Solicitation Statement Dated February 13, 2001
NVR, INC.
Solicitation of Consents to Amendment
of
the Indenture Governing
its
8% Senior Notes due 2005
(CUSIP No. 62944T AB 1)
________________________________________________________________________________
THIS CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
FEBRUARY 27, 2001, UNLESS EXTENDED. IF THE REQUISITE CONSENTS ARE OBTAINED AND
THE PROPOSED AMENDMENT IS ADOPTED AND BECOMES EFFECTIVE, IT WILL BE BINDING ON
ALL HOLDERS OF NOTES, AND THEIR RESPECTIVE TRANSFEREES, WHETHER OR NOT THEY HAVE
DELIVERED A CONSENT.
________________________________________________________________________________
NVR, Inc. ("NVR" or the "Company") is hereby soliciting consents from
registered holders of its 8% Senior Notes due 2005 (the "Notes") to the
amendment (the "Proposed Amendment") of the indenture (the "Indenture") dated
as of April 14, 1998, between the Company and The Bank of New York, as trustee
(the "Trustee"), as amended and supplemented by the first supplemental indenture
(the "First Supplemental Indenture") dated as of April 14, 1998, between the
Company and the Trustee, pursuant to which the Notes were issued. As more fully
described herein, the purpose of the consent solicitation (the "Solicitation")
is to permit the Company to amend the Indenture in order to provide the Company
with greater flexibility to continue to repurchase shares of its outstanding
common stock as part of its strategy of maximizing shareholder value. See
"Purpose of the Solicitation and Proposed Amendment." The Proposed Amendment to
the Indenture is specifically set forth in "Proposed Amendment" and in Annex A
hereto.
This solicitation is being made to all holders of the Notes. Subject to the
terms and conditions set forth in this Solicitation Statement, the Company will
(i) accept all properly completed and executed consent forms constituting or
deemed to constitute a vote for the Proposed Amendment (the "Consents") received
by Georgeson Shareholder Communications Inc. (the "Information Agent") prior to
5:00 p.m., New York City time, on February 27, 2001 (as such time may be
extended as provided herein, the "Expiration Date") and not properly revoked
only if (x) Consents (the "Requisite Consents") in respect of at least a
majority in aggregate principal amount of Notes that are outstanding have been
received by the Expiration Date (and not properly revoked) and (y) the operative
provisions of the second supplemental indenture incorporating the Proposed
Amendment (the "Second Supplemental Indenture") have become effective and (ii)
pay consenting Holders (as hereinafter defined) $45 in cash (the "Consent
Payment") for each $1,000 principal amount of Notes for which a Consent has been
accepted.
The Solicitation Agent for the Consent Solicitation is:
Credit Suisse First Boston
The Company will make Consent Payments to consenting Holders as promptly as
practicable after the execution of the Second Supplemental Indenture. Holders
who do not properly deliver their Consents prior to the Expiration Date will not
be entitled to receive Consent Payments.
The Company expressly reserves the right in its sole discretion (i) to
terminate the Solicitation at any time (including after the Expiration Date)
prior to the execution of the Second Supplemental Indenture (whether or not the
Requisite Consents have been received) by giving oral or written notice of such
termination to the Trustee, (ii) not to extend the Solicitation beyond the
Expiration Date and (iii) to amend, at any time or from time to time, the terms
of the Solicitation. Any such termination or amendment will be followed as
promptly as practicable by public announcement thereof (or written notice
thereof to the Registered Holders of Notes).
Only those persons in whose names Notes are registered in the register
maintained by the Trustee as of the close of business on February 13, 2001 (the
"Record Date"), or any other person who has obtained a proxy authorizing such
person (or any other person claiming title by or through such person) to vote
the applicable Notes on behalf of a Registered Holder, will be eligible to
consent to the Proposed Amendment and be entitled to receive a Consent Payment.
A beneficial owner of Notes (other than a DTC participant) registered in the
name of a nominee must either (i) instruct the relevant Holder to deliver a
Consent on its behalf or (ii) obtain a written proxy from such Registered Holder
if such beneficial owner desires to deliver a Consent with respect to such
Notes.
The Company shall not be deemed to have accepted any Consents until the
Second Supplemental Indenture is executed by the Company and the Trustee. If the
Company and the Trustee execute the Second Supplemental Indenture as aforesaid,
the Proposed Amendment will be binding upon all holders of Notes, whether or not
such Holders have delivered their Consents.
The transfer of Notes will not have the effect of revoking the election
made in any Consent form theretofore validly delivered by the Holder of such
Notes, and each Consent will be counted notwithstanding any transfer of the
Notes to which such Consent relates, unless the procedure for revoking Consents
described herein has been complied with. Holders must deliver (and not revoke)
Consents to approve the Proposed Amendment. For purposes of determining the
principal amount of Notes outstanding, Notes held by the Company and any of its
affiliates will not be counted as outstanding. As of the date of this
Solicitation Statement, the aggregate principal amount of Notes outstanding is
$145,000,000, $30,000,000 of which is held by the Company and $1,010,000 of
which is held by affiliates of the Company. Accordingly, for purposes of this
Solicitation Statement, a total of $113,990,000 in aggregate principal amount of
Notes will be counted as outstanding.
CONSENTS MAY BE REVOKED IN ACCORDANCE WITH THE PROCEDURE SET FORTH HEREIN
AT ANY TIME UP TO, BUT WILL BECOME IRREVOCABLE UPON, THE LATER OF (I) THE
EXPIRATION DATE AND (II) THE RECEIPT BY THE TRUSTEE FROM THE COMPANY OF AN
OFFICER'S CERTIFICATE CERTIFYING THAT THE REQUISITE CONSENTS HAVE BEEN RECEIVED.
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ONLY HOLDERS ON THE RECORD DATE WHO PROPERLY DELIVER THEIR CONSENTS PRIOR
TO THE EXPIRATION DATE AND DO NOT PROPERLY REVOKE SUCH CONSENTS WILL BE ENTITLED
TO RECEIVE CONSENT PAYMENTS IN THE EVENT THE SECOND SUPPLEMENTAL INDENTURE IS
EXECUTED.
IF ANY HOLDER SUBMITS AN EXECUTED CONSENT FORM WITHOUT INDICATING A VOTE
WITH RESPECT TO THE PROPOSED AMENDMENT, SUCH SUBMISSION WILL BE DEEMED TO
CONSTITUTE A VOTE FOR THE PROPOSED AMENDMENT.
NOTES SHOULD NOT BE TENDERED OR DELIVERED IN CONNECTION WITH THIS
SOLICITATION.
THE SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY
27, 2001, UNLESS EXTENDED.
