<PAGE>
EX. T3E.1
EXCHANGE OFFER AND CONSENT SOLICITATION
New Millennium Homes, LLC
Offer to Exchange
All Outstanding 12% Senior Notes due September 3, 2004
($126,000,000 aggregate principal amount outstanding)
for
Zero Coupon Notes due 2004 and Series A Participating Perpetual Preferred
Shares;
Waiver of Liquidated Damages;
Solicitation of Consents to Amend the Indenture
dated as of September 3, 1997, as amended; and
Solicitation of Agreement to Support Plan of Reorganization
THE EXCHANGE OFFER, CONSENT SOLICITATION AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON AUGUST 10, 2000, UNLESS EXTENDED (AS SUCH
DATE MAY BE EXTENDED, THE "EXPIRATION DATE").
The Exchange Offer and Consent Solicitation
New Millennium Homes, LLC, a Delaware limited liability company (the
"Company," "New Millennium," "we" and "us"), hereby offers upon the terms and
subject to the conditions set forth in this Exchange Offer and Consent
Solicitation and the accompanying Letter of Transmittal and Consent (the "Letter
of Transmittal and Consent," and collectively with this Exchange Offer and
Consent Solicitation, the "Offer"), to exchange Zero Coupon Notes due December
31, 2004 (the "New Notes") and Series A Participating Perpetual Preferred Shares
of New Millennium (the "Preferred Shares") for all outstanding New Millennium
12% Senior Notes due September 3, 2004 (the "Senior Notes") validly tendered for
exchange and not properly withdrawn. See "Background and Purpose of the
Exchange Offer and Consent Solicitation--Acceptance of Senior Notes for
Exchange; Delivery of New Notes and Preferred Shares." It is a condition to
completion of the Offer that all outstanding Senior Notes be validly tendered
and not withdrawn.
Holders of Senior Notes who validly tender and do not properly withdraw
Senior Notes pursuant to this Offer will receive for each $1,000 principal
amount of Senior Notes exchanged:
. New Notes with a principal amount of $927.32; and
. One Preferred Share with a distribution and liquidation preference of
$595.24.
<PAGE>
New Notes will be issued in integral multiples of $1,000 only. Cash will be
paid in lieu of any principal amount of New Notes otherwise issuable that is not
an integral multiple of $1,000.
An aggregate of $126 million principal amount of Senior Notes is
outstanding. As a result, if the Offer is completed as contemplated, New Notes
with an aggregate principal amount of approximately $116.8 million and 126,000
Preferred Shares with an aggregate distribution and liquidation preference of
$75 million will be issued. See "Background and Purpose of the Exchange Offer
and Consent Solicitation--Terms of the Exchange Offer and Consent Solicitation."
No interest will accrue with respect to, and there will be no periodic
payments of interest on, the New Notes. The New Notes will be issued with
original issue discount. The New Notes may be redeemed at New Millennium's
option at any time and from time to time at 100% of the face amount. New
Millennium will be required to redeem New Notes on a pro rata basis to the
extent that, as of June 30 or December 31 of any year, New Millennium has
unencumbered cash in excess of $20 million as reflected on its balance sheet.
The New Notes will be secured by a pledge of the shares of New Millennium's
subsidiaries, NM Homes One, Inc. and NM Homes Two, Inc., and will be guaranteed
by these two subsidiaries. See "Description of the New Notes."
No dividends will accrue on the Preferred Shares. After the date on which
the New Notes have been paid in full, New Millennium will be required to make
distributions on a pro rata basis with respect to the Preferred Shares to the
extent of unencumbered cash in excess of $20 million at any June 30 or December
31, as reflected on the Company's balance sheet, until holders of the Preferred
Shares have received distributions equaling the distribution preference of
$595.24 per share. Thereafter, holders of the Preferred Shares will be entitled
to participate as a class in 20% of all distributions made with respect to New
Millennium's equity securities, subject to the following sentence. If the
entire distribution preference of $595.24 per share is not paid with respect to
all outstanding Preferred Shares on or before March 31, 2004, holders of the
Preferred Shares will, after that date, be entitled first to receive 100% of all
distributions made to equity holders until Preferred Shareholders have received
distributions in an amount equal to the distribution preference of $595.24 per
share, and thereafter, to participate as a class on a pro rata basis of 90% of
distributions made to equity holders. See "Description of the Preferred
Shares."
In order to validly tender Senior Notes for exchange, holders of Senior
Notes are obligated to irrevocably waive all rights to receive accrued and
future liquidated damages ("Liquidated Damages") otherwise payable pursuant to
New Millennium's Registration Rights Agreements dated as of September 3, 1997
(the "Registration Rights Agreements") relating to the Senior Notes and New
Millennium's common shares. The Liquidated Damages are payable as a result of
New Millennium's failure to file registration statements covering the Senior
Notes and the common shares by contractually specified dates. Pursuant to the
terms of the Offer, the completion, execution and delivery of a Letter of
Transmittal and Consent by a holder of record of Senior Notes prior to 5:00 P.M.
New York City time on the Expiration Date in connection with the delivery of
Senior Notes will be deemed to constitute a waiver of the right to receive any
Liquidated Damages.
ii
<PAGE>
As a part of the Offer, we are soliciting consents (collectively, the
"Consents") from the holders of Senior Notes to certain proposed amendments (the
"Proposed Amendments") to the Indenture (the "Senior Notes Indenture") dated as
of September 3, 1997, as amended, pursuant to which the Senior Notes were issued
and the related Pledge Agreement (the "Security Document"). The purpose of the
Proposed Amendments is to eliminate substantially all of the restrictive
covenants and certain of the event of default provisions, and modify certain
other provisions, contained in the Indenture and Security Document to, among
other things, provide the Company with greater flexibility for implementation
and pursuit of its business plan and access to potentially more favorable terms
in future financings.
In order to validly tender Senior Notes for exchange, holders of Senior
Notes are obligated to deliver Consents to the Proposed Amendments. Pursuant to
the terms of the Offer, the completion, execution and delivery of a Letter of
Transmittal and Consent by a holder of Senior Notes prior to 5:00 P.M. New York
City time on the Expiration Date in connection with the delivery of Senior Notes
will be deemed to constitute the Consent of such holder to the Proposed
Amendments.
If the Proposed Amendments become effective, they will apply to all
outstanding Senior Notes, if any, issued under the Senior Notes Indenture, and
each holder of Senior Notes, if any, that are not properly tendered and accepted
for exchange will be bound by the Proposed Amendments, regardless of whether
that holder consented to the Proposed Amendments.
New Millennium has had discussions with substantially all holders of the
Senior Notes regarding the terms of the Offer. Holders of more than 85% of the
outstanding principal amount of Senior Notes have indicated that they will
support the Offer and tender their Senior Notes for exchange. New Millennium
believes that it is in the best interests of New Millennium and the holders of
Senior Notes to restructure the Senior Notes outside of a Chapter 11
reorganization case under the United States Bankruptcy Code, due to the
increased costs, time delays, negative impact upon goodwill and reputation, and
possible adverse consequences to New Millennium's business operations associated
with a bankruptcy proceeding.
However, if the Offer is not consummated because less than 100% of the
Senior Notes are tendered for exchange or for any other reason, New Millennium
may decide to file for relief under Chapter 11 of the United States Bankruptcy
Code and propose a plan of reorganization in which the Senior Notes would be
exchanged for New Notes and Preferred Shares on substantially the same terms as
described in this Exchange Offer and Consent Solicitation (the "Plan"). In
order to validly tender Senior Notes for exchange in the Offer, holders of
Senior Notes will be obligated to agree that if the Offer is not consummated and
New Millennium files for Chapter 11 relief, they will consent to and support the
Plan (the "Support Agreement"). The Support Agreement will require the
tendering holders to, without limitation,
. vote to accept the Plan and take reasonable efforts to obtain
confirmation of the Plan;
. not agree to, consent to, recommend or vote for any plan of
reorganization that contains terms inconsistent with the Plan; and
iii
<PAGE>
. not object to or otherwise commence any proceedings to oppose or alter
the Plan or take any action that is inconsistent with, or that would
delay solicitation, confirmation, effectiveness or substantial
consummation of the Plan.
Pursuant to the terms of the Offer, the completion, execution and delivery of a
Letter of Transmittal and Consent by a holder of Senior Notes prior to 5:00 P.M.
New York City time on the Expiration Date in connection with the delivery of
Senior Notes in the Offer will be deemed to constitute delivery of the Support
Agreement. The Support Agreement will become effective only if the Offer is not
consummated and valid Support Agreements are furnished by the Expiration Date
with respect to a sufficient principal amount required to approve the Plan in a
Chapter 11 Proceeding.
If the Offer is not consummated, the Company is unable otherwise to
restructure the Senior Notes and the Company does not file for Chapter 11
relief, the Company may wind up its affairs and dissolve. If New Millennium
were to dissolve and distribute assets to our creditors, including the holders
of the Senior Notes, we cannot assure you that the assets would be sufficient to
pay holders of Senior Notes all of the principal amount and accrued and unpaid
interest on the Senior Notes, or any Liquidated Damages.
Conditions to the Offer
Subject to certain conditions to the Offer, we will accept for exchange any
and all Senior Notes that are validly tendered prior to 5:00 P.M., New York City
time, on the Expiration Date. Tenders of Senior Notes may be withdrawn at any
time prior to 5:00 P.M., New York City time, on the Expiration Date. The Offer
is conditioned upon 100% of the outstanding Senior Notes being validly tendered
for Exchange and not properly withdrawn, the Company and the trustee having
executed a supplemental indenture to the Senior Notes Indenture implementing the
Proposed Amendments after obtaining the requisite consents from the holders of
Senior Notes (the "Amendment Condition") and the satisfaction of the other
conditions to the Offer described in this Exchange Offer and Consent
Solicitation.
See "Background and Purpose of the Exchange Offer and Consent Solicitation-
-Conditions to the Offer."
_____________________________
The Offer is not being made to, nor will we accept surrenders of Senior
Notes for exchange from, holders of Senior Notes in any jurisdiction in which
the Offer or the acceptance thereof or the issuance of the New Notes or the
Preferred Shares would not be in compliance with the securities or blue sky laws
of such jurisdiction.
_____________________________
See "Risk Factors" beginning on page 19 herein for a discussion of certain
risks that should be considered by holders of Senior Notes in evaluating the
Offer.
_____________________________
iv
<PAGE>
The offer of the securities offered hereby has not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this Exchange
Offer and Consent Solicitation. Any representation to the contrary is a
criminal offense.
The date of this Exchange Offer and Consent Solicitation is July 13, 2000
____________________________
v
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
GENERAL.......................................................................................... 1
FORWARD LOOKING STATEMENTS....................................................................... 1
AVAILABLE INFORMATION............................................................................ 2
SUMMARY.......................................................................................... 3
The Company................................................................................. 3
Purpose Of The Exchange Offer And Consent Solicitation...................................... 4
The Exchange Offer And Consent Solicitation................................................. 5
Consequences to Non-Tendering Holders of Senior Notes....................................... 9
Summary Description Of The New Notes And The Preferred Shares............................... 9
General..................................................................................... 17
Risk Factors................................................................................ 17
Summary Financial Data...................................................................... 18
RISK FACTORS..................................................................................... 20
Risk Factors Associated With The Exchange Offer And Consent Solicitation......................... 20
Significant Leverage; Inability to Service Indebtedness; Lack of Profitable
Operations.............................................................................. 20
Absence of Public Market for New Notes and the Preferred Shares and
Transfer Restrictions................................................................... 21
Risk Factors Affecting Our Business.............................................................. 22
Inability to Obtain Capital to Fund Future Growth........................................... 22
Economic Conditions and Interest Rates...................................................... 22
Dependence on California Market; Risk of California Slow Growth
Initiative............................................................................. 22
Competition in the Industry................................................................. 23
Risk of Material and Labor Shortages........................................................ 23
Possible Shortage of Land for Purchase and Development; Inventory
Risks.................................................................................. 24
We Are Subject to Extensive Governmental Regulation......................................... 24
Risk of Natural Disasters................................................................... 25
Reliance on Key Management.................................................................. 25
BACKGROUND AND PURPOSE OF THE EXCHANGE OFFER AND CONSENT
SOLICITATION................................................................................ 26
Terms of the Exchange Offer and Consent Solicitation........................................ 26
Expiration Date; Extensions; Amendments..................................................... 29
Conditions to the Offer..................................................................... 30
Procedures for Tendering Senior Notes and Delivery of Consents.............................. 31
Guaranteed Delivery Procedures.............................................................. 33
Acceptance of Senior Notes for Exchange; Delivery of New Notes and
Preferred Shares...................................................................... 34
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C> <C>
Withdrawal Rights........................................................................... 34
The Exchange Agent; Assistance.............................................................. 35
Fees and Expenses........................................................................... 36
Accounting Treatment........................................................................ 37
Resales of the New Notes and the Preferred Shares........................................... 37
CONSEQUENCES IF OFFER IS NOT CONSUMMATED......................................................... 37
CONSIDERATIONS FOR HOLDERS OF SENIOR NOTES WHO ELECT NOT TO
PARTICIPATE IN THE EXCHANGE................................................................. 38
Effect of the Proposed Amendments........................................................... 38
Adverse Effects on Trading Market for the Senior Notes...................................... 39
CAPITALIZATION................................................................................... 40
SELECTED FINANCIAL DATA.......................................................................... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................................... 43
General..................................................................................... 43
Results of Operations....................................................................... 44
Liquidity and Capital Resources............................................................. 46
Inflation................................................................................... 47
Summarized Quarterly Financial Information.................................................. 48
BUSINESS......................................................................................... 51
General..................................................................................... 51
Business Strategy........................................................................... 51
Custom Homebuilding......................................................................... 51
Land Development Activities................................................................. 52
Marketing................................................................................... 52
Competition................................................................................. 53
Employees................................................................................... 53
Development and Acquisition Opportunities................................................... 53
Legal Proceedings........................................................................... 55
MANAGEMENT....................................................................................... 56
EXECUTIVE COMPENSATION........................................................................... 58
Compensation of Directors................................................................... 59
Shares Incentive Plans...................................................................... 59
PRINCIPAL SHAREHOLDERS........................................................................... 60
CERTAIN TRANSACTIONS............................................................................. 61
DESCRIPTION OF THE NEW NOTES..................................................................... 62
General..................................................................................... 62
Form, Denomination and Authentication....................................................... 63
Global Form of New Notes.................................................................... 63
Subsidiary Guarantees....................................................................... 63
Release or Substitution of Property......................................................... 63
Optional Redemption......................................................................... 64
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C> <C>
Mandatory Redemption........................................................................ 64
Covenants Under the Indenture............................................................... 65
Events of Default........................................................................... 72
Notice of Defaults and Remedies............................................................. 73
Amendments and Consents Under the Indenture................................................. 73
Satisfaction and Discharge of the Indenture................................................. 75
DESCRIPTION OF THE PREFERRED SHARES.............................................................. 76
General..................................................................................... 76
The Preferred Shares........................................................................ 76
Dividends and Distributions................................................................. 77
Ranking..................................................................................... 77
Liquidation Preference...................................................................... 78
Voting Rights............................................................................... 79
Mandatory Redemption........................................................................ 79
Repurchase.................................................................................. 79
Preemptive Rights and Conversion Rights..................................................... 79
FEDERAL INCOME TAX CONSIDERATIONS................................................................ 81
FINANCIAL STATEMENTS.............................................................................F-1
ANNEX I THE PROPOSED AMENDMENTS ................................................................A-1
</TABLE>
viii
<PAGE>
GENERAL
U.S. Bank Corporate Trust (the "Exchange Agent") has agreed to act as
exchange agent in connection with the Offer. Holders of Senior Notes who
require information about tendering Senior Notes or have general questions about
the Offer should contact Greg R. Petersen, our Chief Executive Officer, 2823
McGaw, Irvine, California 92614, at (949) 660-1700 or the Exchange Agent at
(612) 973-5840.
We are making the Offer only to holders of Senior Notes in reliance upon
the exemption from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act"), afforded by Section 3(a)(9) of the Securities
Act. We will not pay any commission or other remuneration to any broker,
dealer, salesman or other person for soliciting tenders of Senior Notes.
Officers, directors and employees of New Millennium may solicit tenders from
holders of Senior Notes and will answer inquiries concerning the Offer, but they
will not receive additional compensation for soliciting tenders or answering any
such inquiries.
We have no arrangements for and have no understanding with any dealer,
salesman or other person regarding the solicitation of tenders hereunder and no
person has been authorized to give any information or to make any representation
not contained in this Exchange Offer and Consent Solicitation in connection with
the Offer. If any such information is given or any such representation is made,
such information or representation must not be relied upon as having been
authorized by us or any other person. Neither the delivery of this Exchange
Offer and Consent Solicitation nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company or its subsidiaries since the respective dates as of
which information is given in this Exchange Offer and Consent Solicitation.
FORWARD LOOKING STATEMENTS
This Exchange Offer and Consent Solicitation contains forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
These statements are based on management's beliefs and assumptions, based on
information currently available to management and are subject to risks and
uncertainties. Forward-looking statements include the information concerning
our possible or assumed future results of operations set forth under:
. "Risk Factors;"
. "Background and Purpose of the Exchange Offer and Consent
Solicitation;"
. "Consequences to the Holders of Senior Notes If the Offer Is Not
Consummated;"
. "Management's Discussion and Analysis of Financial Condition and
Results of Operations;"
. "Business;" and
<PAGE>
. "Federal Income Tax Considerations;"
preceded by, followed by, or that include, the words "believes," "expects,"
"anticipates," "intends, "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. Our future
results may differ materially from those expressed in the forward-looking
statements. Many of the factors that will determine these results are beyond
our ability to control or predict. Holders of the Senior Notes are cautioned
not to put undue reliance on any forward-looking statement.
Holders of the Senior Notes should understand that the following important
factors, in addition to those discussed, could affect our future operating
results and could cause results to differ materially from those expressed in
such forward-looking statements:
. changes in economic conditions and increases in interest rates;
. increased competition in custom homebuilding and land development;
. uncertainties associated with obtaining financing on acceptable terms
for our development and custom home projects;
. our substantial leverage and our ability to service our debt; and
. changes in laws or regulations, third party relations and approvals
and decisions of courts, regulations and governmental bodies.
Further, we operate in an industry sector where securities values may be
volatile and may be influenced by economic and other factors beyond our control.
AVAILABLE INFORMATION
We are not currently subject to the reporting requirements of the Exchange
Act.
Copies of this Exchange Offer and Consent Solicitation, as amended or
supplemented from time to time, and any other documents (or parts of documents)
that constitute part of this Exchange Offer and Consent Solicitation will be
provided without charge to each person, including any beneficial owners of the
Senior Notes, to whom this Exchange Offer and Consent Solicitation is delivered,
upon request. Requests should be directed to Greg R. Petersen, our Chief
Executive Officer, at 2823 McGaw, Irvine, California 92614. In order to assure
timely delivery, we must receive requests no later than July 27, 2000.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data, including the financial statements and notes
thereto, appearing elsewhere in this Exchange Offer and Consent Solicitation.
For a discussion of certain matters that should be considered by prospective
participants in the Exchange Offer and Consent Solicitation, see "Risk Factors"
starting on page 19.
The Company
New Millennium acquired the assets of Baldwin Builders and Baldwin Building
Contractors, two affiliated developers of residential and commercial real estate
projects in Southern California. Baldwin Builders and Baldwin Building
Contractors, filed for relief under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") on July 17, 1995. By an Order entered on August
18, 1997, the Bankruptcy Court confirmed the Fourth Amended Joint Plan of
Reorganization of Official Committee of Unsecured Creditors and Chapter 11
Trustee for Baldwin Building Contractors (the "Plan"). The Plan became
effective in accordance with its terms on September 4, 1997. Pursuant to the
Plan, all of the assets of Baldwin Builders were transferred to Baldwin Building
Contractors, and Baldwin Building Contractors merged with and into New
Millennium. Following completion of such merger, all assets of Baldwin Builders
and Baldwin Building Contractors were then conveyed by New Millennium to its
wholly-owned subsidiaries, NM Homes One, Inc. and NM Homes Two, Inc.
New Millennium's initial operations focused on completing unfinished homes
in San Diego that were included in the assets acquired in bankruptcy. In
addition, New Millennium evaluated certain development projects and began to
acquire lots and prepare architectural plans for custom homes. New Millennium's
current inventory of properties consists of 527 lots in our Calabasas project,
31 lots held for custom home development, the Corona Ranch project that will
offer 28 single family homes and the Brownfield property of approximately 870
acres.
Various lawsuits with the former principals of Baldwin Builders during New
Millennium's first two years of operations occupied significant financial and
management resources. This litigation was necessitated by the unwillingness of
the City of Calabasas to recognize and honor the validity of various
entitlements relating to our Calabasas Oaks project which were transferred to
New Millennium by the Plan in light of various threats asserted against the City
by the former principals of Baldwin Builders. This refusal by the City of
Calabasas prevented both development as well as disposition of the Calabasas
Oaks project as a consequence of the uncertainty regarding the nature, terms and
scope of the entitlements required under California law to grade and develop
this property. Although several of the actions were resolved in New
Millennium's favor, the Company had to liquidate nine properties slated for
development in order to pay interest on the Senior Notes because of the
operational, financial and management impact of this litigation.
In June 1999, New Millennium and the former principals entered into a
global settlement agreement pursuant to which all pending lawsuits were resolved
and New Millennium acquired the balance of the Calabasas Oaks project which had
until then been owned by entities controlled
3
<PAGE>
by the former principals of Baldwin Builders and Baldwin Building Contractors.
Among other things, the acquisition of these 82 lots by NM Homes One, Inc.
resulted in the City honoring the entitlements transferred to New Millennium by
virtue of the Plan. In addition, the vesting of the entire Calabasas Oaks
property in New Millennium's subsidiary eliminated physical and legal
impediments to grading this asset by mooting the need to obtain access to the
portions of the property not owned by New Millennium in order the portions owned
by NM Homes One, Inc. One component of the settlement agreement was the
execution of a purchase agreement between NM Homes One, Inc. and an affiliate of
the former principals which provided for such affiliate to purchase the entire
Calabasas Oaks project from NM Homes One, Inc. for $105 million, plus certain
entitlement costs. The closing date for the sale was scheduled for December
1999, but prior to closing the former principals advised the Company that they
could not close the transaction without significant changes to the structure of
the deal which were not acceptable to us. The Company subsequently negotiated a
sale of Calabasas to another buyer, but it also declined to close the
transaction as agreed. By March 2000, we were forced to consider options other
than a sale of the Calabasas property to maintain liquidity, in order to pay our
continuing obligations on the Senior Notes and to raise sufficient working
capital to continue our operations and satisfy our obligations to various
creditors. Due to our liquidity constraints, we are proposing the Offer.
Purpose Of The Exchange Offer And
Consent Solicitation
The purpose of the Offer is to recapitalize New Millennium in order to
improve our liquidity and create a capital structure that is more appropriate
for us in light of our existing assets held for development (primarily the
Calabasas project) and our proposed business plan. If the Offer is consummated,
management believes that we will be better positioned to access the financial
resources necessary to fund the development of our Calabasas property as well as
continue our custom homebuilding business. Additionally, because no interest is
payable on the New Notes and the Preferred Shares do not accrue dividends, our
short-term liquidity would be improved by the elimination of the semi-annual
interest payments on the Senior Notes exchanged.
In addition to offering to exchange the Senior Notes for the New Notes and
Preferred Shares, we are soliciting the Consents of the holders of the Senior
Notes to the Proposed Amendments, which will eliminate substantially all of the
restrictive covenants and certain event of default provisions, and modify
certain other provisions in the Senior Notes Indenture and the Security Document
in order to provide us greater operating flexibility in the future.
Additionally, each holder participating in the Offer is obligated to waive
any rights to receive Liquidated Damages under the Registration Rights
Agreements. The Liquidated Damages are payable as a result of our failure to
file registration statements with respect to the Senior Notes and our common
shares by the contractually specified dates. The waivers of those rights will
result in the elimination of an aggregate of approximately $4 million of
Liquidated Damages as of June 30, 2000, and thus contribute to an improvement in
our liquidity.
4
<PAGE>
Each holder tendering Senior Notes in the Offer is also obligated to
deliver the Support Agreement pursuant to which the holder agrees, if the Offer
is not consummated, to consent to and support a plan of reorganization in a
Chapter 11 bankruptcy case that provides that all Senior Notes will be exchanged
for New Notes and Preferred Shares substantially on the terms described in this
Exchange Offer and Consent Solicitation. See "Consequences to the Holders of
Senior Notes if the Offer is not Consummated."
The Exchange Offer And Consent Solicitation
The Offer.................... Upon the terms and subject to the conditions
set forth in this Exchange Offer and Consent
Solicitation and in the accompanying Letter of
Transmittal and Consent, we are offering to
exchange, for each $1,000 principal amount of
our Senior Notes:
. New Notes with a principal amount of
$927.32; and
. One Preferred Share with a distribution
and liquidation preference of $595.24.
Each holder of Senior Notes that participates
in the Offer is obligated to (i) waive any
right to receive Liquidated Damages otherwise
payable pursuant to the Registration Rights
Agreements, (ii) deliver a Consent to the
Proposed Amendments to the Senior Notes
Indenture and Security Document, which will
eliminate substantially all restrictive
covenants and certain event of default
provisions, and modify certain other
provisions, in the Senior Notes Indenture and
the Security Document, and (iii) deliver the
Support Agreement pursuant to which, in the
event the Offer is not consummated and New
Millennium files for relief under Chapter 11
of the Bankruptcy Code, the holder will be
obligated to support and consent to a plan of
reorganization that provides for treatment of
the Senior Notes in a manner that is
substantially similar to that proposed in the
Offer.
We do not intend to pay the $8.8 million of
interest that was payable with respect to the
Senior Notes on June 1, 2000.
See "The Exchange Offer and Consent
Solicitation--Terms of the Exchange Offer and
Consent Solicitation."
Expiration Date.............. 5:00 P.M., New York City time, August 10,
5
<PAGE>
2000, as such date may be extended.
See "Background and Purpose of the Exchange
Offer and Consent Solicitation--Expiration
Date; Extensions; Amendments."
Conditions Precedent to
the Offer.................... The Offer is conditioned upon, among other
things, 100% of the outstanding Senior Notes
being validly tendered and not withdrawn and
satisfaction of the Amendment Condition.
See "Background and Purpose of the Exchange
Offer and Consent Solicitation--Conditions to
the Offer."
Procedures for Tendering
Senior Notes and Delivering
Consents..................... Each holder desiring to participate in the
Exchange must complete and sign the Letter of
Transmittal and Consent, have the signature
thereon guaranteed if required by the Letter
of Transmittal and Consent, and deliver the
Letter of Transmittal and Consent, together
with the Senior Notes or a Notice of
Guaranteed Delivery, any other required
documents such as evidence of authority to
act, if the Letter of Transmittal and Consent
is signed by someone acting in a fiduciary or
representative capacity, to the Exchange Agent
at the address set forth on the back cover
page of this Exchange Offer and Consent
Solicitation prior to 5:00 P.M., New York City
time, on the Expiration Date. Any beneficial
owner of the Senior Notes whose Senior Notes
are registered in the name of a nominee, such
as a broker, dealer, commercial bank or trust
company and who wishes to tender Senior Notes
for Exchange, should instruct such entity or
person to promptly tender Senior Notes on such
beneficial owner's behalf.
The completion, execution and delivery of a
Letter of Transmittal and Consent prior to
5:00 p.m. New York City time on the Expiration
Date in connection with the delivery of the
Senior Notes will be deemed to constitute a
waiver of the Liquidated Damages, delivery of
a Consent to the Proposed Amendments and
delivery of the Support Agreement.
See "Background and Purpose of the Exchange
Offer and Consent Solicitation--Procedures for
Tendering Senior Notes and Delivery of
Consents."
6
<PAGE>
Guaranteed Delivery
Procedures................... Holders of Senior Notes who wish to tender
their Senior Notes and whose Senior Notes are
not immediately available or who cannot
deliver their Senior Notes or any other
documents required by the Letter of
Transmittal and Consent to the Exchange Agent
prior to the Expiration Date, may tender their
Senior Notes according to the guaranteed
delivery procedures set forth in the Letter of
Transmittal and Consent.
See "Background and Purpose of the Exchange
Offer and Consent Solicitation--Guaranteed
Delivery Procedures."
Acceptance of Senior Notes and
Delivery of New Notes and
Preferred Shares............. Subject to satisfaction of the conditions to
the Offer, including the condition that 100%
of the Senior Notes be validly tendered and
not withdrawn and the Amendment Condition, we
will accept all Senior Notes that are validly
tendered and not properly withdrawn in the
Offer Solicitation prior to 5:00 P.M., New
York City time, on the Expiration Date. In
exchange for validly tendered Senior Notes, we
will issue, for each $1,000 principal amount
of Senior Notes validly tendered and not
withdrawn, New Notes with a principal amount
of $927.32 and one Preferred Share with a
distribution and liquidation preference of
$595.24.
See "Background and Purpose of the Exchange
Offer and Consent Solicitation--Acceptance of
Senior Notes for Exchange; Delivery of New
Notes and Preferred Shares."
Conditions to Participating
in the Offer................. Each holder electing to participate in the
Offer must waive all rights to receive
Liquidated Damages otherwise payable pursuant
to the Registration Rights Agreements, must
deliver the holder's Consent to the Proposed
Amendments, and must deliver the Support
Agreement. By validly tendering and not
properly withdrawing their Senior Notes, each
holder shall be deemed to have granted the
Liquidated Damages waiver, consented to the
Proposed Amendments and delivered the Support
Agreement.
Withdrawal Rights............ Tenders of Senior Notes and Consents may be
withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date, in
7
<PAGE>
accordance with the procedures set forth in
this Exchange Offer and Consent Solicitation.
See "Background and Purpose of the Exchange
Offer and Consent Solicitation--Withdrawal
Rights."
The Exchange Agent........... U.S. Bank Corporate Trust is the Exchange
Agent. The address and telephone numbers of
the Exchange Agent is as set forth in "The
Exchange Offer and Consent Solicitation--The
Exchange Agent; Assistance."
Fees and Expenses............ All fees and expenses incident to our
consummation of the Exchange and the Consent
Solicitation will be borne by us. We will not
pay any commission or other remuneration to
any broker, dealer, salesman or other person
for soliciting tenders of Senior Notes.
See "Background and Purpose of the Exchange
Offer and Consent Solicitation--Fees and
Expenses."
Consequences to Holders of Senior Notes
If the Offer Is Not Consummated
In connection with the Offer, the Company is soliciting the agreement (the
"Support Agreement") of holders who tender their Senior Notes for exchange,
which will be effective only if the Offer is not consummated and valid Support
Agreements are properly furnished by the Expiration Date with respect to a
sufficient principal amount of Senior Notes required to approve the Plan (as
described below) in a Chapter 11 proceeding. Pursuant to the Support Agreement,
tendering holders will consent to and support a plan of reorganization under
Chapter 11 of the Bankruptcy Code which provides for treatment of the Senior
Notes in a bankruptcy case under Chapter 11 of the Bankruptcy Code that is
substantially similar to the treatment of the Senior Notes proposed in the Offer
(the "Plan"). Such support shall include, without limitation,
. voting to accept the Plan and taking reasonable efforts to obtain
confirmation of the Plan, even if the Plan involves a "cramdown" under
Section 1129(b) of the Bankruptcy Code of classes of claims or equity
interests other than the class that includes the Senior Notes,
. not agreeing to, consenting to, recommending or voting for any plan
that contains terms inconsistent with the Plan, and
. not objecting to or otherwise commencing any proceeding to oppose or
alter the Plan or taking any action that is inconsistent with, or that
would delay solicitation, confirmation, effectiveness or substantial
consummation of the Plan.
8
<PAGE>
If the Offer is not consummated but the Support Agreements become
effective, a tendering holder's rights to sell or transfer the Senior Notes will
be restricted, and each tendering holder will be required to hold Senior Notes
in certificated form. Pursuant to the Support Agreements, any tendering holder
will agree not to transfer, sell, assign, encumber or otherwise dispose of the
beneficial ownership of the holder's Senior Notes, unless the holder provides
evidence satisfactory to the Company that the holder's transferee (and, if
different, the beneficial owner of the Senior Notes so transferred) has agreed
in writing in form and substance satisfactory to the Company that the
transferred Senior Notes are subject to the terms of the Support Agreement, and
that the transferee (and, if different, the beneficial owner) has agreed to be
bound by the terms of the Support Agreement. The restriction on transfer will
be noted on the Senior Notes with respect to which Support Agreements are
received, and no Senior Notes subject to Support Agreements may be transferred
unless the holder delivers to the Company an opinion of counsel in form and
substance satisfactory to the Company in its sole discretion that the transferee
has agreed to and is bound by the Support Agreements.
In order to validly tender Senior Notes for exchange, holders of Senior
Notes will be obligated to deliver the Support Agreement. Pursuant to the terms
of the Offer, the completion, execution and delivery of a Letter of Transmittal
and Consent by a holder of Senior Notes prior to 5:00 P.M. New York City time on
the Expiration Date in connection with the delivery of Senior Notes will be
deemed to constitute delivery of the Support Agreement.
Consequences to Non-Tendering Holders of Senior Notes
If the Offer Is Consummated
If the Offer is consummated, the Proposed Amendments will become effective
and holders of non-tendered Senior Notes, if any, will no longer have the
benefits of substantially all of the restrictive covenants and certain event of
default provisions in the Senior Notes Indenture and Security Document. While
we anticipate that we will be subject to certain restrictive covenants contained
in other debt agreements, holders, if any, who do not tender their Senior Notes
will not be able to enforce those covenants and those covenants will be subject
to change without the consent of holders, if any, of Senior Notes.
