<PAGE>
Filed pursuant to Rule 424(B)(2)
SEC File No. 333-59183-01
PROSPECTUS SUPPLEMENT
(To Prospectus Dated July 24, 1998)
$200,000,000
Dillard's Capital Trust I
7.50% CAPITAL SECURITIES
(Liquidation Amount $25 Per Capital Security)
fully and unconditionally guaranteed, to the extent described herein, by
Dillard's, Inc.
----------------
The 7.50% Capital Securities (the "Capital Securities") offered hereby will
represent undivided beneficial ownership interests in the assets of Dillard's
Capital Trust I, a statutory business trust created under the laws of the
State of Delaware (the "Issuer Trust"). Dillard's, Inc. (the "Company") will
initially be the owner, directly or indirectly, of all the beneficial
interests represented by common securities of the Issuer Trust (the "Common
Securities" and, together with the Capital Securities, the "Trust
Securities"). The Issuer Trust exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in 7.50% Subordinated
Deferrable Interest Debentures (the "Subordinated Debentures," and together
with the Trust Securities, the "Securities") to be issued by the Company. The
Subordinated Debentures will mature on August 1, 2038 (such date, as it may be
advanced under certain circumstances, as hereinafter described, the "Stated
Maturity"), which may be advanced to a date not earlier than August 1, 2013.
(Continued on next page)
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN
EVALUATING AN INVESTMENT IN THE CAPITAL SECURITIES.
----------------
APPLICATION HAS BEEN MADE TO LIST THE CAPITAL SECURITIES ON THE NEW YORK
STOCK EXCHANGE, INC. (THE "NYSE"). TRADING OF THE CAPITAL
SECURITIES ON THE NYSE IS EXPECTED TO COMMENCE WITHIN A 30-
DAY PERIOD AFTER THE INITIAL DELIVERY OF THE CAPITAL
SECURITIES.
----------------
THESE SECURITIES HAVE 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 PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO COMMISSIONS AND THE ISSUER
PUBLIC(1) DISCOUNTS(2) TRUST(3)(4)
--------- --------------- -----------
<S> <C> <C> <C>
Per Capital Security... $25 (3) $25
Total ................. $200,000,000 (3) $200,000,000
</TABLE>
- --------
(1) Plus accumulated Distributions, if any, from August 12, 1998.
(2) The Company and the Issuer Trust have each agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting" in this
Prospectus Supplement.
(3) In view of the fact that the proceeds of the sale of the Capital
Securities will be used to purchase the Subordinated Debentures, the
Company has agreed to pay to the Underwriters, as compensation for their
arranging the investment therein of such proceeds, $.7875 per Capital
Security (or $6,300,000 in the aggregate). See "Underwriting" in this
Prospectus Supplement.
(4) Before deducting estimated expenses of $100,000 payable by the Company.
----------------
The Capital Securities are offered subject to prior sale, when, as and if
issued to and accepted by the Underwriters and subject to approval of certain
legal matters by Simpson Thacher & Bartlett, counsel for the Underwriters, and
to certain other conditions. It is expected that delivery of the Capital
Securities will be made in book-entry form through the book-entry facilities
of DTC on or about August 12, 1998, against payment therefor in immediately
available funds.
----------------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
STEPHENS INC.
August 5, 1998
<PAGE>
(Continued from the previous page)
The Capital Securities will have a preference under certain circumstances
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise over the Common Securities. See "Description of
Capital Securities--Subordination of Common Securities" in the accompanying
Prospectus.
The Capital Securities will be represented by one or more global Securities
in fully registered form, deposited with a custodian for and registered in the
name of a nominee of The Depository Trust Company (the "Depository" or "DTC").
Beneficial interests in such global Capital Securities will be shown on, and
transfers thereof will be effected only through, records maintained by DTC and
its participants. Except as described under "Description of Capital
Securities" in this Prospectus Supplement, Capital Securities in definitive
form will not be issued and owners of beneficial interests in the global
Securities will not be considered holders of the Capital Securities.
Holders of the Capital Securities will be entitled to receive cumulative
cash distributions accumulating from and including August 12, 1998 and payable
quarterly in arrears on February 1, May 1, August 1 and November 1 each year
(each, an "Interest Payment Date"), commencing November 1, 1998, at the annual
rate of 7.50% of the liquidation amount of $25 per Capital Security
("Distributions"). The Company will have the right to defer payment of
interest on the Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
deferral period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity or end on a day other than an
Interest Payment Date. No interest shall be due and payable during any
Extension Period, except at the end thereof, but the Company may prepay at any
time all or any portion of the interest accrued during an Extension Period.
Upon the termination of any Extension Period and the payment of all amounts
then due, the Company may elect to begin a new Extension Period subject to the
requirements described herein. If interest payments on the Subordinated
Debentures are so deferred, Distributions will also be deferred and the
Company will not be permitted, subject to certain exceptions described herein,
to declare or pay any cash distributions with respect to the Company's capital
stock or with respect to debt securities of the Company that rank pari passu
in all respects with or junior to the Subordinated Debentures. During an
Extension Period, interest on the Subordinated Debentures will continue to
accrue (and the amount of Distributions will accumulate) at the rate of % per
annum, compounded quarterly, and holders of Capital Securities will be
required to accrue such amounts as interest income for United States federal
income tax purposes. See "Description of Subordinated Debentures--Option to
Extend Interest Payment Period" and "Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount," each in this Prospectus
Supplement.
The Company will, through the Guarantee, the Trust Agreement, the
Subordinated Debentures and the Subordinated Debt Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guarantee all
the Issuer Trust's obligations under the Capital Securities as described
below. See "Relationship Among the Capital Securities, the Subordinated
Debentures and the Guarantee--Full and Unconditional Guarantee" in this
Prospectus Supplement. The Guarantee of the Company guarantees the payment of
Distributions and payments on liquidation or redemption of the Capital
Securities, but in each case only to the extent of funds held by the Issuer
Trust, as described herein and in the accompanying Prospectus (the
"Guarantee"). See "Description of Guarantee" herein and "Description of
Guarantees" in the accompanying Prospectus. If the Company does not make
payments on the Subordinated Debentures held by the Issuer Trust, the Issuer
Trust will have insufficient funds to pay Distributions on and other amounts
payable under the Capital Securities. In such event, a holder of Capital
Securities may institute a legal proceeding directly against the Company to
enforce payment of such Distributions to such holder. See "Description of
Subordinated Debentures--Enforcement of Certain Rights by Holders of Capital
Securities" in this Prospectus Supplement. The Guarantee does not cover
payment of Distributions when the Issuer Trust does not have sufficient funds
to pay such Distributions. The obligations of the Company under the Guarantee
and the Subordinated Debentures are subordinate and junior in right of payment
to all Senior Indebtedness (as defined in the Subordinated Debt Indenture) of
the Company. As of May 2, 1998, there was approximately $1.6 billion of
outstanding Senior Indebtedness (as so defined) of the Company and its
consolidated subsidiaries. See "Description of Debt Securities--Subordinated
Debt" in the accompanying Prospectus.