IMPORTANT
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS SOLICITATION STATEMENT. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION CANNOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SOLICITATION AGENT OR THE INFORMATION
AGENT. THE COMPANY IS NOT AWARE OF ANY JURISDICTION IN WHICH THE MAKING OF THE
SOLICITATION IS NOT IN COMPLIANCE WITH APPLICABLE LAW. IF THE COMPANY BECOMES
AWARE OF ANY JURISDICTION IN WHICH THE MAKING OF THE SOLICITATION WOULD NOT BE
IN COMPLIANCE WITH APPLICABLE LAW, IT WILL MAKE A GOOD FAITH EFFORT TO COMPLY
WITH SUCH LAW. IF, AFTER SUCH GOOD FAITH EFFORT, IT CANNOT COMPLY WITH ANY SUCH
LAW, CONSENTS WILL NOT BE SOLICITED FROM HOLDERS RESIDING IN SUCH JURISDICTIONS.
IN ANY JURISDICTION WHERE THE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE THE
SOLICITATION TO BE MADE BY A LICENSED BROKER OR DEALER, THE SOLICITATION WILL BE
DEEMED TO BE MADE ON BEHALF OF THE COMPANY BY THE SOLICITATION AGENT OR ONE OR
MORE OTHER REGISTERED BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH
JURISDICTION.
The delivery of this Solicitation Statement shall not under any
circumstances create any implication that the information contained herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the information set forth herein or in the affairs of the Company
since the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
3
Fifth Street, N.W., Washington, D.C. 20549; Northwest Atrium Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661; and Seven World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such materials
may also be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1999 and Quarterly Reports on Form 10-Q for the quarters ended March 31,
2000, June 30, 2000 and September 30, 2000, which are on file with the
Commission, are incorporated in this Solicitation Statement by reference and
made a part hereof. All documents subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act through the Expiration
Date shall be deemed to be incorporated herein by reference and shall be a part
hereof from the date of the filing of such documents. Any statements contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or replaced for purposes of this Solicitation
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or replaces such statement. Any such statement so
modified or replaced shall not be deemed, except as so modified or replaced, to
constitute a part of this Solicitation Statement.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Solicitation Statement is delivered, upon written
or oral request of such person, a copy of the documents incorporated by
reference herein, other than exhibits to such documents not specifically
incorporated by reference. Such requests should be directed to the Information
Agent.
FORWARD-LOOKING STATEMENTS
Some of the statements in this Solicitation Statement, including the
documents incorporated herein by reference, as well as statements made by the
Company in periodic press releases or other public communications, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or other variations thereof or comparable
terminology, or by discussion of strategies, each of which involves risks and
uncertainties. All statements other than of historical facts included herein or
incorporated herein by reference, including those regarding market trends, the
Company's financial position, business strategy, projected plans and objectives
of management for future operations, are forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results or performance of the Company to
be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such risk factors
include, but are not limited to, general economic and business conditions (on
both a national and regional level), interest rate changes, access to suitable
financing, competition, the availability and cost of
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land and other raw materials used by the Company in its homebuilding operations,
shortages of labor, weather related slow downs, building moratoria, governmental
regulation, the ability of the Company to integrate any acquired business,
certain conditions in financial markets and other factors over which the Company
has little or no control.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Solicitation Statement and is qualified in its entirety by the more
detailed information contained elsewhere in this Solicitation Statement or
incorporated herein by reference. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Indenture.
The Company......................... The Company was formed in 1980 as NVHomes, Inc. The
Company operates in two business segments: (1) the
construction and marketing of homes and (2) mortgage
banking. NVR is one of the largest home builders in
the United States and in the Washington, D.C. and
Baltimore, Maryland metropolitan areas. The
homebuilding unit constructs homes under the Ryan
Homes, NVHomes and Fox Ridge Homes trade names. The
Company conducts its mortgage banking operations
through a wholly owned subsidiary, NVR Mortgage
Finance, Inc. NVR provides a number of
mortgage-related services through its mortgage
banking operations.
Purpose of the Solicitation......... The purpose of the Solicitation and the Proposed
Amendment is to modify the Indenture in order to
provide NVR with greater flexibility to continue to
repurchase shares of its outstanding common stock as
part of its strategy of maximizing shareholder
value. See "Purpose of the Solicitation and Proposed
Amendment."
The Solicitation.................... The Company is soliciting Consents of Holders to the
Proposed Amendment to the Indenture.
The Consent Payments................ The Company will pay $45 in cash for each $1,000
principal amount of Notes for which a Consent is
received and accepted. The Company will make the
Consent Payments as promptly as practicable after
the execution of the Second Supplemental Indenture.
Expiration Date..................... The Expiration Date is 5:00 p.m., New York City
time, on February 27, 2001, unless the Solicitation
is extended, in which case the term "Expiration
Date" means the latest date and time to which the
Solicitation is extended. The Company may extend the
Solicitation at any time.
Proposed Amendment.................. The Proposed Amendment would amend the covenant in
the Indenture limiting certain
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"Restricted Payments" to permit the
Company to make, in addition to the
Restricted Payments the Company would
otherwise be permitted to make under the
Indenture, additional Restricted Payments
of up to $85,000,000 in the aggregate for
the purpose of repurchasing the Company's
outstanding capital stock (from persons
other than officers or directors of the
Company) in one or more privately
negotiated and/or open market transactions
at any time or from time to time on or
before March 31, 2002; provided that any
such additional Restricted Payments not
made on or before March 31, 2002 may not
be made at any subsequent time. See "The
Proposed Amendment."
Conditions to Proposed Amendment.... The effectiveness of the Proposed Amendment is
conditioned upon receipt of valid Consents (not
properly revoked) from Holders of at least a
majority in aggregate principal amount of Notes
outstanding and acceptance of such Consents by the
Company. The Company will not be deemed to accept
any Consents until the Second Supplemental Indenture
is executed.
Holders............................. The term "Registered Holder," when used with respect
to the Solicitation, means any person in whose name
a Note is registered in the register maintained by
the Trustee as of the Record Date. The term "Holder"
means any Registered Holder or any other person who
has obtained a proxy authorizing such person (or any
other person claiming title by or through such
person) to Consent with respect to Notes on behalf
of the Registered Holder thereof.
Procedure for Consenting............ A Holder of Notes desiring to deliver a Consent form
should complete and sign the Consent form, or a
facsimile thereof, have the signature thereon (and
on any proxy delivered therewith) guaranteed or
notarized (unless such Consent form or proxy, as the
case may be, is given by or for the account of an
Eligible Institution (as defined below)) and mail or
otherwise deliver the Consent form, or such
facsimile (together with a duly executed proxy, if
the Holder is not a Registered Holder, and any other
proxy, guarantee or notarization required to
establish a beneficial owner's or registered
holder's right to
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execute a Consent form) to the Information
Agent at its address set forth below. A
beneficial owner of Notes that is not a
Holder of such Notes desiring to deliver a
Consent form should request the Registered
Holder of such Notes to effect the
transaction for such beneficial owner or
to provide such beneficial owner with a
proxy authorizing such beneficial owner to
Consent with respect to Notes on behalf of
such Registered Holder. The term "Eligible
Institution", when used with respect to
the Solicitation, means a firm that is a
member of a registered national securities
exchange or the National Association of
Securities Dealers, Inc., or a commercial
bank or trust company having an office or
correspondent in the United States.