Summary Description Of The New Notes And
The Preferred Shares
The following summary descriptions of the terms of the New Notes and the rights,
preferences and privileges associated with the Preferred Shares are qualified in
their entirety by the more detailed information regarding the New Notes and the
Preferred Shares contained elsewhere in this Exchange Offer and Consent
Solicitation and by the Indenture relating to the New Notes and the Designation
of the Preferred Shares, copies of which may be obtained upon request as
described under "Available Information." Persons considering the Offer and
evaluating the risks associated with exchanging their Senior Notes for the New
Notes and the Preferred Shares should not rely primarily or exclusively upon the
information set forth in the following summary descriptions. Please read this
Exchange Offer and Consent Solicitation carefully before taking any action with
respect to the Offer.
9
<PAGE>
Zero Coupon Notes Due 2004 (the "New Notes"):
---------
Aggregate Principal Amount........ $116,843,000 ($927.32 per $1,000
principal amount of Senior Notes), equal
to the "adjusted issue price" of the
Senior Notes as of June 30, 2000
(original issue price plus accrued
original issue discount).
Maturity.......................... December 31, 2004.
Interest.......................... No interest will accrue on the New Notes
and there will be no periodic payments of
interest on the New Notes.
Issue Price....................... Original issue price for tax purposes to
equal the present value of all payments
discounted at the applicable federal
rate, currently 6.51%, compounded
semiannually.
Original Issue Discount........... The New Notes will be issued with
original issue discount. Certain holders
may be entitled to reduce the OID if they
are deemed to hold the New Notes with a
"premium."
Mandatory and Optional
Redemption........................ New Millennium will be required to redeem
New Notes on a pro rata basis if and to
the extent that New Millennium has
unencumbered cash of $20 million or
greater as of June 30 or December 31 of
any year, as reflected on its interim
unaudited balance sheet as of June 30 or
its audited balance sheet as of December
31 (the "Excess Cash Amount"), provided
------------------
the Excess Cash Amount is at least $1
million. Any Excess Cash Amount less than
$1 million will be carried over and added
to Excess Cash Amounts in subsequent
periods until the $1 million threshold is
met, at which point New Millennium will
be required to redeem New Notes in an
aggregate principal amount equal to the
aggregate Excess Cash Amount Other than
pursuant to this mandatory redemption
covenant, New Millennium will not be
obligated to redeem the New Notes prior
to maturity. However, New Millennium will
have the right at its option to redeem
the
10
<PAGE>
New Notes in whole or in part at the
redemption price at any time and from
time to time.
Redemption Price.................. 100% of face amount.
Prohibition on Repurchases Other
than Through Redemption........... New Millennium will not be permitted to
purchase New Notes, other than pursuant
to the mandatory or optional redemption
provisions of the Indenture.
Security.......................... The New Notes will be secured by a pledge
of the shares of New Millennium's
subsidiaries, NM Homes One, Inc. and NM
Homes Two, Inc., which, if any Senior
Notes remain outstanding upon
consummation of the Offer, will rank
junior to the pledge of the shares of NM
Homes One, Inc. and NM Homes Two, Inc.
granted to secure the Senior Notes.
Guaranty.......................... The New Notes will be guaranteed by NM
Homes One, Inc. and NM Homes Two, Inc.
New Note Covenants................ The indenture governing the New Notes
will be a new indenture and will contain
substantially the same definitions as
those set forth in "Article One --
Definitions" and the same covenants as
those set forth in "Article Four--
Covenants of the Company" and in "Article
Six--Consolidation, Merger, Conveyance or
Transfer" of the Senior Notes Indenture,
except as follows:
Explanation of Changes: . The definition of "Change of
----------------------- Control" will exclude from the
Change of Control definition the
The modification that a sale of New sale of the Calabasas property in
Millennium's Calabasas property not any transaction or series of
trigger the Change of Control put related transactions in the context
right at 101% is proposed in order to of "the sale, lease, transfer or
permit New Millennium the flexibility other disposition (other than to a
to sell the entire property, subject wholly owned subsidiary) whether
only to the restrictions on use of direct or indirect, of all or
proceeds contained in the Old Note substantially all of
indenture's asset sale covenant
(pay down
11
<PAGE>
debt secured by Calabasas, reinvest the assets of the Company to any
in real property, or pay down the Person or group of Persons .....".
New Notes).
. The definition of "Fair Market
Value" will be "the price a
The Senior Notes Indenture requires willing buyer would pay to a
that New Millennium acquire real willing seller in an arm's
property at no more than "Appraised length transaction with neither
Value" - the value indicated in a party being under a compulsion
recent appraisal or, if there is no to act, as determined by the
appraisal, the fair market value as Board of Directors in good
determined by the Board of Directors. faith; provided, however, that
To alleviate the administrative the Fair Market Value of Real
burden and cost to New Millennium Property with an individual
of having Board approval of smaller purchase price of $1,000,000
acquisitions, the covenant will be or less shall be deemed to be
amended so as not to require a Board equal to the purchase price."
determination of fair market value for
real property acquired for a purchase . Section 4.6(b) "Securities and
price of $1 million or less. Exchange Commission Reports": A
discussion of material events
New Millennium will continue to be that have occurred in a
required to provide quarterly financial reporting period,
unaudited and annual audited rather than a full
financial statements. Such "Management's Discussion
statements will be accompanied by and Analysis of Financial
a discussion of any material Condition and Results of
events that have occurred during Operations" comparable to that
the reporting period, although the which would have been required
discussion need not be comparable to appear in annual or
to that included in "Management's quarterly reports filed with
Discussion and Analysis of the SEC, will be required to be
Financial Condition and Results delivered to holders of New
of Operations" in SEC filings. Notes with New Millennium's
quarterly and annual financial
statements.
. Section 4.18 "Limitation on
Investments": An Investment in
This modification is intended to a joint venture involving the
permit New Millennium flexibility Calabasas property will not be
in structuring transactions to best subject to the $10 million
realize the value of the maximum aggregate investment in
Calabasas property. joint ventures otherwise
permitted by Section 4.18.
. Section 4.20 "Limitation on
Incurrence of
These changes are intended to give Indebtedness"/Definition of
New Millennium the flexibility it "Permitted Construction
needs to pursue development and/or Financing": A new debt
improvements of the Calabasas incurrence basket will be added
property, as well as to
12
<PAGE>
fund its custom home business which will permit New
operations. Millennium and its subsidiaries
to incur additional
Indebtedness without limit to
fund development and/or
improvements of the Calabasas
property ("Calabasas
Development Financing").
Additionally, the definition of
Permitted Construction
Financing will be revised to
exclude Calabasas Development
Financing. Finally, interest
expense and other fixed charges
associated with any Calabasas
Development Financing will be
disregarded in the calculation
of the consolidated coverage
ratio for purposes of
determining compliance with the
2.0-to-1.0 consolidated
coverage ratio debt incurrence
test.
Series A Participating Perpetual Preferred Shares
Redemption Date........................ The Preferred Shares do not have any
mandatory redemption date.
Aggregate Distribution Preference...... $75,000,000 ($595.24 per share)
Dividends and Distributions............ No dividends will accrue on the
Preferred Shares. After the date on
which the New Notes have been paid
in full, New Millennium will be
required to make distributions on a
pro rata basis with respect to the
Preferred Shares if and to the
extent that New Millennium has
unencumbered cash of $20 million or
greater as of June 30 or December 31
of any year, as reflected on its
interim unaudited balance sheet as
of June 30 or its audited balance
sheet as of December 31 (the "Excess
Cash Amount"), provided the Excess
Cash Amount is at least $1 million.
Any Excess Cash Amount less than $1
million will be carried over and
added to Excess Cash Amounts in
subsequent years until the $1
million threshold is met.
13
<PAGE>
After the holders of the Preferred
Shares have received distributions
equaling the distribution preference
of $595.24 per share, holders of the
Preferred Shares will be entitled to
participate as a class in 20% of all
distributions made with respect to
New Millennium's equity securities;
provided, however, that if the
-----------------
entire distribution preference of
$595.24 per share is not paid with
respect to all outstanding shares of
the Preferred Shares on or before
March 31, 2004, holders of the
Preferred Shares will, after that
date, be entitled first, to receive
100% of all distributions made to
equityholders until they have
received the full distribution
preference of $595.24 per share of
the Preferred Shares, and
thereafter, to participate as a
class in a pro rata portion of 90%
of such distributions.
Ranking and Priority................... No dividends or distributions may be
paid on the common shares or any
other equity securities of New
Millennium until distributions in an
amount equal to the per share
distribution preference have been
paid to the holders of the Preferred
Shares. Thereafter, the holders will
have the right to participate in
distributions as described under
"Dividends and Distributions."
Holders will not acquire creditor
status with respect to their rights
(i.e., distributions will be subject
to applicable state law relating to
dividends and distributions).
Liquidation Preference................. The Preferred Shares will be
entitled to a per share liquidation
preference equal to the positive
difference between (i) $595.24 and
(ii) the aggregate amount of per
share distributions made prior to
the date of determination of the
liquidation preference.
14
<PAGE>
Investment Covenant.................... Without the consent of holders of a
majority of the outstanding shares
of the Preferred Shares, New
Millennium will not be permitted to
make any investment (whether by loan
or advance, capital contribution, or
purchase or acquisition) in real
property other than the Calabasas
property if, giving effect to the
investment, New Millennium's
investment in all real property
other than the Calabasas property
would be in excess of $35 million in
the aggregate, based on the book
value of the real property. This
covenant will not require New
Millennium to dispose of any real
property owned on the date the Offer
is consummated.
Prohibition on Repurchases of
Preferred Shares....................... New Millennium will not be permitted
to repurchase shares of the
Preferred Shares.
15
<PAGE>
Voting Rights.......................... Other than as expressly set forth in
the Preferred Shares Designation
authorizing the issuance of the
Preferred Shares (the "Preferred
Shares Designation") or as required
by law, the holders of the Preferred
Shares have no voting or approval
rights with respect to the business
of New Millennium or the conduct of
its affairs. Any amendment to the
Limited Liability Company Agreement
(as amended from time to time, the
"LLC Agreement") of New Millennium
(including any amendment to the
Preferred Shares Designation) that
(i) would enlarge the obligations of
any holder of Preferred Shares must
be approved by each affected holder
or (ii) would have an adverse effect
in any way on the powers, rights or
preferences of the Preferred Shares
must be approved by the holders of
not less than two-thirds of the then
outstanding shares of Preferred
Shares. In addition, in the event
that New Millennium fails to make
any mandatory distributions to the
holders of Preferred Shares, the
number of authorized members of the
Board of Directors of New Millennium
will automatically increase by two,
and the holders of then outstanding
Preferred Shares will be entitled to
vote as a class to elect two
additional members of the Board of
Directors until such time as the
mandatory distributions have been
paid in full.
Preemptive and Conversion Rights....... None.
Amendments............................. The rights, preferences and
privileges associated with the
Preferred Shares may be amended,
subject to the limitations and
requirements of applicable law, by
the vote of the holders of a
majority of the then outstanding
shares of the Preferred Shares;
provided that any amendment that
would have an adverse effect on the
powers, rights or preferences of the
Preferred Shares must be approved by
holders of not less than
16
<PAGE>
two-thirds of the outstanding
Preferred Shares.
General
Neither the New Notes or the Preferred Shares will be entitled to any
registration rights, and we do not intend to register the securities for resale.
The New Notes and the Preferred Shares will both be new issues of securities
with no established trading market. Accordingly, we cannot assure you that a
trading market for the New Notes or the Preferred Shares will develop. We do
not intend to apply for listing of the Preferred Shares on any securities
exchange or automated quotation system. The New Notes and the Preferred Shares
will be restricted securities within the meaning of the Securities Act of 1933,
and as such will be subject to restriction on resale. See "Risk Factors-Absence
of Public Market for New Notes and the Preferred Shares and Transfer
Restrictions."
Risk Factors
For a discussion of certain matters that should be considered by
prospective investors in connection with the Exchange Offer and Consent
Solicitation, see "Risk Factors" starting on page 19.
17
<PAGE>
Summary Financial Data
The following tables set forth our selected audited and unaudited
consolidated financial information. The selected consolidated financial
information for the period from September 4, 1997 (inception) to December 31,
1997 (fiscal year 1997) and for the fiscal years ended December 31, 1997 , 1998
and 1999 was derived from our audited consolidated financial statements for each
of the corresponding fiscal years. The selected consolidated financial
information for the three months ended March 31, 1999 and 2000 was derived from
our unaudited consolidated financial statements for such periods. In the
opinion of our management, the unaudited consolidated financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of such information. The operating results
for the three months ended March 31, 2000 are not necessarily indicative of
results for the full fiscal year. The information presented below should be
read in conjunction with the audited consolidated financial statements and
related notes, the unaudited consolidated financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in this Exchange Offer and Consent Solicitation.
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
---------------------------------------- ------------------------------
1997
(from inception) 1998 1999 1999 2000
---------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
SALES:
Sales of homes..................................... $16,910 $ 21,017 $ 36,943 $ 9,158 $16,850
Sales of land...................................... 5,510 76,775 11,670 5,495 -
------- -------- -------- ------- -------
Total revenues..................................... 22,420 97,792 48,613 14,653 16,850
------- -------- -------- ------- -------
COST OF SALES:
Cost of homes sold................................. 15,658 19,749 32,262 8,208 14,750
Cost of land sold.................................. 5,096 72,158 11,373 5,395 -
Write down of projects to net realizable value..... - - 8,400 - -
------- -------- -------- ------- -------
20,754 91,907 52,035 13,603 14,750
------- -------- -------- ------- -------
GROSS PROFIT (LOSS)................................ 1,666 5,885 (3,422) 1,050 2,100
------- -------- -------- ------- -------
OPERATING EXPENSES
Selling, general and administrative expenses....... 3,283 12,206 8,894 2,008 1,732
Bad debt write off................................. - 4,679 - - -
Reorganization value amortization, including
impairment charge in 1999......................... 1,872 5,615 22,898 1,404 478
------- -------- -------- ------- -------
5,155 22,500 31,792 3,412 2,210
------- -------- -------- ------- -------
Loss from operations............................... (3,489) (16,615) (35,214) (2,362) (110)
------- -------- -------- ------- -------
Other income, net.................................. 731 4,704 6,918 745 492
------- -------- -------- ------- -------
Net income (loss).................................. $(2,758) $(11,911) $(28,296) $(1,617) $ 382
======= ======== ======== ======= =======
Ratio of earnings to fixed charges (1)............. (2) (2) (2) 0.09 to 1(2) 0.25 to 1(2)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
-------------------------------------------- ----------------------------
1997
(from inception) 1998 1999 1999 2000
---------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Other Data:
EBITDA (3)................................... $21,946 $87,178 $35,686 $9,420 $8,055
Depreciation & amortization.................. $ 1,997 $ 6,124 $23,040 $1,441 $ 499
Net realizable value adjustments............. - - 8,400 - -
Other non-cash items......................... 15,341 70,403 8,656 4,267 793
Consolidated Fixed Charges:
Interest incurred............................ 6,694 20,521 21,808 4,813 5,855
Amortization of original issue discount...... 672 2,041 2,078 516 526
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, As of March 31, 2000
-------------------------------------------- ---------------------------
1997
(from inception) 1998 1999 Actual Adjusted (4)
---------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................. $ 692 $ 577 $ 570 $ 380 $ 380
Real estate projects....................... 178,797 164,107 200,886 198,313 198,313
Total assets............................... 240,720 203,697 213,623 209,808 208,991
Senior Notes, net of discount.............. 111,672 113,712 115,790 116,316 75,242
Preferred Shares........................... - - - - 48,516
Total members' equity...................... 72,550 61,872 35,094 35,529 84,045
</TABLE>
____________
(1) For purposes of this ratio, earnings equals income (loss) before fixed
charges, and fixed charges include interest incurred, loan fees and
accretion of discount on the Senior Notes.
(2) Earnings were insufficient to cover fixed charges by $9,785 in 1997,
$29,369 in 1998, $46,432 in 1999, $4,840 for the three months ended March
31, 1999 and $4,760 for the three months ended March 31, 2000.
(3) EBITDA means net income before interest, taxes, depreciation and
amortization and non-cash charges. EBITDA should not be construed as an
alternative to operating income or net income (as determined in accordance
with generally accepted accounting principles) as an indicator of cash
flows or as a measure of liquidity. EBITDA is presented solely as
supplemental disclosure because management believes it is a widely used
measure of operating performance in our industry. All companies do not
calculate EBITDA in the same manner. As a result, EBITDA as presented here
may not be comparable to the similarly titled measures presented by other
companies.
(4) As adjusted to give effect to the consummation of the Offer as of March 31,
2000. As of June 30, 2000, Senior Notes, net of discount, would have been
$116,843, and the amount attributable to the Preferred Shares would be
$50,278.
19
<PAGE>
RISK FACTORS
In addition to the other information contained in this Exchange Offer and
Consent Solicitation, holders of Senior Notes should consider carefully the
following risk factors associated with the Offer and risk factors affecting our
business generally in determining whether to tender their Senior Notes for New
Notes and Preferred Shares pursuant to this Exchange Offer and Consent
Solicitation.
Risk Factors Associated With The Exchange Offer And Consent Solicitation
Significant Leverage; Inability to Service Indebtedness; Lack of Profitable
Operations--The Company is highly leveraged and may experience difficulty
servicing its debt obligations
We are, and after the Offer is consummated will continue to be, highly
leveraged. As of June 30, 2000, we had total outstanding indebtedness of
approximately $169 million, consisting of $126 million principal amount of
Senior Notes (including discount), $6 million of unpaid interest, and
approximately $32 million of construction loans on the Calabasas and custom
homebuilding properties and $11 million of working capital loans. If we had
consummated the Offer on June 30, 2000, we would have had $117 million principal
amount of New Notes and $26 million of construction loans outstanding, as well
as Preferred Shares with an aggregate distribution and liquidation preference of
$75 million.
Development of our Calabasas lots will require significant capital. The
budget for the work required to grade this property and install all required
infrastructure such as access roads, curbs, gutters, and interior roadways, is
in excess of $77 million, excluding financing and carrying costs. This amount
does not include the amount required for our construction of actual homes on the
lots, to the extent we build homes on a portion of the lots. We typically
finance construction activities with bank loans from our lenders. The dollar
amount of loans required to execute our business plan will depend on the number
of lots in the phase being developed. Some phases are much larger and therefore
more costly than others, due to the amount of bulk grading necessary to balance
the site in the most cost effective manner. We have had discussions with one of
our lenders who has indicated a willingness to provide financing for the next
phase of development upon the successful consummation of the Offer. However, we
cannot assure you that we will be able to obtain that financing or any other
financing necessary to develop one or more of the Calabasas phases.
The indenture for the New Notes will permit New Millennium to incur
development financing for Calabasas in an unlimited amount. In addition, New
Millennium will continue to be permitted to incur up to $40 million of working
capital financing and up to $80 million of construction and development
financing exclusive of any Calabasas development financing. The degree to which
we are leveraged could have important consequences to holders of the New Notes
and Preferred Shares including, but not limited to:
20
<PAGE>
. minimizing the likelihood that we will have sufficient excess cash to
redeem the New Notes, pay the New Notes at maturity or declare or pay
any distributions on the Preferred Shares;
. limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, acquisitions and other general
corporate requirements
. requiring a substantial portion of our cash flow from operations for the
payment of principal of, and interest on, our indebtedness, thereby
reducing the availability of such excess cash flow to fund working
capital, capital expenditures or other general corporate purposes,
including redemption or repayment of the New Notes or the payment of
distributions on, or repurchases of, Preferred Shares;
. making us more vulnerable to general adverse economic and industry
conditions;
. limiting our flexibility in planning for, or reacting to, changes in our
business and the industry; and
. placing us at a competitive disadvantage to less leveraged competitors.
Our future operating performance is itself dependent on a number of
factors, many of which are outside of our control, including prevailing economic
conditions and financial, business, regulatory and other factors. We cannot
assure you that we will generate sufficient cash flow from operations in order
to make redemptions of the New Notes, pay the New Notes at maturity or declare
and pay distributions on the Preferred Shares, and it is likely that our credit
arrangements will restrict our ability to redeem or repay the New Notes or make
distributions on the Preferred Shares. If we were unable to generate sufficient
cash from our future operations to service our debt, to satisfy our operating
expenses, or to generally pay our debts as they mature, the Company would be
required to explore its alternatives, such as seeking additional debt or equity
financing, reducing or delaying capital expenditures or selling material assets
or operations. We cannot assure you that we would be successful in implementing
any of these alternatives, if necessary.
Absence of Public Market for New Notes and the Preferred Shares and Transfer
Restrictions--Holders of New Notes and Preferred Shares hold restricted
securities and may not be able to sell their securities
The New Notes and the Preferred Shares are new issues of securities and
have no established trading markets. We do not intend to list the New Notes or
the Preferred Shares on any securities exchange or automated quotation system
and we cannot assure you that a liquid market will develop for either the New
Notes or the Preferred Shares, or that holders will be able to sell their New
Notes or Preferred Shares at prices acceptable to them or otherwise. Future
trading prices of the New Notes or Preferred Shares will depend on many factors,
including, among other things, our operating results and the market for similar
securities. The New Notes and Preferred Shares to be issued pursuant to the
Offer will be restricted securities and may not be sold by any holder except
pursuant to an effective registration statement filed with the SEC or pursuant
to an exemption from the registration requirements of applicable securities
laws. New
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Millennium does not intend to register the New Notes or the Preferred Shares,
nor will any registration rights be granted by New Millennium to holders of the
New Notes or the Preferred Shares in connection with the exchange of Senior
Notes for New Notes and Preferred Shares.
Risk Factors Affecting Our Business
Inability to Obtain Capital to Fund Future Growth--Our business plan will
require significant capital. We cannot assure you we will be able to
generate or obtain the capital necessary to implement and support our
business plan
Our operations require significant amounts of cash to develop the Calabasas
project, to maintain an inventory of custom homebuilding lots and to finance the
design, development, construction and marketing of our custom homes.
Accordingly, we will be required to seek additional capital, whether from credit
facilities or sales of debt or equity securities, for future growth and
development of our business. Although we believe the recapitalization to be
accomplished pursuant to the Offer will result in a capital structure that will
improve our ability to obtain financing, we anticipate that we may continue to
have difficulty obtaining financing on favorable terms. If we are unsuccessful
in obtaining sufficient capital for our operations, future growth and operating
results would be adversely affected.
Economic Conditions and Interest Rates--Changes in economic conditions and
increased interest rates can adversely affect the homebuilding industry and
our operating results
The homebuilding industry is highly cyclical. Changes in international,
national and local economic conditions affect the Company's business and
markets. In particular, declines in consumer confidence or employment levels in
our markets could adversely affect the demand for homes and could in turn harm
our operating results. The recent instabilities in the United States equity
markets could affect consumer confidence and harm the California economy and
reduce demand for, or prices of, homes in our primary market, which would in
turn affect the marketability of our lots to merchant builders.
Our customers frequently finance their home purchases through lenders
providing mortgage financing. Increases in interest rates or decreases in
availability of mortgage financing could depress the market for new homes
because of the increased monthly mortgage costs, or the decreased availability
of financing to potential home buyers. Even if some of our customers do not
need financing, changes in interest rates and mortgage availability could make
it harder for them to sell their existing homes to potential buyers who need
financing, which could slow the demand and turnover rate for New Millennium
custom homes. Any of these events could adversely affect our operating results.
Dependence on California Market; Risk of California Slow Growth Initiative--Our
operations are concentrated in Southern California. Adverse changes in the
California economy or implementation of regulations limiting or restricting
growth will adversely affect our operations
We presently conduct our business in Southern California. While home
prices in many areas of California currently are stable and trending higher,
home prices in California, including in some of the markets in which we conduct
business, have declined from time to time,
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particularly as a result of slow economic growth. We cannot assure you that the
current economic conditions and growth trends in California will continue. If
home prices or demand for custom homes decline in one or more of the markets in
which we operate, our results of operations, and therefore our ability to redeem
the New Notes and repay them at maturity and to declare and pay distributions
with respect to the Preferred Shares.
Several California cities and counties, including some in which we have
operated and continue to operate, have in the past approved, or approved for
inclusion on ballots, various "slow growth" initiatives and other ballot
measures which could impact the availability of affordable homes and land within
those localities. The successful passage and implementation of any such
initiatives could limit our ability to acquire land for development and
construct new homes, all of which could adversely affect our operating results,
and therefore our ability to redeem the New Notes and repay them at maturity
and to declare and pay distributions with respect to the Preferred Shares.
Competition in the Industry--We face competition in many areas and may be unable
to successfully compete with other companies engaged in the custom
homebuilding business
The real estate development and custom homebuilding business is highly
competitive and fragmented. We compete with numerous other residential
developers and construction firms, including large national and regional firms,
for customers, undeveloped land, financing, raw materials and skilled labor. A
number of our competitors have substantially greater financial resources than we
do. We compete on the basis of the location, design, quality and price of, as
well as available mortgage financing for, our homes. We also compete with the
resale of existing homes and, in some cases, with rental homes. An oversupply
of attractively priced resale or rental homes, or a shortage of residential
mortgage financing on reasonable terms, could adversely affect our ability to
sell homes profitably. Typically, the demand for residential lots is directly
affected by the demand for housing. As the demand for new homes peaks or
declines, so does the demand for residential lots.
Risk of Material and Labor Shortages--We cannot predict or control the supply or
cost of labor and materials necessary for our business and may be unable to
obtain them at prices that allow for profitable operations
The residential construction industry has from time to time experienced
serious material and labor shortages, including shortages in insulation,
drywall, carpentry work, cement and lumber. These shortages can be more severe
during periods of strong demand for housing. Certain of these materials,
including lumber and cement in particular, have experienced volatile price
swings. Similar shortages and price increases in the future could cause delays
in and increase the cost of our home construction which in turn would adversely
affect our operating results.
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Possible Shortage of Land for Purchase and Development; Inventory Risks--We may
be unable to acquire or hold land suitable for development, which would
adversely affect our results of operations
Our success in developing, building and selling homes depends in part on
the availability of suitable undeveloped land at acceptable prices. The
availability of suitable undeveloped land for purchase at a favorable price
depends on a number of factors beyond our control, including the risk of
competitive over-bidding of land prices and restrictive governmental regulation.
Should suitable land opportunities become less available, our operating results
could be adversely affected.
Land inventory risk can be substantial for homebuilders. The market value
of undeveloped land, suitable lots and housing inventories can fluctuate
significantly as a result of changing economic and market conditions. In the
event of significant changes in economic or market conditions, we may have to
sell homes at a loss or hold land in inventory longer than planned. Inventory
carrying costs can be significant and can result in substantial losses in a
poorly performing market, which would adversely affect our operating results.
We Are Subject to Extensive Governmental Regulation--Regulations governing our
business may be costly and time consuming to comply with, which would
impair our ability to operate profitably
Our development and homebuilding operations are subject to environmental,
building, worker health and safety, zoning and real estate regulations by
various federal, state and local authorities. These regulations, which affect
all aspects of the development and homebuilding process, including development,
design, construction and sales, can substantially delay or increase the costs of
development and homebuilding activities. In addition, regulations governing
environmental and health matters may prohibit or severely restrict homebuilding
activity in environmentally sensitive regions.
New housing developments, particularly in California, may be subject to
various assessments for schools, parks, streets, highways and other public
improvements. The costs of these assessments can be substantial and can cause
increases in the prices of our homes, which in turn could adversely affect our
operating results.
During the development process, we must obtain the approval of various
governmental authorities that regulate matters such as:
. permitted land uses and levels of density;
. the installation of utility services, such as water and waste disposal;
and
. the dedication of acreage for open space, parks, schools and other
community services.
The approval process can be costly, lengthy and cause significant delays in
the development process. In addition, changes in local circumstances or laws
may require additional approvals or modifications to approvals previously
obtained, which can result in further delays.
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Such delays in the development process can cause substantial increases to
development costs, which in turn could adversely affect our operating results.
Risk of Natural Disasters--We are at risk of loss and increased expense from
adverse weather conditions, natural disasters and acts of god that we
cannot predict or control
We are vulnerable to the risks associated with adverse weather conditions
and natural disasters, including:
. unusually heavy or prolonged rain;
. earthquakes;
. fires; and
. floods.
Such conditions can adversely affect our operations in the markets in which
they occur. In addition, California has periodically experienced drought
conditions which result in water conservation measures and sometimes water
rationing in municipalities in which we do business. Restrictions by
governmental agencies on construction activity as a result of limited water
supplies could adversely affect our operating results.
Reliance on Key Management--We are highly dependent on certain key individuals,
who may be difficult or impossible to replace if we were to lose their
services
New Millennium's future performance will depend to a significant extent
upon the efforts and abilities of certain key members of senior management,
including Greg R. Petersen, the President and Chief Executive Officer, and Louis
Malone, Executive Vice President and Los Angeles Division Manager. The loss of
the services of any of these members of senior management could have a material
adverse effect on New Millennium and there can be no assurance that a suitable
replacement could be found.
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BACKGROUND AND PURPOSE OF THE EXCHANGE OFFER
AND CONSENT SOLICITATION
Terms of the Exchange Offer and Consent Solicitation
Upon the terms and subject to the conditions set forth in this Exchange
Offer and Consent Solicitation and in the accompanying Letter of Transmittal and
Consent, we are offering to exchange all $126 million aggregate outstanding
principal amount of our Senior Notes. For each $1,000 principal amount of
Senior Notes, we will give holders of Senior Notes:
. New Notes with a principal amount equal to $927.32; and
. One Preferred Share with a distribution and liquidation preference of
$595.24.
New Notes will be issued only in integral multiples of $1,000. We will pay
cash in lieu of any principal amount of New Notes that is not an integral
multiple of $1,000. As a result of the Offer, New Notes with an aggregate
principal amount of $116,843,000 and 126,000 Preferred Shares with an aggregate
distribution and liquidation preference of $75,000,000 will be issued.
The Offer is subject to the satisfaction or waiver by us of each condition
described in the section entitled "Conditions to the Offer" below, including the
condition that of 100% of the outstanding Senior Notes be validly tendered and
not withdrawn and the Amendment Condition. Each of these conditions must be
satisfied on or before 5:00 P.M. New York City time on the Expiration Date
unless waived by us in our sole and absolute discretion. If all of the
conditions to the Offer are not satisfied or waived by us prior to 5:00 P.M. New
York City time on the Expiration Date, all Senior Notes previously tendered and
not properly withdrawn will be returned to the holder tendering such Senior
Notes as promptly as practicable after the Expiration Date.
In connection with the issuance of the Senior Notes and the Company's
common shares in September 1997, the Company entered into the Registration
Rights Agreements which obligated the Company to file shelf registration
statements with the SEC covering the resale of the Senior Notes and common
shares of New Millennium by specified dates, or pay Liquidated Damages. The
Company has not filed registration statements covering the resale of the Senior
Notes or the common shares, and accordingly Liquidated Damages may have accrued.
The aggregate amount of Liquidated Damages that would have been accrued and
unpaid as of June 30, 2000 was approximately $4 million. Holders who tender
their Senior Notes in the Offer are obligated to irrevocably waive all rights to
receive Liquidated Damages otherwise payable pursuant to the Registration Rights
Agreements. Pursuant to the terms of the Offer, the completion, execution and
delivery of a Letter of Transmittal and Consent by a holder of Senior Notes in
connection with the delivery of Senior Notes for exchange will be deemed to
constitute the irrevocable waiver of all such rights.
As a part of the Offer, we are soliciting Consents from the holders of
Senior Notes to the Proposed Amendments set forth in Annex I attached hereto and
incorporated by this reference.
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If the Proposed Amendments become effective, the Proposed Amendments would:
. delete the covenants contained in the sections or articles of the
Indenture entitled: 4.2, Offices for Payments, etc; 4.8, Payment of
Taxes and Other Claims; 4.9, Maintenance of Properties; 4.10,
Maintenance of Insurance; 4.11, Compliance with Laws; 4.13, Limitation
on Issuances and Dispositions of Capital of Subsidiaries; 4.14,
Limitation on Restricted Payments; 4.15, Limitation on Transactions with
Affiliates; 4.17, Limitation on Payment Restrictions Affecting
Subsidiaries; 4.18, Limitation on Investments; 4.19, Waiver of Stay,
Extension or Usury Laws; 4.20, Limitation on Incurrence of Indebtedness;
4.21, Additional Subsidiary Guaranties; 4.22, Limitation of Liens; 4.23,
Payment for Consent; 4.24, Real Property Acquisitions; 4.25, Maintenance
and Alterations; 4.26, Certain Environmental Matters; and Section 6.1,
Merger, or Consolidation;
. amend Section 4.5, Compliance Certificate, Notices of Default; Section
4.6, Securities and Exchange Commission Reports; Section 4.16,
Limitation on Asset Sales; and Section 6.2, Successor Corporation
Substituted as set forth in Annex I to this Exchange Offer and Consent
Solicitation;
. amend or delete certain events of default in the Indenture, as set forth
in Annex I to this Exchange Offer and Consent Solicitation;
. amend or delete certain restrictive covenants contained in the Security
Document, as set forth in Annex I to this Exchange Offer and Consent
Solicitation; and
. make certain conforming and related changes.
No holder may tender the holder's Senior Notes for exchange without
delivering the Consents.