S-2
<PAGE>
The Capital Securities will be subject to mandatory redemption in whole, but
not in part, upon repayment of the Subordinated Debentures at Stated Maturity
or their earlier redemption. The Subordinated Debentures are redeemable prior
to the Stated Maturity at the option of the Company (i) on or after August 12,
2003, in whole at any time or in part from time to time, and (ii) prior to
August 12, 2003, in whole (but not in part) at any time within 90 days
following the occurrence and continuation of a Tax Event or an Investment
Company Event (each as defined herein), in each case at a redemption price
equal to 100% of the principal amount of the Subordinated Debentures so
redeemed plus accrued and unpaid interest thereon to the date fixed for
redemption. See "Description of Subordinated Debentures--Redemption" and
"Description of Capital Securities--Liquidation Distribution Upon
Dissolution," each in this Prospectus Supplement.
The holders of the outstanding Common Securities have the right at any time
to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to cause the
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. See
"Description of Capital Securities--Liquidation Distribution Upon Dissolution"
in this Prospectus Supplement.
Application has been made to list the Capital Securities on the NYSE. If the
Subordinated Debentures are distributed to the holders of Capital Securities
upon the liquidation of the Issuer Trust, the Company will use all reasonable
efforts to list the Subordinated Debentures on the NYSE or such other
securities exchange or automated quotation system, if any, on which the
Capital Securities may then be listed or traded.
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law,
the holders of the Capital Securities will be entitled to receive a
liquidation amount of $25 per Capital Security plus accumulated and unpaid
Distributions thereon to the date of payment, subject to certain exceptions,
which may be in the form of a distribution of such amount in Subordinated
Debentures. See "Description of Capital Securities--Liquidation Distribution
Upon Dissolution" in this Prospectus Supplement.
If the purchaser is using for its purchase of the Capital Securities the
assets of an Employee Benefit Plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or of a plan or
individual retirement account subject to section 4975 of the Internal Revenue
Code of 1986, as amended (the "Code"), the purchase shall constitute a
representation by such person that its purchase and holding of the Capital
Securities will not result in a non-exempt prohibited transaction under ERISA
or the Code. See "Certain ERISA Considerations" in this Prospectus Supplement.
The information in this Prospectus Supplement supplements, and should be
read in conjunction with, the information contained in the accompanying
Prospectus.
As used herein, (i) the "Subordinated Debt Indenture" means the Subordinated
Debt Indenture, as amended and supplemented from time to time, between the
Company and The Chase Manhattan Bank, as trustee (the "Debt Securities
Trustee"), pursuant to which the Subordinated Debentures are issued, (ii) the
"Trust Agreement" means the Amended and Restated Trust Agreement relating to
the Issuer Trust, as amended and supplemented from time to time, among the
Company, as Depositor, The Chase Manhattan Bank, as Property Trustee (the
"Property Trustee"), Chase Manhattan Bank Delaware, as Delaware Trustee (the
"Delaware Trustee") (collectively, the "Issuer Trustees"), two individuals
selected by the holders of the Common Securities to act as administrators with
respect to the Issuer Trust (the "Administrators") and the holders, from time
to time, of the Trust Securities (iii) the "Guarantee" means the Guarantee
Agreement relating to the Capital Securities, as amended and supplemented from
time to time, between the Company and The Chase Manhattan Bank, as Guarantee
Trustee (the "Guarantee Trustee"). Unless otherwise expressly stated, all
information in this Prospectus Supplement assumes that the over-allotment
option granted to the Underwriters is not exercised. See "Underwriting" in
this Prospectus Supplement.
S-3
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CAPITAL
SECURITIES OFFERED HEREBY. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT
CAPITAL SECURITIES, AND MAY BID FOR, AND PURCHASE, THE CAPITAL SECURITIES IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS" IN
THIS PROSPECTUS SUPPLEMENT.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE ISSUER TRUST OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
S-4
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Factors.............................................................. S-6
Dillard's Capital Trust I................................................. S-10
Use of Proceeds........................................................... S-11
Recent Development........................................................ S-11
Selected Consolidated Financial Data of Mercantile........................ S-12
Unaudited Pro Forma Financial Statements.................................. S-13
Capitalization............................................................ S-19
Accounting Treatment...................................................... S-20
Description of Capital Securities......................................... S-20
Description of Subordinated Debentures.................................... S-27
Description of Guarantee.................................................. S-33
Relationship Among the Capital Securities, the Subordinated Debentures and
the Guarantee............................................................ S-34
Certain Federal Income Tax Consequences................................... S-35
Certain ERISA Considerations.............................................. S-40
Underwriters.............................................................. S-41
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information....................................................... 3
Incorporation of Certain Documents by Reference............................. 3
Disclosures Regarding Forward-Looking Statements............................ 4
The Company................................................................. 5
Recent Development.......................................................... 5
The Issuer Trusts........................................................... 6
Use of Proceeds............................................................. 7
Ratios of Earnings to Fixed Charges......................................... 7
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends... 7
Description of Debt Securities.............................................. 7
Description of Capital Stock................................................ 15
Description of Capital Securities........................................... 17
Global Securities........................................................... 23
Description of Guarantees................................................... 25
Plan of Distribution........................................................ 27
Validity of Securities...................................................... 28
Experts..................................................................... 28
</TABLE>
S-5
<PAGE>
RISK FACTORS
Prospective purchasers of the Capital Securities should carefully review the
information contained elsewhere in this Prospectus Supplement and the
accompanying Prospectus and should particularly consider the following
matters.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED
DEBENTURES
The obligations of the Company under the Guarantee issued by the Company for
the benefit of the holders of Capital Securities and under the Subordinated
Debentures are subordinate and junior in right of payment to all Senior
Indebtedness (as defined in the Subordinated Debt Indenture). As of May 2,
1998 there was approximately $1.6 billion of outstanding Senior Indebtedness
(as so defined) of the Company and its consolidated subsidiaries. None of the
Subordinated Debt Indenture, the Guarantee or the Trust Agreement places any
limitation on the amount of secured or unsecured debt, including such Senior
Indebtedness, that may be incurred by the Company. See "Description of
Guarantee--Status of the Guarantee" in this Prospectus Supplement and
"Description of Debt Securities--Subordinated Debt" in the accompanying
Prospectus.