Revocation.......................... Consents may be revoked by filing a written notice
of revocation with the Information Agent at any time
prior to the later of the Expiration Date and
receipt by the Trustee from the Company of an
officer's certificate in accordance with the
Indenture certifying that the Requisite Consents
have been received. Any Holder who properly revokes
a Consent will not receive a Consent Payment, unless
such Consent is properly redelivered prior to the
Expiration Date. The transfer of Notes after the
Record Date will not have the effect of revoking the
election made in any Consent form theretofore
validly delivered by a Holder of such Notes prior to
such transfer, and each Consent will be counted
notwithstanding any transfer after the Record Date
of the Notes to which such Consent relates unless
the procedure for revoking Consents described herein
has been compiled with.
Delivery of Consent Forms........... Each Consent form should be sent to the Information
Agent, as follows:
Georgeson Shareholder Communications Inc.
17 State Street
10th Floor
New York, New York 10004
Facsimile Transmission: (212) 440-9009
Telephone Number: (212) 440-9800 (collect)
Amendment to Solicitation........... The Company expressly reserves the right in its sole
8
discretion, (i) to terminate the Solicitation at any
time (including after the Expiration Date) prior to
the execution of the Second Supplemental Indenture
(whether or not the Requisite Consents have been
received) by giving oral or written notice of such
termination to the Trustee, (ii) not to extend the
Solicitation beyond the Expiration Date and (iii) to
amend, at any time or from time to time, the terms
of the Solicitation. Any such termination or
amendment will be followed as promptly as
practicable by public announcement thereof (or
written notice thereof to the Registered Holders of
Notes).
Certain Tax Consequences............. The Company believes that the receipt of the Consent
Payment by a beneficial owner of Notes (a "Note
Holder") will result in a deemed exchange for
federal income tax purposes of the Notes held by
such Note Holder. Accordingly, the transaction will
be treated as if such Holder had exchanged its
existing Notes (the "Old Notes") for new Notes (the
"New Notes"). It is possible that the deemed
exchange may qualify as a tax-free recapitalization.
In this case, the Note Holder generally would not
recognize gain or loss, except with respect to the
receipt of the Consent Payment. If the deemed
exchange does not qualify as a tax-free
recapitalization, such deemed exchange will be a
taxable transaction. In addition, whether or not the
deemed exchange is a tax-free recapitalization, the
New Notes may be deemed to be issued with original
issue discount ("OID"). If so, Note Holders of the
New Notes will be required to include certain
amounts in income as interest for federal income tax
purposes before receiving the cash to which such
interest income is attributable. The Company
believes that there will be no tax consequences to a
Note Holder if such Note Holder does not receive the
Consent Payment. See "Certain Federal Income Tax
Consequences." Because the tax consequences to each
Note Holder are dependent on such Note Holder's
personal situation, each Note Holder is urged to
consult his or her tax advisors.
Assistance; Additional Materials.... Questions regarding the Solicitation should be
directed to the Company's Solicitation Agent, Credit
Suisse First Boston Corporation ("CSFB" or the
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"Solicitation Agent"). All requests and
correspondence to CSFB should be directed to CSFB at
the following address: 277 Park Avenue, New York,
New York 10172, attention: Marc Warm,
(212) 538-7179 or (800) 910-2732 (ext. 67179) or
Jeff Dorst, (212) 538-8474 or (800) 820-1653.
Questions relating to the procedure for consenting
as well as requests for assistance or for additional
material should be directed to the Information Agent
at (800) 223-2064 (toll free). Banks and brokers
should call (212) 440-9800 (collect).
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THE COMPANY
The Company was formed in 1980 as NVHomes, Inc. The Company operates
in two business segments: (1) the construction and marketing of homes and
(2) mortgage banking. The Company conducts its mortgage banking operations
through a wholly owned subsidiary, NVR Mortgage Finance, Inc. Unless the context
otherwise requires, references to "NVR" in this section include its
subsidiaries.
NVR is one of the largest homebuilders in the United States and in the
Washington, D.C. and Baltimore, Maryland metropolitan areas. NVR's homebuilding
operations construct and sell single-family detached homes, townhomes and
condominium buildings under three tradenames: Ryan Homes, NVHomes and Fox Ridge
Homes. The Ryan Homes product is built in eighteen metropolitan areas located
in Maryland, Virginia, Pennsylvania, New York, North Carolina, South Carolina,
Ohio, New Jersey, Delaware and Tennessee. The Fox Ridge Homes product is built
only in the Nashville, Tennessee metropolitan area. The Ryan Homes and Fox
Ridge Homes products are moderately priced and marketed primarily towards first-
time buyers. The NVHomes product is built largely in the Washington, D.C.
metropolitan area, and is marketed primarily to move-up buyers.
In addition to building and selling homes, NVR provides a number of
mortgage-related services through its mortgage banking operations, which operate
in ten states. NVR's mortgage banking business generates revenues primarily
from origination fees, gains on marketing of loans, title fees, and sales of
servicing rights. NVR's mortgage banking operations provide financing to a
substantial portion of NVR's homebuilding customers. NVR's mortgage banking
business sells all of the mortgage loans and related servicing rights it closes
into the secondary markets.
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CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 2000 on an historical basis.
December 31, 2000
------------------------
(in thousands)
Cash................................................. $ 137,708
Debt: =========
Homebuilding indebtedness
Notes Payable................................... 210
Other term debt................................. 4,957
8% Notes due 2005............................... 115,000
Total homebuilding debt......................... 120,167
Mortgage banking indebtedness(1)................... 53,488
---------
Total debt...................................... 173,655
---------
Shareholders' equity:
Common stock....................................... 204
Paid in capital.................................... 115,138
Retained earnings.................................. 399,810
Deferred compensation trust........................ (15,915)
Deferred compensation liability.................... 15,915
Less treasury stock at cost........................ (267,672)
---------
Total shareholders' equity...................... 247,480
---------
Total capitalization................................. $ 421,135
=========
- -------------
(1) Mortgage banking indebtedness is non-recourse to the Company.