Any holder who does not elect to participate in the exchange pursuant to
the terms and conditions of this Exchange Offer and Consent Solicitation will
not be deemed to have granted their Consents, unless the holder otherwise does
so affirmatively in writing. Senior Notes not validly tendered for exchange, if
any, will remain outstanding as obligations of New Millennium.
In order to become effective, valid Consents must be received from holders
of at least a majority of the outstanding principal amount of the Senior Notes.
Consents will not be counted toward determining whether the Amendment Condition
has been satisfied unless we are prepared, subject to the terms and conditions
set forth in this Exchange Offer and Consent Solicitation, to accept the tender
of the Senior Notes to which such Consents relate for exchange or waive any
defects in such tender. Consents of a holder will not be counted if the tender
of the holder's Senior Notes does not conform to the requirements set forth in
the section of this Exchange Offer and Consent Solicitation entitled "Procedures
for Tendering Senior Notes and Delivery of Consents" and the defect is not cured
prior to 5:00 P.M. New York City time, on the Expiration Date, or waived by us
in our sole discretion. See "--Conditions to the Offer."
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The transfer of Senior Notes on the register of New Millennium will not
have the effect of revoking any Consent previously given by the holder of such
Senior Notes. See "--Withdrawal Rights." Pursuant to the terms of the Offer,
the completion, execution and delivery of a Letter of Transmittal and Consent by
a holder of Senior Notes in connection with the delivery of Senior Notes for
exchange will be deemed to constitute the delivery of a Consent to the Proposed
Amendments.
New Millennium has had discussions with substantially all holders of the
Senior Notes regarding the terms of the Offer. Holders of more than 85% of the
outstanding principal amount of Senior Notes have indicated that they will
support the Offer and tender their Senior Notes for exchange. New Millennium
believes that it is in the best interests of New Millennium and the holders of
Senior Notes to restructure the Senior Notes outside of a Chapter 11
reorganization case, under the United States Bankruptcy Code, due to the
increased costs, time delays, negative impact upon goodwill and reputation, and
possible adverse consequences to New Millennium's business operations associated
with a bankruptcy proceeding.
However, if the Offer is not consummated because less than 100% of the
Senior Notes are tendered for exchange or for any other reason, New Millennium
may decide to file for relief under Chapter 11 of the United States Bankruptcy
Code and propose a plan of reorganization in which the Senior Notes would be
exchanged for New Notes and Preferred Shares on substantially the same terms as
described in this Exchange Offer and Consent Solicitation (the "Plan"). In
order to validly tender Senior Notes for exchange in the Offer, holders of
Senior Notes will be obligated to agree that if the Offer is not consummated and
New Millennium files for Chapter 11 relief, they will consent to and support the
Plan (the "Support Agreement"). The Support Agreement will require the
tendering holders to, without limitation,
. vote to accept the Plan and take reasonable efforts to obtain
confirmation of the Plan;
. not agree to, consent to, recommend or vote for any plan of
reorganization that contains terms inconsistent with the Plan; and
. not object to or otherwise commence any proceedings to oppose or alter
the Plan or take any action that is inconsistent with, or that would
delay solicitation, confirmation, effectiveness or substantial
consummation of the Plan.
Pursuant to the terms of the Offer, the completion, execution and delivery of a
Letter of Transmittal and Consent by a holder of Senior Notes prior to 5:00 P.M.
New York City time on the Expiration Date in connection with the delivery of
Senior Notes will be deemed to constitute delivery of the Support Agreement.
If the Offer is not consummated, the Company is unable otherwise to
restructure the Senior Notes and the Company does not file for Chapter 11
relief, the Company may wind up its affairs and dissolve. If New Millennium
were to dissolve and distribute its assets to our creditors, including the
holders of the Senior Notes, we cannot assure you that the assets would be
sufficient to pay holders of Senior Notes all of the principal amount and
accrued and unpaid interest on the Senior Notes, or any Liquidated Damages.
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Expiration Date; Extensions; Amendments
The Expiration Date will be August 10, 2000 at 5:00 P.M., New York City
time, unless the Company, in its sole discretion, extends the Offer, in which
case the Expiration Date will be the latest date and time to which the Offer is
extended.
In order to extend the Exchange Offer and Consent Solicitation, we will
notify the Exchange Agent of any extension by oral or written notice and will
make a public announcement of the extension, each prior to 9:00 A.M., New York
City time, on the next business day after the previously scheduled Expiration
Date.
During any extension of the Offer, all Senior Notes previously tendered and
not withdrawn will remain subject to the Offer and may be accepted for exchange
at the expiration of the Offer subject to the right, if any, of a tendering
holder to withdraw its previously tendered Senior Notes. See "--Withdrawal
Rights."
Except as otherwise provided herein, withdrawal rights with respect to
Senior Notes tendered pursuant to the Offer will not be extended or reinstated
as a result of an extension or amendment of the Offer. See "--Withdrawal
Rights." Our reservation of the right to delay acceptance for exchange of
Senior Notes is subject to the provisions of Rule 14e-1(c) under the Exchange
Act, which requires that we pay the consideration offered or return the Senior
Notes deposited by or on behalf of holders promptly after the termination or
withdrawal of the Offer.
We reserve the right, in our sole and absolute discretion:
. to delay accepting any Senior Notes or delay implementing the Proposed
Amendments;
. to extend the Offer;
. to terminate the Offer, whether or not any of the conditions set forth
below under "Conditions to the Offer" have been satisfied; and
. to amend the terms of the Offer in any manner by giving oral or written
notice of a delay, extension, termination or modification to the
Exchange Agent.
If the Offer is amended in a manner we determine to constitute a material
change, we will promptly disclose the amendments by means of a public
announcement or a supplement to this Exchange Offer and Consent Solicitation
that will be distributed to the record holders of the Senior Notes.
Without limiting the manner in which we may choose to make a public
announcement of any extension, delay, termination or amendment of the Offer, we
will have no obligation to publish, advertise or otherwise communicate any
public announcement, other than by issuing a release to the Dow Jones News
Service, except in the case of an announcement of an extension of the Offer, in
which case we will have no obligation to publish, advertise or otherwise
communicate the announcement other than by issuing a notice of the extension by
press release
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or other public announcement, which notice will be issued no later than 9:00
A.M., New York City time, on the next business day after the previously
scheduled Expiration Date.
If we make a material change in the terms of the Offer, or the information
concerning the Offer, or waive any condition to the Offer that results in a
material change to the circumstances of the Offer, then we will disseminate
additional Exchange Offer and Consent Solicitation materials to the extent
required under the Exchange Act and will extend the Offer to the extent required
in order to permit holders of Senior Notes adequate time to consider such
materials. The minimum period during which the Offer must remain open following
material changes in the terms of the Offer or information concerning the Offer,
will depend upon the specific facts and circumstances, including the relative
materiality, of the terms or information.
Conditions to the Offer
Our obligation to consummate the Offer is conditioned upon the satisfaction
of the condition that 100% of the outstanding Senior Notes have been validly
tendered and not withdrawn and the Amendment Condition, as well as the following
conditions:
. No legal action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency directly or
indirectly with respect to the Offer or which, in our sole judgment, may
materially adversely affect our business, operations or condition
(financial or other);
. There shall not have occurred:
- any general suspension of trading in, or limitation on prices for,
securities on the New York Stock Exchange;
- a declaration of a banking moratorium by United States authorities
or any governmental agency in the United States;
- the commencement of a war, armed hostilities or other international
or national calamity directly or indirectly involving the United
States;
- a material adverse change in general economic, political or
financial conditions, if the effect of any economic, political or
financial conditions on the financial markets of the United States
shall be such as, in the sole judgment of the Company, shall make
it impracticable to consummate the Offer;
- any change or development involving a prospective change in or
affecting the business or financial affairs of the Company which,
in our sole judgment, would materially impair the contemplated
benefits of the Offer to us;
. No statute, rule or regulation shall have been proposed or enacted, nor
shall any action have been taken by any governmental authority, which,
in our sole judgment,
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would or might prohibit, restrict or delay consummation of the Offer as
presently proposed or materially impair the contemplated benefits of the
Offer to us; and
. There shall not exist, in our sole judgment, any other actual or
threatened legal impediment to the acquisition of the Senior Notes or
the issuance of the New Notes or the Preferred Shares.
If the Offer should be withdrawn because any condition has not been
satisfied, the Senior Notes previously tendered will be returned without expense
to the tendering holders as promptly as practicable following the withdrawal.
The conditions to the Offer are for our sole benefit and may be asserted by
us, in our sole discretion, regardless of the circumstances giving rise to any
condition (including any action or inaction by us). Additionally, any condition
may be waived by us, in whole or in part, at any time and from time to time in
our sole discretion. If any of the conditions are not satisfied, we may,
subject to applicable law:
. terminate the Offer and return all Senior Notes tendered pursuant to the
Offer to the tendering holders,
. extend the Offer and retain all tendered Senior Notes until the extended
Expiration Time,
. amend the terms of the Offer in any respect, or
. waive the unsatisfied condition or conditions with respect to the Offer
and accept all validly tendered Senior Notes.
See "--Expiration Date; Extensions; Amendments" and "--Procedures for
Tendering Senior Notes and Delivery of Consents."
Our failure at any time to exercise the right to assert to satisfaction of
a condition shall not be deemed a waiver of any right and each right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
Any determination by us concerning the events described in this section shall be
final and binding upon all persons.
Procedures for Tendering Senior Notes and Delivery of Consents
The tender of Senior Notes prior to 5:00 P.M. New York City time on the
Expiration Date (and the failure to properly withdraw such Senior Notes after
they have been tendered) pursuant to the Offer and in accordance with the
procedures described below shall be deemed to constitute the delivery of a
waiver of any rights to receive Liquidated Damages and a delivery of Consents
with respect to the Senior Notes tendered. The tender of a holder's Senior
Notes as set forth below and our acceptance of the tendered Senior Notes will
constitute a binding agreement between the tendering holder and us upon the
terms and subject to the conditions set forth in this Exchange Offer and Consent
Solicitation. Except as set forth below, a holder who wishes to tender Senior
Notes for exchange pursuant to the Offer must transmit the Senior Notes,
together
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with a properly completed and duly executed Letter of Transmittal and Consent,
including all other documents required by the Letter of Transmittal and Consent,
to the Exchange Agent at the address set forth on the back cover page of this
Exchange Offer and Consent Solicitation prior to 5:00 P.M., New York City time,
on the Expiration Date.
The method of delivery of Senior Notes, Letters of Transmittal and Consent
and all other required documents is at the election and risk of the holder. If
delivery is by mail, we recommend that registered mail, properly insured, with
return receipt requested, be used. instead of delivery by mail, we recommend
that the holder use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure timely delivery.
Each signature on a Letter of Transmittal and Consent or a notice of
withdrawal, as the case may be, must be guaranteed unless the Senior Notes
surrendered for exchange pursuant hereto are tendered:
. by a registered holder of the Senior Notes who has not completed either
the box entitled "Special Exchange Instructions" or the box entitled
"Special Delivery Instructions" in the Letter of Transmittal and
Consent; or
. by an Eligible Institution (as defined).
In the event that a signature on a Letter of Transmittal and Consent or a
notice of withdrawal, as the case may be, is required to be guaranteed, the
guarantee must be by a firm which is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or otherwise be an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If
the Letter of Transmittal and Consent is signed by a person other than the
registered holder of the Senior Notes, the Senior Notes surrendered for exchange
must either be:
. endorsed by the registered holder, with the signature thereon guaranteed
by an Eligible Institution; or
. accompanied by a bond power, in satisfactory form as determined by us in
our sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution.
The term "registered holder" as used herein with respect to the Senior
Notes means any person in whose name the Senior Notes are registered on the
books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of Senior Notes tendered for exchange or
Consents delivered (or deemed delivered) pursuant to the Offer will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all Senior Notes not
validly tendered and to reject any Senior Notes the Company's acceptance of
which might, in our judgment or the judgment of our counsel, be unlawful. We
also reserve the absolute right to waive any defects or irregularities or
conditions of the Offer as to particular
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Senior Notes either before or after the Expiration Date (including the right to
waive the ineligibility of any holder who seeks to tender Senior Notes and
deliver Consents in the Offer). The interpretation of the terms and conditions
of the Offer (including the Letter of Transmittal and Consent and the
instructions thereto), by us shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Senior Notes
for exchange must be cured within such period of time as we shall determine in
our sole discretion. We will use reasonable efforts to give notification of
defects or irregularities with respect to tenders of Senior Notes for exchange
but we will not incur any liability for failure to give such notification.
Tenders of the Senior Notes will not be deemed to have been made until such
irregularities have been cured or waived.
If any Letter of Transmittal and Consent, endorsement, bond power, power of
attorney or any other document required by the Letter of Transmittal and Consent
is signed by a trustee, executor, corporation or other person acting in a
fiduciary or representative capacity, the person should so indicate when
signing, and, unless waived by the Company, proper evidence satisfactory to us,
in our sole discretion, of the person's authority to so act must be submitted.
Any beneficial owner of the Senior Notes whose Senior Notes are registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender Senior Notes in the Offer should contact the registered
holder promptly and instruct the registered holder to tender on the beneficial
owner's behalf. If the beneficial owner wishes to tender directly, the
beneficial owner must, prior to completing and executing the Letter of
Transmittal and Consent and tendering Senior Notes, make appropriate
arrangements to register ownership of the Senior Notes in the beneficial owner's
name. Beneficial owners should be aware that the transfer of registered
ownership may take considerable time.
Guaranteed Delivery Procedures
Holders who wish to tender their Senior Notes and whose Senior Notes are
not immediately available or who cannot deliver their Senior Notes or any other
documents required by the Letter of Transmittal and Consent to the Exchange
Agent prior to the Expiration Date, may tender their Senior Notes according to
the guaranteed delivery procedures set forth in the Letter of Transmittal and
Consent. Pursuant to those procedures:
. the tender must be made by or through an Eligible Institution and a
Notice of Guaranteed Delivery (as defined in the Letter of Transmittal
and Consent) must be signed by the holder;
. on or prior to the Expiration Date, the Exchange Agent must have
received from the holder and the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address
of the holder, the certificate number or numbers of the tendered Senior
Notes, and the principal amount of tendered Senior Notes, stating that
the tender is being made by the Notice of Guaranteed Delivery and
guaranteeing that, within four business days after the date of delivery
of the Notice of Guaranteed Delivery, the tendered Senior Notes, a duly
executed Letter of Transmittal and
33
<PAGE>
Consent and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and
. the properly completed and executed documents required by the Letter of
Transmittal and Consent and the tendered Senior Notes in proper form for
transfer must be received by the Exchange Agent within three business
days after the Expiration Date. Any holder who wishes to tender Senior
Notes pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of Guaranteed
Delivery and Letter of Transmittal and Consent relating to such Senior
Notes prior to 5:00 P.M., New York City time, on the Expiration Date.
Acceptance of Senior Notes for Exchange; Delivery of New Notes and Preferred
Shares
Upon satisfaction or waiver of all conditions to the Offer, including the
condition that 100% of the outstanding Senior Notes be validly tendered and not
withdrawn and the Amendment Condition, we will accept any and all Senior Notes
that are validly tendered and not properly withdrawn in the Offer prior to 5:00
P.M., New York City time on the Expiration Date. We will deliver the New Notes
and the Preferred Shares issued in the Offer to holders promptly after
acceptance of the Senior Notes. For purposes of the Offer, we shall be deemed
to have accepted validly tendered Senior Notes and Consents when, as, and if we
have given oral or written notice of acceptance to the Exchange Agent.
In all cases, delivery of the New Notes and the Preferred Shares will be
made only after timely receipt by the Exchange Agent of the Senior Notes, a
properly completed and duly executed Letter of Transmittal and Consent and all
other required documents. However, we reserve the absolute right to waive any
defects or irregularities in the tender or conditions to the Offer. If any
tendered Senior Notes are not accepted for any reason, the unaccepted Senior
Notes will be returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the Offer.
Withdrawal Rights
Tenders of Senior Notes and related Consents may be withdrawn by delivery
of a written, telegraphic, telex or telecopy notice to the Exchange Agent, at
its address set forth on the back cover page of this Exchange Offer and Consent
Solicitation, at any time prior to 5:00 P.M., New York City time, on the
Expiration Date. Any such telegraphic, telex or telecopy notice of withdrawal
must:
. specify the name of the person having deposited the Senior Notes to be
withdrawn (the "Depositor");
. identify the Senior Notes to be withdrawn (including the certificate
number or numbers and principal amount of the Senior Notes);
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<PAGE>
. be signed by the holder requesting withdrawal in the same manner as the
original signature on the Letter of Transmittal and Consent by which the
Senior Notes were tendered (including any required signature guarantees)
or be accompanied by a bond power in the name of the person withdrawing
the tender, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder, with the signature
guaranteed by an Eligible Institution together with the other documents
required upon transfer; and
. specify the name in which the Senior Notes are to be re-registered, if
different from the Depositor, pursuant to the documents of transfer.
Any questions as to the validity, form and eligibility (including time of
receipt) of notices of withdrawal will be determined by us, in our sole
discretion. Senior Notes that are properly withdrawn will be deemed not to have
been validly tendered for Exchange, and the related Consents will be deemed not
to have been validly delivered, for purposes of the Offer. Any Senior Notes
which have been tendered for exchange but which are withdrawn will be returned
to the holder without cost to such holder as soon as practicable after
withdrawal. Properly withdrawn Senior Notes may be retendered by following one
of the procedures described under "The Exchange Offer and Consent Solicitation--
Procedures for Tendering Senior Notes and Delivery of Consents" at any time on
or prior to 5:00 P.M. New York City time on the Expiration Date.
The Exchange Agent; Assistance
U.S. Bank Corporate Trust is the Exchange Agent. All tendered Senior
Notes, executed Letters of Transmittal and Consent and other related documents
should be directed to the Exchange Agent. Questions and requests for assistance
and requests for additional copies of the Exchange Offer and Consent
Solicitation, the Letter of Transmittal and Consent and other related documents
should be addressed to the Exchange Agent as follows:
35
<PAGE>
Exchange Agent
By Hand or Overnight Courier:
U.S. Bank Corporate Trust
180 E. 5th Street
St. Paul, Minnesota 55101
Attn: Default Processing
By Registered or Certified Mail:
U.S. Bank Corporate Trust
180 E. 5th Street
St. Paul, Minnesota 55101
Attn: Default Processing
By Facsimile:
(651) 244-1142
Confirm by Telephone:
(612) 973-5840
Fees and Expenses
All expenses incident to New Millennium's consummation of the Offer will be
borne by us, including, without limitation:
. printing expenses (including, without limitation, expenses of printing
certificates for the New Notes and the Preferred Shares and of printing
the Exchange Offer and Consent Solicitation);
. messenger, telephone and delivery expenses;
. fees and disbursements of our counsel;
. fees and disbursements of independent certified public accountants;
. New Millennium's internal expenses; and
. reasonable and customary fees and out-of-pocket expenses incurred by the
Exchange Agent in connection with its services relating to the Offer.
We have not retained any dealer-manager in connection with the Offer and
will not make any payments to brokers, dealers or others soliciting acceptance
of the Offer. However, we will pay the Exchange Agent reasonable and customary
fees for their services and will reimburse it for its reasonable out-of-pocket
expenses.
36
<PAGE>
We will pay all transfer taxes, if any, applicable to the exchange of
Senior Notes pursuant to the Offer. If, however, a transfer tax is imposed for
any reason other than the exchange of Senior Notes pursuant to the Offer, then
the amount of transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of taxes or exemption is not submitted with the Letter of
Transmittal and Consent, the amount of transfer taxes will be billed directly to
the tendering holder.
Accounting Treatment
New Millennium will allocate the net carrying value of the Senior Notes to
the New Notes and Preferred Shares based on their projected cash flows. The GAAP
rules do not consider either the periods in which payments may occur, or the
likelihood that payments will occur, in arriving at these values. Accordingly,
the values assigned should not be construed to represent the relative or actual
fair values of the New Notes and Preferred Shares for tax or any other purposes.
The net carrying value attributed to the Senior Notes includes the principal
amount of the Senior Notes net of the discount that has yet to be accreted,
accrued interest, and unamortized loan fees. The Preferred Shares will be
accreted to their aggregate distribution and liquidation preference of $75
million. The discount on the New Notes will be amortized as additional interest
cost and capitalized to projects, as appropriate. The accretion of the Preferred
Shares will occur ratably from issuance over the life of the New Notes, and the
amortization of the discount on the New Notes will occur over the life of the
New Notes and the Preferred Shares.
Resales of the New Notes and the Preferred Shares
The New Notes and the Preferred Shares to be issued in the Offer will be
"restricted securities." Therefore, a holder of the New Notes or the Preferred
Shares will not be able to sell or transfer the New Notes or the Preferred
Shares received in the exchange unless the sale or transfer is registered under
the Securities Act or is made pursuant to an available exemption from
registration under applicable securities laws. We have not issued any publicly
traded securities and do not file any periodic reports with the SEC, nor do we
intend to register the New Notes or the Preferred Shares under the Securities
Act or grant registration rights in connection with their issuance. There is no
current public market for the New Notes or the Preferred Shares, nor do we
anticipate that a public market will develop for the New Notes or the Preferred
Shares in the future.
CONSEQUENCES TO HOLDERS OF SENIOR NOTES
IF THE OFFER IS NOT CONSUMMATED
In connection with the Offer, the Company is soliciting the agreement (the
"Support Agreement") of holders who tender their Senior Notes for exchange,
which will be effective only if the Offer is not consummated and valid Support
Agreements are properly furnished by the Expiration Date with respect to a
sufficient principal amount of Senior Notes required to approve the Plan
described below in a Chapter 11 proceeding. Pursuant to the Support Agreement,
tendering holders will consent to and support a plan of reorganization under
Chapter 11 of the Bankruptcy Code which provides for treatment of the Senior
Notes in a bankruptcy case under Chapter 11 of the Bankruptcy Code that is
substantially similar to the treatment of the Senior Notes proposed in the Offer
(the "Plan"). Such support shall include, without limitation,
37
<PAGE>
. voting to accept the Plan and taking reasonable efforts to obtain
confirmation of the Plan, even if the Plan involves a "cramdown" under
Section 1129(b) of the Bankruptcy Code of classes of claims or equity
interests other than the class that includes the Senior Notes,
. not agreeing to, consenting to, recommending or voting for any plan that
contains terms inconsistent with the Plan, and
. not objecting to or otherwise commencing any proceeding to oppose or
alter the Plan or taking any action that is inconsistent with, or that
would delay solicitation, confirmation, effectiveness or substantial
consummation of the Plan.
If the Offer is not consummated but the Support Agreements become
effective, a tendering holder's rights to sell or transfer the Senior Notes will
be restricted, and each tendering holder will be required to hold Senior Notes
in certificated form. Pursuant to the Support Agreements, any tendering holder
will agree not to transfer, sell, assign, encumber or otherwise dispose of the
beneficial ownership of the holder's Senior Notes, unless the holder provides
evidence satisfactory to the Company that the holder's transferee (and, if
different, the beneficial owner of the Senior Notes so transferred) has agreed
in writing in form and substance satisfactory to the Company that the
transferred Senior Notes are subject to the terms of the Support Agreement, and
that the transferee (and, if different, the beneficial owner) has agreed to be
bound by the terms of the Support Agreement. The restriction on transfer will
be noted on the Senior Notes with respect to which Support Agreements are
received, and no Senior Notes subject to Support Agreements may be transferred
unless the holder delivers to the Company an opinion of counsel in form and
substance satisfactory to the Company in its sole discretion that the transferee
has agreed to and is bound by the Support Agreements.
In order to validly tender Senior Notes for exchange, holders of Senior
Notes will be obligated to deliver the Support Agreement. Pursuant to the terms
of the Offer, the completion, execution and delivery of a Letter of Transmittal
and Consent by a holder of Senior Notes prior to 5:00 P.M. New York City time on
the Expiration Date in connection with the delivery of Senior Notes will be
deemed to constitute delivery of the Support Agreement.
CONSIDERATIONS FOR HOLDERS OF SENIOR NOTES WHO ELECT
NOT TO PARTICIPATE IN THE EXCHANGE
The following considerations, in addition to the other information set forth in
this Exchange Offer and Consent Solicitation, should be considered carefully
prior to determining whether or not to tender Senior Notes and consent to the
Proposed Amendments.
Effect of the Proposed Amendments
If the Offer is consummated and the Proposed Amendments become effective,
holders of Senior Notes that are not properly tendered for exchange for any
reason will no longer be entitled to the benefits of substantially all of the
restrictive covenants, certain of the event of default provisions and certain
other provisions of the Senior Notes Indenture and Security Document
38
<PAGE>
after those provisions have been eliminated or modified by the Proposed
Amendments. The Proposed Amendments would amend the Senior Notes Indenture and
Security Document to delete most restrictive provisions, including, without
limitation, covenants relating to our ability to incur indebtedness, pay
dividends, engage in asset sales, merge or consolidate with another entity,
incur liens, make payments or other distributions to affiliates, enter into
business relationships with affiliates, and take other actions that would
otherwise be restricted under the Senior Notes Indenture and Security Document.
The elimination or modification of those provisions would permit us to take
actions that could increase the credit risks faced by the holders of any
remaining Senior Notes, adversely affect the market price of any remaining
Senior Notes or otherwise be adverse to the interests of the holders of any
remaining Senior Notes. While we anticipate that we will be subject to
restrictive covenants contained in other debt agreements, holders of Senior
Notes, if any, will not be able to enforce those covenants and those covenants
will be subject to change without the consent of holders, if any, of Senior
Notes.
We may manage our business in a manner that otherwise might have been
prohibited under the Senior Notes Indenture and Security Document prior to the
effectiveness of the Proposed Amendments. The Proposed Amendments might have a
material adverse effect on the value of the Senior Notes resulting from, among
other things, the increased ability of New Millennium to incur debt, incur
liens, pay dividends, make transfers of funds or other assets, or merge or
consolidate with another entity.
The Proposed Amendments will not relieve us from our obligation to make
scheduled payments of principal and accrued interest in accordance with the
terms of the Senior Notes and the Senior Notes Indenture (as amended by the
Proposed Amendments, assuming consummation of the Offer), on Senior Notes, if
any, not exchanged pursuant to the Offer. The Proposed Amendments will not
eliminate nor otherwise modify any collateral securing the Senior Notes or
eliminate any guarantees of the Senior Notes.
See "Annex I-The Proposed Amendments" for more detailed information
regarding the Proposed Amendments.
Adverse Effects on Trading Market for the Senior Notes
An issue of debt securities with a smaller outstanding principal amount
available for trading (a smaller "float") may command a lower price than would a
comparable debt securities with a greater float. Therefore, the market price
for Senior Notes, if any, not tendered for exchange may be adversely affected
because of reduced float. The reduced float may also tend to make the trading
price more volatile. We cannot assure you that any trading market will exist
for Senior Notes, if any, following consummation of the Offer. The extent of
the market for Senior Notes, if any, following consummation of the Offer will
depend upon, among other things, the remaining outstanding principal amount, if
any, of the Senior Notes after the Offer and the number of remaining holders, if
any.
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<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of New Millennium
as of March 31, 2000 and as adjusted to reflect the consummation of the Offer as
if it occurred on that date. The table should be read in conjunction with the
audited consolidated financial statements of New Millennium and related notes
and the unaudited consolidated financial statements of New Millennium and
related notes included in this Exchange Offer and Consent Solicitation.
<TABLE>
<CAPTION>
As of March 31, 2000
---------------------------------------
Actual Adjusted
--------------- --------------
<S> <C> <C>
(Dollars in Thousands)
Cash and cash equivalents.......................................... $ 380 $ 380
============ ============
Loan fees on senior secured notes, net of amortization............. 817 -
============ ============
Accrued interest on Senior Notes................................... 8,259 -
============ ============
Notes Payable:
Notes payable...................................................... 42,939 42,939
Senior Notes, net of discount...................................... 116,316 --
New Notes.......................................................... -- 75,242
------------ ------------
Total notes payable............................................. 159,255 118,181
------------ ------------
Members' equity:
Preferred Shares................................................ - 48,516
Common Shares, no stated par value
Authorized 30,000,000 shares; issued and outstanding
20,182,951 and 20,026,156 shares, respectively.............. 78,210 78,210
Deferred compensation........................................... (98) (98)
Accumulated deficit............................................. (42,583) (42,583)
------------ ------------
Total members' equity....................................... 35,529 84,045
------------ ------------
Total capitalization........................................ $ 194,784 $ 202,226
============ ============
</TABLE>
40
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth selected audited and unaudited consolidated
financial information of New Millennium. The selected consolidated financial
information for the period from September 4, 1997 (inception) to December 31,
1997 (fiscal year 1997) and for the fiscal years ended December 31, 1998 and
1999 was derived from the audited consolidated financial statements of New
Millennium for each of the corresponding fiscal years. The selected
consolidated financial information for the three months ended March 31, 1999 and
2000 was derived from the unaudited consolidated financial statements of New
Millennium for those periods. In the opinion of management, the unaudited
consolidated financial statements include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of such
information. The operating results for the three months ended March 31, 2000
are not necessarily indicative of results for the full fiscal year. The
information presented below should be read in conjunction with the audited
consolidated financial statements and related notes, the unaudited consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this Exchange Offer and Consent
Solicitation.
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
--------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
1997
(from inception) 1998 1999 1999 2000
---------------- -------- -------- -------- --------
Income Statement Data:
SALES:
Sales of homes............................................... $16,910 $ 21,017 $ 36,943 $ 9,158 $16,850
Sales of land................................................ 5,510 76,775 11,670 5,495 -
Cost of homes sold............................................ 15,658 19,749 32,262 8,208 14,750
Cost of land sold............................................. 5,096 72,158 11,373 5,395 -
Write down of projects to net realizable value................ - - 8,400 - -
Selling, general and administrative expenses.................. 3,283 12,206 8,894 2,008 1,732
Bad debt write off............................................ - 4,679 - - -
Reorganization value amortization, including
impairment charge in 1999..................................... 1,872 5,615 22,898 1,404 478
Other income, net............................................. 731 4,704 6,918 745 492
Interest incurred............................................. 7,366 22,562 23,880 5,323 6,381
Interest capitalized.......................................... (7,366) (22,562) (23,880) (5,323) (6,381)
Net income (loss)............................................. (2,758) (11,911) (28,296) (1,617) 382
Ratio of earnings to fixed charges (1)........................ (2) (2) (2) 0.09 0.25t
Other Data:
EBITDA (3)................................................... $21,946 $ 87,178 $ 35,686 $ 9,414 $ 8,055
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, As of March 31,
---------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
1997 1998 1999 1999 2000
(from inception)
---------------- -------- -------- -------- -------
Balance Sheet Data:
Real estate projects.......................................... $178,797 $164,107 $200,886 $166,993 $198,313
Total assets.................................................. 240,720 203,697 213,623 204,840 209,808
Total long-term debt.......................................... 111,672 113,712 115,790 114,228 116,316
Total members' equity......................................... 72,550 61,872 35,094 60,550 35,529
</TABLE>
-------------------------------
(1) For purposes of this ratio, earnings equal income (loss) before fixed
charges, and fixed charges include interest incurred, loan fees and
accretion of discount on the Senior Notes.
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<PAGE>
(2) Earnings were insufficient to cover fixed charges by $9,785 in 1997, $29,369
in 1998, $46,432 in 1999, $4,840 for the three month period ended March 31,
1999 and $4,760 for the three month period ended March 31, 2000.
(3) EBITDA means net income before interest, taxes, depreciation and
amortization and non-cash charges. EBITDA should not be construed as an
alternative to operating income or net income (as determined in accordance
with generally accepted accounting principles) as an indicator of cash flows
or as a measure of liquidity. EBITDA is presented solely as supplemental
disclosure because management believes it is a widely used measure of
operating performance in our industry. All companies do not calculate
EBITDA in the same manner. As a result, EBITDA as presented here may not be
comparable to the similarly titled measures presented by other companies.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following summary is qualified in its entirety by the more detailed
information and financial data, including the audited consolidated financial
statements and related notes and our unaudited consolidated financial statements
appearing in this Exchange Offer and Consent Solicitation. References to fiscal
years refer to years ending December 31.
General
New Millennium Homes, LLC was formed in September 1997. Pursuant to and in
accordance with the Fourth Amended Joint Plan of Reorganization all assets of
Baldwin Builders ("BB") were transferred to Baldwin Builders Contractors as
required by the Plan ("BBKL") (BB and BBKL are sometimes collectively referred
to herein as the "Debtors"). Concurrently with completion of these transfers,
Baldwin Builders Contractors merged with and into New Millennium Homes, LLC,
which thereupon succeeded to ownership of all assets vested in the Debtors as of
the confirmation of the Plan in August, 1997. The assets were concurrently
transferred into two subsidiary companies, NM Homes One, Inc. and NM Homes Two,
Inc.
All operations and payroll are managed out of NM Homes One, Inc. Land held
for future development was transferred into NM Homes Two, Inc. Housing
developments from the Debtors were continued in Orange County and San Diego
County by operations managed under NM Homes One, Inc. These housing
developments have been built out and were sold by March 31, 2000, with the
exception of the Summit Ridge project, which is expected to be sold out by June
30, 2000. Land held for sale by NM Homes Two, Inc. had been sold by May 2000,
with the exception of Brownfield in San Diego County.