The ability of the Issuer Trust to pay amounts due on the Capital Securities
is solely dependent upon the Company's making payments on the Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Subordinated Debt
Indenture and herein referred to as a "Debenture Event of Default") has
occurred and is continuing with respect to the Subordinated Debentures, the
Company will have the right to defer the payment of interest on the
Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarterly periods with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Subordinated Debentures or end on a day other than an Interest
Payment Date for the Subordinated Debentures. See "Description of Subordinated
Debentures--Debenture Events of Default" in this Prospectus Supplement. As a
consequence of any such deferral, quarterly Distributions on the Capital
Securities by the Issuer Trust will be deferred during any such Extension
Period. During any Extension Period, interest on the Subordinated Debentures
will continue to accrue and, as a result, Distributions to which holders of
the Capital Securities are entitled will accumulate additional Distributions
thereon at the rate of 7.50% per annum, compounded quarterly from the most
recent Distribution payment date on which Distributions were paid, computed on
the basis of a 360-day year of twelve 30-day months and the actual days
elapsed in a partial month in such period. Additional Distributions payable
for each full Distribution period will be computed by dividing the rate per
annum by four. The term "Distribution" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company is
subject to certain restrictions. See "Description of Subordinated Debentures--
Restrictions on Certain Payments; Certain Covenants of the Company" in this
Prospectus Supplement. Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Subordinated Debentures or end on a day other than
an Interest Payment Date for the Subordinated Debentures.
Upon the termination of any Extension Period and the payment of all interest
then accrued and unpaid (together with interest thereon at the annual rate of
7.50%, compounded quarterly) on the Subordinated Debentures, the Company may
elect to begin a new Extension Period subject to the above conditions. No
interest shall be due and payable during an Extension Period, except at the
end thereof, but the Company may prepay at any time all or any portion of the
interest accrued during an Extension Period. The Company must give the Issuer
Trustees and the Debt Securities Trustee notice of its election of an
Extension Period at least 30 calendar days prior to the date the Distributions
on the Capital Securities would have been payable but for the election to
begin such Extension Period. The Property Trustee will give notice of the
Company's election to begin an Extension Period to the holders of the Capital
Securities. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period. See
"Description of Capital Securities--Distributions" and "Description of
Subordinated Debentures--Option to Extend Interest Payment Period," each in
this Prospectus Supplement.
S-6
<PAGE>
Should an Extension Period occur, a holder of Capital Securities will be
required to accrue income (in the form of original issue discount) in respect
of its pro rata share of the Subordinated Debentures held by the Issuer Trust
for United States federal income tax purposes. As a result, a holder of
Capital Securities will include such income in gross income for United States
federal income tax purposes in advance of the receipt of cash, and will not
receive the cash related to such income from the Issuer Trust if the holder
disposes of the Capital Securities prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount" and "--Sales of Capital Securities" in this
Prospectus Supplement.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Capital Securities is likely to
be affected. A holder that disposes of its Capital Securities during an
Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Capital Securities. In
addition, as a result of the existence of the Company's right to defer
interest payments, the market price of the Capital Securities (which represent
undivided beneficial ownership interests in the assets of the Issuer Trust)
may be more volatile than the market prices of other securities on which
original issue discount or interest accrues that are not subject to such
deferrals.
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION
Upon the occurrence and continuation of a Tax Event or an Investment Company
Event (in each case, as defined herein), the Company will have the right to
redeem the Subordinated Debentures in whole, but not in part, at any time
within 90 days following the occurrence and continuation of such Tax Event or
Investment Company Event and thereby cause a mandatory redemption of the
Capital Securities. If the Company redeems the Subordinated Debentures, it
will thereby cause a mandatory redemption of the Capital Securities. Any such
redemption will be at a Redemption Price equal to 100% of the Liquidation
Amount (as defined herein) of such Capital Securities plus accumulated and
unpaid Distributions to but excluding the date fixed for redemption. See
"Description of Subordinated Debentures--Redemption" and "Description of
Capital Securities--Redemption" and "--Liquidation Distribution Upon
Dissolution," each in this Prospectus Supplement.
Recently, a petition was filed in the United States Tax Court as a result of
a challenge by the Internal Revenue Service ("IRS") of the petitioner's
treatment as indebtedness of a loan issued in circumstances with similarities
to the issuance of the Subordinated Debentures. If this matter is in fact
litigated and the Tax Court were to sustain the IRS's position on this matter,
such judicial decision could constitute a Tax Event which could result in an
early redemption of the Capital Securities.
CONDITIONAL RIGHT TO ADVANCE MATURITY
If a Tax Event occurs, then the Company will have the right, upon notice to
the Debt Securities Trustee, prior to the dissolution of the Issuer Trust, to
advance the Stated Maturity of the Subordinated Debentures to the minimum
extent required in order to allow for the payments of interest in respect of
the Subordinated Debentures to continue to be tax deductible, but in no event
shall the resulting maturity of the Subordinated Debentures be less than 15
years from the date of original issuance thereof. The Stated Maturity may be
advanced only if, in the written opinion of independent tax counsel to the
Company experienced in such matters, delivered to the Debt Securities Trustee,
(a) after advancing the Stated Maturity, interest paid on the Subordinated
Debentures will be deductible for United States federal income tax purposes
and (b) advancing the Stated Maturity will not result in a taxable event to
holders of the Capital Securities.
EXCHANGE OF CAPITAL SECURITIES FOR SUBORDINATED DEBENTURES
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. See
"Description of Capital Securities--Liquidation Distribution Upon Dissolution"
in this Prospectus Supplement.
S-7
<PAGE>
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Subordinated Debentures upon a liquidation
of the Issuer Trust will not be a taxable event to holders of the Capital
Securities. However, if a Tax Event were to occur that would cause the Issuer
Trust to be subject to United States federal income tax with respect to income
received or accrued on the Subordinated Debentures, a distribution of the
Subordinated Debentures by the Issuer Trust would likely constitute a taxable
event to the holders of the Capital Securities. See "Certain Federal Income
Tax Consequences" in this Prospectus Supplement.
RIGHTS UNDER THE GUARANTEE
The Chase Manhattan Bank will act as the trustee under the Guarantee and
will hold the Guarantee for the benefit of the holders of the Capital
Securities. The Chase Manhattan Bank will also act as Debt Securities Trustee
for the Subordinated Debentures and as Property Trustee under the Trust
Agreement. Chase Manhattan Bank Delaware will act as Delaware Trustee under
the Trust Agreement. The Guarantee guarantees to the holders of the Capital
Securities the following payments, to the extent not paid by or on behalf of
the Issuer Trust: (i) any accumulated and unpaid Distributions required to be
paid on the Capital Securities, to the extent that the Issuer Trust has funds
legally available therefor at such time; (ii) the applicable Redemption Price
with respect to any Capital Securities called for redemption, to the extent
that the Issuer Trust has funds on hand available therefor at such time; and
(iii) upon a voluntary or involuntary dissolution, winding up or liquidation
of the Issuer Trust (unless the Subordinated Debentures are distributed to
holders of the Capital Securities), the lesser of (a) the aggregate of the
Liquidation Amount of all outstanding Capital Securities and all accumulated
and unpaid Distributions to the date of payment, and (b) the amount of assets
of the Issuer Trust remaining available for distribution to holders of the
Capital Securities on liquidation of the Issuer Trust.