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PURPOSE OF THE SOLICITATION
AND PROPOSED AMENDMENT
Beginning in 1994, the Company has periodically repurchased shares of its
outstanding common stock in open market and privately negotiated transactions
(the "Stock Repurchase Program") as part of its strategy of maximizing
shareholder value. The purpose of the Proposed Amendment is to provide the
Company with the flexibility to make additional repurchases of its common stock
(from persons other than officers or directors of the Company) of up to
$85,000,000 in the aggregate in one or more privately negotiated and/or open
market transactions at any time or from time to time from the effectiveness of
the Proposed Amendment through March 31, 2002. This would enable the Company to
continue its Stock Repurchase Program should the Company believe it appropriate
to do so. Any portion of the $85,000,000 in additional Restricted Payments
permitted by the Proposed Amendment but not made by the Company to repurchase
its outstanding common stock through March 31, 2002 may not be used by the
Company at any subsequent time.
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CERTAIN CONSIDERATIONS
Holders of Notes should carefully consider the factors set forth below as
well as the other information set forth in and incorporated by reference in this
Solicitation Statement prior to marking and returning a Consent.
Effects of the Proposed Amendment
If the Proposed Amendment becomes effective, modification of the Indenture
would permit NVR to make additional repurchases of its outstanding common stock
(from persons other than officers or directors of the Company) of up to
$85,000,000 in the aggregate on or before March 31, 2002. Such action could
increase the credit risks with respect to the Company faced by the Holders,
adversely affect the market price of the Notes or otherwise be adverse to the
interests of the Holders. See "The Proposed Amendment."
Certain Tax Considerations
For a discussion of certain federal income tax considerations relating to
the Proposed Amendment and the receipt of the Consent Payments by Holders, see
"Certain Federal Income Tax Consequences."
Consequences to Non-consenting Holders
Holders who do not timely consent to the Proposed Amendment prior to the
Expiration Date will not be eligible to receive the Consent Payments even though
the Proposed Amendment will be binding upon them upon execution of the Second
Supplemental Indenture.
Consequences to all Note Holders if any Note Holders do not Receive the Consent
Payment
The Company believes that the receipt of the Consent Payment by a Note
Holder will result in a deemed exchange for federal income tax purposes of the
Notes held by such Note Holder. In this case, the "New Notes" may be deemed to
be issued with OID. See "Certain Federal Income Tax Consequences." If this
occurs, all Note Holders who receive the Consent Payment will have "New Notes"
deemed to be issued with OID and any Note Holders who do not receive the Consent
Payment will continue to hold the existing Notes which were issued without OID.
Under these circumstances, the disparate tax characteristics of the Notes would
result in the Notes having two different CUSIP numbers which could have an
adverse effect on liquidity. However, all of the Notes--existing Notes as well
as New Notes--will be treated as a single class of securities with respect to
any actions required by the Note Holders of a specified percentage of
outstanding Notes under the Indenture, and all of the Notes--existing Notes as
well as New Notes--will remain subject to all of the terms of the Indenture.
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PROPOSED AMENDMENT
Set forth below is a summary description of the proposed modification to
the Indenture for which the Consents of the Registered Holders of the Notes are
being solicited hereby. This description is qualified by reference to the full
text of the Proposed Amendment, which is set forth in Annex A hereto.
As of the date of this Solicitation Statement, the aggregate principal
amount of Notes outstanding is $145,000,000, $30,000,000 of which is held by the
Company and $1,010,000 of which is held by affiliates of the Company.
Accordingly, for purposes of this Solicitation Statement, a total of
$113,990,000 in aggregate principal amount of Notes will be counted as
outstanding. The Notes bear interest at a rate of 8% per annum, payable on each
June 1 and December 1. NVR may redeem the Notes at 104% of the principal amount
of the Notes on or after June 1, 2003, at 102% on or after June 1, 2004 and at
par on or after June 1, 2005, in each case plus accrued and unpaid interest. The
Notes contain numerous covenants, including the covenant proposed to be modified
as outlined below. The foregoing summary is qualified in its entirety by
reference to the complete terms contained in the Indenture (including the form
of the Notes attached thereto), copies of which are available upon request
without charge from the Information Agent.
The Proposed Amendment would amend the covenant (Section 5.01 of the First
Supplemental Indenture) that limits certain Restricted Payments to permit NVR to
make, in addition to the Restricted Payments the Company would otherwise be
permitted to make under the Indenture, additional Restricted Payments of up to
$85,000,000 in the aggregate for the purpose of repurchasing the Company's
outstanding capital stock (from persons other than officers or directors of the
Company) in one or more privately negotiated and/or open market transactions at
any time or from time to time on or before March 31, 2002; provided that any
such additional Restricted Payments not made on or before March 31, 2002 may not
be made at any subsequent time.
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THE SOLICITATION
Terms of the Solicitation
Subject to the terms and conditions set forth herein, the Company hereby
offers to make a Consent Payment of $45 for each $1,000 principal amount of
Notes for which a valid Consent is (i) received by the Information Agent at the
address set forth below prior to the Expiration Date, (ii) not properly revoked
as provided herein prior to the later of the Expiration Date and receipt by the
Trustee from the Company of an officer's certificate certifying to the receipt
of the Requisite Consents and (iii) accepted by the Company as provided herein.
CONSENT PAYMENTS WILL BE MADE ONLY TO HOLDERS ON THE RECORD DATE WHO, PRIOR
TO THE EXPIRATION DATE, HAVE VALIDLY CONSENTED TO THE PROPOSED AMENDMENT. ANY
BENEFICIAL OWNER OF NOTES WHO IS NOT THE REGISTERED HOLDER BUT WHO DESIRES TO
GIVE A CONSENT AND THUS BE ENTITLED TO RECEIVE A CONSENT PAYMENT IN THE EVENT
THE SECOND SUPPLEMENTAL INDENTURE IS EXECUTED MUST EITHER (I) OBTAIN A PROXY
FROM THE REGISTERED HOLDER OF SUCH NOTES THAT AUTHORIZES SUCH BENEFICIAL OWNER
TO CONSENT IN THE MANNER DESCRIBED BELOW OR (II) REQUEST THE REGISTERED HOLDER
TO GIVE SUCH CONSENT ON ITS BEHALF.
The Company will make the Consent Payments as promptly as practicable after
the execution of the Second Supplemental Indenture. The Company reserves the
right, in its sole discretion, to delay making Consent Payments, in whole or in
part, in order to comply with any applicable law.
The Consents will become irrevocable on the later of the Expiration Date
and the date on which the Trustee receives from the Company an officer's
certificate certifying that the Requisite Consents have been received. Following
such delivery, the Trustee and the Company will execute the Second Supplemental
Indenture. The Proposed Amendment shall be effective upon execution of the
Second Supplemental Indenture. After execution of the Second Supplemental
Indenture, all holders of Notes including non-consenting holders and all
subsequent holders of the Notes, will be bound by the Proposed Amendment. Non-
consenting holders will not be entitled to any rights of appraisal or similar
rights of dissenters with respect to the proposed modification to the Indenture.