NM Homes One, Inc. received two Orange County housing developments from the
Debtors, Summit Ridge in Anaheim Hills and Palermo in Portola Hills. NM Homes
One, Inc. built out these developments and sold them by March 31, 2000, which
the exception of 14 units remaining to close at Summit Ridge. NM Homes One,
Inc. built 214 units in the Summit development and 113 units in the Palermo
development. In addition, Summit land comprising 58 lots was sold in 1997 and
167 lots were sold in 1998.
NM Homes One, Inc. inherited two sets of San Diego County housing
developments from the Debtors: Telegraph Canyon and Paloma. Telegraph Canyon
had two projects, Crossings and Classics. NM Homes One, Inc. built out and sold
45 Crossings and 29 Classics. The remaining Telegraph Canyon land comprising 89
lots was sold in 1998.
Paloma, NM Homes One, Inc.'s other San Diego housing development, had two
projects, which originated with the Debtors, Villas and Alicante. NM Homes One,
Inc. completed these projects, building out and selling 10 Villas' units and 22
Alicante units. NM Homes One, Inc. began development on the remaining Paloma
land, building models and constructing units under projects named Sonora and
Loretto. These projects (models, houses under construction and empty lots, all
totaling 800 lots), were sold to Kaufman and Broad in 1998.
43
<PAGE>
In January 1999, NM Homes One, Inc. sold its Carmel Del Mar property of 99
high-density units.
The Los Angeles division received nine units from the Debtors in the Oaks
Phase 1 development in Calabasas, four Lang Ranch lots, 445 undeveloped lots in
the Calabasas project and undeveloped land in Ventura County. The nine Oaks'
units were sold in 1997 and early 1998. The four Lang Ranch units were built
out and sold in 1998. In June 1999, through a settlement agreement reached with
the Baldwin Builders, the Company purchased the remaining 82 lots in the
Calabasas project giving NM Homes One, Inc. control of the entire project.
The undeveloped land in Ventura County was transferred into NM Homes Two,
Inc. at the time of the merger. The Ormond Beach-Western L&G property was sold
to the Metropolitan Water District in August 1998. In March 1999, the Ito Farms
portion of the Ventura County land was traded to Ito Farms for property in
Norco. The Norco property was subsequently sold in August 1999. The commercial
property in Ventura County was sold in April 1999.
During 1998 to early 1999, 32 custom lots were purchased in Orange County
and seven custom lots were purchased near the Los Angeles office. These custom
lots are in various stages of development. Five of the Orange County custom
homes were sold by March 31, 2000.
In late 1998, an apartment site in Costa Mesa was purchased with the intent
to develop it into a self-enclosed nine unit detached project. This project was
completed in 1999, with six units sold in 1999 and three sold in 2000.
The Calabasas project is currently under development. Of the 527 lots to
be developed, 32 lots have been graded and are ready for the construction of
homes by us or sale to third parties. New Millennium is considering retaining
27 of these lots on which to construct and sell homes. Currently, NM Homes One,
Inc. is grading an additional 118 lots out of internally generated funds.
Results of Operations
The Company's results of operations for any period are significantly
impacted by a number of factors, including the product mix for the sale of homes
and the sale of land. Land sales reflect a unique transaction, as no two land
sales are alike. Therefore, land sales revenue does not provide a comparable
basis to prior years due to the uniqueness of each piece of property. Product
mix for home sales can vary between periods, depending on the types of projects
which close and their location.
Three Months Ended March 31, 2000 Compared to March 31, 1999
Net income for the three months ended March 31, 2000 increased $2.0 million
from the comparable period in the prior year, principally as a result of the
factors discussed below.
The Company's first quarter 2000 revenues increased by $2.2 million over
1999 due to increased home sales revenue of $7.7 million, partially offset by
reduced land sales revenue of $5.5 million. The Carmel Del Mar property was
sold in January 1999, whereas no land was sold
44
<PAGE>
in the first quarter of 2000. During the first quarter of 2000, 14 more homes
closed compared to the number that closed in the first quarter of 1999. In
addition, the average price per home increased in the first quarter 2000
closings because it included four custom homes and six higher priced units from
Biscayne Bay and Summit Ridge, as compared to the product mix of closings in
1999.
Operating expenses during the first quarter of 2000 were lower by $1.2
million over the prior year quarter due to lower reorganization value
amortization in 2000 versus 1999, and reduced selling, general and
administrative costs. The amortization of the reorganization value was adjusted
in 1999 by expensing reorganization value attributable to the various
significant land holdings that had been sold. This significantly reduced the
monthly amortization rate in 2000. Personnel costs in 2000 were reduced because
of reduced staffing commencing in the first quarter of 2000, which was related
to the completion of Orange County's production housing.
Other income (expense) decreased by $253,000 in 2000 from the first quarter
in 1999 as a result of the recognition in 1999 of converted bankruptcy accounts
payable which were considered to no longer be a valid liability of New
Millennium. Partially offsetting the 1999 favorable income was the receipt of
$240,000 in proceeds from settlement litigation with insurance companies and a
$165,000 gain from the sale of fixed assets during the first quarter of 2000.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net loss for the year ended December 31, 1999 decreased by $16.4 million
from the year ended December 31, 1998, principally due to the factors discussed
below.
The Company's decrease in revenues of $49.2 million from 1998 was due to a
decrease in the land sales revenue of $65.1 million, partially offset by an
increase of $15.9 million in home sales revenue. In 1998 the Company had
several land sales, including the remainder of the Paloma development (800
lots), Summit Area 4a (167 lots), Ormond Beach-Western L&G land and the
remainder of Telegraph Canyon Estates (89 lots). In 1999, the Company sold the
Carmel Del Mar land (99 lots), the Norco project (82 lots) and a commercial
property in Ventura County. The increase in home sales revenue was due to an
increase in units sold of 104, partially offset by reduced individual housing
prices. The 1998 housing mix was primarily composed of San Diego projects that
averaged $209,000 per unit, versus the 1999 housing mix that was composed mainly
of lower priced attached units in Orange County averaging $173,000 per unit. A
1999 year-end adjustment of $8.4 million reducing the book value of Otay Ranch
and Brownfield to net realizable value unfavorably impacted 1999's gross profit.
1999 operating expenses increased by $9.3 million from 1998 due to an
increase in the amortization of the reorganization value of $17.3 million,
partially offset by a decrease of $3.3 million in selling, general and
administrative expenses and a decrease of $4.7 million of bad debt write-off
expense. The reorganization value was adjusted in 1999 to reflect the disposal
of properties as discussed above. 1999 selling, general and administrative
expenses declined primarily due to the reduction in professional fees from those
incurred in 1998, as well as reduced depreciation expense and personnel costs.
Bad debt write-off in 1998 of the
45
<PAGE>
$4.7 million for the Village Development and AMHB notes compared to bad debt
write-off of $0 in 1999.
Other income increased by $2.2 million in 1999 as compared to 1998 due to a
variety of factors. In 1999, the Company realized a deposit forfeiture gain of
$3.2 million as a result of a default by an affiliate of the former principals
of the Debtors under an agreement to purchase the Calabasas property. In May
1999, the Company was awarded a judgment of $973,000 against Village Development
for additional carry costs as a result of their actions, which delayed the
development of the Calabasas property. In 1999 and 1998, certain accounts
payable liabilities carried over from the bankruptcy were written off because
the claims related to them were not perfected in bankruptcy. These write-offs
amounted to gains of $2.3 million in 1999 and $168,000 in 1998. Partially
offsetting these 1999 increases were 1998 legal and insurance settlement
proceeds of $2.4 million and $1.7 million, respectively.
Liquidity and Capital Resources
The Company's real estate development and homebuilding operations are
capital intensive and the Company relies upon borrowings and internally
generated funds from home sales and land sales to finance its operations.
Historically, the debt structure of the Company met its capital requirements
through a working capital facility line of credit, construction loans and land
loans. The working capital facility line of credit was used to fund the cash
requirements of the Company when construction loan funding had not yet occurred.
Construction loans would be established to fund construction on a project by
project basis. As homes are completed and sold, the sales proceeds are first
applied to the specific project construction loan, and then sales proceeds in
excess of the construction loan are used as internal financing to fund
additional operating cash requirements, or pay down the working capital line of
credit. Land loans are used to fund the acquisition of land for home
construction. Land loans are generally paid off with either the sale of the
undeveloped land or when a construction loan for the property is funded.
Cash provided from operations was $2.8 million and $2.6 million for the
first quarters ended March 31, 2000 and 1999, respectively. For fiscal year
1999, cash used by operations was $29.5 million, and was funded primarily
through construction loans and land loans. In fiscal year 1998, cash provided
by operations was $8.0 million, and in fiscal year 1997, net cash used by
operations was $16.2 million. 1997 cash requirements were funded primarily by
the working capital line of credit.
Cash used in investing activities for the first quarter of 2000 was zero,
as compared to $165,000 in the first quarter of 1999. During 1999, net cash
provided by investing activities was $1.6 million, as compared to 1998, where
cash used for investing activities was $37,000. The 1999 net cash provided was
generated by the Village Development note receivable as part of the payment for
the 82 lots in Calabasas. 1997 investing activities used $839,000 due to an
increase in notes receivables and the purchase of fixed assets.
Cash used in financing activities for the first quarter of 2000 and 1999
was $3 million and $2.6 million, respectively. During 1999, cash provided by
financing activities was $27.9 million, as compared to 1998 where cash of $8.1
million was used in financing activities. Borrowings for
46
<PAGE>
the purchase of the 82 lots in Calabasas accounted for most of the increase in
cash provided, as well as increased construction loans for custom home
construction and the build out of the production housing projects in Anaheim
Hills and Portola. 1997 financing activities provided $16.8 million from
proceeds of the Senior Notes issuance and increased draws form New Millennium's
working capital line of credit.
With the sale of the Otay Ranch in May 2000, the working capital line of
credit was paid off and the facility was terminated. The Company does not have
another working capital line of credit, but instead intends to rely for the
immediate future on excess proceeds generated from the sale of the Otay Ranch,
lot sales in Calabasas and profits generated from the custom home program. The
Company intends to obtain a development loan to fund the development of
Calabasas, although we cannot assure you that we will be able to obtain one on
satisfactory terms or at all.
The Company currently obtains construction financing for its custom home
program from four lenders. Each of the lenders have financed a portion of the
custom home program based on their internal underwriting guidelines. One of the
Company's lenders has also provided financing for the development of the first
phase of Calabasas representing 32 lots which are now complete and ready for
home construction. All of the loans are in default as a result of New
Millennium's failure to pay interest on the Senior Notes that was due on June 1,
2000. New Millennium is in discussions with all four lenders regarding a waiver
of that default. No assurance can be given that we will be successful in
obtaining waivers from any or all of these lenders. If we are unable to obtain
waivers, and the lenders pursue their remedies, they may foreclose upon the
properties that serve as collateral for the loans or proceed against New
Millennium, which has guaranteed all these loans.
One lender has indicated that further development financing may be
available if the Company can successfully restructure the Senior Notes and
provide the cash reserves in the manner contemplated in the Exchange Offer and
Consent Solicitation. We cannot assure you that such financing or alternative
financing will be available.
The Company is currently developing the 118 lots in phase two out of
internal funds pending the outcome of the restructuring.
Current construction loan maturities with the Company's lenders range from
nine to 12 months. Interest on currently active construction loans are based on
the prime rate plus a margin of 1% to 1.75%. Interest on most of the
construction loans is included in an interest reserve at the beginning of the
following month.
Inflation
The Company's business is significantly affected by general economic
conditions. Inflation is generally a key factor in the current rate of interest
offered on construction loans and mortgage loans of potential buyers. An
increase in interest rates increases our costs of construction by increasing the
interest paid on construction loans. Also, an increase in mortgage rates could
limit a buyer's ability to purchase a home.
47
<PAGE>
A rising rate of inflation would likely have a long-term impact on the
Company's revenues and earning power by reducing demand for homes as a result of
correspondingly higher interest rates. In periods of high inflation, the rising
costs of land, construction, labor, interest and administrative expenses have
often been recoverable through increased selling prices, although this has not
always been possible because of high mortgage interest rates and competitive
factors in the marketplace.
Management does not believe that a moderate rate of inflation will have a
negative impact on the Company's long-term earnings.
Summarized Quarterly Financial Information
The table on the following page sets forth certain summarized quarterly
financial information for New Millennium.
48
<PAGE>
SUMMARIZED QUARTERLY FINANCIAL INFORMATION
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
----------- ------------ -------------- --------------- -------------
Income Statement:
SALES:
<S> <C> <C> <C> <C> <C>
Sale of homes...................................... $ 9,634 $ 4,947 $ 2,706 $ 3,730 $ 9,158
Sale of land....................................... 16,824 - 59,951 - 5,495
----------- ------------ -------------- --------------- -------------
Total revenues..................................... 26,458 4,947 62,657 3,730 14,653
----------- ------------ -------------- --------------- -------------
COST OF SALES:
Cost of homes sold................................. 9,027 5,246 2,299 3,177 8,208
Cost of land sold.................................. 16,067 (1) 56,112 (20) 5,395
----------- ------------ -------------- --------------- -------------
Write down of projects to net realizable value - - - - -
25,094 5,245 58,411 3,157 13,603
----------- ------------ -------------- --------------- -------------
GROSS PROFIT....................................... 1,364 (298) 4,246 573 1,050
----------- ------------ -------------- --------------- -------------
OPERATING EXPENSES:
Selling, general and administrative expenses....... 2,654 2,789 3,831 2,932 2,008
Bad debt write off................................. - - - 4,679 -
Reorganization value amortization.................. 1,404 1,404 1,403 1,404 1,404
----------- ------------ -------------- --------------- -------------
4,058 4,193 5,234 9,015 3,412
----------- ------------ -------------- --------------- -------------
Loss from operations............................... (2,694) (4,491) (988) (8,442) (2,362)
----------- ------------ -------------- --------------- -------------
Other income, net.................................. 2,146 149 (235) 2,644 745
----------- ------------ -------------- --------------- -------------
Net income (loss).................................. $ (548) $(4,342) $ (1,223) $ (5,798) $ (1,617)
=========== ============ ============== =============== =============
Other Data:
EBITDA.......................................... $ 26,295 $ 5,829 $ 53,733 $ 1,321 $ 9,414
Depreciation and amortization................... 1,527 1,533 1,530 1,534 1,441
NRV Adjustments................................. - - - -
Other non-cash items............................ 19,798 2,898 47,378 329 4,267
Consolidated Fixed Charges:
Interest incurred............................... 5,011 5,232 5,536 4,742 4,807
Amortization of original issue discount......... 507 508 512 514 516
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
June 30, September 30, December 31, March 31,
1999 1999 1999 2000
---------- --------------- -------------- ---------------
Income Statement:
SALES:
<S> <C> <C> <C> <C>
Sale of homes.................................... $8,139 $8,232 $11,414 $16,850
Sale of land..................................... 1,500 4,350 325 -
---------- --------------- -------------- ---------------
Total revenues................................... 9,639 12,582 11,739 16,850
---------- --------------- -------------- ---------------
COST OF SALES:
Cost of homes sold............................... 6,931 6,868 10,255 14,750
Cost of land sold................................ 1,602 3,925 451 -
Write down of projects to net realizable value - - 8,400 -
---------- --------------- -------------- ---------------
8,533 10,793 19,106 14,750
---------- --------------- -------------- ---------------
GROSS PROFIT..................................... 1,106 1,789 (7,367) 2,100
---------- --------------- -------------- ---------------
OPERATING EXPENSES:
Selling, general and administrative expenses..... 2,219 2,034 2,633 1,732
Bad debt write off............................... - - - -
Reorganization value amortization................ 1,404 1,403 18,687 478
---------- --------------- -------------- ---------------
3,623 3,437 21,320 2,210
---------- --------------- -------------- ---------------
Loss from operations............................. (2,517) (1,648) (28,687) (110)
---------- --------------- -------------- ---------------
Other income, net................................ 1,110 115 4,948 492
---------- --------------- -------------- ---------------
Net income (loss)................................ $(1,407) $(1,533) $(23,739) $ 382
========== =============== ============== ===============
Other Data:
EBITDA........................................ $ 7,042 $ 9,007 $ 10,217 $ 8,055
Depreciation and amortization................. 1,441 1,437 18,721 499
NRV Adjustments............................... - _ 8,400 -
Other non-cash items.......................... 1,000 2,839 550 793
Consolidated Fixed Charges:
Interest incurred............................. 5,490 5,743 5,762 5,855
Amortization of original issue discount....... 518 521 523 526
</TABLE>
49
<PAGE>
The following table sets forth information regarding the percentage of
revenues represented by specific line items in our financial statements:
<TABLE>
Years Ended December 31, Three Months Ended
------------------------------------- March 31,
------------------
1997
(from inception) 1998 1999 1999 2000
----------------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Sale of homes........................ 75.4% 21.5% 76.0% 62.5% 100.0%
Sale of land......................... 24.6% 78.5% 24.0% 37.5% 0.0%
------ ------ ------ ------ ------
Total revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------
COST OF SALES:
Cost of homes sold................... 69.9% 20.2% 66.4% 56.0% 87.5%
Cost of land sold.................... 22.7% 73.8% 23.4% 36.8% 0.0%
Write down of projects to net 0.0% 0.0% 17.2% 0.0% 0.0%
------ ------ ------ ------ ------
realizable value....................
92.6% 94.0% 107.0% 92.8% 87.5%
------ ------ ------ ------ ------
GROSS PROFIT (LOSS).................. 7.4% 6.0% -7.0% 7.2% 12.5%
------ ------ ------ ------ ------
OPERATING EXPENSES:
Selling, general and administrative 14.7% 12.5% 18.3% 13.7% 10.3%
expenses............................
Bad debt write off................... 0.0% 4.8% 0.0% 0.0% 0.0%
Reorganization value amortization.... 8.3% 5.7% 47.1% 9.6% 2.8%
------ ------ ------ ------ ------
23.0% 23.0% 65.4% 23.3% 13.1%
------ ------ ------ ------ ------
Loss from operations................. -15.6% -17.0% -72.4% -16.1% -0.6%
------ ------ ------ ------ ------
Other income, net.................... 3.3% 4.8% 14.2% 5.1% 2.9%
------ ------ ------ ------ ------
Net income (loss).................... -12.3% -12.2% -58.2% -11.0% 2.3%
====== ====== ====== ====== ======
Gross margin from sale of homes...... 7.4% 6.0% 12.7% 10.4% 12.5%
Gross margin from sale of land....... 7.5% 6.0% 2.5% 1.8% N/A
</TABLE>
50
<PAGE>
BUSINESS
General
New Millennium operates through its wholly-owned subsidiaries, NM Homes
One, Inc. and NM Homes Two, Inc. Our sole assets are the shares of NM Homes
One, Inc. and NM Homes Two, Inc.
Business Strategy
We currently operate exclusively within Southern California. Historically,
New Millennium's business consisted primarily of development for resale and land
sales of property acquired from the bankruptcy. In addition, in late 1997 we
made the decision to enter the custom home market and began acquiring lots
suitable for that business. The Company began its operations with several large
tracts of land in Calabasas, Oxnard, San Marcos, Carmel del Mar, Chula Vista,
Anaheim Hills, Portola Hills and Oxnard. With the exception of Calabasas and a
large industrial property in Chula Vista, all of the original properties have
now been sold. Our main focus is now on the development of the Calabasas
property and, to a lesser extent, the custom home program. We intend to develop
the remaining 527 lots in Calabasas. Our plan is to develop the Calabasas
property over several years in five phases, to sell finished lots to merchant
builders, and retain some of the lots to build homes for our own account. We
plan to build homes on 27 of the 32 finished lots in phase two of the Calabasas
development. Grading is underway on phase three of the Calabasas development,
representing 118 lots. We expect to market these lots to merchant builders
beginning in the third quarter of 2000.
Custom Homebuilding
We acquire lots for our custom home market through contacts with the
brokerage community and knowledge of the lot supplies in the communities in
which we build. Homes are designed by our in-house architect, David Coe
Wheatley, who was an apprentice to Frank Lloyd Wright. Individual floor plans
are developed to fit the lot sizes and configurations. We have now developed
approximately 25 sets of complete working drawings that can be adapted to a
variety of lot configurations.
Although we had 31 custom home lots as of June 30, 2000, our strategy going
forward will be to maintain an inventory of 20 lots and homes at any given point
in time. As homes close escrow, a portion of the cash from the sale is
generally utilized to purchase a lot, to the extent available. We have
historically been able to find lots suitable for development in the areas in
which the Company is currently building.
New Millennium's custom homes typically range from 3,900 to 5,500 square
feet of living space. Sales prices range from $1,000,000 to $3,000,000,
depending on the location and amenities of the home.
51
<PAGE>
By building one home at a time on the lots we purchase, our goal is to
maintain a steady flow of production while keeping overhead low and maintaining
senior level project superintendents with many years of homebuilding experience.
Our operations strategy is designed to allow us to quickly adapt to changing
customer demands and market conditions.
We generally sell our homes pursuant to written purchase agreements
executed by the buyer, which require an escrow deposit, typically ranging from
1% to 3% of the sales price. We typically receive non-refundable deposits for
100% of any options or upgrades. We work with a number of conventional mortgage
lenders to facilitate the arrangement of a variety of financing for our
homebuyers.
Land Development Activities
New Millennium's land development program is currently limited to the 527
lots it owns in the City of Calabasas. This development is fully entitled and
is one of the few large tracts of land remaining to be developed in this
prestigious community.
We have completed the second phase of development consisting of 32 lots.
We are currently grading the third phase of 118 lots and anticipate marketing
these lots to merchant builders beginning in the third quarter of 2000, assuming
demand for our lots then exists. We expect to develop some of the lots for sale
to merchant builders and to retain some lots for our own homebuilding operation.
The Company's Calabasas property is covered by a development agreement that
was recently extended by the City of Calabasas for five years, to October 5,
2004. This agreement, among other things, outlines the terms under which the
Company may develop the property. Included in the terms are schedules of fees
that are due and when the fees are paid. The Company currently has a recorded
final map covering phase two of the development. This phase of 32 lots has been
graded and improvements have been installed. The lots are now ready for home
construction or sale to a merchant builder. This final map is the document that
subdivides the phase into the legal parcels required in order to convey title to
the homebuyer. In order to record a final map, the Company must first prepare
improvement plans that show how the site will be graded, where the streets will
be located and plans for utilities including sewer and water facilities. These
plans typically take several months to prepare by an outside engineering firm
and then a couple of months to be checked by the City. After the plans are
approved, the City issues a grading permit. Prior to the start of grading, the
Company is required to post surety bonds in an amount determined by the City's
engineers. The bonds insure that the work will be completed. Once grading is
complete, the in-tract improvements are installed. These improvements include
the underground drainage systems, water and sewer lines, telephone and
television cables, curbs, gutters, sidewalks and slope landscaping. Typically,
this is the point were the lots are sold to a merchant builder. We or the
merchant builder will then apply for the building permits which are required
prior to the construction of homes.
Marketing
We market our products through an in-house salesperson and through
independent brokerage companies.
52
<PAGE>
We make use of print advertising and other promotional activities to
introduce our homes to the public, including newspaper advertisements,
brochures, direct mail and the placement of strategically located signs in the
immediate area of our developments.
Competition
The real estate development and custom homebuilding business is highly
competitive and fragmented. We compete with numerous other residential
developers and construction firms, including large national and regional firms,
for customers, undeveloped land, financing, raw materials and skilled labor. A
number of our competitors have substantially greater financial resources than we
do. We compete on the basis of the location, design, quality and price of, as
well as available mortgage financing for, our homes. We also compete with the
resale of existing homes and, in some cases, with rental homes. An oversupply
of attractively priced resale or rental homes, or a shortage of residential
mortgage financing on reasonable terms, could adversely affect our ability to
sell homes profitably. Typically, the demand for residential lots is directly
affected by the demand for housing. As the demand for new homes peaks or
declines, so does the demand for residential lots.
Employees
As of June 30, 2000, we employed 27 persons full-time. Of these, five were
in executive positions, one was engaged in sales activities, 16 were in project
management activities and five were in administrative and clerical activities.
None of our employees is represented by a union and we consider our employee
relationships to be good.
Development and Acquisition Opportunities
We have historically built in master-planned communities in Orange and Los
Angeles counties. In our land development activities, we select locations for
their community amenities such as golf courses or ocean proximity, as well as
proven sales activities.
The Company owns the following inventory of properties as of June 30, 2000.
<TABLE>
<CAPTION>
Name and Location Estimated Average
of Project Units Remaining Price Of Homes /(1)/
----------------------------------- ------------------------------ ------------------------------
<S> <C> <C>
Ritz Cove 1 $1,800,000
Dana Point
Orange County
Monarch Point 3 1,785,000
Laguna Niguel
Orange County
South Peak 1 1,595,000
Laguna Niguel
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Name and Location Estimated Average
of Project Units Remaining Price Of Homes /(1)/
----------------------------------- ------------------------------ ------------------------------
<S> <C> <C>
Orange County
Laguna Sur 2 2,650,000
Laguna Niguel
Orange County
The Estates 1 1,150,000
Laguna Niguel
Orange County
Marbella 3 1,435,000
San Juan Capistrano
Orange County
Tustin Heights 6 1,700,000
Tustin
Orange County
Villa Park 3 1,730,000
Villa Park
Orange County
Presidio 2 1,185,000
Cowan Heights
Orange County
North Ranch 4 1,570,000
Thousand Oaks
Ventura County
Medea Valley 1 1,450,000
Agoura
Ventura County
Westlake Village 2 1,190,000
Westlake Village
Los Angeles County
Oaks at Calabasas 527 1,300,000
Calabasas
Los Angeles County
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Name and Location Estimated Average
of Project Units Remaining Price Of Homes /(1)/
----------------------------------- ------------------------------ ------------------------------
<S> <C> <C>
Corona Ranch 28 285,000
Corona
Riverside County
</TABLE>
___________________
/(1)/ Estimated average price of homes is based on comparable sales prices in
the same area, assuming current market conditions continue. No assurance
can be given that New Millennium will be able to sell these properties
for the estimated sales prices.
Legal Proceedings
New Millennium is involved in routine claims and litigation arising in the
ordinary course of its business. While the outcome of these proceedings cannot
be predicted with certainty, management does not believe that any of these
proceedings will have a material adverse effect on our financial condition or
results of operations.
55
<PAGE>
MANAGEMENT
The following table sets forth information regarding the directors,
executive officers and other key personnel of New Millennium:
<TABLE>
<CAPTION>
Name Age Position with New Millennium
------------------------- --------- -------------------------------------------------------------------
<S> <C> <C>
Dale Kesler /(1)/ 61 Director since September 1997
Judy K. Mencher 43 Director since September 1997
Michael Murr /(1)/ 49 Director since February 2000
Greg R. Petersen 45 President & Chief Executive Officer, Director
Chuck Yamarone 41 Director since September 1997
Jim Birmingham 35 Vice President of Operations
Louis J. Malone 60 Executive Vice President
James M. Schliep 30 Vice President, Chief Financial Officer and Treasurer, Secretary
David Wheatley 72 Vice President-Planning and Design
</TABLE>
____________________
/(1)/ Member of the Audit Committee of the Board of Directors of New Millennium.
Dale Kesler has been a member of our Board of Directors since September
1997. Mr. Kesler was a Partner with Arthur Andersen, Andersen Worldwide when he
retired in April 1996 and had been employed by Arthur Andersen in various
capacities since 1974. Mr. Kesler currently serves as a director of Elcor
Corp., American Homestar Inc., Cellstar Corp., Triad Hospitals, Inc., Resource
Services Inc. and various not for profit organizations, including Baylor Dental
Foundation, Salesmanship Club Foundation, and the University of Texas at Dallas.
Judy K. Mencher has been a member of our Board of Directors since September
1997. Ms. Mencher currently is the Principal of DDJ Capital Management, LLC and
has been with DDJ Capital Management, Inc. from its inception in 1996 through
the present. DDJ Capital Management, LLC specializes in high yield, special
situations, debtor in possession, mezzanine financing and distressed investing,
and currently manages over $1 billion in assets. Ms. Mencher worked at Fidelity
Investments from January 1990 through February 1996. Ms. Mencher currently
serves as a member of the Board of Directors of Waste Systems International,
Inc., Smith & Hawken Ltd., and SpectruMedix.
Michael Murr has been a member of our Board of Directors since February
2000 and currently sits on our Audit Committee. Mr. Murr is a general partner
of DayStar Partners, L.P.
Greg R. Petersen has been a member of our Board of Directors since May
1999. Mr. Petersen was the Vice President of Finance and Administration of
Polygon Communities, Inc. from August 1995 through August 1997. From September
1997 to May 1999 Mr. Petersen served as Executive Vice President and Secretary,
and from May of 1999 to April 2000, he served as our President and Chief
Operating Officer. Mr. Petersen has been our President and Chief Executive
Officer since April 2000.
56
<PAGE>
Chuck Yamarone has been a member of our Board of Directors since September
1997. Mr. Yamarone has served as the Executive Vice President of U.S. Bancorp
Libra, a division of U.S. Bancorp Investments, Inc. since January 1999, and from
July 1994 until January 1999 Mr. Yamarone served as the Executive Vice President
and Research Director for Libra Investments, Inc. Mr. Yamarone currently serves
as a director of El Paso Electric Co. and Continental Airlines, Inc.
Jim Birmingham has been our Vice President of Operations since January
2000. He was Director of Forward Planning at Baldwin Builders from May 1997
through August 1997 and the Director of Forward Planning for the Company from
September 1997 through December 1999. From October 1994 to May 1997, Mr.
Birmingham was Project Coordinator for Baldwin Builders.
Louis J. Malone has been our Executive Vice President since September 1997.
Mr. Malone was the Executive Vice President of Baldwin Builders from June 1995
through February, 1996 and Executive Vice President of Baldwin Builders from
June 1996 through September 1997.
James M. Schliep has been our Vice President, Chief Financial Officer and
Treasurer since September 1997 and has been our Secretary since May 1999. Mr.
Schliep was the Chief Financial Officer of Baldwin Builders from July 1996
through September 1997. From May 1994 to July 1996 he served Baldwin Builders
in various other positions.
David Wheatley has been our Vice President of Planning and Design since
December 1997. Mr. Wheatley was the Vice President of Planning and Design of
Centex Corp. from September 1973 through November 1997.
57
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
services in all capacities to us for the fiscal year ended December 31, 1999 of
our chief executive officer and the four other most highly compensated executive
officers (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------- Other
Name and principal Fiscal Annual Salary Bonus Compensation
position Year ($) ($) ($)
--------------------------- --------------- -------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Jack McDonald (1) 1999 $500,000 $300,000 120,993/(2)/
Chairman of the Board, 1998 500,000 200,000 n/a
President and Chief
Executive Officer 1997 162,821 n/a n/a
Greg R. Petersen 1999 225,000 75,000 4,800
President and 1998 216,667 75,000 4,800
Chief Executive Officer (3) 1997 64,359 n/a n/a
Louis J. Malone 1999 200,000 50,000 n/a
Executive Vice President 1998 207,067 59,933 n/a
1997 66,667 n/a n/a
David Wheatley 1999 200,000 20,000 n/a
Vice President 1998 154,167 n/a n/a
1997 12,500 n/a n/a
David Bedillion 1999 154,235 50,000 6,050
Vice President 1998 136,667 40,000 n/a
1997 35,625 n/a n/a
</TABLE>
____________________
(1) Mr. McDonald resigned as Chief Executive Officer and as Chairman of the
Board of Directors on March 31, 2000
(2) Compensation related to improvements to Mr. McDonald's home.
(3) From September 1997 to May 1999 Mr. Petersen served as Executive Vice
President and Secretary, and from May of 1999 to April 2000, he served as
our President and Chief Operating Officer. Mr. Petersen has been our
President and Chief Executive Officer since April 2000. Mr. Petersen's
annual salary was increased to $300,000 as of April 1, 2000.
58
<PAGE>
Compensation of Directors
Members of our Board of Directors who are not employees are paid an annual
fee of $20,000 plus $1,000 for each meeting attended. In addition, they are
reimbursed for all necessary expenses of attending the meeting.
Shares Incentive Plans
We have granted restricted stock awards to our directors and certain of our
key employees. The restricted stock awards vest over one to three-year terms.
The total number of shares authorized for grants at June 30, 2000 was 1,736,551,
all of which had been issued and 1,683,094 of which had vested as of such date.
59
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of June 30, 2000 regarding
beneficial ownership of common shares and, assuming the consummation of the
Exchange Offer and Consent Solicitation, Preferred Shares of New Millennium by:
. each person known to us to be the beneficial owner of more than 5% of the
outstanding common Shares of New Millennium;
. each Director of New Millennium; and
. all directors and officers of New Millennium as a group.
<TABLE>
<CAPTION>
Name and Address of Percent of Common Number of Preferred Percent of
Beneficial Owner Number of Common Shares Shares Shares Preferred Shares
-------------------------------- ------------------------ ----------------- ------------------- -------------------
<S> <C> <C> <C> <C>
B III Capital Partners, L.P. 4,579,275 22.73% 25,250 20.04%
141 Linden Street
Wellesley, MA 02482
DayStar Partners, L.P. 5,235,511 25.99% 44,000 34.92%
4111 Theodore Fremd Ave.
Rye, NY 10580
Merrill Lynch Phoenix Fund, Inc. 2,113,439 10.49% 15,250 12.10%
P.O. Box 9011
Princeton, NJ 08536
Judy K. Mencher (1) 4,585,275 22.76% 25,250 20.04%
DDJ Capital Management, LLC
141 Linden Street
Wellesley, MA 02482
Michael Murr (2) 5,235,511 25.99% 44,000 34.92%
Dale V. Kesler 6,000 *
Charles Yamarone 6,000 *
Greg R. Petersen 454,116 2.25%
Louis J. Malone 151,372 *
David Wheatley 50,458 *
James M. Schliep 50,458 *
All directors and officers as a 724,404 3.60%
group (9 persons)
</TABLE>
_________________________
* Less than 1%
(1) Ms. Mencher may be deemed to be the beneficial owner of the 4,579,275
shares common Shares owned by B III Capital Partners, L.P. by virtue of her
position as a member of DDJ Capital Management, LLC, manager of DDJ Capital
III, LLC and general partner of B III Capital Partners, L.P. Ms. Mencher
disclaims beneficial ownership of those shares.