The Guarantee is subordinated as described under "--Ranking of Subordinated
Obligations Under the Guarantee and the Subordinated Debentures" above and
"Description of Guarantee--Status of the Guarantee" in this Prospectus
Supplement. The holders of not less than a majority in aggregate Liquidation
Amount of the outstanding Capital Securities will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Guarantee Trustee in respect of the Guarantee or to direct the exercise
of any trust power conferred upon the Guarantee Trustee under the Guarantee.
If the Company were to default on its obligation to pay amounts payable
under the Subordinated Debentures, the Issuer Trust would lack funds for the
payment of Distributions or amounts payable on redemption of the Capital
Securities or otherwise, and, in such event, holders of the Capital Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay any amounts
payable in respect of the Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Capital Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Capital Securities of such holder (a "Direct Action").
In connection with any Direct Action, the Company will have a right of set-
off under the Subordinated Debt Indenture to the extent of any payment made by
the Company to such holder of Capital Securities in the Direct Action. Except
as described herein, holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of the
Subordinated Debentures or assert directly any other rights in respect of the
Subordinated Debentures. See "Description of Subordinated Debentures--
Debenture Events of Default" and "--Enforcement of Certain Rights by Holders
of Capital Securities" and "Description of Guarantee," each in this Prospectus
Supplement. The Trust Agreement will provide that each holder of Capital
Securities by acceptance thereof agrees to the provisions of the Guarantee,
the Subordinated Debentures and the Subordinated Debt Indenture.
S-8
<PAGE>
LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights relating
generally to the modification of the Capital Securities and the Guarantee and
the exercise of the Issuer Trust's rights as holder of Subordinated
Debentures. Holders of Capital Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events specified in the Trust Agreement and described
herein. The Property Trustee and the holders of all the Common Securities may,
subject to certain conditions, amend the Trust Agreement without the consent
of holders of Capital Securities to cure any ambiguity or make other
provisions not inconsistent with other provisions under the Trust Agreement or
to ensure that the Issuer Trust (i) will not be taxable as a corporation for
United States federal income tax purposes, or (ii) will not be required to
register as an "investment company" under the Investment Company Act. See
"Description of Capital Securities--Voting Rights; Amendment of Trust
Agreement" and "--Removal of Issuer Trustees; Appointment of Successors" in
the accompanying Prospectus.
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities, or
the market prices for Subordinated Debentures that may be distributed in
exchange for Capital Securities if a liquidation of the Issuer Trust occurs.
Accordingly, the Capital Securities or the Subordinated Debentures that a
holder of Capital Securities may receive on liquidation of the Issuer Trust
may trade at a discount to the price that the investor paid to purchase the
Capital Securities offered hereby. As a result of the existence of the
Company's right to defer interest payments, the market price of the Capital
Securities may be more volatile than the market prices of other securities
that are not subject to such deferrals. Because holders of Capital Securities
may receive Subordinated Debentures on dissolution of the Issuer Trust,
prospective purchasers of Capital Securities are also making an investment
decision with regard to the Subordinated Debentures and should carefully
review all the information regarding the Subordinated Debentures contained
herein. In addition, because the Company has the right to advance the Stated
Maturity of the Subordinated Debentures, there can be no assurance that the
Company will not exercise its option to shorten the maturity of the
Subordinated Debentures as permitted by the terms thereof. If the Company does
exercise such option, there can be no assurance that advancing the Stated
Maturity of the Subordinated Debentures will not have an effect on the market
price of the Capital Securities. See "Description of Subordinated Debentures"
in this Prospectus Supplement.
TRADING CHARACTERISTICS OF CAPITAL SECURITIES
Application has been made to list the Capital Securities on the NYSE. The
Capital Securities may trade at prices that do not fully reflect the value of
accrued but unpaid interest with respect to the underlying Subordinated
Debentures.
Application has been made to list the Capital Securities on the NYSE,
subject to official notice of issuance. If the Capital Securities are not
listed on a national securities exchange or the Nasdaq National Market and the
Underwriters do not make a market for the securities, the liquidity of the
Capital Securities would be adversely affected.
S-9
<PAGE>
DILLARD'S CAPITAL TRUST I
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary
of State on July 14, 1998. The Issuer Trust will be governed by the Trust
Agreement. The Company, as the holder, directly or indirectly, of the Common
Securities, intends to select two individuals who are employees or officers of
or affiliated with the Company to serve as the Administrators. See
"Description of Capital Securities--Miscellaneous" in the accompanying
Prospectus. The Issuer Trust exists for the exclusive purposes of (i) issuing
and selling the Trust Securities, (ii) using the proceeds from the sale of the
Trust Securities to acquire the Subordinated Debentures and (iii) engaging in
only those other activities necessary, convenient or incidental thereto (such
as registering the transfer of the Trust Securities). Accordingly, the
Subordinated Debentures will be the sole assets of the Issuer Trust, and
payments under the Subordinated Debentures will be the sole source of revenue
of the Issuer Trust.
All of the Common Securities will be owned, directly or indirectly, by the
Company. The Common Securities will rank pari passu, and payments will be made
thereon pro rata, with the Capital Securities, except that upon the occurrence
and during the continuation of a Debenture Event of Default arising as a
result of any failure by the Company to pay any amounts in respect of the
Subordinated Debentures when due, the rights of the holders of the Common
Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Capital Securities. See "Description of Capital Securities--
Subordination of Common Securities" in the accompanying Prospectus. The
Company will acquire Common Securities in an aggregate liquidation amount
equal to 3% of the total capital of the Issuer Trust. The Issuer Trust has a
term of 49 years, but may dissolve earlier as provided in the Trust Agreement.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Offered
Securities offered hereby will be used to purchase stock of Mercantile Stores
Company, Inc. See "Recent Development."
RECENT DEVELOPMENT
The Company has entered into an Agreement and Plan of Merger, dated as of
May 16, 1998 (the "Merger Agreement") providing for the acquisition of the
stock of Mercantile Stores Company, Inc. ("Mercantile"). Mercantile is a
conventional department store retailer engaged in the general merchandising
business. Mercantile operates 103 department stores and 16 home fashion stores
under 13 different names in a total of 17 states. A subsidiary, Mercantile
Credit Corp., provides servicing for Mercantile's private label credit
program.