The term "Expiration Date" means 5:00 p.m., New York City time, on February
27, 2001, unless the Company, in its sole discretion, extends the period during
which the Solicitation is open, in which event the term "Expiration Date" shall
mean the time and date on which the Solicitation, as so extended by the Company,
expires. The Company reserves the right to extend the Solicitation at any time
and from time to time by giving oral or written notice to the Trustee no later
than 9:00 a.m., New York City time, on the business day following any previously
announced Expiration Date. Any such extension
16
will be followed as promptly as practicable by public announcement thereof (or
written notice thereof to the Registered Holders of Notes). The Company will not
be obligated, and does not intend, to extend the Solicitation if the Requisite
Consents have been received as of the Expiration Date.
The Company expressly reserves the right, in its sole discretion, (i) to
terminate the Solicitation at any time (including after the Expiration Date)
prior to the execution of the Second Supplemental Indenture (whether or not the
Requisite Consents have been received) by giving oral or written notice of such
termination to the Trustee, (ii) not to extend the Solicitation beyond the
Expiration Date and (iii) to amend, at any time or from time to time, the terms
of the Solicitation. Any such termination or amendment will be followed as
promptly as practicable by public announcement thereof (or written notice
thereof to the Registered Holders of Notes).
If Consents received by the Information Agent (and not properly revoked) as
of the Expiration Date are sufficient to permit adoption of the Proposed
Amendment, the Company intends to execute the Second Supplemental Indenture.
Consents will be deemed to be accepted when the Second Supplemental Indenture
has been executed by the Company and the Trustee. The Company reserves the right
to accept any or all Consents received after the Expiration Date.
Consent Procedure
This Solicitation Statement is being sent to the current registered holders
of the Notes. The Company has designated February 13, 2001 as the Record Date
for the Solicitation.
Approval of the Proposed Amendment requires the consent of the Registered
Holders of at least a majority in aggregate principal amount of the Notes that
are outstanding. As of the date of this Solicitation Statement, the aggregate
principal amount of Notes outstanding is $145,000,000, $30,000,000 of which is
held by the Company and $1,010,000 of which is held by affiliates of the
Company. Accordingly, for purposes of this Solicitation Statement, a total of
$113,990,000 in aggregate principal amount of Notes will be counted as
outstanding.
Except as permitted by an omnibus proxy executed by DTC, as defined and
described below, only (i) Registered Holders or (ii) any other person who has
obtained a proxy which authorizes such person (or any other person claiming
title by or through such person) to vote the applicable Notes on behalf of such
Registered Holder (collectively, "Holders") may execute and deliver a Consent
and receive a Consent Payment. A beneficial owner of Notes who is not the
Registered Holder of such Notes (e.g., a beneficial holder whose Notes are
registered in the name of a nominee such as a brokerage firm) must (i) arrange
with the Registered Holder to execute and deliver a Consent on such beneficial
owner's behalf or (ii) obtain a proxy from the Registered Holder authorizing the
beneficial owner to vote the Notes on behalf of such Registered Holder. For
purposes of the Solicitation, (i) the Company anticipates that Depository Trust
Company ("DTC") will authorize (by omnibus proxy) brokers, banks and other
17
financial institutions that participate in DTC ("DTC Participants") to execute
Consents as if they were Registered Holders and, in such case, (ii) the term
"Registered Holder," with respect to Notes registered in the name of Cede & Co.,
which is the nominee for DTC, shall be deemed to include DTC Participants. A
Consent by a DTC Participant must be signed in the manner in which its name
appears on the position listing of Cede & Co. A Consent by a Holder is a
continuing Consent notwithstanding that registered ownership of the Notes has
been transferred after the Record Date unless such Consent is timely revoked in
accordance with the procedure described herein.
The Consent form is enclosed with this Solicitation Statement. A Consent
form (or, if the Holder signing such Consent form is not the Registered Holder,
the accompanying irrevocable proxy), to be effective, must be executed by the
Registered Holder of the Notes to which such Consent form (or such irrevocable
proxy) relates in the same manner as the name of the Registered Holder appears
on such Notes or as set forth in a DTC security position listing. If such Notes
are held of record by two or more Registered Holders, all such Registered
Holders must sign the Consent form (or such irrevocable proxy). If such Notes
are registered in different names, separate Consent forms (or irrevocable
proxies) must be executed covering each form of registration. If a Consent form
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 must so indicate when signing and must
submit with the Consent form appropriate evidence of authority to execute the
Consent form. In addition, (i) if a Holder is a Registered Holder and a Consent
form relates to less than the total principal amount of Notes registered in the
name of such Registered Holder as of the Record Date or (ii) if a Holder is not
a Registered Holder and is consenting pursuant to a proxy given by a Registered
Holder and a Consent form relates to less than the total principal amount of
Notes to which such proxy relates, such Consent form must list the certificate
numbers (or CUSIP numbers if held through DTC) and principal amount of Notes to
which the Consent form relates. Otherwise, the Consent form will be deemed to
relate to the total principal amount of Notes registered in the name of (or set
forth in the position listing of Cede & Co. for) such Registered Holder or to
which such proxy relates, as the case may be.
The registered ownership of Notes shall be proven by the Trustee, as
registrar of the Notes. The ownership of Notes held through DTC by DTC
Participants shall be established by a DTC security position listing provided by
DTC. All questions as to the validity, form, eligibility (including time of
receipt) and the acceptance of Consent forms and revocations of elections made
on Consent forms with respect to Notes will be resolved in the first instance by
the Company, whose determination shall be binding subject only to such final
review as may be prescribed by the Trustee in accordance with the Indenture
concerning proof of execution and ownership. The Company reserves the absolute
right to reject any or all Consent forms and revocations that are not in proper
form or the acceptance of which could, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the right, subject to such final review
as the Trustee may prescribe in accordance with the Indenture for proof of
execution and ownership, to waive any irregularities or conditions of delivery
as to particular Consent forms or revocations. Unless waived, any irregularities
in connection with the deliveries
18
must be cured within such time as the Company determines. None of the Company,
the Solicitation Agent, the Trustee, the Information Agent or any other person
shall be under any duty to give notification of any such irregularities or
waiver, nor shall any of them incur any liability for failure to give such
notification. Deliveries of such Consent forms or notices of revocation will not
be deemed to have been made until such irregularities have been cured or waived.
The Company's interpretation of the terms and conditions of this Solicitation
shall be binding.
Consents to the Proposed Amendment, to be effective, must be properly
executed and received by the Information Agent prior to the Expiration Date.