(2) Mr. Murr may be deemed to be the beneficial owner of the 5,235,511 shares
common Shares owned by DayStar Partners, L.P. by virtue of his position as
a general partner. Mr. Murr disclaims beneficial ownership of those shares.
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CERTAIN TRANSACTIONS
The following is a description of transactions since New Millennium's inception
in September 1997 in which officers and directors of New Millennium or their
families had a direct or indirect interest.
David Wheatley, Vice President of Planning and Architecture, purchased a
home from the Company in December of 1999 for $350,000, which included $45,000
in upgrades. The base price for the home was $350,000, and Mr. Wheatley
received a $45,000 discount from the purchase price. Mr. Wheatley upgraded the
home further and is reimbursing the Company for the $28,000 in upgrades with
periodic payments against a promissory note. The home is in Anaheim Hills,
California and is being used as his principal residence.
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DESCRIPTION OF THE NEW NOTES
We will issue the New Notes under an indenture (the "Indenture") among us,
NM Homes One, Inc. and NM Homes Two, Inc., and U.S. Bank Corporate Trust, as
Trustee. The terms of the New Notes include those stated in the Indenture and
those made a part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "TIA").
The following description is a summary of the material terms of the New
Notes as set forth in the Indenture. This description does not restate or fully
summarize the Indenture, and is subject to and qualified in its entirety by
reference to the Indenture and the form of New Note. Copies of the Indenture or
the form of New Note may be obtained without charge by holders of Senior Notes
upon request as specified in the section of this Exchange Offer and Consent
Solicitation entitled "Available Information" on page 2. We urge you to read
the Indenture, because the Indenture, and not this description, defines your
rights as a holder of New Notes.
General
The New Notes will be general obligations of New Millennium, secured by a
pledge of 100% of the capital Shares of our two wholly-owned subsidiaries
pursuant to a Pledge Agreement (the "Pledge Agreement") between us and the
Trustee. If any Senior Notes are not tendered for exchange in the Exchange
Offer and Consent Solicitation, the pledge will be junior to the pledge of our
subsidiaries' capital stock that secures the Senior Notes. The New Notes will
be limited to $116.843 million aggregate principal amount at their maturity date
of December 31, 2004 (the "Maturity Date").
The New Notes are being issued at a discount (the "Original Issue
Discount") from their principal amount at the Maturity Date. See "Federal
Income Tax Considerations." No interest will accrue on the New Notes and there
consequently will be no periodic payments of interest on the New Notes. The
calculation of the accrual of the Original Issue Discount (i.e., the difference
----
between the price at which each New Note is issued and the principal amount at
maturity of a New Note) in the period during which a New Note remains
outstanding will be on a semi-annual bond equivalent basis using a year composed
of twelve 30-day months, and the accrual will commence on the date the New Notes
are issued. The maturity or redemption of a New Note will cause the Original
Issue Discount to cease to accrue on such New Note, under the terms and subject
to the conditions of the Indenture. We may not reissue a New Note that has
matured or been redeemed or otherwise canceled (except for registration of
transfer, exchange or replacement thereof).
The principal amount at maturity of each New Note will be payable at the
office or agency of the paying agent, initially the Corporate Trust Office of
the Trustee, in the Borough of Manhattan, The City of New York, or any other
office of the paying agent maintained by the Company or the Trustee for such
purpose. New Notes in definitive form may be presented for exchange for other
New Notes (to the extent provided in the Indenture) or registration of transfer
at the office of the registrar. The agent for such purposes initially will be
the Trustee. The Company will not charge a service charge for any registration
of transfer or exchange of New Notes. However, the Company may require payment
by a holder of a sum sufficient to cover
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any tax, assessment or other governmental charge payable in connection any
registration of transfer or exchange of the New Notes.
Form, Denomination and Authentication
The New Notes are issuable in fully registered form, without coupons, in
denominations of $1,000 principal amount and multiples thereof. Each New Note
will be executed by manual or facsimile signature by an authorized officer of
New Millennium and will also bear the seal of New Millennium. Each validly
issued New Note will bear a certificate of authenticity in customary form,
executed by the Trustee by the manual signature of one of its authorized
officers, which shall be conclusive evidence of the due authentication and
deliverance of the New Note and that the holder is entitled to the benefits of
the Indenture.
Global Form of New Notes
The New Notes may be issued in the form of one or more global securities,
although all New Notes issued in the Offer will be issued in registered form.
The global securities will be executed by New Millennium and authenticated and
delivered by the Trustee, and will be in denominations of $1,000 or integral
multiples of $1,000. Any global securities must be registered in the name of
the depository or its nominee and will be delivered by the Trustee by the
depositary or pursuant to its instructions. Any global securities will bear a
legend to the effect that the global security cannot be transferred except as a
whole to the nominee of the depository, from a nominee to the depository, or to
any successor of the depository or the nominee, unless it is exchanged for New
Notes in a definitive registered form.
Subsidiary Guarantees
Our obligations under the Indenture and with respect to the New Notes
(collectively, the "Obligations") will be jointly and severally guaranteed by NM
Homes One, Inc. and NM Homes Two, Inc., (each, a "Guarantor" and collectively,
the "Guarantors") pursuant to a guaranty (the "Guaranty") in favor of the
Trustee. The obligations of each Guarantor under the Guaranty are limited so as
not to constitute a fraudulent conveyance under applicable law. The Guaranty is
a continuing joint and several guaranty of payment by the Guarantors, and may
not be revoked or terminated until all of the Obligations have been indefeasibly
paid and performed in full.
Release or Substitution of Property
In order to secure the payment and performance of our Obligations, we will
pledge all of the issued and outstanding capital stock of each of the Guarantors
pursuant to the Pledge Agreement. The Pledged Shares will be released from the
security interest created by the Pledge Agreement if:
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o pursuant to the Indenture:
. all New Notes previously authenticated and delivered (and any securities
issued under the Indenture) have been delivered to the Trustee for
cancellation and we have paid all sums payable by us under the Indenture;
or
. the New Notes mature or all of them are called for redemption within one
year from the date of the Indenture and (a) we deposit funds in
irrevocable trust sufficient to pay all principal and other amounts due
with respect to the New Notes to the date of maturity or redemption and
any other amounts due under the Indenture, (b) no event of default under
the Indenture has occurred and exists as of the date of deposit, (c) such
deposit does not violate or constitute a default under the Indenture or
any other agreement to which we are bound and (d) we deliver an officers
certificate and opinion of counsel that all conditions precedent to the
satisfaction and discharge of the indenture have been complied with; and
o pursuant to the Pledge Agreement:
. the "Secured Obligations" under the Pledge Agreement have been paid in
full. "Secured Obligations" include any and all present and future
obligations and liabilities of us of every type and description to the
Trustee or its successors or assigns, or any Person entitled to
indemnification under the Indenture or the New Notes, arising under or in
connection with the Indenture and/or the New Notes, whether for principal,
interest, letter of credit or other reimbursement obligations, cash
collateral cover, fees, expenses, indemnities or other amounts (including
attorneys' fees and expenses) or arising under or in connection with the
Pledge Agreement, including for reimbursement of any amounts advanced or
expended by the Trustee (a) to satisfy amounts required to be paid by us
under the Pledge Agreement, the Indenture and/or the New Notes for taxes,
insurance premiums or otherwise (together with interest, to the extent
provided) or (b) to maintain or preserve any collateral or to create,
perfect, continue or protect any collateral or security interest therein,
or its priority.
Optional Redemption
We have the option to redeem the New Notes, in whole or in part, at any
time and from time to time at a redemption price equal to 100% of the face value
(the "Redemption Price") of the New Notes redeemed. Any optional redemption
will be made after prior written notice mailed to the Trustee at least 10 days
prior to the date any notice is mailed to any holder and to the holder or
holders of the New Notes we select for redemption at least 30 but not more than
60 days prior to the date proposed for the redemption of New Notes.
Mandatory Redemption
Within 90 days after availability to New Millennium of its interim unaudited
financial statements for the six month periods ending on June 30 in any year and
of audited annual
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financial statements for any fiscal year ending December 31, in either case
reflecting cash in excess of $20 million (the "Excess Cash Amount"), we must
redeem on a pro rata basis, the maximum face amount of New Notes (in integral
multiples of $1,000) that may be redeemed at the Redemption Price with the
Excess Cash Amount. Notwithstanding the forgoing, if the Excess Cash Amount as
of any period ending on June 30 or December 31, as reflected on our balance
sheet, is less than $1 million, we will not be obligated to redeem New Notes at
that time. Instead, the Excess Cash Amount less than $1 million (the "Deferred
Excess Cash Amount") will be carried over into subsequent periods until the
total of all Deferred Excess Cash Amounts and the Excess Cash Amount for the
then current period equals or exceeds $1 million, at which point we will be
required to redeem the maximum face amount of New Notes (in integral multiples
of $1,000) that may be redeemed by such amount. The pro rata portion of the
Redemption Amount to be paid to any holder of New Notes will be determined by
dividing the face amount of New Notes held by the holder by the total face
amount of New Notes then outstanding.
Other Repurchases
New Millennium will not be permitted to repurchase New Notes other than
through the optional or mandatory redemption provisions of the Indenture.
Covenants Under the Indenture
The Indenture will contain the following covenants:
. Payment of Principal. we will make all payments of principal, premium
and any other required payments at the times and in the manner provided
in the Indenture and the New Notes;
. Office for Payment. we will maintain an office or agency where the New
Notes may be presented and surrendered for payment, exchange and for
registration of transfer as provided in the Indenture and where notices
and demands regarding the Indenture and the New Notes may be served on
us;
. Successor Trustee. we will appoint a successor Trustee to fill any
vacancy in the office of Trustee whenever necessary;
. Paying Agents. if we appoint a paying agent other than the Trustee, we
will deliver an instrument to the Trustee in which the paying agent
agrees that it (a) will hold all sums received by it for payment to the
holders or the Trustee in trust until paid to the holders or the
Trustee, (b) will notify the Trustee if we fail to make any payment with
respect to the New Notes when due, (c) will pay any sums held in trust
to the Trustee upon the Trustee's written request during any time that
our failure to make a required payment continues, and (d) will
acknowledge and accept and will comply with all other duties, rights and
disabilities of a "Paying Agent" under the Indenture;
. Compliance Certificate; Notices of Default. we will furnish an officers'
certificate to the Trustee within 120 days after the end of any fiscal
year certifying that
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management has reviewed our activities during the preceding fiscal year
and that we have observed, performed and complied with all of our
obligations under the Indenture and the New Notes and we are not in
default under the Indenture (or if we are or have been in default,
describing the default and what action we propose to take to cure any
default or event of default). We will furnish a report of our
independent auditors to the Trustee within 120 days after the end of any
fiscal year stating that nothing has come to our auditors' attention
that would lead them to believe that we have violated any term of the
Indenture;
. Annual and Quarterly Reports. we will file with the Trustee copies of
any annual or quarterly filings (or other required filings) we have made
with the Securities and Exchange Commission pursuant to Section 13 or
15(d) of the Exchange Act and we will also comply with the other
provisions of TIA (S) 314(a). We will cause any annual and quarterly or
other financial reports furnished by us to the holders of our capital
Shares (or rights to purchase or acquire our capital shares) to be filed
with the Trustee and mailed to the holders of the New Notes and, if we
are not required, furnish annual or quarterly reports to the holders of
our capital shares by the Securities and Exchange Commission, we will
cause our consolidated financial statements, any notes to the statements
and a description of any material developments to be filed with the
Trustee and mailed to the holders of the New Notes within 105 days after
the end of any fiscal year and within 60 days after the end of any
fiscal quarter other than the fiscal quarter that is the fiscal year
end;
. Legal Existence. we will maintain and preserve the legal existence of
New Millennium and each of our subsidiaries, unless our Board of
Directors determines in its business judgment that such maintenance and
preservation is not desirable in the conduct of our business or our
subsidiaries' business and the abandonment of our or their legal
existence would not have a material adverse effect on the business,
prospects, assets or financial condition of New Millennium and our
subsidiaries, taken as a whole, or the holders of the New Notes;
. Payment of Taxes and Other Claims. we will pay or discharge all claims
for taxes, assessments and governmental charges and all lawful claims
for labor, materials and supplies that, if unpaid, might result in a
lien, unless we are contesting the validity or amount in good faith in
an appropriate proceeding and have established an adequate reserve to
the extent required by GAAP;
. Maintenance of Properties. we will maintain each of our principal
properties which in the judgment of management is essential to the
business operations of New Millennium and our subsidiaries in
appropriate condition, unless the sale, abandonment or disposition of
any such property is desirable in the good faith judgment of the entity
making such disposition and is not disadvantageous in any material
respect to the holders of the New Notes;
. Maintenance of Insurance. we will obtain and maintain insurance with
reputable third party insurers on our properties against such risks and
in such amounts as is
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customary and in accordance with good business practice for similar
property held by companies engaged in a similar business;
. Compliance with Laws. New Millennium and our subsidiaries will comply in
all material respect with all applicable laws in conducting our business
and owning our properties;
. Change of Control if there is a change in control (as defined) each
holder of New Notes will have the right to require us to repurchase all
or any part of its New Notes at a repurchase price equal to 101% of the
face amount in accordance with the procedures described in the
Indenture, and we must give written notice of the change of control to
all holders of the New Notes describing the right to demand the
repurchase of the New Notes, the circumstances and relevant facts
regarding the change of control, the purchase date for repurchase (which
shall be no earlier than 30 days prior to and no later than 60 days
after the date the notice is mailed) and instructions regarding the
procedure for tendering New Notes for repurchase;
. Asset Sales. we will not sell, transfer or dispose of (including by way
of merger, consolidation, exchange of assets or sale-leaseback
transactions), in one transaction or a series of related transactions to
any person or entity other than New Millennium or our subsidiaries, (i)
all or any of the capital securities or any interest in (collectively
"Capital") any of our subsidiaries, (ii) all or substantially all of the
property and assets of an operating unit or business of New Millennium
or any of our subsidiaries or (ii) any other property and assets of New
Millennium or our subsidiaries outside the ordinary course of business
or as otherwise provided in the Indenture (collectively, an "Asset
Sale"), unless (A) the Asset Sale is for at least fair market value, (B)
at least 60% of the consideration is in the form of cash or cash
equivalents, (C) no default or event of default under the Indenture has
occurred or is continuing, and (D) we or our subsidiaries apply the cash
proceeds of the Asset Sale (1) to permanently repay any indebtedness
secured by a lien or security interest on the assets sold (including a
permanent reduction in the commitment under our working capital line of
credit, if so repaid) or (2) to reinvest in real property within
specified periods of time and subject to the restrictions on Investments
in real property contained in the Indenture. If there are any cash
proceeds remaining after application as described in clauses (1) and
(2), we will use the remaining cash proceeds to make an offer to
purchase New Notes at their face amount from holders of New Notes;
. Issuances and Dispositions of Subsidiary Capital. we will not, and will
not permit any subsidiary to, transfer, convey, sell, pledge, encumber
or otherwise dispose of any capital stock of a subsidiary (or rights to
purchase or acquire any such capital stock) to any Person other than us
or a wholly-owned subsidiary and we will not permit any subsidiary to
issue any of its capital stock (or rights to purchase or acquire any
such capital stock) to any Person other than us or a wholly-owned
subsidiary;
. Restricted Payments. we will not, and will not permit any subsidiary to,
directly or indirectly, make any Restricted Payment (as defined) if a
default or event of default has occurred or will result from the
Restricted Payment, or if the total amount for all
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Restricted Payments from and after the date the New Notes are issued
equals or exceeds a certain aggregate amount. For purposes of the
Indenture, "Restricted Payments" means (i) the declaration or payment of
any dividend or distributions of cash, securities or other property or
assets in respect of any Capital of New Millennium (other than those
payable solely in the form of Capital), other than dividends or
distributions or other payments made to New Millennium or any wholly-
owned subsidiary by any subsidiary of New Millennium, (ii) the purchase,
redemption or other acquisition or retirement for value (other than
through the issuance of Capital) of any Capital (other than exchangeable
or convertible indebtedness of New Millennium not prohibited under the
following clause (iii), (iii) the redemption, repurchase or defeasance
or other acquisition or retirement for value (other than through the
issuance of Capital) of any indebtedness of New Millennium subordinated
to the New Notes or which matures after the New Notes, other than at any
scheduled maturity thereof or by any scheduled repayment or sinking fund
or out of the proceeds of debt issued to refinance existing debt, to the
extent permitted under the Indenture, or (iv) any investment other than
a Permitted Investment (as defined below);
. Transactions with Affiliates. we will not, and will not permit our
subsidiaries to, enter into transactions with any affiliate unless the
transactions are on fair and reasonable terms as could have been
obtained from a third party in arm's length negotiations; provided,
--------
however, that if the transaction or series of related transactions has a
-------
value in excess of $10 million, the majority of the disinterested Board
of Directors must determine and adopt a resolution stating that the
terms are fair and reasonable and comparable to those that could have
been obtained from a third party in arm's length negotiations and;
provided, further, however, that if the transaction or series of related
-------- ------- -------
transactions has a value in excess of $25 million, we must deliver to
the Trustee an opinion of an independent financial advisor that the
transaction is fair to us or our subsidiary from a financial perspective
and an appraisal from a nationally recognized MAI certified real estate
appraisal firm indicating that the fair market value is at least equal
to the amount paid to or received by us or the subsidiary, as
applicable;
. Payment Restrictions Affecting Subsidiaries. we will not, and will not
permit our subsidiaries to, among other things, create assume or
otherwise cause or suffer to exist any restriction on any subsidiary's
ability to (a) pay dividends or distributions on its capital stock or
any interest or participation in or measured by its profits or make
payments on any indebtedness owed by us or our subsidiaries, (b) make
any loans or advances to us or any other subsidiary or (c) transfer any
property or assets to us or any subsidiary other than those imposed by
applicable law, certain existing financing arrangements, and certain
types of agreements or understandings to which we or ours subsidiaries
are or may be bound;
. Investments. we will not, and will not permit any of our subsidiaries
to, make any investments other than (i) investments consisting of non-
cash proceeds from Asset Sales as contemplated by the Indenture; (ii)
investments consisting of cash equivalents; (iii) accounts receivable if
credited or acquired in the ordinary course of
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business and payable or dischargeable in accordance with customary trade
terms; (iv) payroll advances and advances for business and travel
expenses in the ordinary course of business; (v) investments in our
wholly-owned subsidiaries in the ordinary course of business; (vi)
investments by any of our wholly-owned subsidiaries in New Millennium or
in another wholly-owned subsidiary; (vii) investments for the purpose of
acquiring businesses reasonably related to our business, in an aggregate
amount not exceeding $10 million in any fiscal year; (viii) investments
made by way of any endorsement of negotiable instruments received by us
or any of our subsidiaries in the ordinary course of business and
presented by it to any bank for collection or deposit; (ix) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business owing to us or any of our wholly-owned
subsidiaries; (x) investments for the purpose of acquiring real property
permitted to be acquired under the Indenture so long as the investment
is secured by the real property acquired; (xi) investments in joint
ventures and subsidiaries which have been approved by the Board of
Directors, up to a maximum aggregate amount of $10 million; provided
that any joint venture involving the development of the Calabasas
project that is approved by the Board of Directors will not be limited
to $10 million; (xii) in addition to any other permitted investments,
any other investments by the Company in an aggregate amount not
exceeding $5 million at any time;
. Waiver of Stay, Extension or Usury Laws. we will not (to the extent
allowed by applicable law) plead or claim or take the benefit or
advantage of any stay, extension law or any usury or other law that
would prohibit or forgive us from making all payments on the New Notes
as required in the Indenture;
. Incurrence of Indebtedness. we will not, and will not permit our
subsidiaries to, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable with respect to, including as a
result of an acquisition, merger or consolidation, extend the maturity
of, or otherwise become responsible for, contingently or otherwise, any
(i) indebtedness for borrowed money; (ii) obligations evidenced by bonds,
debentures, notes or other similar instruments; (iii) obligations in
respect of letters of credit or other similar instruments (including
reimbursement obligations); (iv) obligations to pay the deferred and
unpaid purchase price of property or services due more than six months
after the delivery of the property or completion of the services (other
than trade payables); (v) any capitalized lease obligations; (vi) any
indebtedness of other persons or entities secured by a lien or security
interest on our assets; (vii) any indebtedness of another person
guaranteed by us; or (viii) any obligations under currency, interest rate
and commodity agreements (collectively "Indebtedness"), or issue any
disqualified capital unless (A) no default or event of default under the
Indenture shall have occurred and be continuing at the time or as a
consequence of the incurrence of such Indebtedness and (B) on the date of
the incurrence of indebtedness or issuance of disqualified capital, the
consolidated coverage ratio of the Company determined in accordance with
the Indenture for the reference period immediately preceding the
incurrence date, after giving effect on a pro forma basis to the
incurrence of the Indebtedness or issuance is greater than 1.4 to 1.0. In
addition, New Millennium and our subsidiaries may incur the following
Indebtedness: (1) Indebtedness evidenced by the New Notes and the
Guaranty;
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(2) Indebtedness existing as of the date the New Notes are issued,
including the Senior Notes, if any, and the guarantees thereof ("Existing
Indebtedness"); (3) non-recourse Indebtedness incurred in the ordinary
course of business for purchase money obligations; (4) Indebtedness in
respect of performance, completion, payment, guarantee, surety and
similar bonds, banker's acceptances or letters of credit provided by us
in the ordinary course of our business;(5) Indebtedness under any working
capital line in an amount at any one time not to exceed $40,000,000; (6)
financing relating to the development and construction of real property
owned by New Millennium or our subsidiaries in an amount at any one time
not to exceed $80,000,000 (excluding any amounts attributable to the
development of the Calabasas property) ("Permitted Construction
Financing"); (7) Indebtedness incurred for the development of the
Calabasas property (the "Calabasas Financing"); and (8) Indebtedness
incurred to refinance other Indebtedness, to the extent not prohibited
under the Indenture; provided, that to the extent any Indebtedness
permitted pursuant to clause (2) or (5) of this paragraph is repaid with
the proceeds from Asset Sales, such Indebtedness may not be reincurred.
. Additional Subsidiary Guarantors. we will cause all of our current
subsidiaries and any future subsidiary to execute or become signatories
to the Guaranty;
. Liens. we will not, and will not permit any subsidiary to, create, incur
or assume any mortgage, pledge, security interest, encumbrance, lien, or
charge of any kind (collectively "Liens") upon any current or after-
acquired property or assets other than (i) Liens securing Existing
Indebtedness; (ii) Liens securing the New Notes; (iii) Liens on property
of an entity existing at the time the entity is merged into or
consolidated with New Millennium or any subsidiary of New Millennium or
becomes a subsidiary of New Millennium (if the Liens were not created in
contemplation of such event); (iv) Liens on property acquired by New
Millennium or its subsidiaries (if such Liens were not created in
contemplation of such event); (v) Liens incurred or deposits made to
secure the performance of tenders, bids, leases, statutory obligations,
surety or appeal bonds, performance bonds, completion bonds, guarantee
bonds, progress payments, government contracts, fees for conditions of
government development orders and letters of credit in lieu thereof or
other similar obligations incurred in the ordinary course of business;
(vi) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or are being protested in good faith by
appropriate proceedings promptly instituted and diligently pursued
(provided appropriate reserves or other provisions have been made); (vii)
Liens securing our working capital line or Permitted Construction
Financing; (viii) Liens securing the Calabasas Financing; (ix) statutory
Liens of landlords and carriers', warehousemen's, mechanics' and other
similar Liens imposed by law and incurred in the ordinary course of
business; (x) easements, rights-of-way, restrictions and other similar
charges or encumbrances not materially interfering with the ordinary
course of business of New Millennium; (xi) Liens created by special
assessment districts used to finance infrastructure improvements; (xii)
zoning restrictions, licenses and other restrictions on the use of real
property or minor irregularities in title thereto that do not materially
impair the use or value thereof; (xiii) Liens incurred in the ordinary
course of business for deposits in connection with workers' compensation,
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unemployment insurance and other types of social security; (xiv) any
attachment or judgment Lien not stayed and bonded or discharged or
otherwise an event of default; (xv) leases and subleases granted to
others that do not materially interfere with the ordinary conduct of our
business; (xvi) Liens securing Indebtedness incurred to refinance other
Indebtedness provided that the Liens secure only Indebtedness being
refinanced which previously was secured by such Liens; (xvii) any
contract to sell an asset permitted under the Indenture; (xviii) any
right of a lender under Existing Indebtedness, Permitted Construction
Financing, our working capital line, Calabasas Financing or Indebtedness
used to refinance other Indebtedness to offset amounts held by such
lenders; and (xix) any pledge or deposit of cash or property to obtain
bonds or letters of credit required by municipalities or other
governmental authorities in the ordinary course of our business.
. Payments for Consents. we will not, and will not permit any subsidiary
to, directly or indirectly, pay or cause to be paid any consideration to
any holder of New Notes as an inducement to consent to, waive or amend
any provision of the Indenture unless the consideration is offered to all
holders of New Notes in the time frame set forth in any document relating
to the consent, waiver or amendment;
. Real Property Acquisitions. we will not, and will not permit any
subsidiary to, acquire any additional real property for more than its
"Appraised Value," defined as its most recently appraised value or, if
there is no appraisal, (a) the purchase price paid, if the amount paid is
$1 million or less, or (b) the fair market value as determined in good
faith by the Board of Directors if the purchase price exceeds $1 million;
. Maintenance of Real Property. we and our subsidiaries will preserve and
maintain their respective real property holdings in good condition and
repair, free from damage from casualty and condemnation, will not permit
or commit waste, and will own and operate such real property in material
compliance with all applicable law; and
. Environmental Matters. we and our subsidiaries will strictly comply with
all laws relating to the environment or materials of environmental
concern, and will give the Trustee prompt written notice of (a) any
potential or known release or threat of release of any potentially
environmentally hazardous materials at or from any of their respective
real properties, (b) the receipt of any notice from any authority with
jurisdiction over environmental compliance or enforcement and (c) any
non-compliance with or challenge to any zoning requirement, applicable
license or permit or any law relating to the environment or materials of
environmental concern.
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Events of Default
The term "Event of Default" when used in the Indenture means any one of the
following:
. default in the payment of all or any portion of the principal of, or
premium, if any, on, any New Notes when they become due and payable at
maturity, upon acceleration, redemption or otherwise;
. if we or any of our subsidiaries defaults in the performance of or
breaches any other covenant or agreement in the Indenture, under the New
Notes or under any pledge agreement or guarantee executed and delivered
by us or any subsidiary in connection with the issuance of the New Notes
(collectively, the "Applicable Documents"), and such default continues
for 30 consecutive days after notice of default from the Trustee or
notice of default to New Millennium and the Trustee by the holders of
more than 25% of the aggregate outstanding principal amount of New
Notes;
. an event of default occurs with respect to any issue or issues of debt
securities of New Millennium and/or one or more of our subsidiaries
having an outstanding principal amount of $15 million or more in the
aggregate for all such issues of all such entities, and the holders of
the debt securities declare them due and payable prior to their stated
maturity and such obligations are not then paid in full, or the
acceleration of payment is not rescinded or annulled within 30 days
after acceleration;
. any final judgment or order (not covered by insurance) for the payment
of money in excess of $15 million is rendered against us or any
subsidiary and is not discharged, and there is any period of 60
consecutive days following entry of the final judgment or order that
causes the aggregate amount for all such final judgments or orders to
exceed $10 million during which a stay of enforcement of such final
judgment or order is not in effect;
. certain events of bankruptcy, insolvency, reorganization, liquidation or
winding up occur relating to us or the Guarantors;
. we, or any of our subsidiaries, fail to make a principal payment or
payments aggregating more than $10 million at the final (but not any
interim) fixed maturity of one or more issues of debt securities and all
such defaulted payments are not made, waived or extended within 30 days
of the payment default which caused the aggregate amount of defaulted
payments to exceed $10 million; or
. any of the Applicable Documents ceases, for any reason, to be in full
force and effect in any material respect, except as a result of an
amendment, waiver or termination thereof as contemplated or permitted in
the Applicable Documents.
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Notice of Defaults and Remedies
The Indenture provides that the Trustee, within 90 days after the
occurrence of a default, will give notice thereof by mail to all holders of New
Notes, unless the default has been cured or waived prior to the date that notice
otherwise would have been required to be delivered to the holders of the New
Notes; provided, however, that, except in the case of a default in the payment
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of the principal of, premium, if any, or interest on, the New Notes, the Trustee
may withhold notice if and so long as the Board of Directors of New Millennium,
the executive committee or a trust committee of directors or trustees or certain
specified officers of the Trustee, or any combination of the foregoing, in good
faith determine that withholding notice is in the interest of the holders of the
New Notes.
In case an event of default occurs and is continuing under the Indenture,
the Trustee or the holders of not less than 25% of the outstanding principal
amount of the New Notes, by notice in writing to us (and to the Trustee, if
given by the holders of the New Notes), may declare the principal of and accrued
interest, if any, on all the New Notes to be immediately due and payable. A
declaration and acceleration will automatically be annulled and rescinded in the
case of a default from any failure to make payments on any issue or issues of
debt securities described above if (a) the non-payment that triggers the event
of default under the Indenture is cured by the non-paying entity or entities or
waived by the holders of the relevant debt securities within 30 days after the
occurrence of the event of default under the Indenture and (b) each non-paying
entity delivers a certificate of an appropriate officer to that effect. Any
past defaults may be waived (and any acceleration rescinded and annulled) by the
holders of a majority of the then outstanding aggregate principal amount of the
New Notes, upon the conditions provided in the Indenture.
Amendments and Consents Under the Indenture
Amendments Without Consent. New Millennium and the Trustee may amend or
supplement the Indenture or the terms of the New Notes without the consent of
any holder of the New Notes:
. to cure any ambiguity, correct or supplement any provisions in the
Indenture which may be inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions
arising under the Indenture which is not inconsistent with the
provisions of the Indenture, as long as the amendment does not adversely
affect the rights of the holders of the New Notes;
. to provide for uncertificated New Notes in addition to or in place of
certificated New Notes;
. to evidence the succession of another corporation to New Millennium and
provide for the assumption by such successor of the Obligations as
permitted under the Indenture;
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. to make any change that would provide any additional rights or benefits
to the holders of the New Notes or that would not adversely affect the
legal rights under the Indenture of any holder of New Notes; or
. to comply with the requirements of the Securities and Exchange
Commission in order to effect or maintain the qualification of the
Indenture under the TIA.
Upon the Company's request, after receipt by the Trustee of a resolution of
our Board of Directors authorizing the execution of any amended or supplemental
indenture and an officers certificate and opinion of counsel that the amendment
or supplement is authorized and permitted by the Indenture, that it is not
inconsistent with the Indenture and that it will be valid and binding on us in
accordance with its terms, the Trustee will join us in executing the amended or
supplemental indenture and will make any further appropriate agreements and
stipulations that are contained in the amended or supplemental indenture.
However, the Trustee is not obligated to enter into an amended or supplemental
indenture that affects its own rights, duties or immunities under the Indenture
or otherwise.
Amendments Requiring Consent. Except as otherwise provided in the
Indenture, the Indenture and the terms of the New Notes may be amended or
supplemented with the written consent of the holders of at least a majority in
aggregate principal amount of the then outstanding New Notes (including consents
obtained in connection with a tender offer or exchange offer for the New Notes),
and any existing default or event of default under or noncompliance with any
provision of the Indenture or the New Notes may be waived with the consent of
holders of at least a majority in principal of the then outstanding New Notes
(including consents obtained in connection with a tender offer or exchange offer
for the New Notes).
Upon our request and after receipt by the Trustee of a resolution of our
Board of Directors authorizing the execution of a supplemental indenture,
evidence of the consent of the holders of the New Notes, and an officers
certificate and an opinion of counsel, the Trustee will join with us in
executing the amended or supplemental indenture unless such amended or
supplemental indenture affects the Trustee's own rights, duties or immunities
under the Indenture or otherwise, in which case the Trustee may in its sole
discretion enter into such amended or supplemental indenture.
Without the consent of each holder of New Notes affected, no amendment,
supplement or waiver to the Indenture shall:
. reduce the principal amount of New Notes whose holders must consent to
an amendment, supplement or waiver of any provision of the Indenture or
the terms of the New Notes;
. reduce the principal of or change the fixed maturity of the New Notes,
or alter the provisions with respect to the redemption of the New Notes
in a manner adverse to the holders of the New Notes;
. reduce the rate of or change the time for any payment of interest, if
any, on the New Notes;
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. waive a default or event of default relating to the payment of principal
of, or premium or interest, if any, on the New Notes (except that the
holders of at least a majority in aggregate principal amount of the then
outstanding New Notes may (a) rescind an acceleration of the New Notes
that resulted from a non-payment default, and (b) waive the payment
default that resulted from such acceleration;
. make the New Notes payable in money other than United States dollars;
. make any change in the provisions of the Indenture relating to waivers
of past defaults or the rights of the holders of the New Notes to
receive payments of principal of or premium or interest, if any, on the
New Notes;
. waive a mandatory redemption payment with respect to the New Notes; or
. make any change in Section 7.7 (regarding the rights of holders of New
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Notes to institute suit for enforcement of payment rights under the New
Notes), Section 7.10 (regarding the rights of holders of New Notes to
------------
waive defaults other than for non-payment), or the provision regarding
the requisite consents for amendments or supplements to the Indenture of
the New Notes.