MSC Acquisitions, Inc., a Delaware corporation ("NEWCO") and a newly formed
wholly owned subsidiary of the Company, has offered to purchase all of the
outstanding shares of Common Stock, par value $.14 2/3 per share (the
"Shares"), of Mercantile at a purchase price of $80 per Share, net to the
seller in cash without interest thereon.
The Merger Agreement provides that, following the completion of the offer,
NEWCO will be merged with and into Mercantile (the "Acquisition"). Following
the Acquisition, Mercantile will continue as the surviving corporation and
become a direct, wholly owned subsidiary of the Company.
Stockholders of Mercantile representing approximately 40% of the issued and
outstanding Shares have contractually agreed, among other things, to tender
their Shares in the offer, provide the Company with an irrevocable proxy,
grant an option at the $80 offer price and otherwise support the transaction
with the Company.
The offer is conditioned upon, among other things, there being validly
tendered and not properly withdrawn prior to the expiration date for the offer
a number of Shares which, together with any Shares owned, directly or
indirectly, by the Company or NEWCO, constitutes more than 50% of the voting
power (determined on a fully-diluted basis), on the date of purchase, of all
the securities entitled to vote generally in the election of directors
S-10
<PAGE>
or in a merger (the "Minimum Condition"). If the Company purchases not less
than that number of Shares needed to satisfy the Minimum Condition, it will be
able to effect the Acquisition without the affirmative vote of any other
stockholder of Mercantile.
Under the Merger Agreement, the respective obligations of the Company, NEWCO
and Mercantile to effect the Acquisition shall be subject to the satisfaction
at or prior to the effective time of the Acquisition of the following
conditions: (a) as required by the Delaware General Corporation Law (the
"DGCL"), the Merger Agreement shall have been approved by the affirmative vote
of the stockholders of Mercantile by the requisite vote in accordance with
Mercantile's Certificate of Incorporation and the DGCL (which Mercantile has
represented shall be solely the affirmative vote of a majority of the
outstanding Shares); (b) no statute, rule, regulation, executive order,
decree, ruling, injunction or other order (whether temporary, preliminary or
permanent) shall have been enacted, entered, promulgated or enforced by any
United States, foreign, federal or state court or governmental authority which
prohibits, restrains, enjoins or restricts the consummation of the
Acquisition; (c) NEWCO shall have purchased Shares pursuant to the offer and
(d) any waiting period applicable to the Acquisition under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall
have been terminated or expired.
The Company believes that the Acquisition is highly probable although there
can be no assurance that the Acquisition will be completed. The Company is
exploring the option of selling certain of the Mercantile stores or exchanging
certain of the Mercantile stores with other department store operators. On
July 14, 1998, the Company issued a press release announcing the exchange of
seven Mercantile stores located in Florida and South Carolina for nine Belk,
Inc. stores located in Virginia and Tennessee. On August 3, 1998, the Company
announced that it had entered into two separate agreements whereby the Company
will sell 11 Mercantile stores located in Colorado, Indiana, Kansas, Kentucky
and Missouri to The May Department Stores Company and 15 Mercantile stores
located in Florida, Lousiana, Minnesota, Mississippi, North Dakota, South
Carolina and Tennessee to Proffitt's, Inc.
The Company issued a press release on August 5, 1998, announcing that NEWCO
extended the period during which its tender offer for Shares will remain open
to 5:00 pm, New York City Time, on Wednesday, August 12, 1998 to allow
additional time for the completion of the review of the Acquisition by the
Federal Trade Commission.
S-11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF MERCANTILE
The selected consolidated financial data of Mercantile for each of the five
years in the period ended January 31, 1998 have been derived from the audited
consolidated financial statements of Mercantile. The selected consolidated
financial data for the thirteen weeks ended May 2, 1998 and May 3, 1997 have
been derived from the unaudited consolidated financial statements of
Mercantile. The following data should be read in conjunction with Mercantile's
consolidated financial statements and related notes thereto.
<TABLE>
<CAPTION>
13 WEEKS ENDED YEAR ENDED
---------------------- --------------------------------------------------------------
MAY 2, MAY 3, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29,
1998 1997 1998 1997 1996* 1995 1994
---------- ---------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues.................. $ 688,286 $ 683,298 $3,143,765 $3,030,822 $2,944,324 $2,819,837 $2,729,928
Retail sales.............. 664,286 661,298 3,054,924 2,945,606 2,892,083 2,819,837 2,729,928
Cost of goods sold........ 486,336 478,928 2,207,618 2,113,022 2,059,753 2,020,264 1,960,914
Selling, general and
administrative expenses.. 174,735 172,642 727,083 702,862 686,924 625,726 627,391
Interest expense, net..... 2,296 3,235 12,542 10,786 14,471 23,526 30,948
Other income.............. (2,455) (3,252) (16,840) (9,400) (21,404) (27,571) (33,003)
Impairment charge......... -- -- -- 12,000 -- -- --
Provision for
consolidation/relocation. -- -- -- -- -- 5,000 --
Income before provision
for income taxes......... 27,374 31,745 213,362 201,552 204,580 172,892 143,678
Provision for income tax-
es....................... 10,595 12,437 83,656 80,087 81,332 68,375 57,039
Income before cumulative
effect of accounting
changes.................. 16,779 19,308 129,706 121,465 123,248 104,517 86,639
Net income................ 16,779 19,308 129,706 121,465 123,248 103,417 89,739
Per common share
Earnings per share...... $ 0.46 $ 0.52 $ 3.53 $ 3.30 $ 3.35 $ 2.81 $ 2.44
Dividends............... $ 0.615 $ 0.585 $ 1.19 $ 1.12 $ 1.05 $ 1.02 $ 1.02
FINANCIAL POSITION
Working capital........... $1,027,606 $1,001,343 $1,023,310 $1,017,533 $1,013,576 $ 957,030 $ 902,268
Receivables, net.......... 538,466 542,405 589,104 588,187 574,622 620,238 635,114
Inventories............... 592,337 579,694 505,201 560,666 523,573 468,782 425,492
Property and equipment,
net (includes capitalized
leases).................. 770,393 746,305 786,384 738,207 701,233 688,806 691,502
Total assets.............. 2,214,021 2,140,320 2,177,791 2,142,503 2,074,724 1,981,729 2,031,982
Long-term debt (include
capitalized lease
obligations)............. 202,077 229,127 202,637 229,910 254,926 261,187 271,965
Stockholder's equity...... 1,641,025 1,559,581 1,646,846 1,565,313 1,485,113 1,400,551 1,334,715
</TABLE>
- --------
* 53 weeks.
