase obligations in December 2008; however, the Company has determined that it is in the best interest of Fleetwood and its constituencies to pursue this exchange offer in order to preserve liquidity and to avoid undue dilution of existing shareholders. Accordingly, the exchange offer has built-in incentives to encourage a greater percentage of participation by the holders of the existing debentures.

The notes offered in the exchange offer provide existing holders with an increase in yield, the benefits of a security interest, a three-year maturity, and a limited amount of common stock while eliminating the burden on Fleetwood of the existing repurchase obligations. The successful completion of the exchange offer will provide Fleetwood further opportunity to stabilize its businesses and strengthen its competitive position during the expected recovery of the markets for its products. The exchange offer is subject to several conditions, including (1) a declaration from the Securities and Exchange Commission (SEC) that the registration statement is effective, and (2) the valid tender, without withdrawal, of a minimum of 33.5 percent, or $33.5 million, of the existing 5% debentures. A holder with ownership of approximately $33.9 million of the debentures has notified the Company that it intends to accept the new senior notes and common stock through the exchange offer. The exchange offer is scheduled to expire at 5 p.m., Eastern Time, on December 5, 2008, unless terminated earlier or extended.

Holders who opt to participate in the exchange will receive the following for each $1,000 of debentures:

• $1,030 in the new senior secured notes, which are (1) senior obligations of Fleetwood, (2) secured by a first priority lien on approximately $20 million of unencumbered real estate assets of certain Fleetwood subsidiaries and a junior lien on approximately $58 million of certain of Fleetwood's subsidiaries' real properties that are pledged to secure its credit facility, (3) guaranteed on a subordinated basis to Fleetwood's credit facility by certain Fleetwood subsidiaries, and (4) due three years from the date of issuance
• A coupon rate for the senior secured notes of at least 12 percent consisting of:
  • 5 percent payable in cash
  • 7 percent pay-in-kind interest (PIK interest), plus
  • A 50-basis-point increase in the PIK interest every six months up to a maximum of 9 percent PIK interest
  • Fleetwood common stock, the amount of which is dependent on its trading price. In aggregate, the Company will issue a minimum of $4 million in stock, with the number of shares determined on a volume-weighted-average basis but subject to a minimum price of $0.75 per share
  • Payment of accrued and unpaid interest for any debentures accepted in the exchange offer

In addition, as an incentive to increase participation in the exchange offer, escalation factors will be implemented at participation levels of $55 million, $70 million, and $85 million. At each of these levels, the company will provide an increase of:

• Approximately 67 basis points in the PIK interest rate, payable from the issue date, subject to an overall cap of 9 percent in PIK interest
• Approximately $2.2 million in stock, subject to a maximum of $10.5 million at the $0.75 minimum share price, or 14,000,000 shares.

The company's secured credit facility with a syndicate of lenders led by Bank of America has been amended to accommodate the terms of the senior secured notes. In particular, collateral was freed from the facility to provide security for the notes. The real estate term loan commitment was eliminated and borrowings of $12.8 million were repaid in full. The amendment also reduced the total amount of real estate collateral held by the lenders from $79 million to $58 million, reduced the loan commitments for the revolving credit facility to $135 million, and increased the interest rates charged under the facility.

NYSE Below-Criteria Letter

Fleetwood has received formal notification from NYSE Regulation, Inc. that it is not in compliance with the NYSE $1.00 average share price continued listing standard. The continued listing standard requires that the average closing price per share of common stock be at least $1.00 per share over a consecutive 30 trading-day period. Under the NYSE's continued listing standards, Fleetwood must return to compliance with the $1.00 average share price standard within six months to avoid delisting.

Fleetwood is pursuing various solutions to satisfy the continued listing standard, including successful completion of this exchange offer and the satisfactory resolution in December 2008 of any debenture repurchase obligations. In addition, the Company is continuing to develop and complete ongoing restructuring initiatives to improve operations and further reduce costs.

Important Information Regarding Exchange Offer

In connection with the exchange offer, a registration statement on Form S- 4, a tender offer statement on Schedule TO, and related documents relating to the exchange offer are being filed by Fleetwood with the SEC. The senior secured notes and common stock may not be exchanged or sold nor may offers to exchange or buy be accepted prior to the time the registration statement becomes effective. This news release shall not constitute an offer to exchange or sell, or the solicitation of an offer to exchange or buy, nor shall there be any exchange or sale of such securities in any state in which such offer, exchange, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

Holders of the debentures are strongly advised to read the registration statement, tender offer statement and other related documents because these documents contain important information. Such holders may obtain copies of the exchange offer materials from MacKenzie Partners, the information agent for the exchange offer, at 800-322-2885. These documents can also be obtained at no charge from Fleetwood or at the SEC's website, www.sec.gov. Fleetwood is not making any recommendation to holders of outstanding debentures as to whether they should tender them pursuant to the exchange offer.

SOURCE: Fleetwood Enterprises press release