We may, but are not be obligated to, fix a record date for the purpose of
determining the holders of New Notes who are entitled to consent to any
supplement or amendment to the Indenture. If a record date is fixed, only the
holders on such record date or their duly designated proxies will be entitled to
consent to such supplement or amendment, whether or not such holders remain
holders of New Notes after the record date; provided, however, that unless such
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consent has become effective because the requisite percentage has been obtained
prior to the date which is 90 days after such record date, any consent
previously given shall automatically be canceled and of no further effect.
It is not necessary for the holders of New Notes to approve the particular
form of any proposed amendment or waiver, but it shall be sufficient if such
consent approves the substance. After an amendment, supplement or waiver
becomes effective, we will mail to each holder affected by the amendment,
supplement or waiver a notice briefly describing the amendment, supplement or
waiver. Our failure to mail such notice, or any defect therein, will not in any
way impair or affect the validity of any amended or supplemental indenture or
waiver.
Satisfaction and Discharge of the Indenture
The Indenture will be discharged and canceled upon satisfaction in full of
all of the Obligations, including the redemption of all New Notes or deposit
with the Trustee of funds or obligations issued or guarantied by the United
States sufficient for such payment or redemption.
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DESCRIPTION OF THE PREFERRED SHARES
The following summarizes the material terms of the Preferred Shares, but does
not purport to be complete and is subject to and qualified in its entirety by
reference to our LLC Agreement, and the Preferred Shares Designation. Copies of
the Preferred Shares Designation may be obtained without charge by holders of
Senior Notes upon request as specified in the section of this Exchange Offer and
Consent Solicitation entitled "Available Information" on page 2.
General
The LLC Agreement authorizes the issuance of 5,000,000 preferred shares,
which may be issued in one or more series, with such designations, preferences
and relative, participating, optional or other special rights powers and duties
as may be fixed by the Board of Directors and reflected in a written action or
actions (each, a "Designation") approved by the Board of Directors. No series
of preferred shares other than the Preferred Shares has been created, and no
shares of preferred shares of any series are issued and outstanding.
The Preferred Shares
When issued pursuant to the Offer, the Preferred Shares will be validly
issued, fully paid and non-assessable. The Preferred Shares:
. constitute a single series consisting of 126,000 shares;
. are not convertible into common shares or other securities of New
Millennium;
. have the voting rights described under the section entitled "Voting;"
. confer no preemptive rights on holders of the Preferred Shares;
. will not be registered under the Securities Act;
. will not be issued with any registration rights;
. have no stated maturity;
. are not subject to any sinking fund;
. will not accrue dividends; and
. are entitled to participate in dividends and distributions declared by
New Millennium as described immediately below under the section entitled
"Dividends and Distributions."
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Dividends and Distributions
No dividends will accrue on the Preferred Shares. No dividends or
distributions may be declared or paid to holders of our common shares or other
equity securities until the holders of the Preferred Shares have received total
distributions equal to $595.24 per Preferred Share (the "Distribution
Preference"). Once the holders of Preferred Shares have been paid the
Distribution Preference per Preferred Share, holders of Preferred Shares are
entitled to participate as a class on a pro rata basis in 20% of any dividends
or distributions payable to holders of our common shares or any other equity
securities of New Millennium, unless the holders of Preferred Shares have not
received distributions equaling the entire Distribution Preference per Preferred
Share on or prior to March 31, 2004. If the holders of Preferred Shares have
not received distributions equaling the entire Distribution Preference per
Preferred Share on or prior to March 31, 2004, they will then be entitled to
receive 100% of all distributions made by New Millennium to equity holders until
the holders of the Preferred Shares have received distributions equaling the
Distribution Preference per Preferred Share. After the holders of Preferred
Shares have received distributions equaling the Distribution Preference per
share, the holders of the Preferred Shares will be entitled to participate as a
class on a pro rata basis in 90% of all distributions paid to holders of the
common shares or other equity securities of New Millennium.
Once the New Notes have been paid in full, within 90 days after the
availability to us of our interim unaudited financial statements for the six
month period ending on June 30 in any year and of audited financial statements
for any fiscal year ending December 31, in either case reflecting cash in excess
of $20 million (the "Excess Cash Amount"), we must distribute the Excess Cash
Amount to the holders of the Preferred Shares on a pro rata basis.
Notwithstanding the foregoing, if the Excess Cash Amounts for any period is less
than $1 million, we will not be obligated to distribute the Excess Cash Amount
at such time. Instead, the Excess Cash Amount less than $1 million (the
"Deferred Excess Cash Amount")will be carried over into subsequent periods until
the total of all Deferred Excess Cash Amounts and the Excess Cash Amount for the
then current period equals or exceeds $1 million, at which point we will
distribute the Deferred Excess Cash Amount and the Excess Cash Amount for the
current period to the holders of Preferred Shares on a pro rata basis.
All rights to receive distributions will be subject to limitations in the
Delaware Limited Liability Company Act relating to dividends and distributions.
Under the Delaware Limited Liability Company Act, we will not be permitted to
make any distributions at the time of and giving effect to the distribution all
our liabilities (other than liabilities for which recourse of creditors is
limited to specific property of ours) exceed the fair value of our assets
(excluding the fair value of property that is subject to liability for which the
recourse of the creditor is limited).
Ranking
Until such time as distributions have been paid in an amount equal to the
Distribution Preference per share, the Preferred Shares will rank, with respect
to dividends and distributions and upon voluntary or involuntary liquidation,
dissolution or winding up of New Millennium, senior to all classes or series of
common shares or other equity securities of New Millennium,
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unless the issuance of equity securities with equal or senior rights to
dividends or distributions and upon liquidation, dissolution or winding up is
approved by the holders of two-thirds of the then outstanding shares of
Preferred Shares. Once distributions in amounts equaling the Distribution
Preference per Preferred Share have been paid to the holders of the Preferred
Shares, the holders of the Preferred Shares will participate in any dividends
and distributions paid on our common shares or any other equity securities of
New Millennium on a pari passu basis in accordance with the percentages
specified above in "Dividends and Distributions."
Liquidation Preference
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of New Millennium, the holders of the Preferred Shares will be
entitled to receive out of the assets legally available for distribution to our
equity members remaining after payment or provision for payment of all debts and
liabilities of New Millennium, a liquidation preference, in cash, in an amount
equal to the positive difference between (1) the Distribution Preference per
Preferred Share and (2) the amount of any distributions per Preferred Share
previously made (the "Liquidation Preference"), before any distribution of
assets is made to holders of common shares or other equity securities of New
Millennium ranking junior to the Preferred Shares. After payment of the full
amount of the Liquidation Preference, the holders of the Preferred Shares will
be entitled to participate in 20% of the distributions made to holders of our
common shares and any other equity securities of New Millennium unless
distributions in an amount equaling the Distribution Preference per Preferred
Share have not been made to the holders of the Preferred Shares by March 31,
2004. Under those circumstances, holders of Preferred Shares will be entitled
to receive first, distributions in amounts such that they have received
distributions in the amount of the Distribution Preference per Preferred Share
and then, distributions in amounts equaling 90% of the distributions made to
holders of our common shares or any other equity securities of New Millennium,
in each case out of the remaining assets of New Millennium to the extent legally
available for distribution. The consolidation or merger of New Millennium with
another entity, a statutory share change by New Millennium or the sale, lease,
transfer or other conveyance of all or substantially all of the property or
business of New Millennium will not be deemed to constitute a liquidation,
dissolution or winding up of New Millennium.
If, upon any such voluntary or involuntary liquidation, dissolution or
winding up of New Millennium, the assets of New Millennium are insufficient to
make full payment to the holders of the Preferred Shares, then the holders of
the Preferred Shares will share pro rata in the distribution of the assets of
New Millennium in proportion to the full liquidating distributions to which they
would otherwise be entitled. The pro rata portion of the assets legally
available for distribution to the holders of Preferred Shares shall be
determined by dividing the number of shares of Preferred Shares held by a member
by the total number of shares of Preferred Shares then outstanding.
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Voting Rights
Holders of Preferred Shares will be entitled to approve any proposed
changes to the terms of the Preferred Shares that are materially adverse to the
holders of the Preferred Shares. Matters submitted to a vote of Preferred
Shareholders will require the affirmative vote of a majority of the outstanding
Preferred Shares; provided that any amendment to the Preferred Share Designation
that would have an adverse effect on the powers, rights or preferences of the
Preferred Shares must be approved by the holders of not less than two-thirds of
the outstanding Preferred Shares. Additionally, in the event that New
Millennium fails to make a mandatory distribution in accordance with the terms
of the Preferred Share Designation, the holders of the Preferred Shares will be
entitled to elect two directors to the Board of Directors, in addition to the
directors elected by the holders of common shares, until such time as all
mandatory distributions are paid in full. Upon a failure to comply with the
mandatory distribution provisions, the number of authorized directors of the
Company will automatically be increased by two until such time as all mandatory
distributions have been paid in full.
Investment Covenant
Without the consent of holders of a majority of the outstanding shares of
the Preferred Shares, we will not be permitted to make any investment (whether
by loan or advance, capital contribution, or purchase or acquisition) in real
property other than the Calabasas property if, giving effect to the investment,
New Millennium's investment in all real property other than the Calabasas
property would be in excess of $35 million in the aggregate, based on book
value. This covenant will not require New Millennium to dispose of any real
property owned on the date the Offer is consummated. The investment (based on
book value) in all real property (other than the Calabasas property) held by New
Millennium and its subsidiaries at the time the Preferred Shares will be issued
will exceed $35 million. New Millennium will not be permitted to make any new
investment in real property until such time as it has disposed of real property
such that the aggregate book value of all real property held by New Millennium
or its subsidiaries (other than the Calabasas property) is less than $35
million.
Mandatory Redemption
The Preferred Shares do not have any mandatory redemption date, nor do we
have any obligation to redeem any Preferred Shares at any time or under any
circumstances.
Repurchase
New Millennium will not be permitted to purchase Preferred Shares.
Preemptive Rights and Conversion Rights
Holders of Preferred Shares will not have any preemptive right to purchase
or acquire any securities, or rights, warrants or options to acquire any
securities, of New Millennium that we
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may at any time offer, grant or sell. Holders of Preferred Shares will not have
any right to convert their Preferred Shares into, or exchange their Preferred
Shares for, any other class or series or type of security of New Millennium or
any other right or obligation.
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth certain material United States federal
income tax consequences of the Offer to the Company and to holders who are
United States persons that hold the Senior Notes and will hold the New Notes and
the Preferred Shares as "capital assets." For these purposes, a United States
person means a beneficial owner of an Senior Note who, for United States federal
income tax purposes, is (i) an individual who is a citizen or resident of the
United States, (ii) a corporation or other taxable entity created or organized
in or under the laws of the United States or any political subdivision thereof
(including any State or the District of Columbia), or (iii) a trust or estate
described in Section 7701(a)(30) of the Code.
This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury Regulations, administrative
pronouncements of the Internal Revenue Service ("IRS") and judicial decisions,
changes to any of which subsequent to the date hereof may affect the tax
consequences described herein (including, possibly, on a retroactive basis).
This summary does not discuss all aspects of the United States federal income
taxation that may be relevant to particular holders in light of their individual
investment circumstances or to certain types of holders subject to special tax
rules (e.g., insurance companies, traders in securities, tax-exempt
organizations, financial institutions, brokers, dealers, holders who hold the
Senior Notes or the New Notes as part of a straddle, hedging or conversion
transaction, foreign entities and nonresident aliens), nor does it consider the
effect of any applicable foreign, state, local or other tax laws. The following
discussion only addresses consequences of ownership of New Notes and Preferred
Shares acquired in the Offer, and not to subsequent holders of New Notes and
Preferred Shares. In addition, the discussion assumes that the New Notes are
treated as debt for United States federal income tax purposes. Holders are
urged to consult their own tax advisors to understand fully the tax consequences
and risks to them of the Offer and of the ownership and disposition of the New
Notes and the Preferred Shares
Tax Consequences of the Offer to the Company
Discharge of Indebtedness Income
The amount of the Company's aggregate outstanding indebtedness will be
reduced as a result of the exchange of the Senior Notes for New Notes and
Preferred Shares pursuant to the Offer. Generally, a reduction of indebtedness
is treated as income to a debtor. The amount of the Company's reduction of
indebtedness will equal the excess of the adjusted issue price of the Senior
Notes over the value of Preferred Shares plus the issue price (discussed below)
of the New Notes issued to holders in the Offer. However, the Company will not
be required to treat this discharge of indebtedness amount as income to the
extent the liabilities of the Company immediately before the Offer exceed the
fair market value of the Company's assets at that time. The amount of the
discharge of indebtedness that is not treated as income as a result of this rule
will be applied, on a dollar-for-dollar basis, to reduce certain tax attributes
of the Company, including net operating losses. The reduction of these
attributes could have the effect of increasing the Company's federal income tax
liability in subsequent taxable years.
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To the extent the Company is required to recognize taxable income as a
result of the reduction in its indebtedness as described above, the Company
believes that it has net operating losses that would substantially offset such
income. However, while for regular federal income tax purposes all of the
income recognized by the Company may be offset by the Company's net operating
loss carryovers, for purposes of the alternative minimum tax (imposed on
corporations at the rate of 20 percent), the Company's net operating loss
carryovers may offset only 90% of the Company's pre-net operating loss
alternative minimum taxable income for the taxable year. Thus, if the Company
is required to recognize taxable income as a result of the reduction in its
indebtedness, the Company may be required to pay federal income tax at an
effective rate of at least two percent (20 percent of the remaining 10 percent)
on that income even if it has sufficient net operating loss carryforwards to
fully offset that income for regular tax purposes.
The Company believes that, based on the values of the Company's assets and
the Company's indebtedness, the Company will not recognize income as a result of
the reduction in its indebtedness resulting from the Offer. The Company's
belief is not binding on the IRS, however, and it is possible that the Company
will incur alternative minimum tax as a result of the Offer.
Limitations on the Use of Net Operating Losses
Section 382 of the Code generally limits a corporation's use of its net
operating loss carryforwards if the corporation undergoes an "ownership change."
An ownership change generally occurs when a percentage of the corporation's
stock by value held by certain persons (identified in the Section 382 of the
Code as "5% shareholders") increases in the aggregate by more than 50 percentage
points over the lowest level held by such persons during a three-year testing
period. If an ownership change occurs, the corporation's annual utilization of
its net operating losses is limited to the product of the corporation's equity
value immediately before the ownership change multiplied by the applicable long-
term federal tax-exempt rate. The Company believes that the Offer will not
result in an ownership change of the Company for purposes of Section 382 of the
Code.
Tax Consequences of the Offer to the Holders
Gain or Loss Recognition on the Offer
The tax consequences of the Offer to the holders will depend on whether the
Senior Notes and the New Notes are treated as "securities" for federal income
tax purposes. The determination of whether a debt instrument is treated as a
"security" depends on the terms, conditions, and other facts and circumstances
relating to the instrument. The Company believes that both instruments should
be treated as "securities." However, due to the inherently factual nature of
the determination of whether a debt instrument is a "security" for tax purposes,
there can be no assurance that the IRS will not successfully challenge this
position. The following addresses the material federal income tax
consequences (i) if the Senior Notes and the New Notes both are treated as
securities, (ii) if the Senior Notes are treated as securities but the New Notes
are not treated as securities, and (iii) if the Senior Notes are not treated as
securities.
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If the Senior Notes and the New Notes are both treated as "securities" for
federal income tax purposes, the Offer will be treated as a recapitalization
under Section 368(a)(1)(E) of the Code. As a result, subject to the discussion
below relating to the treatment of accrued and unpaid interest and to the waiver
of the right to Liquidated Damages, holders will not recognize any gain or loss
as a result of the exchange of the Senior Notes for the New Notes and Preferred
Shares pursuant to the Offer. In addition, each holder's aggregate basis in the
New Notes and the Preferred Shares will be equal to the holder's basis in the
Senior Notes. This aggregate basis will be allocated between the New Notes and
the Preferred Shares in proportion to the relative fair market values of the New
Notes and the Preferred Shares. The holding period of the New Notes and the
Preferred Shares received in the Offer will include the period during which each
holder held the Senior Notes tendered in the Offer.
If the Senior Notes are treated as securities but the New Notes are not
treated as "securities" for federal income tax purposes, the Offer will still
qualify as a recapitalization under Section 368(a)(1)(E). However,
notwithstanding the characterization of the Offer as a recapitalization, the
consequences to the holders of the Offer will differ from those described above
if the New Notes do not qualify as "securities." In that case, a holder who
surrenders the Senior Notes for the New Notes and Preferred Shares will not
recognize any loss on the exchange. However, subject to the discussion below
relating to the treatment of accrued and unpaid interest and the waiver of the
right to Liquidated Damages, the holder will recognize gain equal to the lesser
of the fair market value of the New Notes and the gain realized. The gain
realized will be the excess of the sum of the fair market value of the Preferred
Shares and the issue price (discussed below) of the New Notes received in
exchange for the Senior Notes over the holder's adjusted tax basis in the Senior
Notes. Subject to the market discount rules discussed below, any gain
recognized by the holder will generally be treated as capital gain. The
aggregate tax basis of the Preferred Shares received by the holder in the Offer
will be the same as the aggregate tax basis of the Senior Notes surrendered in
the Offer, decreased by the fair market value or the issue price (the law is not
clear on this issue) of the New Notes, and increased by the amount of gain
recognized. The holding period of such Preferred Shares received will include
the holding period of the Senior Notes surrendered in exchange therefor. In
addition, a holder's tax basis in the New Notes will equal their fair market
value or issue price (the law is not clear on this issue), and the holder's
holding period in the New Notes will begin on the day following the day of the
Offer.
If the Senior Notes are not treated as "securities" for federal income tax
purposes, the Offer will not be treated as a recapitalization under Section
368(a)(1)(E) of the Code and thus will be a taxable event to the holders. As a
result, subject to the discussion below relating to the treatment of accrued and
unpaid interest and the waiver of the right to liquidated damages, a holder will
recognize gain or loss in the Offer in an amount equal to the difference between
(i) the sum of the issue price of the New Notes and the fair market value of the
Preferred Shares received in exchange for the Senior Notes and (ii) the holder's
adjusted tax basis in the Senior Notes. Such gain or loss will generally be
treated as capital gain or loss. However, a holder who purchased the Senior
Notes at a "market discount" (i.e., at a price below the adjusted issue price,
subject to statutory de minimis exception) must generally treat any gain
recognized on the disposition of Senior Notes as ordinary income to the extent
of the market discount that accrued during the period that the Senior Notes were
held by the holder, unless the holder made an election to include such market
discount in income as it accrued. In addition, a holder's tax basis
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in the Preferred Shares would equal the fair market value of the Preferred
Shares, the holder's tax basis in the New Notes will equal the issue price of
the New Notes, and the holder's holding period in the New Notes and the
Preferred Shares will begin on the day following the day of the Offer.
Payment of Accrued Interest or Liquidated Damages
The Company intends to take the position that no portion of the Preferred
Shares or the New Notes is allocable to the payment of either accrued interest
with respect to the Senior Notes or of Liquidated Damages. The IRS, however,
may a contrary position. If the IRS prevails on such position, regardless of
the treatment of the Offer as discussed above, a holder will recognize ordinary
income to the extent that any portion of the New Notes or the Preferred Shares
is treated as the payment of the accrued but unpaid interest with respect to the
Senior Notes or payment of the Liquidated Damages. Holders that have already
included the accrued interest in income will not recognize any additional income
as a result of the consideration received as payment for the accrued interest on
the Senior Notes. A holder's tax basis in the Preferred Shares or the New Notes
treated as the payment of accrued interest or Liquidated Damages will be equal
the amount so treated as income, and the holder's holding period in such stock
or notes would begin on the earlier of the date of the receipt of such stock or
notes or the date of the inclusion of the accrued interest in income.
Tax Consequences to the Holders of the Ownership and Disposition of the New
Notes
Original Issue Discount on the New Notes
The New Notes will be treated as having been issued with "original issue
discount" for federal income tax purposes. The amount of original issue
discount with respect to each New Note will equal the excess of the "stated
redemption price at maturity" of such New Note over its "issue price." The
"stated redemption price at maturity" of each New Note will be equal to all
payments that are required to be made under the note (which will be the
principal amount of the New Notes). The "issue price" of a New Note will be
equal to the present value of all payments that are required to be made under
the New Note discounted at the applicable federal rate.
Subject to the acquisition premium rules discussed below, each holder will
be required to include in gross income (as ordinary interest income) an amount
equal to the sum of the "daily portions" of the original issue discount on the
New Notes for each day that the holder holds the New Notes. The daily portions
of original issue discount required to be included in a holder's gross income
will be determined on a constant yield basis by allocating to each day during
the taxable year in which the holder holds the New Notes a pro rata portion of
the original issue discount thereon which is attributable to the "accrual
period." The amount of the original issue discount attributable to each accrual
period will be the product of the "adjusted issue price" of the New Notes at the
beginning of such accrual period and the "yield to maturity" of the New Notes.
The adjusted issue price of the New Notes at the beginning of the first accrual
period is the issue price. Thereafter, the adjusted issue price of a New Note
is its issue price increased by the aggregate amount of original issue discount
that accrued in all prior accrual periods, and reduced by the portion of the
adjusted issue price of the New Note that is allocable to principal payments on
the New Note previously received by the holder as discussed below. The yield to
84
<PAGE>
maturity of a New Note will be the applicable federal rate, which currently is
6.62%, compounded annually.
The Company intends to take the position that pro rata prepayments on the
New Notes will not affect the yield to maturity on the New Notes for purposes of
the original issue discount rules. It is possible, however, that such
prepayments may result in a recomputation of the yield to maturity, and thus the
original issue discount, on the New Notes, which in turn could increase the
amount of original issue discount required to be included in taxable income of
holders following any such prepayment.
Acquisition Premium with Respect to the New Notes
The excess, if any, of a holder's tax basis in the New Notes over the issue
price of the New Notes will be treated as "acquisition premium." If a holder
has acquisition premium with respect to the New Notes, the holder may reduce the
original issue discount otherwise includable in its gross income for each
accrual period by an amount equal to the product of (i) the amount of such
original issue discount otherwise includable in the holder's gross income in
such period, and (ii) a fraction, the numerator of which is the acquisition
premium and the denominator of which is the original issue discount on the New
Notes (determined on the date of issuance of the New Notes).
Sale, Exchange, Prepayment or Retirement of the New Notes
Upon sale, exchange or retirement of the New Notes, a holder will recognize
gain or loss equal to the difference between the amount realized on the
disposition of the New Notes and the holder's adjusted basis in the New Notes.
A holder's adjusted basis in the New Notes at the time of such disposition will
be equal to the basis initially allocated to the New Notes, increased by any
original issue discount previously included in income by the holder, and reduced
by the portion of the basis of the New Notes that is allocable to payments on
the New Notes previously received by the holder and by any amortized premium.
Similarly, in the event that a holder receives a pro rata prepayment on the
New Notes, the holder will recognize gain or loss equal to the difference
between the amount of the payment and the portion of the holder's adjusted basis
in the New Notes allocable to the prepayment, although a portion of any gain
recognized could be treated as ordinary income. Holders should consult their
tax advisors regarding the allocation of their adjusted basis in New Notes to
any prepayment.
Any gain or loss on the sale or other disposition of the New Notes
generally will be capital gain or loss.
Tax Consequences to the holders of the Ownership and Dispositions of the
Preferred Shares
Distributions
Distributions on the Preferred Shares (including the distribution of the
Distribution Preference), other than distributions in complete liquidation of
the Company, will constitute
85
<PAGE>
dividends taxable as ordinary income for United States federal income tax
purposes to the extent of the Company's current or accumulated earnings and
profits as determined under United States federal income tax principles. To the
extent, if any, that a holder receives a distribution on its Preferred Shares
that exceeds the Company's current and accumulated earnings and profits, the
distribution will be treated first as a non-taxable return of capital reducing
the holder's basis in its Preferred Shares. Any distribution in excess of the
holder's basis in its Preferred Shares will be treated as capital gain.
Any dividends paid to holders that are U.S. corporations may qualify for
the dividends-received deduction. However, dividends (including the
Distribution Preference) received by a corporate shareholder could be considered
an "extraordinary dividend" under Section 1059 of the Code unless such
corporation's stock has been held for more than two years. Corporate
shareholders should consult their own tax advisors as to the availability of the
dividends received deduction and as to the application of Section 1059 of the
Code to their receipt of dividends.
Distributions with respect to the Preferred Shares in complete liquidation
of the Company will be applied first to reduce the holder's basis in the
Preferred Shares and thereafter as capital gain. A holder generally will be
entitled to claim a capital loss with respect to any basis in a Preferred Share
remaining after the final liquidating distribution of the Company.
Dispositions
Any sale, exchange, redemption (except as discussed below) or other
disposition of the Preferred Shares generally will result in taxable gain or
loss equal to the difference between the amount received and the shareholder's
adjusted tax basis in the Preferred Shares. Such gain or loss generally will be
capital gain or loss and will be long-term capital gain or loss if the holding
period for the Preferred Shares exceeds one year. In certain cases, a
redemption of Preferred Shares may be treated as a dividend, rather than as a
payment in exchange for the Preferred Shares. In such events, the redemption
payment will be treated as ordinary dividend income to the extent that such
payment is made out of current or accumulated earnings and profits, as
calculated for U.S. federal income tax purposes. The determination of whether
the redemption will be treated as a dividend rather than as payment in exchange
for the Preferred Shares will depend upon whether and to what extent the
redemption reduces the holder's percentage stock ownership interest in the
Company (taking account of certain constructive ownership rules).
Tax matters are very complicated and the tax consequences of the Offer and of
the ownership and disposition of the New Notes and the Preferred Shares to each
holder will depend on the holder's particular facts and circumstances. Holders
are urged to consult their own tax advisors to understand fully the tax
consequences and risks to them of the Offer and of the ownership and disposition
of the New Notes and the Preferred Shares.
86
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
Audited Financial Statements
----------------------------
<S> <C>
Report of Independent Public Accountants................................................................................... F-1
Consolidated Balance Sheets at December 31, 1999 and 1998.................................................................. F-2
Consolidated Statements of Operations for the years ended December
31, 1999 and 1998 and for the period from September 4, 1997 to
December 31, 1997.......................................................................................................... F-3
Consolidated Statements of Members' Equity for the years ended
December 31, 1999 and 1998, and for the period from September 4,
1997 to December 31, 1997.................................................................................................. F-4
Consolidated Statements of Cash Flows for the years ended December
31, 1999 and 1998, and for the period from September 4, 1997 to
December 31, 1997.......................................................................................................... F-5
Notes to Consolidated Financial Statements.................................................................................. F-7
Unaudited Interim Financial Statements
--------------------------------------
Consolidated Balance Sheet at March 31, 2000................................................................................ F-18
Consolidated Statements of Operations for the Three Months Ended
March 31, 2000 and 1999..................................................................................................... F-19
Consolidated Statement of Members' Equity as of March 31, 2000.............................................................. F-20
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999..................................................................................................... F-21
Notes to Consolidated Interim Financial Statements.......................................................................... F-22
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
New Millennium Homes, LLC:
We have audited the accompanying consolidated balance sheets of NEW MILLENNIUM
HOMES LLC and subsidiaries (the "Company") as of December 31, 1999 and 1998, and
the related consolidated statements of operations, members' equity and cash
flows for the years ended December 31, 1999 and 1998, and for the period from
September 4, 1997 to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Millennium Homes LLC and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1999 and 1998,
and for the period from September 4, 1997 to December 31, 1997 in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and negative
cash flows from operations. In addition, the Company has insufficient cash to
fund an interest payment on the Senior Secured Notes of approximately $8.8
million due on June 1, 2000. These matters raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note 1. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
Orange County, California
May 10, 2000
F-1
<PAGE>
NEW MILLENNIUM HOMES, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1999 AND 1998
(dollar amounts in thousands)
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Cash and cash equivalents................................... $ 570 $ 577
Restricted cash............................................. 247 256
Accounts receivable......................................... 790 892
Notes receivable, net of allowance of $0 and $750,
respectively............................................... 625 3,462
Real estate projects........................................ 200,886 164,107
Prepaid expenses and other assets........................... 327 921
Loan fees, net of accumulated amortization of $638 and
$825, respectively......................................... 1,030 1,327
Fixed assets, net of accumulated depreciation of $776
and $634, respectively..................................... 227 336
Reorganization value in excess of amounts allocable to
identifiable assets, net of accumulated amortization
of $30,385 and $7,487, respectively........................ 8,921 31,819
-------- --------
TOTAL ASSETS.......................................... $213,623 $203,697
======== ========
LIABILITIES AND MEMBERS' EQUITY
Accounts payable............................................ $ 3,555 $ 5,253
Accrued liabilities:
Interest................................................... 4,502 3,334
Property taxes............................................. 4,239 73
Option deposits............................................ - 169
Other...................................................... 4,503 1,288
Notes payable............................................... 45,940 17,996
Senior Secured Notes payable, net of discount............... 115,790 113,712
-------- --------
Total liabilities.................................. 178,529 141,825
-------- --------
Commitments and contingencies
Members' equity:
Common Shares, no stated par value
Authorized 30,000,000 shares, issued and
outstanding 20,182,951 and 20,026,156 shares,
respectively............................................ 78,210 77,603
Deferred compensation...................................... (151) (1,062)
Accumulated deficit 35,529................................ (42,965) (14,669)
-------- --------
Total members' equity.............................. 35,094 61,872
-------- --------
TOTAL LIABILITIES AND MEMBERS
EQUITY............................................ $213,623 $203,697
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
NEW MILLENNIUM HOMES, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998, AND FOR THE PERIOD FROM SEPTEMBER 4, 1997 TO DECEMBER 31, 1997
(dollar amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
SALES:
Home sales............................................. $ 36,943 $ 21,017 $ 16,910
Land sales............................................. 11,670 76,775 5,510
-------- -------- --------
48,613 97,792 22,420
-------- -------- --------
COST OF SALES:
Cost of homes sold..................................... 32,262 19,749 15,658
Cost of land sold...................................... 11,373 72,158 5,096
Write down of projects to net realizable
value................................................. 8,400 - -
-------- -------- --------
52,035 91,907 20,754
-------- -------- --------
GROSS PROFIT (LOSS)..................................... (3,422) 5,885 1,666
-------- -------- --------
OPERATING EXPENSES:
Selling, general and administrative.................... 8,894 12,206 3,283
Bad debt write off..................................... - 4,679 -
Reorganization value amortization and impairment
charge related thereto of $5,417 in
1999.................................................. 22,898 5,615 1,872
-------- -------- --------
31,792 22,500 5,155
-------- -------- --------
LOSS FROM OPERATIONS.................................... (35,214) (16,615) (3,489)
-------- -------- --------
OTHER INCOME, NET (Note 9).............................. 6,918 4,704 731
-------- -------- --------
NET LOSS................................................ $(28,296) $(11,911) $ (2,758)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NEW MILLENNIUM HOMES, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999
AND 1998, AND FOR THE PERIOD FROM SEPTEMBER 4, 1997 TO DECEMBER 31, 1997
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Common Shares
---------------------
Number Deferred Accumulated
of shares Amount Compensation Deficit Total
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Reorganization equity per fresh start
accounting, September 4, 1997............. 19,353,600 $75,000 $ - $ - $ 75,000
Fair value of common shares granted....... 663,200 2,570 (2,570) - -
Amortization of deferred compensation..... - - 308 - 308
Net loss.................................. - - - (2,758) (2,758)
---------- --------- ---------- -------- --------
Balance, December 31, 1997................ 20,016,800 77,570 (2,262) (2,758) 72,550
---------- --------- ---------- -------- --------
Fair value of common shares granted....... 9,356 33 (33) - -
Amortization of deferred compensation..... - - 1,233 - 1,233
Net loss.................................. - - - (11,911) (11,911)
---------- --------- ---------- -------- --------
Balance, December 31, 1998................ 20,026,156 77,603 (1,062) (14,669) 61,872
---------- --------- ---------- -------- --------
Fair value of common shares granted....... 156,795 607 (607) - -
Amortization of deferred compensation..... - - 1,518 - 1,518
Net loss.................................. - - - (28,296) (28,296)
---------- --------- ---------- -------- --------
Balance, December 31, 1999................ 20,182,951 $78,210 $ (151) $(42,965) $ 35,094
========== ========= ========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NEW MILLENNIUM HOMES, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998, AND FOR THE PERIOD FROM SEPTEMBER 4, 1997 TO DECEMBER 31, 1997
(dollar amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................................ $(28,296) $(11,911) $ (2,758)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Impairment charges related to reorganization value and real
estate projects............................................... 13,817 - -
Bad debt write-off............................................. - 4,679 -
Depreciation and amortization.................................. 18,670 7,066 2,329
Amortization of deferred compensation from vested common
shares........................................................ 1,518 1,233 308
Changes in assets and liabilities:
As part of reorganization:
Increase in accounts receivable............................ - - (6,108)
Increase in loan fees...................................... - - (1,260)
Decrease in accrued liabilities............................ - - (1,246)
Post Reorganization:
Real estate projects held for development or sale:
Land acquisition, development and construction
costs................................................... (60,834) (39,378) (8,163)
Financing costs and property taxes......................... (27,301) (27,065) (9,197)
Costs of home and land sales............................... 43,398 91,454 20,755
Decrease (increase) in restricted cash....................... 9 (162) -
Decrease in accounts receivable.............................. 102 3,619 3,982
Decrease in prepaid expenses and other assets................ 78 146 2
Decrease (increase) in deposits.............................. 516 (169) (13)
Increase in loan fees........................................ (750) (736) (380)
Decrease in accounts payable................................. (1,698) (3,260) (12,233)
Increase (decrease) in accrued liabilities................... 11,402 (8,019) (2,262)
Decrease in option deposits.................................. (169) (9,462) -
------- ------- -------
Net cash provided by (used in)
operating activities...................................... (29,538) 8,035 (16,244)
------- ------- -------
INVESTING ACTIVITIES:
Principal payments on notes receivable.......................... 3,395 118 17
Increase in notes receivable.................................... (1,775) (33) (631)
Purchase of property and equipment, net......................... (33) (122) (225)
------- ------- -------
Net cash provided by (used in) investing activities........ 1,587 (37) (839)
------- ------- -------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCING ACTIVITIES:
As part of reorganization:
Proceeds from Senior Secured Notes payable................... - - 126,000
Payments of bankruptcy creditor debt......................... - - (113,095)
Principal payments of notes payable.......................... - - (4,291)
Post Reorganization:
Proceeds from borrowings under working capital line of
credit...................................................... 33,718 39,800 14,320
Principal payments of borrowings under working capital line
of credit................................................... (30,678) (39,820) (5,300)
Proceeds from notes payable.................................. 52,495 28,049 6,100
Principal payments of notes payable.......................... (27,591) (36,142) (6,886)
-------- -------- -------
Net cash provided by (used in) financing activities......