S-12
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Pro Forma Statements of Income for the year ended
January 31, 1998 and the thirteen weeks ended May 2, 1998 present unaudited
results of operations for the Company as if the Acquisition and other
transactions described in the next paragraph (the "Pro Forma Financing
Transactions") had occurred as of the beginning of the fiscal year presented.
The following Unaudited Pro Forma Balance Sheet presents the unaudited pro
forma financial condition of the Company as if the Acquisition and Pro Forma
Financing Transactions had occurred as of May 2, 1998. The excess purchase
price over the identifiable net assets and liabilities is reported as
Goodwill. The carrying values of Mercantile's net assets are assumed to equal
their fair value for purposes of these Unaudited Pro Forma Financial
Statements unless indicated otherwise in the Notes to Unaudited Pro Forma
Financial Statements. These values are subject to revision following the
results of any appraisals after the consummation of the Acquisition.
The Pro Forma Financial Statements reflect the Acquisition, which is
accounted for as a purchase, in accordance with Accounting Principles Board
Opinion No. 16 "Business Combinations" ("APB 16"). The Pro Forma Financial
Statements reflect assumed borrowings by the Company to finance the
Acquisition. The Pro Forma Financing Transactions include (dollars in
thousands):
<TABLE>
<CAPTION>
BORROWING TYPE AMOUNT INTEREST RATE
-------------- ---------- -------------
<S> <C> <C>
Commercial paper................................... $ 590,000 5.50%
Bridge loan facility............................... 1,250,000 5.85%
Publicly underwritten long-term notes.............. 1,000,000 6.52%
Guaranteed preferred beneficial interests in the
Company's Subordinated Debentures held by
Dillard's Capital Trust I......................... 200,000 7.50%
----------
$3,040,000
==========
</TABLE>
The Company has announced that it had entered into two separate agreements
whereby it will sell 26 department store locations and related properties
currently owned by Mercantile. The expected proceeds from these sales are
approximately $1 billion and will be used to reduce borrowings incurred in
connection with the Acquisition. The Unaudited Pro Forma Financial Statements
presented herein do not include any adjustments relating to the disposition of
such store assets.
The Pro Forma Adjustments described in the accompanying Notes to the Pro
Forma Financial Statements should be read in conjunction with such statements.
Final amounts will differ from those set forth in the following Unaudited Pro
Forma Financial Statements.
As a result of its planned installation of standardized store systems in all
Mercantile locations, and consolidation of various administrative support
functions such as marketing, buying, advertising, accounting, and management
information systems, the Company's management expects to operate the combined
operations of the Company and Mercantile with a more efficient overhead
expense structure than each of the two entities operating on a stand-alone
basis. The Company also expects to achieve cost reductions as a result of
increased purchasing power derived from the combination of the two companies.
However, for purposes of the Unaudited Pro Forma Income Statements these and
other potential synergies in overhead expense have not been reflected because
their realization cannot be assured.
The Unaudited Pro Forma Financial Statements are presented for information
purposes only and do not purport to be indicative of the actual financial
position or results of operations of the Company had such transactions
actually been consummated on such dates, or of the future financial position
or results of operations of the Company which may result from the consummation
of such transactions. The retail business is seasonal in nature, with a higher
proportion of sales and earnings usually being generated in the months of
November and December than in other periods. Because of this seasonality and
other factors, results of operations for an interim period are not necessarily
indicative of results of operations for an entire fiscal year.
The Unaudited Pro Forma Financial Statements are based in part on the
historical financial statements of the Company and Mercantile and should be
read in conjunction with each of the consolidated financial statements of the
Company and Mercantile and the related notes thereto contained in (i) The
Company's Annual Report on Form 10-K for the year ended January 31, 1998, (ii)
the Company's Quarterly Report on Form 10-Q for the quarter ended May 2, 1998,
and (iii) the Company's Current Report on Form 8-K dated May 18, 1998. Certain
items derived from Mercantile's historical financial statements have been
reclassified to conform to the pro forma presentation.
S-13
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
MAY 2, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- ADJUSTMENTS
DILLARD'S MERCANTILE NOTE 1 PRO FORMA
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...... $ 81,495 $ 153,928 $ -- $ 235,423
Trade accounts receivable...... 1,073,626 525,230 -- 1,598,856
Merchandise inventories........ 2,063,898 592,337 32,000 2,688,235
Other current assets........... 13,176 50,544 -- 63,720
---------- ---------- ----------- ----------
Total current assets......... 3,232,195 1,322,039 32,000 4,586,234
Investments and other assets..... 100,414 121,589 128,000 355,003
5,000
Property and equipment........... 2,462,262 770,393 563,000 3,795,655
Construction in progress......... 41,204 -- -- 41,204
Goodwill......................... -- -- 938,975 938,975
---------- ---------- ----------- ----------
Total assets................. $5,836,075 $2,214,021 $ 1,666,975 $9,717,071
========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQ-
UITY
Current liabilities
Trade accounts payable and ac-
crued expenses................ $ 810,635 $ 246,643 $ -- $1,057,278
Commercial paper............... 288,429 -- 590,000 878,429
Bridge Loan Facility........... -- -- 1,250,000 1,250,000
Federal and state income taxes. 50,548 26,360 -- 76,908
Current portion of long-term
debt.......................... 107,268 21,430 -- 128,698
Current portion of capital
leases........................ 1,624 -- -- 1,624
---------- ---------- ----------- ----------
Total current liabilities.... 1,258,504 294,433 1,840,000 3,392,937
Long-term debt................... 1,463,968 202,077 1,000,000 2,666,045
Capital lease obligations........ 11,872 -- -- 11,872
Other long-term liabilities...... -- 76,486 -- 76,486
Deferred income taxes............ 322,028 -- 268,000 590,028
Guaranteed Preferred Beneficial
Interests in the Company's Sub-
ordinated Debentures held by
Dillard's Capital Trust I....... -- -- 200,000 200,000
Stockholders' equity............. 2,779,703 1,641,025 (1,641,025) 2,779,703
---------- ---------- ----------- ----------
Total liabilities and stock-
holders' equity............. $5,836,075 $2,214,021 $ 1,666,975 $9,717,071
========== ========== =========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
S-14
<PAGE>
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- ADJUSTMENTS
DILLARD'S MERCANTILE NOTE 2 PRO FORMA
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales...................... $6,631,752 $3,143,765 $ (89,000)(a) $9,686,517
Service charges, interest, and
other income.................. 185,157 21,983 89,000 (a) 296,140
---------- ---------- --------- ----------
6,816,909 3,165,748 -- 9,982,657
Costs and expenses:
Cost of sales................ 4,393,291 2,207,618 (189,837)(a) 6,411,072