Each Holder of Notes wishing to consent with respect to the Proposed Amendment
must complete, sign and date the accompanying Consent form (or a facsimile
thereof) in accordance with the instructions set forth herein and therein, have
the signature thereon (and on any proxy delivered therewith) notarized or
guaranteed (unless such consent form or proxy, as the case may be, is given by
or for the account of an Eligible Institution) and mail, hand deliver or send by
overnight courier, or telecopy the Consent form and any other required documents
to the Information Agent. The method of delivery of all documents, including
fully executed Consent forms, is at the election and risk of the Holder. Such
delivery will be deemed made only when actually received by the Information
Agent. A signature guarantee must be by a firm that is a member of a registered
national securities exchange or a member in good standing of the National
Association of Securities Dealers, Inc., or by a commercial bank or trust
company having an office or correspondent in the United States.
Each Consent form should be sent to the Information Agent, as follows:
Georgeson Shareholder Communications Inc.
17 State Street
10th Floor
New York, New York 10004
Facsimile Transmission: 212-440-9009
Telephone Number: 212-440-9800 (collect)
HOLDERS OF NOTES WHO WISH TO CONSENT SHOULD MAIL, HAND DELIVER, SEND BY
OVERNIGHT COURIER, OR TELECOPY THEIR PROPERLY COMPLETED AND EXECUTED CONSENT
FORMS TOGETHER WITH OTHER REQUIRED DOCUMENTS TO THE INFORMATION AGENT IN
ACCORDANCE WITH THE INSTRUCTIONS SET FORTH HEREIN AND THEREIN. CONSENT FORMS
SHOULD BE DELIVERED TO THE INFORMATION AGENT AND NOT TO THE COMPANY, THE
SOLICITATION AGENT OR THE TRUSTEE. HOWEVER, THE COMPANY RESERVES THE RIGHT TO
ACCEPT ANY CONSENT RECEIVED BY THE COMPANY, THE SOLICITATION AGENT OR THE
TRUSTEE.
IN NO EVENT SHOULD A HOLDER TENDER OR DELIVER NOTES.
19
Conditions of the Solicitation
The Company shall not be deemed to have accepted any Consents unless and
until the Second Supplemental Indenture is executed by the Company and the
Trustee.
Revocation of Consents
Any Holder of Notes as to which a Consent has been given may revoke such
Consent as to such Notes or any portion of such Notes (in integral multiples of
$1,000) by filing a written notice of revocation with the Information Agent at
the address set forth above, prior to the later of the Expiration Date and the
time that the Trustee receives from the Company an officer's certificate in
accordance with the Indenture certifying to receipt of the Requisite Consents.
The transfer of Notes will not have the effect of revoking the election made in
any Consent form theretofore validly given by a Holder of such Notes, and each
Consent will be counted notwithstanding any transfer of the Notes to which such
Consent relates, unless the procedure for revoking Consents described below has
been complied with.
A written notice of revocation, to be effective, must (i) contain the name
of the Registered Holder, the certificate numbers, if any, to which such
revocation relates, the principal amount of Notes to which such revocation
relates and the signature of a Holder (with such signature, and the signatures
in any accompanying proxy, notarized or guaranteed as described above) and (ii)
be accompanied by a properly completed irrevocable proxy if such Holder is not
the Registered Holder of such Notes.
The revocation (or, if the Holder is not the Registered Holder, the
accompanying irrevocable proxy), to be effective, must be executed by the
Registered Holder of such Notes in the same manner as the name of the Registered
Holder appears on the Notes to which the revocation relates. If a revocation 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 must so indicate when signing and must
submit with the revocation appropriate evidence of authority to execute the
revocation. A revocation of the Consent shall be effective only as to the Notes
listed on the revocation and only if such revocation complies with the
provisions of this Solicitation Statement. Only a Holder of Notes is entitled to
revoke a Consent previously given. A beneficial owner of Notes other than the
Registered Holder must arrange with the Registered Holder to execute and deliver
on his or her behalf a revocation of any Consent already given with respect to
such Notes or obtain an irrevocable proxy from the Registered Holder authorizing
such beneficial holder to revoke such Consent in accordance with the procedures
described herein. A purported notice of revocation that is not received by the
Information Agent in a timely fashion and accepted by the Information Agent as a
valid revocation will not be effective to revoke a Consent previously given.
A revocation of a Consent may only be rescinded by the execution and
delivery of a new Consent. A Holder who has delivered a revocation may
thereafter deliver a new
20
Consent by following one of the described procedures at any time prior to the
Expiration Date.
Prior to the execution of the Second Supplemental Indenture, the Company
intends to consult with the Information Agent to determine whether such
Information Agent has received any revocations of Consents. The Company reserves
the right to contest the validity of any such revocations.
Assistance; Additional Materials
Questions relating to the procedure for consenting as well as requests for
assistance or for additional copies of the Solicitation Statement or the Consent
form may be directed to the Information Agent at the address set forth above.
Solicitation Agent
The Company has retained CSFB as its Solicitation Agent in connection with
the Solicitation. CSFB has not been retained to render an opinion as to the
fairness of the Solicitation. CSFB will receive a customary fee in connection
with the Solicitation. In addition, the Company will reimburse CSFB for
reasonable out-of-pocket expenses and has agreed to indemnify CSFB against
certain liabilities and expenses. Questions regarding the Solicitation should be
directed to CSFB at the following address: 277 Park Avenue, New York, New York,
10172, attention: Marc Warm, (212) 538-7179 or (800) 910-2732 (ext. 67179) or
Jeff Dorst, (212) 538-8474 or (800) 820-1653.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain of the anticipated federal
income tax consequences to Note Holders arising from receipt of the Consent
Payment by a Note Holder and the adoption of the Proposed Amendment. The tax
treatment of a Note Holder might vary depending upon such Note Holder's
particular situation, and certain Note Holders, including foreign persons or
entities, insurance companies, tax-exempt organizations, financial institutions
and dealers in securities, might be subject to special rules not discussed
below. In addition, this discussion does not consider the effect of any
foreign, state or other tax laws that may be applicable to particular Note
Holders. Further, this summary assumes that Note Holders hold their Notes as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code").
This summary is based on the Code and applicable Treasury Regulations,
rulings, administrative pronouncements and decisions as of the date hereof, all
of which are subject to change or different interpretations at any time with
possible retroactive effect.
The federal income tax consequences of the adoption of the Proposed
Amendment and the receipt of the Consent Payment by a Note Holder will depend on
whether a constructive exchange of Notes for New Notes having modified terms is
deemed to have occurred for federal income tax purposes as a result of the
adoption of the Proposed Amendment or the receipt of the Consent Payment.