27,944 (8,113) 16,848
-------- -------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS...................... (7) (115) (235)
CASH AND CASH EQUIVALENTS, beginning of period................. 577 692 927
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period....................... $ 570 $ 577 $ 692
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Capitalization of note receivable due to foreclosure on land..
............................................................. $ - $ 3,312 $ -
Capitalization of note receivable resulting from court
settlement................................................... - 4,500 -
Reclassification from notes receivable to real estate
projects..................................................... 1,217 - -
Reduce capitalization of costs due to reduction in accrued
liability.................................................... 2,853 - -
Increase in real estate project costs and note payable
resulting from appraisal..................................... - 469 -
Accretion of discount on senior secured notes payable
capitalized to real estate projects.......................... 2,078 2,040 672
Grant of additional shares of common shares................... 607 33 -
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NEW MILLENNIUM HOMES, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Background and Summary of Significant Accounting Policies
---------------------------------------------------------
Organization and Background
On September 4, 1997, pursuant to confirmation of the Fourth Amended Joint
Plan of Reorganization (the "Plan"), all of the assets of Baldwin Builders
("Builders") were transferred to Baldwin Building Contractors ("BBKL").
Concurrently with the transfer of Builders to BBKL, BBKL merged with and
into New Millennium Homes, LLC, a newly formed Delaware limited liability
company. Upon consummation of such merger, New Millennium Homes, LLC
transferred all of the assets acquired from Builders and BBKL to NM Homes
One, LLC and NM Homes Two, LLC. Subsequent to the transfer of such assets
on September 4, 1997, NM Homes One, LLC merged with and into NM Homes One,
Inc., a Delaware corporation, and NM Homes Two, LLC merged with and into NM
Homes Two, Inc., a Delaware corporation. Upon consummation of such mergers,
NM Homes One, LLC and NM Homes Two, LLC each ceased to exist.
Going Concern Matters
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, during the years ended December 31, 1999 and 1998, and the
period from September 4, 1997 to December 31, 1997, the Company has
experienced significant operating losses and negative cash flow from
operations. In addition, the Company has insufficient cash to fund an
interest payment on the Senior Secured Notes of approximately $8.8 million
due on June 1, 2000. As of December 31, 1999, the Company was in violation
of several financial covenants related to various debt obligations that are
used to fund operations and development activities. The Company
subsequently received waivers for these violations.
In response to these financial conditions, the Company effected an
operating and financing plan to generate cash and to position the Company
for the future. Significant components of the plan include: (1)
disposition of certain real estate assets, (2) paydown of debt with
proceeds of (1), (3) continuation of the custom homebuilding program, (4)
large scale development of only the Calabasas property, and (5)
restructuring of the Senior Secured Notes (see discussion below).
The Company's current debt structure includes $126 million of Senior
Secured Notes that the Company plans to exchange for preferred stock.
Under this debt restructuring plan, the Company will make dividend payments
to preferred stockholders solely at the discretion of the Board of
Directors and only within certain parameters to allow the
F-7
<PAGE>
Company to retain adequate working capital necessary for normal operating
requirements.
The factors discussed above, among others, raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a
going concern is dependent upon its ability to (a) generate sufficient cash
flow to meet its obligations on a timely basis, (b) restructure its current
debt obligations and (c) ultimately attain profitability.
Basis of Presentation and Fresh-Start Accounting
The accompanying consolidated financial statements include the accounts of
the Company, a Delaware limited liability company, and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
The financial statements for the period September 4, 1997 to December 31,
1997 and for the years ended December 31, 1998 and 1999 reflect the
implementation of AICPA Statement of Position No. 90-7 "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code", pursuant to which
"fresh-start accounting" was applied on September 3, 1997. Under this
method of accounting, all assets and liabilities are restated to reflect
their reorganization value, which approximates fair value at the date of
reorganization. The Company adopted fresh-start accounting because holders
of existing voting shares before filing and confirmation of the Plan
received less than 50 percent of the voting shares of the Company and its
reorganization value is less than its post-petition liabilities and allowed
claims.
The reorganization value was determined in consideration of several factors
and reliance on valuation methods, such as discounted cash flows. Factors
considered included, but were not limited to, the following:
1) development plans for the Company's real estate assets
2) availability and limitations on use of income tax net operating loss
carry forwards
3) competition and general economic conditions in the Company's markets
Reorganization value in excess of amounts allocable to identifiable assets
has been assigned a seven-year amortization period. Certain additional
amounts were also recognized in 1999 due to the sales of certain
significant assets and management's future development plans.
F-8
<PAGE>
After extensive negotiations among parties in interest, it was agreed that
the Company's reorganization capital structure should be as follows (in
thousands):
<TABLE>
<S> <C>
Post-petition liabilities $ 62,759
Senior secured debt 111,000
Equity 75,000
$248,759
</TABLE>
The following adjustments were made to historical amounts of assets and
liabilities as of September 3, 1997 (in thousands):
<TABLE>
<CAPTION>
Adjustments to Record
Confirmation of Plan
--------------------------------------------------
Issuance
Of Senior Fresh Start
Precon Debt Secured Fresh Balance
Firmation Discharge Notes Start Sheet
------------- ------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Assets
Accounts & Notes Receivable.... $ 17,809 $ - $ 6,108 $ - $ 23,917
Real Estate Inventories........ 262,382 - - (80,862) 181,520
Reorganization Value........... - - - 39,306 39,306
Other Assets................... 2,743 - 1,273 - 4,016
-------- --------- ------- -------- --------
Total Assets................... $282,934 $ - $ 7,381 $(41,556) $248,759
======== ========= ======= ======== ========
Liabilities and Equity
Accounts Payable............... $ 32,919 $ (11,783) $ (413) $ 23 $ 20,746
Accrued Liabilities............ 53,331 (20,365) (8,358) - 24,608
Minority Interest.............. 2 (2) - - -
Income Taxes Payable........... 3,000 (3,000) - - -
Debenture Payable.............. 155,000 (155,000) - - -
Notes Payable.................. 17,463 - (58) - 17,405
Debtor-in-Possession
Financing.................... 109,790
Senior Secured Notes
Payable...................... -
New Common Shares.............. - 60,000 15,000 - 75,000
Old Equity..................... (88,571) 130,150 - (41,579) -
-------- --------- ------- -------- --------
Total Liabilities & Equity..... $282,934 $ - $ 7,381 $(41,556) $248,759
======== ========= ======= ======== ========
</TABLE>
Cash and Cash Equivalents
Liquid investments and investments with original maturities of three months
or less are classified as cash equivalents.
F-9
<PAGE>
Fixed Assets
Fixed assets are recorded at cost and are depreciated over their estimated
useful lives using an accelerated method over the following estimated
useful lives:
<TABLE>
<S> <C>
Leasehold improvements 7 years
Machinery and equipment 5 years
Office equipment, furniture & fixtures 7 years
</TABLE>
Long-Lived Assets
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of". SFAS No. 121
requires that long-lived assets and certain identified intangibles to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable based on the estimated future cash flows (undiscounted and
without interest charges). SFAS No. 121 also requires that long-lived
assets and certain identifiable intangibles to be disposed of be reported
at the lower of carrying amount or fair value less costs to sell.
Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
Real Estate Projects
Real estate projects are stated at the lower of cost or estimated net
realizable value. In addition to direct land acquisition, land development
and housing construction costs, real estate project costs also include
interest, real estate taxes and direct overhead costs related to
development and construction, which are capitalized during the period
beginning with the commencement of development and ending with the
completion of construction.
Land, land development and related costs are amortized to cost of homes
sold based upon the total number of homes to be constructed in each
community. Housing construction and related costs are charged to cost of
homes sold under the specific identification method. The Company
capitalizes certain project marketing costs and charges them against income
as homes are sold.
SFAS No. 121 changed the method of valuing long-lived assets, including
real estate projects, whereby long-lived assets that are expected to be
held and used in operations are to be carried at the lower of cost or, if
impaired, the fair value of the asset, rather than the net realizable
value. Long-lived assets to be disposed of should be reported at the lower
of the carrying amount or fair value less cost to sell. For purposes of
applying SFAS No. 121, real estate under development is considered to be
held for use whereas finished units are considered assets to be disposed
of. In evaluating long-lived assets held for use, a review for impairment
loss is triggered if the sum of the expected future cash flows
F-10
<PAGE>
(undiscounted and without interest charge) is less than the carrying amount
of the asset. Various assumptions and estimates are used to determine fair
value in determining the amount of any impairment loss including, among
others, estimated costs of construction, development and direct marketing,
sales absorption rates, anticipated sales prices and carrying costs. The
calculation of the impairment loss is based on estimated future cash flows,
or future sales prices, as appropriate. The estimates used to determine
the impairment adjustment can change in the near term as the economy in the
Company's key areas or other factors change. The reorganization value has
been assessed similarly to real estate projects similarly to the SFAS No.
121 requirements.
In 1999, the Company recognized impairment charges due, in part, to the
operating plans discussed in Note 1.
Revenue Recognition
The Company's accounting policies follow specific provisions of SFAS No.
66, "Accounting for Sales of Real Estate", which specify minimum down
payment requirements, financing terms and certain other requirements for
sales of real estate.
Income from sales is recognized when title has passed, the buyer has met
minimum down payment requirements and the terms of any notes received by
the Company satisfy continuing investment requirements. At the time of
sale, accumulated costs are relieved from real estate projects and charged
against sales on a relative sales value basis.
Income Taxes
The Company is a limited liability company pursuant to which income taxes
are the responsibility of the individual members. Accordingly, no
recognition has been given to federal or state income taxes in the
accompanying financial statements.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingencies at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Significant estimates include projected revenues and costs of projects,
which impact the allocation of costs to homes and lots sold. Actual
results could differ from estimated amounts.
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998.
This Statement requires that all items that meet the definition of
components of comprehensive income be reported in a financial statement for
the period in which they are recognized. Components of comprehensive
income include revenues, expenses, gains and losses that under generally
accepted accounting principles are included in comprehensive income but
excluded from net income. There are no differences between
F-11
<PAGE>
the Company's net income, as reported, and comprehensive income, as
defined, for the periods presented, or as of December 31, 1999.
2. Restricted Cash
---------------
The Company's restricted cash of $247,000 and $256,000 at December 31, 1999 and
1998, respectively, represents deposits pledged to various municipalities and
agencies to guarantee future performance of development obligations.
3. Notes Receivable
----------------
As of December 31, 1999, notes receivable is comprised of a $600,000 receivable
from the City of Anaheim for the construction of a reservoir and a second TD in
the amount of $25,000 from a sold lot. The fair market values of the notes
approximate their recorded values at year-end.
At December 31, 1998, notes receivable included a note in the amount of
$2,862,000, secured by a deed of trust that encumbered Village Development
property at the Calabasas project in Los Angeles County. This note was used in
the purchase of Village Development's interest in 82 lots on June 25, 1999.
This purchase increased the Company's holdings in the Calabasas project to 100%
of the project's land.
4. Real Estate Projects
--------------------
Real estate projects consist of the following as of December 31, 1999 and 1998
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Land held for development $ 130,715 $ 105,783
Land held for sale 29,702 42,295
Construction in progress, including land costs 23,152 14,626
Completed residential homes and models 17,317 1,403
---------- ----------
$ 200,886 $ 164,107
========== ==========
</TABLE>
As of December 31, 1999, land held for sale consists of properties located in
San Diego and Chula Vista, California. The Company entered into sales agreements
to sell these properties in fiscal 2000 for an estimated combined sales price of
approximately $32 million.
Interest costs capitalized to inventories are recognized as cost of homes or
land sold when the related real estate projects are sold. Changes in
capitalized interest for the years ended December 31, 1999 and December 31, 1998
were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Interest capitalized, beginning of period $ 24,485 $ 7,027
Interest incurred 23,880 22,562
Interest recognized through cost of sales (5,749) (5,104)
----------- -----------
Interest capitalized, end of period $ 42,616 $ 24,485
=========== ===========
</TABLE>
F-12
<PAGE>
5. Debt
----
Debt consists of the following as of December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Notes payable:
Credit Facility $ 12,040 $ 9,000
Promissory notes collateralized by deeds of trust 33,900 8,996
------------ -------------
$ 45,940 $ 17,996
============ =============
Senior secured notes payable:
12% Senior Notes, due September 4, 2004 $ 126,000 $ 126,000
Unamortized bond discount (10,210) (12,288)
------------ -------------
$ 115,790 $ 113,712
============ =============
</TABLE>
The aggregate carrying value of assets collateralizing the above notes
payable was $161,370,000 and $146,600,000 at December 31, 1999 and 1998,
respectively.
Credit Facility
On August 6, 1999, the Company entered into a $17,417,000 secured credit
agreement (Credit Facility) with a bank. The Credit Facility had a maturity
date of December 31, 1999, with the option of one six-month extension if
the Company is not in default and is otherwise in compliance with its
terms. In January 2000, the Company replaced this agreement with a
$17,000,000 revolving secured credit agreement with another bank, including
an interest reserve of $2,000,000 and bears interest at the bank's
reference rate plus one percent.
Under the terms of these facilities the Company is required, among other
things, to maintain certain financial statement ratios and a minimum net
worth and is subject to limitations on borrowings based on valuations of
inventory securing the Credit Facility. At December 31, 1999, the Company
was in violation of a financial covenant related to these facilities and
has subsequently received a waiver for this violation.
Senior Secured Notes Payable
In September, 1997, the Company issued $126,000,000 principal amount of 12%
Senior Secured Notes due September 4, 2004 (the "Notes") and 4,032,000
shares in the Company. Each $1,000 worth of Notes was issued with 32 shares
of stock. The value associated with each 32 shares of stock was $119.05 and
is recorded in members' equity. This original issue discount, representing
the value of the shares issued, is being amortized over the seven-year term
of the Notes using the effective interest method. The Notes are guaranteed
by the Company's subsidiaries.
Interest on the Notes is due and payable on June 1 and December 1 of each
year. Interest on the Notes escalates by 0.5 percent for each six month
period commencing June 1,
F-13
<PAGE>
1998 with a cap of 14 percent commencing on December 1, 2000. The Company
recognizes interest costs using a calculated average effective interest
rate of 13.36 percent over the term of the debt. These Notes are
subordinated to the Credit Facility previously mentioned as well as the
notes payable discussed below.
The Company's unamortized bond issuance cost was approximately $863,000 and
$1,048,000, net of accumulated amortization of $431,000 and $246,000 at
December 31, 1999 and 1998, respectively. The bond issuance cost is being
amortized over the term of the Notes utilizing the effective interest
method. Unamortized bond issuance cost is included in deferred loan fees.
Notes Payable
The Company has entered into agreements with lending institutions, which
are evidenced by promissory notes collateralized by deeds of trust. These
notes require interest at rates from Prime plus one percent to Prime plus
4.5 percent per annum, and have various maturities through February 2001
subject to payment requirements as the collateral is sold. Such sales are
expected to occur by the end of fiscal 2000.
6. Income Taxes
------------
New Millennium Homes, LLC (the "Parent") is a Delaware limited liability
company, and the income or loss of the Parent for income tax purposes is
included in the income tax returns of the individual members. Accordingly, no
recognition has been given to federal or state income taxes related to the
Parent in the financial statements. The two wholly owned subsidiaries, however,
are both Delaware C Corporations and in financial statement consolidation,
federal and state taxes will be provided in the future on the taxable income of
these subsidiaries. Substantially all assets and liabilities are held by the
Company's subsidiaries.
The components of the net deferred tax asset at December 31, 1999 and 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carry forward $ 37,824 $ 17,408
Tax basis of real estate projects in excess of book basis 31,670 56,235
Other 1,233 (2)
------------ -----------
Net deferred tax asset 70,727 73,641
Valuation allowance (70,727) (73,641)
------------ -----------
Total net deferred tax asset $ - $ -
============ ===========
</TABLE>
The Company has provided a full valuation allowance on the net deferred tax
asset due to uncertainty regarding its realization.
F-14
<PAGE>
As of December 31, 1999, the Company has approximately $100,626,000 and
$60,181,000 of federal and state net operating loss carry forwards,
respectively, available to offset future taxable income, which expire in various
years through 2019 for federal taxes and 2004 for state taxes.
The future realization of net operating loss carryforwards existing as of the
date of fresh start accounting will be used to reduce the reorganization value
in excess of amounts allocable to identifiable assets.
7. Restricted Common Shares
------------------------
The Company has granted stock to directors and certain key employees of the
Company. The stock grants vest over one to three-year terms. The total number of
these shares authorized and granted at December 31, 1999 was 1,736,551, of which
all shares have been granted and are included as issued and outstanding on the
accompanying balance sheets. As of December 31, 1999, 1,681,042 of these shares
have been issued.
The Company recognized compensation expense of $1,518,000 and $1,233,000 for the
years ended December 31, 1999 and 1998, respectively, representing the value of
the shares granted to certain directors and other key employees of the Company.
8. Commitments and Contingencies
-----------------------------
General
Performance bonds of approximately $23,200,000 were outstanding at December
31, 1999. The beneficiaries of these bonds are certain municipalities.
The Company has received and currently holds an insurance settlement in the
amount of $159,000 that is jointly held in trust with another unrelated
company. The settlement proceeds are held and used solely to pay
litigation fees in connection with the insurance settlement. The cash and
offsetting liability are not reflected in the Company's financial
statements.
Employment Agreements
The Company has employment agreements with certain senior level executives.
These agreements range from one to two years, and allow for the employee to
retain their titles and compensation level.
F-15
<PAGE>
Lease Commitments
The Company has entered into agreements to lease certain office equipment
and facilities accounted for as operating leases, which expire at various
dates through fiscal year 2002. The facility leases generally provide that
the Company shall pay property taxes, insurance and other items. Minimum
payments by year under non-cancelable leases at December 31, 1999 are as
follows (in thousands):
<TABLE>
<S> <C>
2000 $126
2001 127
2002 22
------
$275
======
</TABLE>
Total rent expense under non-cancelable operating leases was $216,000 and
$188,000 for the years ended December 31, 1999 and 1998, respectively.
Dividends
No dividends were declared or paid for the years ended December 31, 1999
and 1998.
Registration Rights
The Company entered into a registration rights agreement (the "Agreement")
in connection with the issuance of the Notes (See Note 5). The Agreement
required the Company to prepare and file a shelf registration statement in
connection with the issuance of these securities with the United States
Securities and Exchange Commission by September 3, 1998. The Company has
yet to prepare and make such a document effective as required by the
Agreement. As such, the terms of the Agreement potentially require the
Company to pay to the Note holders an amount equal to $.10 per week per
$1,000 outstanding principal amount of the registrable securities as
defined by the Agreement. Amounts payable by the Company increase $.10 per
week per $1,000 outstanding principal amount after 90 days of non-
compliance with the Agreement and increase until such time that the amounts
equal $.40 per week per $1,000 outstanding principal amount of the
registrable securities.
No provision for such amounts is recorded in the accompanying financial
statements as the Company did not believe that its operating performance
warranted the registration of the securities. Further, the Company's
current debt restructuring plan (See Note 1) will eliminate amounts
potentially payable by the Company as described above. There can be no
assurance, however, that such a debt restructuring plan will be
consummated.
Legal Proceedings
The Company is involved in routine litigation arising in the ordinary
course of its business. While the outcome of litigation cannot be predicted
with certainty, and while certain of these matters involve substantial
amounts, the Company believes that none of
F-16
<PAGE>
the pending litigation has a material adverse effect on the Company's
financial position or the results of its operations.
9. Interest and Other Income, net
---------------------------------
Interest and Other Income, net consists of the following as of December 31, 1999
and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Forfeiture of option deposit $3,150 $ -
Litigation settlements 973 2,389
Converted bankruptcy accounts payable unrealized 2,318 168
Insurance settlement proceeds - 1,695
Interest income-Village Development 376 33
Interest income-other 57 143
Other 44 276
---------- ----------
$6,918 $4,704
========== ==========
</TABLE>
In 1999, the Company realized a deposit forfeiture gain of $3,150,000 because
Village Development, a formerly affiliated company through common ownership with
The Baldwin Company, defaulted on their agreement to purchase the Calabasas
property. In May 1999, the Company was awarded a judgment of $973,000 against
Village Development for additional carry costs including interest and overhead
as a result of Village Development's actions, which delayed the development of
the Calabasas property.
Certain accounts payable liabilities relating to the bankruptcy were deemed by
the Company's attorneys to be unperfected, and therefore have been recognized as
income by reversing the accrued liability. These accounts payable liabilities
recognized as income were approximately $2,318,000 and $168,000 in 1999 and
1998, respectively.
During the year ended December 31, 1998, the Company received legal and
insurance settlement proceeds of approximately $2,400,000 and $1,700,000,
respectively. Such amounts are included in interest and other income in the
accompanying 1998 statement of operations.
F-17
<PAGE>
NEW MILLENNIUM HOMES, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - MARCH 31, 2000
(dollar amounts in thousands)
(unaudited)
ASSETS
<TABLE>
<S> <C>
Cash and cash equivalents............................................... $ 380
Restricted cash......................................................... 247
Accounts receivable..................................................... 406
Notes receivable........................................................ 625
Real estate projects.................................................... 198,313
Prepaid expenses and other assets....................................... 47
Deposits................................................................ 206
Loan fees, net of accumulated amortization of $638...................... 934
Fixed assets, net of accumulated depreciation of $797................... 206
Reorganization value in excess of amounts allocable to
identifiable assets, net of accumulated amortization of $30,863....... 8,444
--------
TOTAL ASSETS................................ $209,808
========
<CAPTION>
LIABILITIES AND MEMBERS' EQUITY
<S> <C>
Accounts payable........................................................ $ 1,859
Accrued liabilities:
Interest.............................................................. 8,741
Property taxes........................................................ 280
Other................................................................. 4,144
Notes payable........................................................... 42,939
Senior secured notes payable, net of discount........................... 116,316
--------
Total liabilities..................................................... 174,279
========
Commitments and contingencies
Members' equity:
Common shares no stated value.........................................
Authorized 30,000,000 shares; issued and
outstanding 20,182,951 shares........................................ 78,210
Deferred compensation................................................. (98)
Accumulated deficit................................................... (42,583)
--------
Total members' equity................................................ 35,529
--------
TOTAL LIABILITIES AND MEMBERS' EQUITY....... $209,808
========
</TABLE>
See accompanying notes to consolidated interim financial statements.
F-18
<PAGE>
NEW MILLENNIUM HOMES, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
SALES:
Home sales................................................ $16,850 $ 9,158
Land sales................................................ - 5,495
------- -------
16,850 14,653
COST OF SALES:
Cost of homes sold........................................ 14,750 8,208
Cost of land sold......................................... - 5,395
------- -------
14,750 13,603
------- -------
GROSS PROFIT................................................ 2,100 1,050
------- -------
OPERATING EXPENSES:
Selling, general and administrative....................... 1,732 2,008
Reorganization value amortization......................... 478 1,404
------- -------
2,210 3,412
------- -------
LOSS FROM OPERATIONS........................................ (110) (2,362)
------- -------
OTHER INCOME, NET........................................... 492 745
------- -------
NET INCOME (LOSS)........................................... $ 382 $(1,617)
======= =======
</TABLE>
See accompanying notes to consolidated interim financial statements.
F-19
<PAGE>
NEW MILLENNIUM HOMES, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Shares
---------------------
Number Deferred Accumulated
of shares Amount Compensation Deficit Total
----------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 20,182,951 $78,210 $(151) $(42,965) $35,094
Fair value of common shares granted - - - - -
Amortization of deferred compensation
- - 53 - 53
Net income - - - 382 382
----------- --------- ------------ ------------- -----------
Balance, March 31, 2000 20,182,951 $78,210 $ (98) $(42,583) $35,529
=========== ========= ============ ============= ===========
</TABLE>
See accompanying notes to consolidated interim financial statements.
F-20
<PAGE>
NEW MILLENNIUM HOMES, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(dollar amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................................................... $ 382 $ (1,617)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization..................................................... 782 1,633
Amortization of deferred compensation from vested common stock.................... 53 295
Changes in assets and liabilities:
Real estate projects held for development or sale:
Land acquisition, development and construction costs.......................... (5,485) (9,812)
Financing costs and property taxes............................................ (6,202) (6,127)
Cost of home and land sales................................................... 14,786 13,569
Decrease in restricted cash..................................................... - 9
Decrease (increase) in accounts receivable...................................... 384 (466)
Decrease in prepaid expenses and other assets................................... 96 157
(Increase) decrease in deposits................................................. (22) 376
Increase in loan fees........................................................... (188) -
Decrease in accounts payable.................................................... (1,696) (1,117)
(Decrease) increase in accrued liabilities...................................... (79) 5,833
Decrease in option deposits..................................................... - (119)
-------- -------
Net cash provided by operating activities..................................... 2,811 2,614
-------- -------
INVESTING ACTIVITIES
Increase in notes receivable........................................................ - (100)
Purchases of property and equipment, net............................................ - (65)
-------- -------
Net cash used in investing activities......................................... - (165)
-------- -------
FINANCING ACTIVITIES:
Proceeds from borrowings on working capital line of credit.......................... 17,851 5,000
Principal payments of borrowings on working capital line of credit.................. (18,710) (2,000)
Proceeds from notes payable......................................................... 4,957 2,614
Principal payments of notes payable................................................. (7,099) (8,262)
-------- -------
Net cash used in financing activities......................................... (3,001) (2,648)
-------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................................. (190) (199)
CASH AND CASH EQUIVALENTS, beginning of period........................................ 570 577
-------- -------
CASH AND CASH EQUIVALENTS, end of period.............................................. $ 380 $ 378
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Accretion of discount on senior secured notes payable capitalized to real
estate projects..................................................................... $ 526 $ 516
</TABLE>
See accompanying notes to consolidated interim financial statements.
F-21
<PAGE>
NEW MILLENNIUM HOMES, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(unaudited)
March 31, 2000
1. Basis of Presentation
---------------------
The selected consolidated financial information for the three months ended
March 31, 2000 and 1999 were derived from our unaudited consolidated financial
statements for such periods. In the opinion of our management, the unaudited
consolidated financial statements include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of such
information. The operating results for the three months ended March 31, 2000
are not necessarily indicative of results for the full fiscal year.
2. Real Estate Projects
--------------------
Real estate projects consist of the following as of March 31, 2000 and 1999
(in thousands):
<TABLE>
2000 1999
----------- ----------
<S> <C> <C>
Land held for development........................................... $134,012 $111,936
Land held for sale.................................................. 30,956 38,065
Construction in progress, including land costs...................... 15,231 14,926
Completed residential homes and models.............................. 18,114 2,066
-------- --------
$198,313 $166,993
======== ========
</TABLE>
As of March 31, 2000, land held for sale consists of properties located in San
Diego and Chula Vista, California. The Company entered into a sales agreement
to sell the Chula Vista property in fiscal 2000 for an estimated sales price
of approximately $22.5 million. The property in San Diego is not currently
under a sales agreement.
F-22
<PAGE>
3. Other Income, net
-----------------
Other Income, net consists of the following as of March 31, 2000 and 1999 (in
thousands):
<TABLE>
<CAPTION>
2000 1999
----------- ------------
<S> <C> <C>
Gain on asset sales.................................................. $ 165 $ -
Litigation settlements............................................... 240 -
Converted bankruptcy accounts payable unrealized..................... - 622
Mello Roos deposit refund............................................ 78 -
Interest income-Village Development.................................. - 99
Interest income-other................................................ 9 16
Other................................................................ - 8
----- -----
$ 492 $ 745
===== =====
</TABLE>
In the first quarter of 2000, the Company sold a piece of artwork that
resulted in a gain of $165,000.
Certain accounts payable liabilities relating to the bankruptcy were deemed by
the Company's attorneys to be unperfected, and therefore have been recognized
as income by reversing the accrued liability. These accounts payable
liabilities recognized as income were approximately $622,000 in the first
quarter of 1999.
During the quarter ended March 31, 2000, the Company received an insurance
settlement in the amount of $240,000.
F-23
<PAGE>
ANNEX I
THE PROPOSED AMENDMENTS
The following is a description of the proposed amendments (the "Proposed
Amendments") to certain restrictive covenants, certain of the event of default
provisions and certain other provisions of the Senior Notes Indenture and
certain provisions of the Security Document to be made effective in accordance
with Article Ten of the Senior Notes Indenture and Section 6.2 of the Security
Document, respectively. Holders of Senior Notes who desire to participate in
the Offer must tender their Senior Notes and deliver their Consents to the
Proposed Amendments prior to 12:00 Midnight New York City time on the Expiration
Date. No holder of Senior Notes may participate in the Offer without consenting
to the Proposed Amendments, either affirmatively or in the form of a deemed
Consent to the Proposed Amendments implied by the tender of Senior Notes for
exchange in the Offer. The Proposed Amendments, if approved, will be contained
and reflected in the Supplemental Indenture and in the amended Security
Document.
If the Proposed Amendments become effective, provisions substantially in
the form of the underlined clauses below will be added to the Senior Notes
----------
Indenture and the Security Document, and the provisions set forth in the form of
italicized clauses below will be deleted from the Senior Notes Indenture and the
Security Document. The Proposed Amendments also would delete those definitions
from the Senior Notes Indenture and the Security Document that are used only in
provisions that would be eliminated as a result of the elimination or
modification of the following provisions, and cross-references to provisions in
the Senior Notes Indenture and Security Document that have been deleted as a
result of the Proposed Amendments will be revised to reflect such deletions.
The provisions of the Senior Notes Indenture and Security Document,
reprinted below, are qualified in their entirety by reference to the Senior
Notes Indenture and Security Document. Capitalized terms that are used but not
otherwise defined in this Annex I have the same meanings as set forth in the
Senior Notes Indenture or the Security Document, as the case may be.
I. If the Proposed Amendments become effective, the following sections of the
Senior Notes Indenture will be eliminated:
A. From the Senior Notes Indenture:
SECTION 4.2 Offices for Payments, etc.
[delete: So long as any Securities are authorized for issuance pursuant to
this Indenture or are outstanding hereunder, the Company will maintain in the
Borough of Manhattan, the City of New York, an office or agency where the
Securities may be presented for payment and for exchange and registration or
transfer as in this Indenture provided and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served.
Presentations and surrenders may also be made at the aforementioned office or
agency in the Borough of Manhattan, the City of New York, the address of which,
from time to time, may be obtained by contacting the Corporate Trust Office of
the Trustee.
A-1
<PAGE>
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York, for such purposes. The Company will give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.]
SECTION 4.8 Payment of Taxes and Other Claims.
[delete: The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (ii)
all lawful claims for labor, materials and supplies that, if unpaid, might by
law become a Lien (other than a Permitted Lien) upon the property of the
Company, or any Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings and with respect to
which an adequate reserve has been established by the Company to the extent
required by GAAP.]
SECTION 4.9 Maintenance of Properties.
[delete: The Company shall, and shall cause each of its Subsidiaries to,
maintain in appropriate condition each of its principal properties which in the
judgment of management is essential to the business operations of the Company
and its Subsidiaries taken as a whole and the loss of which would have a
material adverse effect on the financial condition of the Company and its
Subsidiaries taken as a whole; provided, however, that nothing in this Section
shall prevent the Company or any Subsidiary from selling, abandoning or
otherwise disposing of any such properties if such sale, abandonment or other
disposition is, in the good faith judgment of the Company or such Subsidiary, as
the case may be, desirable in the conduct of its respective business and not
disadvantageous in any material respect to the Holders.]
SECTION 4.10 Maintenance of Insurance.
[delete: The Company will insure and keep insured, and will cause each
Subsidiary to insure and keep insured (either in the name of the Company or in
such Subsidiary's own name), with reputable third party insurance companies,
each of their respective properties, to such an extent and against such risks,
and will maintain liability insurance and insurance coverage against other
business risks, to the extent that property of a similar character is usually so
insured by companies engaged in a similar business and owning similar properties
in accordance with good business practice.]