Advertising, selling, admin-
istrative and general....... 1,629,721 727,083 69,545 (a) 2,435,349
9,000 (b)
Depreciation and amortiza-
tion........................ 199,939 -- 79,254 (a) 330,817
28,150 (c)
23,474 (d)
Rentals...................... 54,686 -- 41,038 (a) 95,724
Interest and debt expense.... 129,237 17,685 185,775 (e) 332,697
---------- ---------- --------- ----------
6,406,874 2,952,386 246,399 9,605,659
---------- ---------- --------- ----------
Income before income taxes..... 410,035 213,362 (246,399) 376,998
Income taxes................... 151,710 83,656 (84,567)(f) 150,799
---------- ---------- --------- ----------
Net Income................... $ 258,325 $ 129,706 $(161,832) $ 226,199
========== ========== ========= ==========
Earnings per share:
Basic........................ $ 2.32 $ 3.53 $ 2.03
Diluted...................... $ 2.31 $ 3.53 $ 2.02
Average shares outstanding:
Basic........................ 111,303 36,771 111,303
Diluted...................... 111,994 36,771 111,994
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
S-15
<PAGE>
UNAUDITED PRO FORMA INCOME STATEMENT
FOR THE 13 WEEKS ENDED MAY 2, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- ADJUSTMENTS
DILLARD'S MERCANTILE NOTE 2 PRO FORMA
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales....................... $1,682,216 $688,286 $(24,000)(a) $2,346,502
Service charges, interest, and
other income................... 47,669 2,455 24,000 (a) 74,124
---------- -------- -------- ----------
1,729,885 690,741 -- 2,420,626
Costs and expenses:
Cost of sales................. 1,117,221 486,336 (48,405)(a) 1,555,152
Advertising, selling, adminis-
trative and general.......... 414,048 174,735 17,248 (a) 608,281
2,250 (b)
Depreciation and amortization. 54,554 -- 20,798 (a) 88,259
7,038 (c)
5,869 (d)
Rentals....................... 10,291 -- 10,359 (a) 20,650
Interest and debt expense..... 33,656 2,296 46,444 (e) 82,396
---------- -------- -------- ----------
1,629,770 663,367 61,601 2,354,738
---------- -------- -------- ----------
Income before income taxes...... 100,115 27,374 (61,601) 65,888
Income taxes.................... 37,045 10,595 (21,285)(f) 26,355
---------- -------- -------- ----------
Net Income.................... $ 63,070 $ 16,779 $(40,316) $ 39,533
========== ======== ======== ==========
Earnings per share:
Basic......................... $ 0.58 $ 0.46 $ 0.37
Diluted....................... $ 0.58 $ 0.46 $ 0.36
Average shares outstanding:
Basic......................... 108,323 36,749 108,323
Diluted....................... 108,951 36,749 108,951
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
S-16
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
The acquisition of Mercantile will be accounted for as a purchase in
accordance with APB 16. The purchase price is being allocated first to
tangible assets and liabilities of Mercantile based on preliminary estimates
of their fair values, with the remainder being allocated to goodwill. The
following table sets forth the purchase price based on the tender offer price
of $80.00 per share and preliminary purchase price allocation (all fair value
adjustments are preliminary and subject to change):
<TABLE>
<S> <C>
Cash paid for stock............................................ $ 2,940,000
Cash paid for outstanding stock options........................ 3,000
Transaction expenses........................................... 92,000
-----------
Purchase price................................................. 3,035,000
Historical book value of net assets acquired................... (1,641,025)
-----------
Excess of purchase price over historical book value of assets
acquired...................................................... $ 1,393,975
===========
Allocation of excess purchase price:
Adjust inventories to fair value............................... $ 32,000
Increase property and equipment to fair value.................. 563,000
Adjustment to pension assets................................... 128,000
Increase to goodwill........................................... 938,975
Changes in deferred income taxes for the tax effect of the
above adjustments (except goodwill)........................... (268,000)
-----------
$ 1,393,975
===========
</TABLE>
The Pro Forma Balance Sheet reflects the following as assumed borrowings by
the Company to finance the Acquisition:
<TABLE>
<CAPTION>
BORROWING TYPE AMOUNT INTEREST RATE
-------------- ---------- -------------
<S> <C> <C>
Commercial paper................................. $ 590,000 5.50%
Bridge loan facility............................. 1,250,000 5.85%
Publicly underwritten long-term notes............ 1,000,000 6.52%
Guaranteed preferred beneficial interests in the
Company's Subordinated Debentures held by
Dillard's Capital Trust I....................... 200,000 7.50%
----------
$3,040,000
==========
</TABLE>
The Company has announced that it had entered into two separate agreements
whereby it will sell 26 department store locations and related properties
currently owned by Mercantile. The expected proceeds from these sales are
approximately $1 billion and will be used to reduce borrowings incurred in
connection with the Acquisition. The Unaudited Pro Forma Financial Statements
presented herein do not include any adjustments relating to the disposition of
such store assets.
Financing costs are expected to be approximately $5 million. Actual
borrowings and sources may differ from the estimated amounts depending upon
actual costs, borrowing needs and market conditions.
NOTE 2. UNAUDITED PRO FORMA INCOME STATEMENT ADJUSTMENTS.
(a) To reclassify certain Mercantile presentations to conform to the
Company's income statement presentation.
(b) To adjust Mercantile's pension expense as a result of the increase in
the prepaid pension assets recognized in the purchase accounting adjustments.
(c) To adjust depreciation of Mercantile's property and equipment to amounts
based on estimated fair market values, using a weighted average depreciable
life of 20 years.
(d) To recognize amortization of the excess purchase price over net assets
acquired in connection with the Acquisition assuming a 40 year period.
S-17
<PAGE>
(e) To record interest expense on the borrowings incurred to fund the
Acquisition at the interest rates disclosed in Note 1 above (which assumed
rates may vary from the actual rates of interest thereon). An increase or
decrease of 0.125% in the interest rate would result in an increase or
decrease in interest expense of $3,800 and $950 for the year ended January 31,
1998 and the thirteen weeks ended May 2, 1998, respectively.
(f) To adjust income tax expense based upon an assumed composite (federal,
state and local) income tax rate of 40%, which reflects an increase from the
Company's historical effective rate due to the non deductibility of goodwill
amortization.
NOTE 3. SYNERGIES
As a result of its planned installation of standardized store systems in all
Mercantile locations, and consolidation of various administrative support
functions such as marketing, buying, advertising, accounting, and management
information systems, the Company's management expects to operate the combined
operations of the Company and Mercantile with a more efficient overhead
expense structure than each of the two entities operating on a stand-alone
basis. The Company also expects to achieve cost reductions as a result of
increased purchasing power derived from the combination of the two companies.
However, for purposes of the Unaudited Pro Forma Income Statements these and
other potential synergies in overhead expense have not been reflected because
their realization cannot be assured.