Treasury Regulations
21
promulgated under Section 1001 of the Code provide that such a deemed exchange
occurs if a "significant modification" in the terms of the debt instrument has
occurred, taking into account all relevant facts and circumstances, including
the receipt of the Consent Payment.
Under the governing Treasury Regulations, a "significant modification" of a
debt instrument results in a deemed exchange, whereas a "modification" that is
not "significant" is not treated as a deemed exchange. Under the Treasury
Regulations, a change in the annual yield of a debt instrument, including a
change in the yield that occurs as a result of payments made by the issuer and
received by the holders as consideration for modification of the debt
instrument, such as the Consent Payment, will constitute a significant
modification and result in a deemed exchange if the annual yield on the debt
instrument is increased by more than the greater of (a) 0.25% or (b) 5% of the
annual yield of the unmodified instrument, measured as of the date of the
modification.
Certain Federal Income Tax Consequences To Note Holders Who Receive The Consent
Payment
As a result of the receipt of the Consent Payment by a Note Holder, the
Company believes that there will be a significant modification of the Notes held
by such Note Holder and, accordingly, there will be a deemed exchange of the
Notes for federal income tax purposes. While the law is not clear as to whether
the deemed exchange involves the exchange of securities for federal income tax
purposes, it is possible that the Old Notes and the New Notes may qualify as
securities for federal income tax purposes. If the Old Notes and the New Notes
are securities, the deemed exchange will constitute a tax-free recapitalization
and a Note Holder would not recognize taxable gain or loss, except with respect
to the receipt of the Consent Payment. If the Old Notes or the New Notes are
not securities, however, a Note Holder would recognize gain or loss on the
deemed exchange in an amount equal to the difference between (x) the issue price
of the New Notes (generally their fair market value as of the date of the deemed
exchange) (plus, as described below, possibly the amount of the Consent Payment)
and (y) such Note Holder's adjusted tax basis in the Old Notes.
Although the matter is not free from doubt, the Company believes that the
Consent Payment should be treated for federal income tax purposes as a fee paid
to Note Holders to obtain its consent and the Company intends to treat the
Consent Payment in this manner. If such treatment is respected, a Note Holder
who receives the Consent Payment will recognize ordinary income equal to the
amount of the Consent Payment whether or not the deemed exchange qualifies as a
tax-free recapitalization. If, in the alternative, the Internal Revenue Service
were to treat the Consent Payment as a payment on the Notes, then (i) if the
deemed exchange qualifies as a tax-free recapitalization, a Note Holder
generally would recognize gain in an amount equal to the lesser of (a) the
Consent Payment and (b) the excess of the issue price of the New Notes plus the
Consent Payment over the Note Holder's adjusted tax basis in the Old Notes and
(ii) if the deemed exchange is not a tax-free recapitalization, the Consent
Payment would be treated as an additional amount realized with respect to the
deemed exchange, which would increase the Note Holder's taxable gain or decrease
the Note Holder's taxable loss, as the case may be.
22
In deciding whether or not to consent to the Proposed Amendment, Note
Holders are urged to consult their tax advisors regarding the tax consequences
arising from the receipt of the Consent Payment.
Whether the deemed exchange constitutes a tax-free recapitalization or a
taxable exchange, if the issue price of the New Notes is less than the stated
redemption price at maturity of the New Notes by more than a statutorily defined
de minimis amount, then the New Notes will be deemed to be issued with OID. The
amount of OID on a New Note would equal the excess of the stated redemption
price at maturity of a New Note over its issue price. The stated redemption
price at maturity of a New Note will equal its principal amount. The statutorily
defined de minimis exception will be satisfied and there will not be OID on the
New Notes if the difference between the issue price and the stated redemption
price at maturity of the New Notes is less than .25% of the stated redemption
price at maturity of the New Notes multiplied by the number of complete years to
maturity of the New Notes.
If the New Notes are issued with OID, each Note Holder (whether reporting
on the cash or accrual basis of accounting for tax purposes) will be required to
include in taxable income for any particular taxable year the daily portion of
the OID described in the preceding paragraph that accrues on the New Note for
each day during the taxable year on which such Note Holder holds the New Note.
Thus, a Note Holder would be required to include OID in income in advance of the
receipt of the cash to which such OID is attributable. The daily portion is
determined by allocating to each day of an accrual period (generally, the period
between interest payments or compounding dates) a pro rata portion of the OID
allocable to such accrual period. The amount of OID that will accrue during an
accrual period is the product of the "adjusted issue price" of the New Note at
the beginning of the accrual period multiplied by the yield to maturity of the
New Note less the amount of any qualified stated interest (defined generally as
stated interest that is unconditionally payable in cash or other property (other
than debt instruments of the Company) at least annually at a single fixed rate)
allocable to such accrual period. The "adjusted issue price" of a New Note at
the beginning of an accrual period will equal its issue price, increased by the
aggregate amount of OID that has accrued on the New Note in all prior accrual
periods, and decreased by any payments made during all prior accrual periods of
amounts included in the stated redemption price at maturity of the Note.
If the issue price of the New Notes exceeds the amount payable at maturity,
such excess will generally be deductible by a Note Holder as amortizable bond
premium over the term of the New Note (taking into account earlier call dates,
as appropriate) under a yield to maturity formula if an election by the taxpayer
under Section 171 of the Code is in effect or is made. However, under Treasury
Regulations, the amount of amortizable bond premium that a U.S. holder may
deduct in any accrual period is limited to the amount by which the holder's
total interest inclusions on the New Notes in prior accrual periods exceed the
total amount treated by the holder as a bond premium deduction in
23
prior accrual periods. If any of the excess bond premium is not deductible under
Section 171, that amount is carried forward to the next accrual period and is
treated as bond premium allocable to that period.
An election under Section 171 of the Code is revocable only with the
consent of the IRS and applies to all debt obligations owned or subsequently
acquired by the taxpayer. To the extent the excess of the issue price of the
New Note over the amount payable at the maturity date (or earlier redemption
date if appropriate) is deducted as amortizable bond premium, the Note Holder's
tax basis in the New Note will be reduced.
Backup withholding at the rate of 31% may apply with respect to the Consent
Payment unless the Note Holder (i) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (ii)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A Note Holder who does not provide
his correct taxpayer identification number may be subject to penalties imposed
by the Internal Revenue Service. Any amount withheld under these rules will be
creditable against the Note Holder's federal income tax liability provided the
required information is furnished to the Internal Revenue Service in a timely
manner.
Certain Federal Income Tax Consequences To Note Holders Who Do Not Receive The
Consent Payment
The Company believes that the adoption of the Proposed Amendment without
receipt of the Consent Payment by a Note Holder should not result in a
significant modification of the Notes held by such Note Holder because the
Proposed Amendment is the alteration of a customary financial covenant and thus
should not create a deemed exchange of such Notes for federal income tax
purposes. If a Note Holder does not receive a Consent Payment, and the adoption
of the Proposed Amendment does not create a deemed exchange of the Notes, this
Solicitation and the adoption of the Proposed Amendment would have no tax
consequences to such a Note Holder.