SECTION 4.11 Compliance with Laws.
[delete: The Company shall comply, and shall cause each of its
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission,
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board, regulatory authority, bureau, agency and instrumentality of the
foregoing, in respect of the conduct of their respective businesses and the
ownership of their respective properties.]
SECTION 4.13 Limitation on Issuances and Dispositions of Capital of
Subsidiaries.
[delete: The Company (i) shall not, and shall not permit any Subsidiary
to, transfer, convey, sell, pledge, encumber or otherwise dispose of any Capital
of a Subsidiary, or securities convertible or exchangeable into, or options,
warrants, rights or any other interest with respect to, Capital of a Subsidiary
to any Person (other than the Company or a Wholly Owned Subsidiary) and (ii)
shall not permit any Subsidiary to issue any of its Capital (other than
directors' qualifying shares), or securities convertible or exchangeable into,
or options, warrants, rights or any other interest with respect to, its Capital
to any Person other than to the Company or a Wholly Owned Subsidiary.]
SECTION 4.14 Limitation on Restricted Payments.
[delete: (a) Except as otherwise provided in this Section 4.14, the
Company shall not, and shall not permit any Subsidiary to, directly or
indirectly:
(i) declare or pay any dividends on or make any distributions of
cash, securities or other property or assets in respect of the Capital of
the Company (other than dividends or distributions payable solely in shares
of Capital (other than Disqualified Capital) or in options, warrants, or
other rights to purchase Capital (other than Disqualified Capital)) to
holders of Capital of the Company; (other than (x) in the case of the
Company, dividends or distributions payable solely in Capital of the
Company (other than Disqualified Capital) or options, warrants or other
rights to acquire Capital of the Company (other than Disqualified Capital,
and (y) any dividends, distributions or other payments in respect of any
Capital made by any Subsidiary to the Company or a Wholly Owned
Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value
(other than through the issuance solely of Capital (other than Disqualified
Capital) or options, warrants or other rights to purchase Capital (other
than Disqualified Capital)) any Capital or warrants, rights (other than
exchangeable or convertible Indebtedness of the Company not prohibited
under clause (iii) below) or options to acquire Capital of the Company,
either directly or indirectly;
(iii) redeem, repurchase, defease (including, but not limited to,
in substance or legal defeasance), or otherwise acquire or retire for value
(other than through the issuance solely of Capital (other than Disqualified
Capital))(collectively, a "prepayment"), directly or indirectly (including
by way of amendment of the terms of any Indebtedness in connection with any
retirement or acquisition of such Indebtedness), other than at any
scheduled maturity thereof or by any scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company which is subordinated
in right of payment to the Securities or which matures after the maturity
date of the securities (except out of the proceeds of Refinancing
Indebtedness); or
(iv) make any Investment other than a Permitted Investment
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<PAGE>
if, at the time of such transaction described in clause (i), (ii), (iii) or (iv)
(such transactions being hereinafter collectively referred to as "Restricted
Payments") or after giving effect thereto, any of (x) a Default or an Event of
Default shall have occurred and be continuing or occurs as a consequence thereof
or (y) the aggregate amount expended by the Company and its Subsidiaries for all
Restricted Payments (the amount of any Restricted Payment if other than cash to
be the Fair Market Value of the property included in such payment) from and
after the Closing Date shall equal or exceed the sum of (A) 50% of the aggregate
Adjusted Consolidated Net Income (or if such Adjusted Consolidated Net Income is
a loss, minus 100% of such loss) of the Company and its Subsidiaries for the
period from the first day of the first quarter ended subsequent to the Closing
Date and through the last day of the most recently completed quarter immediately
preceding the quarter in which the Restricted Payment occurs, calculated on a
cumulative basis as if such period were a single accounting period; (B) the
aggregate net proceeds received by the Company after the Closing Date (including
the Fair Market Value of non-cash proceeds) from any Person other than a
Subsidiary, as a result of the issuance of (or contribution to capital on)
Capital of the Company (other than any Disqualified Capital) or warrants, rights
or options to acquire Capital (other than any Disqualified Capital); (C) the
aggregate net proceeds received by the Company after the Closing Date from any
Person other than a Subsidiary as a result of the issuance of Capital (other
than Disqualified Capital) upon conversion or exchange of Indebtedness or upon
exercise of options, warrants or other rights to acquire such Capital and (D)
$1,000,000 or (z) the Company cannot, at the time of such Restricted Payment and
after giving effect thereto as if such Restricted Payment had been made at the
beginning of the applicable Reference Period, incur at least $1.00 of additional
Indebtedness under Section 4.20. For purposes of any calculation that is
required to be made in respect of, or after, the declaration of a dividend by
the Company, such dividend shall be deemed to be paid at the date of declaration
and shall be included in determining the aggregate amount of Restricted
Payments.
For the purposes of this Section 4.14, the net proceeds from the issuance
of Capital of the Company upon conversion of debt securities shall be deemed to
be an amount equal to the net book value of such debt securities (plus the
additional amount required to be paid upon such conversion, if any), less any
cash payment on account of fractional shares; the "net book value" of a security
shall be the net amount received by the Company on the issuance of such
security, as adjusted on the books of the Company to the date of conversion.
(b) Notwithstanding the foregoing, if no Default or Event of Default shall
have occurred or be continuing at the time or as a result thereof, the
provisions of this Section 4.14 shall not prohibit (i) the payment of any
dividend in respect of the Company's Capital within 60 days after the date of
declaration thereof, if at such date of declaration such payment complied with
the provisions hereof; (ii) the purchase, redemption or other acquisition or
retirement for value of any shares of the Company's Capital or the prepayment of
any Indebtedness of the Company which is subordinated in right of payment to the
Securities or which matures after the maturity date of the Securities by any
exchange for, or out of and to the extent the Company has received cash proceeds
from the substantially concurrent sale or issuance (other than to a Subsidiary)
of, shares of Capital (other than any Disqualified Capital) of the Company or
warrants, rights or options to acquire Capital (other than any Disqualified
Capital); or (iii) the purchase or redemption of shares of Capital of the
Company (including options on any such shares or related stock appreciation
rights or similar securities) held by officers or employees of the Company, or
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its Subsidiaries (or their estates or beneficiaries under their estates) upon
death, disability, retirement, termination of employment of any such Person
pursuant to the terms of any Plan or any other agreement under which shares of
stock or related rights were issued; provided that the aggregate amount of such
purchases or redemptions of such Capital shall not exceed $1,000,000 in any one
fiscal year of the Company. For purposes of determining the aggregate amount of
Restricted Payments permitted under clause (y) of Section 4.14(a), all amounts
expended pursuant to clauses (i) (to the extent deemed to have been paid and
already included in determining the aggregate amount of Restricted Payments
pursuant to clause (y) of Section 4.14(a)), (ii) and (iii) of this paragraph
shall be excluded.
Prior to making any Restricted Payment under this Section, the Company
shall deliver to the Trustee an Officers' Certificate setting forth the
computation by which the amount available for Restricted Payments was
determined. The Trustee shall have no duty or responsibility to determine the
accuracy or correctness of this computation or that the provisions of this
Section have been satisfied and shall be fully protected in relying on such
Officers' Certificate.]
SECTION 4.15 Limitation on Transactions With Affiliates.
[delete: (a) Neither the Company nor any Subsidiary of the Company shall,
directly or indirectly (i) make any loan, advance, guarantee or capital
contribution to, or for the benefit of (ii) sell, lease, transfer or otherwise
dispose of any of its properties or assets, or issue securities to, or for the
benefit of, (iii) purchase or lease any property, assets or securities from,
(iv) make any Investment in, or (v) enter into, suffer to exist or amend any
contract, agreement or understanding with or for the benefit of, an Affiliate or
holder of 5% or more of any class of Capital (and any Affiliate of such holder)
of the Company or any of its Subsidiaries (each, an "Affiliate Transaction"),
other than (x) Affiliate Transactions permitted under Section 4.15(b) and (y)
Affiliate Transactions (including lease transactions) which are on fair and
reasonable terms no less favorable to the Company or such Subsidiary, as the
case may be, than those as might reasonably have been obtained on an arm's
length basis at such time from an unaffiliated party; provided that if an
Affiliate Transaction or series of related Affiliate Transactions involves or
has a value in excess of $10,000,000 the Company or such Subsidiary, as the case
may be, shall not enter into such Affiliate Transaction or series of related
Affiliate Transactions unless a majority of the disinterested members of the
Board of Directors of the Company or such Subsidiary shall reasonably and in
good faith determine that such Affiliate Transaction is fair to the Company or
such Subsidiary, as the case may be, or is on terms no less favorable to the
Company or such Subsidiary, as the case may be, than those as might reasonably
been obtainable at such time from an unaffiliated party and shall have adopted a
Board Resolution to such effect; provided, further that the Company shall not,
and shall not permit any of its Subsidiaries to, enter into an Affiliate
Transaction or series of related Affiliate Transactions involving or having a
value in excess of $25,000,000 unless the Company has delivered to the Trustee
(i) an opinion of an Independent Financial Advisor to the effect that the
transaction is fair to the Company or the relevant Subsidiary, as the case may
be, from a financial point of view and (ii) if such Affiliate Transaction
involves the purchase or sale of real estate, an appraisal from a nationally
recognized MAI certified real estate appraisal firm that indicates a Fair Market
Value at least equal to the aggregate payments made or received by the Company
or its Subsidiary in connection with the Affiliate Transaction.
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(b) The provisions of Section 4.15(a) shall not apply to (i) any agreement
as in effect as of the Closing Date, or any amendment thereto so long as any
such amendment is not disadvantageous to the Holders in any material respect or
any transaction contemplated thereby (including pursuant to any amendment
thereto); (ii) any transaction between the Company and any Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries, provided such transactions are
not otherwise prohibited by this Indenture; (iii) reasonable and customary fees
and compensation paid to, and indemnity provided on behalf of, officers,
managers, directors, employees or consultants of the Company or any Subsidiary,
as determined by the Board of Directors of the Company or such Subsidiary or the
senior management thereof in good faith; (iv) Capital issuances to members of
the Board of Directors, officers and employees of the Company and its
Subsidiaries pursuant to plans approved by the Board of Directors of the
Company, or (v) any Restricted Payments not prohibited by Section 4.14.]
SECTION 4.17 Limitation on Payment Restrictions Affecting Subsidiaries.
[delete: The Company shall not, and shall not permit any Subsidiary to,
create, assume or otherwise cause or suffer to exist or become effective any
Payment Restriction or consensual encumbrance with respect to any Subsidiary
thereof to (a) pay dividends or make any other distributions on such
Subsidiary's Capital or any other interest or participation in, or measured by,
its profits, owned by the Company or any of its other Subsidiaries or pay
interest on or principal of any Indebtedness owed to the Company or any of its
other Subsidiaries; (b) make any loans or advances to the Company or any other
Subsidiary; or (c) transfer any of its properties or assets to the Company or
any other Subsidiary except (i) restrictions imposed by applicable law; (ii) any
restrictions existing under this Indenture; (iii) restrictions imposed under the
Working Capital Line and (iv) encumbrances or restrictions contained in any
agreement or instrument (A) relating to any property acquired or leased by the
Company or any of its Subsidiaries after the Closing Date; provided that such
encumbrance or restriction relates only to the property which is acquired or
leased; (B) relating to any Indebtedness of any Subsidiary at the date of
acquisition of such Subsidiary by the Company or any Subsidiary of the Company,
provided that such Indebtedness was not incurred in connection with, or in
contemplation of, such acquisition (the Company being entitled to rely upon a
certificate of such Subsidiary as to whether such Indebtedness was incurred in
contemplation thereof); (C) arising pursuant to an agreement effecting a
refinancing of Indebtedness issued pursuant to an agreement referred to in the
foregoing clauses (A) and (B), so long as the encumbrances and restrictions
contained in any such refinancing agreement are no more restrictive than the
encumbrances and restrictions contained in such agreements; (D) which constitute
customary provisions restricting subletting or assignment of any lease of the
Company or any Subsidiary or provisions in agreements that restrict the
assignment of such agreement or any rights thereunder; and (E) which constitute
restrictions on the sale or other disposition of any property securing
Indebtedness as a result of a lien on such property.]
SECTION 4.18 Limitation on Investments.
[delete: The Company shall not, and shall not permit any Subsidiary to
make any Investment other than (i) Investments consisting of non-cash proceeds
from Asset Sales as contemplated by Section 4.16 of this Indenture; (ii)
Investments consisting of Cash Equivalents; (iii) accounts receivable if
credited or acquired in the ordinary course of business and payable
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<PAGE>
or dischargeable in accordance with customary trade terms; (iv) payroll advances
and advances for business and travel expenses in the ordinary course of
business; (v) investments by the Company in its Wholly Owned Subsidiaries in the
ordinary course of business; (vi) Investments by any Wholly Owned Subsidiary in
the Company or in another Wholly Owned Subsidiary; (vii) Investments by the
Company for the purpose of acquiring businesses reasonably related to the
business of the Company, in an aggregate amount not exceeding $10,000,000 in any
fiscal year of the Company; (viii) Investments made by way of any endorsement of
negotiable instruments received by the Company or any Subsidiary in the ordinary
course of its business and presented by it to any bank for collection or
deposit; (ix) stock, obligations or securities received in settlement of debts
created in the ordinary course of business owing to the Company or any
Subsidiary; (x) Investments for the purpose of acquiring Real Properties
permitted to be acquired under Section 4.24 so long as any such Investment shall
be secured by the Real Property so acquired; (xi) Investments in Joint Ventures
and Subsidiaries which have been approved by the Board of Directors, (as
evidenced by a Board Resolution) up to a maximum aggregate amount of
$10,000,000; (xi) in addition to any other permitted investments, any other
Investments by the Company in an aggregate amount not exceeding $5,000,000 at
any time (collectively, the "Permitted Investments").]
SECTION 4. 19 Waiver of Stay, Extension or Usury Laws.
[delete: The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension law or any usury
law or other law that would prohibit or forgive the Company from paying all or
any portion of the principal of, premium, if any, or interest on the Securities
as contemplated herein, wherever enacted, now or at any time hereafter in force,
or that may affect the covenants or the performance of this Indenture; and (to
the extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.]
SECTION 4.20 Limitation on Incurrence of Indebtedness.
[delete: (a) Except as otherwise set forth in this Section 4.20, the
Company shall not and shall not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guaranty or otherwise become directly
or indirectly liable with respect to, including as a result of an acquisition,
merger or consolidation, extend the maturity of, or otherwise become responsible
for, contingently or otherwise (collectively, "incur") any Indebtedness or any
Disqualified Capital from and after the Closing Date.
(b) Notwithstanding Section 4.20(c) and in addition to Indebtedness and
Disqualified Capital permitted to be incurred under Section 4.20(c), the Company
or any Subsidiary may incur Indebtedness or Disqualified Capital if, and to the
extent that, (i) no Default or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness and (ii) on the date of such incurrence (the "Incurrence Date"),
the Consolidated Coverage Ratio of the Company for the Reference Period
immediately preceding
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<PAGE>
the Incurrence Date, after giving effect on a pro forma basis to such incurrence
of such Indebtedness or Disqualified Capital is greater than 2.0 to 1.0.
(c) Notwithstanding Section 4.20(b) and in addition to Indebtedness and
Disqualified Capital permitted to be incurred under Section 4.20(b), the Company
and its Subsidiaries may incur the following Indebtedness: (i) Indebtedness
evidenced by the Securities and the Guarantees; (ii) Existing Indebtedness;
(iii) non-recourse Indebtedness incurred in the ordinary course of business for
Purchase Money Obligations; (iv) Indebtedness in respect of performance,
completion, payment, guarantee, surety and similar bonds, banker's acceptances
or letters of credit provided by the Company in the ordinary course of
business;(v) Indebtedness under any Working Capital Line in an amount at any one
time not to exceed $40,000,000; (vi) Permitted Construction Financing in an
amount at any one time not to exceed $80,000,000, (vii) Refinancing
Indebtedness; and (vii) Indebtedness in connection with the acquisition of the
Real Property subject to the Village Properties Option; provided, that to the
extent any Indebtedness permitted pursuant to clause (ii), (v) or (vii) of this
paragraph is repaid with the proceeds from Asset Sales in accordance with the
procedures described in Section 4.16, such Indebtedness may not be reincurred.]
SECTION 4.21 Additional Subsidiary Guarantors.
[delete: The Company shall cause each of its current Subsidiaries to
execute the Guarantees and any other Subsidiary created or acquired after the
Closing Date (each, an "Additional Guarantor") to execute a guaranty providing
that such Additional Guarantor guarantees the obligations of the Company in
accordance with the terms of the Guarantees and that all terms of the Guarantees
applying to the current Subsidiaries shall apply with the same effect to such
Additional Guarantor(s), and to deliver copies of the guaranty to the Trustee.]
SECTION 4.22 Limitation of Liens.
[delete: The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur or assume any Lien upon any of their respective
properties or assets (including assets acquired after the date of this
Indenture), except for Permitted Liens. This Section 4.22 does not authorize the
incurrence of any Indebtedness not otherwise permitted by Section 4.20.]
SECTION 4.23 Payments for Consent.
[delete: The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Securities unless such consideration is
offered to be paid or agreed to be paid to all Holders that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or amendment.]
SECTION 4.24 Real Property Acquisitions.
[delete: The Company shall not, and the Company shall not permit any of
its Subsidiaries to, acquire or enter into any commitment to acquire any
additional Real Property;
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<PAGE>
provided, however, that, subject to the provisions of Section 4.18, the Company
and its Subsidiaries may acquire the following Real Property:
(a) any Real Property, including Real Property subject to the Village
Properties Option, so long as such Real Property is purchased at no more than
its Appraised Value; and
(b) Real Property previously owned by the Company or any of its
Subsidiaries that has been sold and which is encumbered by a purchase money
mortgage in favor of the Company or any of its Subsidiaries that is in default.]
SECTION 4.25 Maintenance and Alterations.
[delete: The Company and the Subsidiaries shall preserve and maintain the
Real Property in good order, repair and condition, damage from casualty or
condemnation, which condemnation could have a material adverse affect on its
business operations or financial condition, and shall not permit or commit waste
on the Real Property and shall cause each and every part of the Real Property to
comply in all material respects with all applicable Federal, state and local
laws and governmental regulations, and any lawful private restrictions or other
requirements or provisions relating to the development, operation, maintenance
or use of the Real Property, including, without limitation, the terms and
provisions of any mortgages or other agreements or instruments constituting
Permitted Liens.]
SECTION 4.26 Certain Environmental Matters.
[delete: The Company and the Subsidiaries shall (i) strictly comply with
all applicable requirements of any Environmental Law; (ii) provide the Trustee
with written notice immediately upon obtaining knowledge of: (a) any potential
or known release, or threat of release, of any Hazardous Substances or oil at or
from the Real Properties or upon receiving notice from any Federal, state or
other environmental agency or authority in connection with the foregoing
matters, including the assessment, containment or removal of any Hazardous
Substance from its properties; or (b) and any non-compliance with or challenge
to any zoning requirement, applicable license or permit, or any other
Environmental Law.]
SECTION 6.1 Merger or Consolidation.
[delete: The Company shall not, and shall not permit any of its
Subsidiaries to, consolidate with or merge into any other Person or convey,
lease, transfer or otherwise dispose of all or substantially all of its assets
whether in a single transaction or a series of related transactions to any
Person or group of Persons (within the meaning of Section 13(d)(3) of the
Exchange Act), unless:
(a) if the transaction involves the Company or a Subsidiary, either (i) the
Company or such Subsidiary, as the case may be, is the continuing entity, and in
the case of a Subsidiary, (x) such Subsidiary remains a Subsidiary of the
Company and (y) the Guarantees remain in full force and effect and the rights of
the Holders thereunder and under this Indenture and the other Applicable
Documents are not to be adversely affected as a result thereof, or (ii) the
corporation or other entity formed by such consolidation or into which the
Company or the Subsidiary, as the case may be, is merged or the Person that
acquires by conveyance, lease or transfer the
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properties and assets of the Company or the Subsidiary, as the case may be,
substantially as an entirety shall be a corporation or other legal entity
organized and existing under the laws of the United States of America or any
State or the District of Columbia, and shall expressly assume, by an indenture
supplemental hereto (or in the case of a Subsidiary, by becoming a Guarantor
either by operation of law or by executing a Guaranty Agreement), executed and
delivered to the Trustee, in form satisfactory to the Trustee, the Company's
obligation for the due and punctual payment of the principal of and interest on
all the Securities according to their tenor and the performance of every
covenant of this Indenture on the part of the Company to be performed or
observed or the Subsidiary's obligations in connection with the Guarantees, as
applicable, and the rights of the Holders under the Securities are not adversely
affected as a result thereof;
(b) immediately before and after giving effect to such transaction, no
Event of Default, and no event that, after notice or lapse of time, or both,
would become an Event of Default, shall have happened and be continuing;
(c) other than in the case of a transaction between the Company and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries of the Company,
immediately after giving effect to such transaction and the use of any net
proceeds therefrom on a pro forma basis, the Consolidated Net Worth of the
consolidated surviving or transferee entity is at least equal to the
Consolidated Net Worth of the Company or such Subsidiary, as the case may be,
immediately prior to such transaction;
(d) other than in the case of a transaction solely between the Company and
any Wholly Owned Subsidiary or between Wholly Owned Subsidiaries of the Company
or a Corporate Reorganization, the consolidated surviving or transferee entity
would, immediately after giving effect to such transaction on a pro forma basis,
be permitted to incur at least one dollar ($1.00) of additional Indebtedness
pursuant to Section 4.20; and
(e) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that such consolidation, merger, conveyance,
lease or transfer and such supplemental indenture, if applicable, comply with
this Article and that all conditions precedent herein provided for relating to
such transaction have been complied with.]
II. If the Proposed Amendments become effective, the following sections of the
Senior Notes Indenture and Security Document will be amended as indicated:
A. From the Senior Notes Indenture:
SECTION 4.5 Compliance Certificate[delete:; Notices of Default]
[delete: (a) The Company will furnish to the Trustee within 120 days
after the end of each fiscal year an Officers' Certificate stating that (i) a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made to determine whether the Company has kept,
observed, performed and fulfilled all of its obligations under this Indenture
and the Securities, (ii) such review was supervised by the Officers of the
Company signing such certificate, and (iii) that to the actual knowledge of each
Officer signing such certificate, (A) during such year the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of
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<PAGE>
any of the terms, provisions and conditions of this Indenture (or, if a Default
or Event of Default has occurred, describing all such Defaults or Events of
Default of which each such Officer may have knowledge and what action the
Company has taken or proposes to take with respect thereto), and (B) no event
has occurred and remains in existence by reason of which payments on account of
the principal of, premium (if any) or interest on, the Securities are prohibited
or if such event has occurred, a description of the event and what action the
Company is taking or proposes to take with respect thereto. The Company will
deliver within 120 days after the end of each fiscal year a statement from the
Company's independent accountants that nothing has come to their attention that
would lead them to believe that the Company has violated any provision of this
Indenture.
(b) The Company will, so long as any of the Securities are outstanding,
deliver to the Trustee, promptly after any Officer of the Company becomes aware
of (i) any Default or Event of Default, or (ii) any default or event of default
under any issue of Indebtedness that could result in an Event of Default under
Section 7.1, an Officers' Certificate specifying such Default, Event of Default
or default and what action the Company is taking or proposes to take with
respect thereto.]
[add: (a) So long as any Securities remain outstanding, the Company shall
--------------------------------------------------------------------
within 120 days after the end of each fiscal year furnish to the Trustee a brief
--------------------------------------------------------------------------------
Officers' Certificate as to the Company's compliance with all conditions and
----------------------------------------------------------------------------
covenants under the Indenture, as and to the extent required by TIA
-------------------------------------------------------------------
(S)314(a)(4).]
-------------
SECTION 4.6 Securities and Exchange Commission Reports.
[delete: (b) So long as any of the Securities remain outstanding, the
Company shall cause any annual and any quarterly or other financial reports
furnished by it to holders of the Company's Capital, to be filed with the
Trustee and mailed to the Holders at their addresses appearing in the register.
If the Company is not required to furnish annual or quarterly reports to the
holders of its Capital pursuant to the Exchange Act, the Company shall cause its
consolidated financial statements, including any notes thereto (and, in the case
of a fiscal year end, an auditors' report by an accounting firm of nationally
established reputation), and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," comparable to that which would
have been required to appear in annual or quarterly reports filed under Section
13 or 15(d) of the Exchange Act if the Company had a class of securities listed
on a national securities exchange, to be so filed with the Trustee and mailed to
the Holders at their addresses appearing in the register within 105 days after
the end of each fiscal year and within 60 days after the end of each of the
Company's first three fiscal quarters in each fiscal year.
(c) The Trustee shall receive the reports, information and documents
described in paragraphs (a) and (b) above, for the purpose of providing copies
of the same to Holders upon their written request and at their expense, but
shall not be responsible for reviewing or analyzing the same to ascertain any
non-compliance by the Company with its obligations under this Indenture and the
Securities.]
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Section 4.16 Limitation on Asset Sales.
Neither the Company nor any of its Subsidiaries shall consummate any Asset
Sale unless [delete: (i) such Asset Sale is for at least Fair Market Value,
(ii) at least 60% of the consideration therefrom received by the Company or such
Subsidiary is in the form of cash or Cash Equivalents, (iii) no Default or Event
of Default shall have occurred or be continuing, and (iv)] the Company or such
Subsidiary shall apply the Net Cash Proceeds of such Asset Sale as follows:
(a) (x) to permanently repay any Indebtedness secured by a Lien on the
Pledged Collateral subject to such Asset Sale or a portion thereof (including a
permanent reduction in committed amounts therefor in the case of the Working
Capital Line so repaid) within [delete: 180] [add: 365] days of such Asset
---
Sale or (y) to reinvest in other Real Property, in each case if the Company or
any Subsidiary, as the case may be, shall have committed in writing within
[delete: 180] [add: 365] days of such Asset Sale to so reinvest such Net Cash
---
Proceeds and so reinvested such Net Cash Proceeds within [delete: 360] [add:
545] days of such Asset Sale; and
---
SECTION 6.2 Successor Corporation Substituted.
Upon any consolidation or merger by the Company with or into any other
corporation, or any conveyance or transfer by the Company of its properties and
assets substantially as an entirety to any Person [delete: , in accordance with
Section 6. 1], the successor corporation formed by such consolidation or into
which the Company is merged or to which such conveyance or transfer is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
corporation had been named as the Company and in the event of any such
conveyance or transfer, the Company, except in the event of a conveyance by way
of lease, shall be discharged from all obligations and covenants under this
Indenture and the Securities and may be dissolved and liquidated. Such
successor corporation may cause to be signed, and may issue either in its own
name or in the name of the Company prior to such succession, any or all of the
Securities issuable hereunder that theretofore shall not have been signed by the
Company and delivered to the Trustee; and, upon the order of such successor
corporation, instead of the Company and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Securities that previously shall have been signed and
delivered by the officers of the Company to the Trustee for authentication, and
any Securities that such successor corporation thereafter shall, cause to be
signed and delivered to the Trustee for that purpose. All the Securities so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Securities theretofore or thereafter issued in accordance with
the terms of this Indenture as though all of such Securities had been issued at
the date of the execution hereof.
In case of any such consolidation, merger, conveyance or transfer, such
changes in phrasing and form (but not in substance) may be made in the
Securities that may be endorsed thereon, as the case may be, thereafter to be
delivered as may be appropriate.]
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<PAGE>
SECTION 7.1 Event of Default Defined: Acceleration of Maturity:
Waiver of Default.
[delete: (d) there occurs with respect to any issue or issues of
Indebtedness of the Company and/or one or more Subsidiaries having an
outstanding principal amount of $15 million or more in the aggregate for all
such issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated Maturity and
such Indebtedness has not been discharged in full or such acceleration has not
been rescinded or annulled within 30 days of such acceleration;
(e) any final judgment or order (not covered by insurance) for the payment
of money in excess of $15 million in the aggregate for all such final judgments
or orders against all such Persons (treating any deductibles, self-insurance or
retention as not so covered) shall be rendered against the Company or any
Subsidiary and shall not be discharged, and there shall be any period of 60
consecutive days following entry of the final judgment or order that causes the
aggregate amount for all such final judgments or orders outstanding against all
such Persons to exceed $10 million during which a stay of enforcement of such
final judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect;
(f) a court having jurisdiction in the premises enters a decree or order
for (i) relief in respect of the Company or any Subsidiary in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (ii) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Subsidiary or for all or substantially all of the property and assets of the
Company or any Subsidiary or (iii) the winding up or liquidation of the affairs
of the Company or any Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days;
(g) the Company or any Subsidiary (i) commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (ii) consents to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any Subsidiary or for all or substantially all of the
property and assets of the Company or any Subsidiary or (iii) effects any
general assignment for the benefit of creditors of the Company or any
Subsidiary;
(i) any of the Applicable Documents shall cease, for any reason, to be in
full force and effect in any material respect, except as a result of an
amendment, waiver or termination thereof as contemplated or permitted therein.]
SECTION 11.1 Satisfaction and Discharge of Indenture.
[Excerpt from the final subparagraph of Section 11.1(A)]
With respect to the foregoing clause (i), the Company's obligations under
Section 8.6 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 4.1, [delete: 4.2,]
4.3, 4.4, 8.6, 8.9, 11.2, 11.4 and 11.5 of this
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<PAGE>
Indenture shall survive until the Securities are no longer outstanding.
Thereafter, only the Company's obligations in Section 8.6 and 11.2 of this
Indenture shall survive. After any such irrevocable deposit, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under the Securities and this Indenture with respect to the Securities except
for those surviving obligations specified above.
[Excerpt from the penultimate subparagraph of Section 11.1(B)]
Notwithstanding the foregoing clause (a), prior to the end of the 123-day
period referenced to in clause (d)(2)(y) above, none of the Company's
obligations under this Indenture shall be discharged. Subsequent to the end of
such 123-day period with respect to this Section 11.1, the Company's obligations
in Sections 2.2, 2.3. 2.4, 2.5. 2.6, 4.1, [delete: 4.2,] 4.3, 4.4. 8.6, 8.9,
11.2, 11.4 and 11.5 shall survive until the Securities are no longer
outstanding. Thereafter, only the Company's obligations in Section 8.6 and 11.2
shall survive. If and when a ruling from the Internal Revenue Service or an
Opinion of Counsel referred to in clause (d)(1) above is able to be provided
specifically without regard to, and not in reliance upon, the continuance of the
Company's obligations under Section 4.1. then the Company's obligations under
such Section 4.1 shall cease upon delivery to the Trustee of such ruling or
Opinion of Counsel and compliance with the other conditions precedent provided
for herein relating to the defeasance contemplated by this Section 11.1.
B. From the Security Document:
SECTION 3.5 Title to Collateral; Validity and Perfection of Security
Interest; Absence of Other Liens.
3.5.2 The Collateral is free and clear of all Liens other than the
following (collectively, the "Permitted Liens");
---------------
3.5.2.1 the Security Interest and other Liens in favor of Secured
Party;
3.5.2.2 Liens in existence on the date hereof and described on
Schedule 3.5.2.2.
[add: 3.5.2.3 the Security Interest and other Liens in favor of
------------------------------------------------------------------------
U.S. Bank Trust National Association securing Pledgor's obligations under
-------------------------------------------------------------------------
the Zero Coupon Notes due 2004 issued pursuant to the indenture related
-----------------------------------------------------------------------
thereto executed by and between Pledgor and U.S. Bank Trust National
--------------------------------------------------------------------
Association.]
------------
SECTION 4.7 Sale of Collateral; Further Encumbrances. The Pledgor
shall not [delete: (a) except for dispositions with the prior written consent
of the Secured Party ("Permitted Sales"), sell, lease or otherwise dispose of
---------------
any Collateral, or any interest therein, or (b)] grant or suffer to exist any
Lien in or on any Collateral (except any Permitted Liens). Concurrently with
any Permittted Sale, the Security Interest shall automatically be released from
the Collateral so disposed of; provided, however, that the Security Interest
-------- -------
shall continue in the Proceeds thereof. If any Collateral or any interest
therein, is disposed of in violation of these provisions, the Security Interest
shall continue in such Collateral or interest notwithstanding such disposition,
the Person to which the Collateral or interest is being transferred shall be
bound by
A-14
<PAGE>
this Agreement, and the Pledgor shall deliver the Proceeds thereof to the
Secured Party to be held as Collateral hereunder.
III. If the Proposed Amendments become effective, certain defined terms and
other provisions contained in the Senior Notes Indenture and Security Document
will be amended, deleted or renumbered as is appropriate in light of the
deletions and amendments described in Sections I through II above.
A-15
<PAGE>
Any questions regarding the terms of the Offer may be directed to the
Exchange Agent.
The Exchange Agent for the Exchange Offer and Consent Solicitation is:
U.S. Bank Corporate Trust
180 E. 5th Street
St. Paul, Minnesota 55101
Attention: Default Processing
Telephone: (612) 973-5840
Facsimile: (651) 244-1142
Any questions or requests for assistance or additional copies of this
Exchange Offer and Consent Solicitation, the Letter of Transmittal and Consent
or the Notice of Guaranteed Delivery may be directed to the Exchange Agent at
the telephone and telecopier numbers and address listed above. A holder of
Senior Notes may also contact the holder's nominee for assistance concerning the
Offer.