The preceding discussion of certain federal income tax consequences is
intended for general information only, and does not constitute tax advice. Each
Note Holder should consult his or her own tax adviser as to the federal, state,
local and foreign tax consequences to him or her of the receipt of the Consent
Payment and the adoption of the Proposed Amendment.
24
ANNEX A
THE PROPOSED AMENDMENT
The following is the text of the Proposed Amendment to the "Restricted
Payments" covenant of the Indenture. The following is qualified in its entirety
by reference to the Second Supplemental Indenture, copies of which may be
obtained without charge from the Information Agent. Capitalized terms not
otherwise defined in this Annex A have the meanings assigned thereto in the
Indenture.
If the Proposed Amendment is adopted, the following section will be amended
in the First Supplemental Indenture, effective as of the date of the Company's
acceptance of the Consents, as follows (strike-through indicates text to be
deleted and double underline indicates text to be added):
Section 5.01 Limitations on Restricted Payments. Until the Notes are
rated Investment Grade by both Rating Agencies, after which time the following
covenant no longer shall be binding on the Company or any Restricted Subsidiary:
(a) neither the Company nor any of its Restricted Subsidiaries shall,
directly or indirectly, make any Restricted Payment, if, after giving effect
thereto on a pro forma basis:
(i) the Company could not Incur $1.00 of additional Indebtedness
pursuant to provisions described in paragraph (b) of Section 5.02 hereof;
(ii) a Default or an Event of Default would occur or be continuing; or
(iii) the aggregate amount of all Restricted Payments, including such
proposed Restricted Payment, made by the Company and its Restricted
Subsidiaries, from and after the Issue Date and on or prior to the date of
such Restricted Payment, shall exceed the sum (the "Basket") of:
(A) 50% of Consolidated Net Income of the Company for the period
(taken as one accounting period), commencing with the first full
fiscal quarter which includes the Issue Date, to and including the
fiscal quarter ended immediately prior to the date of each calculation
for which internal financial statements are available (or, if
Consolidated Net Income for such period is negative, then minus 100%
of such deficit); plus
(B) 100% of the amount of any Indebtedness of the Company or a
Restricted Subsidiary Incurred after the Issue Date that is converted
into or exchanged for Qualified Capital Stock of the Company after the
Issue Date; plus
25
(C) to the extent that any Restricted Investment made after the
date of this First Supplemental Indenture is sold for cash or
otherwise reduced or liquidated or repaid for cash, in whole or in
part, the lesser of (1) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and
(2) the initial amount of such Restricted Investment; plus
(D) unless accounted for pursuant to clause (B) above, 100% of
the aggregate net proceeds (after payment of reasonable out-of-pocket
expenses, commissions and discounts incurred in connection therewith)
received by the Company from the sale or issuance (other than to a
Subsidiary of the Company) of its Qualified Capital Stock after the
Issue Date and on or prior to the date of such Restricted Payment;
plus
(E) with respect to any Unrestricted Subsidiary that is
redesignated as a Restricted Subsidiary after the Issue Date in
accordance with the definition of Unrestricted Subsidiary (so long as
the designation of such Subsidiary as an Unrestricted Subsidiary was
treated as a Restricted Payment made after the Issue Date and only to
the extent not included in the calculation of Consolidated Net
Income), an amount equal to the lesser of (x) the book value in
accordance with GAAP of the Company's or a Restricted Subsidiary's
Investment in such Subsidiary, and (y) the Designation Amount at the
time of such Subsidiary's designation as an Unrestricted Subsidiary;
plus
(F) 100% of tax benefits, if any, for the period (taken as one
accounting period), commencing with the first full fiscal quarter
which includes the Issue Date, realized by the Company from stock
option exercises and from the issuance of the Company's Qualified
Capital Stock pursuant to equity-based employee benefit plans that are
recorded as an increase to shareholders' equity in accordance with
GAAP; plus
(G) $50,000,000.
(b) The foregoing clause (a) does not prohibit:
(i) the payment of any dividend within 60 days after the date of its
declaration if such dividend could have been made on the date of its
declaration in compliance with the foregoing provisions;
(ii) the payment of cash dividends or other distributions to any
Equity Investor or joint venture participant of a Restricted Subsidiary
with respect to a class of Capital Stock of such Restricted Subsidiary or
joint venture owned by such Equity Investor or joint venture participant so
long as the Company or its Restricted Subsidiaries simultaneously receive a
dividend or distribution with respect to their Investment in such
Restricted Subsidiary or joint venture either in U.S. Legal Tender or the
same form as the dividend or distribution received by
26
such Equity Investor or joint venture participant and in proportion to
their proportionate interest in the same class of Capital Stock of such
Restricted Subsidiary (or in the case of a joint venture that is a
partnership or a limited liability company, as provided for in the
documentation governing such joint venture), as the case may be;
(iii) repurchases or redemptions of Capital Stock of the Company from
any former directors, officers and employees of the Company in the
aggregate up to $3,000,000 during any calendar year (provided, however,
that any amounts not used in any calendar year may be used in any
subsequent year); or
(iv) the retirement of Capital Stock of the Company or the retirement
of Indebtedness of the Company, in exchange for or out of the proceeds of a
substantially concurrent sale (other than a sale to a Subsidiary of the
Company) of, other shares of its Qualified Capital Stock and the retirement
of Capital Stock or Indebtedness of a Restricted Subsidiary in exchange for
or out of the proceeds of a substantially concurrent sale of its Qualified
Capital Stock, provided that, in each case, the amount of any such proceeds
is excluded for purposes of clause (a)(iii)(D) above; or
= ===
(v) repurchases by the Company of Capital Stock of the Company (from
================================================================
Persons other than officers or directors of the Company) in one or more
=======================================================================
open market and/or privately negotiated transactions of up to $85,000,000
=========================================================================
in the aggregate at any time or from time to time on or before March 31,
========================================================================
2002; provided, that any such repurchases not made pursuant to this clause
==========================================================================
(v) on or before March 31, 2002 may not be made at any subsequent time.
=======================================================================
Any Restricted Payment made in accordance with clauses (i) and (iii) of
this paragraph shall reduce the Basket. In calculating the Basket, any
Restricted Payment not made in cash and any non-cash amounts received for
purposes of clause (D) shall be valued at fair market value as determined in
good faith by the Board of Directors, whose determination shall be conclusive
and whose resolution with respect thereto shall be delivered to the Trustee
promptly after the adoption thereof.
27