S-18
<PAGE>
CAPITALIZATION
The following table sets forth as of May 2, 1998: (i) the actual unaudited
consolidated short term borrowings and total capitalization of the Company;
and (ii) the unaudited consolidated short term borrowings and total
capitalization of the Company as adjusted to give effect to the consummation
of the offering of the Capital Securities offered hereby and to the Mercantile
Acquisition. As of the date hereof and except as disclosed in this Prospectus
Supplement and the accompanying Prospectus, including the documents
incorporated by reference, there has been no material change in the
capitalization of the Company since May 2, 1998.
The following information should be read in conjunction with the Company's
audited consolidated financial statements for its 1997, 1996 and 1995 fiscal
years, all as contained in the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998, the related notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, all incorporated by reference in the accompanying Prospectus and
the unaudited Pro Forma Financial Statements included in this prospectus.
<TABLE>
<CAPTION>
MAY 2, 1998
-------------------------------------
ACTUAL AS ADJUSTED
---------------- -------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Short-term borrowings (2).................. $ 288,429 $ 2,128,429
Current portion of long-term borrowings.... 107,268 128,698
---------------- ----------------
Total.................................. $ 395,697 $ 2,257,127
================ ================
Long-term borrowings....................... $1,463,968 $2,666,045
Guaranteed preferred beneficial interests
in the Company's Subordinated Debentures
held by Dillard's Capital Trust I(1)...... -- 200,000
Shareholders' equity:
Preferred stock,--4,400 shares, issued and
outstanding.............................. 440 440
Common stock, Class A--110,322,207 shares
issued; 102,821,007 shares outstanding... 1,103 1,103
Common stock, Class B--(convertible)--
4,016,929 shares issued and outstanding.. 40 40
Paid-in capital........................... 659,331 659,331
Retained earnings......................... 2,373,513 2,373,513
Common stock held in treasury, at cost
7,501,200 shares......................... (254,724) (254,724)
---------------- ----------------
Total shareholders' equity............. 2,779,703 2,779,703
---------------- ----------------
Total capitalization................. $ 4,639,368 $ 7,902,875
================ ================
</TABLE>
- --------
(1) As described herein, the sole assets of the Issuer Trust will be
$200,000,000 principal amount of Subordinated Debentures issued by the
Company to the Issuer Trust. The Subordinated Debentures will bear
interest at a fixed rate of 7.50% and will mature on August 1, 2038,
subject to the right of the Company to advance the Stated Maturity under
certain circumstances. The Company will own all the Common Securities of
the Issuer Trust.
(2) The as adjusted short-term borrowings presented herein do not reflect
proceeds received from the sale of certain Mercantile properties.
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ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Capital Securities will be included in the consolidated balance sheets of the
Company and appropriate disclosures about the Capital Securities, the
Guarantee and the Subordinated Debentures will be included in the notes to the
consolidated financial statements of the Company. For financial reporting
purposes, Distributions on the Capital Securities will be recorded in the
consolidated statements of income of the Company.
DESCRIPTION OF CAPITAL SECURITIES
The following summary of certain terms and provisions of the Capital
Securities supplements the information set forth in the accompanying
Prospectus under the heading "Description of Capital Securities," to which
description reference is hereby made. This summary of certain terms and
provisions of the Capital Securities does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Trust
Agreement, to which reference is hereby made. A copy of the form of the Trust
Agreement is available upon request from the Issuer Trustees.
GENERAL
The Capital Securities will be limited to $200,000,000 aggregate Liquidation
Amount at any one time outstanding. The Capital Securities will rank pari
passu, and payments will be made thereon pro rata, with the Common Securities
except as described in the accompanying Prospectus under "Description of
Capital Securities--Subordination of Common Securities." The Subordinated
Debentures will be registered in the name of the Issuer Trust and held by the
Property Trustee in trust for the benefit of the holders of the Capital
Securities and the Common Securities. The Guarantee will be a guarantee on a
subordinated basis with respect to the Capital Securities but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Capital Securities when the Issuer Trust does not have
funds on hand available to make such payments. See "Description of Guarantee"
in this Prospectus Supplement.
DISTRIBUTIONS
The Capital Securities represent undivided beneficial ownership interests in
the assets of the Issuer Trust, and Distributions on each Capital Security
will be payable at the annual rate of 7.50% of the stated Liquidation Amount
of $25, payable quarterly in arrears on February 1, May 1, August 1 and
November 1 of each year (each, a "Distribution Date"), to the holders of the
Capital Securities at the close of business on the 15th calendar day (whether
or not a Business Day) next preceding the relevant Distribution Date.
Distributions on the Capital Securities will be cumulative. Distributions will
accumulate from and including August 12, 1998. The first Distribution Date for
the Capital Securities will be November 1, 1998. The amount of Distributions
payable for any period less than a full Distribution period will be computed
on the basis of a 360-day year of twelve 30-day months and the actual days
elapsed in a partial month in such period. Distributions payable for each full
Distribution period will be computed by dividing the rate per annum by four.
If any date on which Distributions are payable on the Capital Securities is
not a Business Day, then payment of the Distributions payable on such date
will be made on the next succeeding day that is a Business Day (without any
additional Distributions or other payment in respect of any such delay), with
the same force and effect as if made on the date such payment was originally
payable.
So long as no Debenture Event of Default has occurred and is continuing, the
Company will have the right under the Subordinated Debt Indenture to defer the
payment of interest on the Subordinated Debentures at any time and from time
to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Subordinated Debentures or end on a day
other than an Interest Payment Date for the Subordinated Debentures. As a
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consequence of any such deferral, quarterly Distributions on the Capital
Securities by the Issuer Trust will be deferred during an Extension Period.
During an Extension Period, interest on the Subordinated Debentures will
continue to accrue and, as a result, Distributions to which holders of the
Capital Securities are entitled will accumulate additional distributions
thereon at the rate of 7.50% per annum, compounded quarterly from the most
recent date on which Distributions were paid, computed on the basis of a 360-
day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. Additional Distributions payable for each full
Distribution period will be computed by dividing the rate per annum by four.
The term "Distributions" as used herein shall include any such additional
distributions.
During an Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or
(ii) make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company that rank pari
passu in all respects with or junior in interest to the Subordinated
Debentures (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company (1) in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, (2) in
connection with a dividend reinvestment or stockholder stock purchase plan or
(3) in connection with the issuance of capital stock of the Company (or
securities convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to such
Extension Period, (b) as a result of an exchange, redemption or conversion of
any class or series of the Company's capital stock (or any capital stock of a
subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted
or exchanged, (d) any declaration of a dividend in connection with any
stockholder's rights plan, or the issuance of rights, stock or other property
under any stockholder's rights plan, or the redemption or repurchase of rights
pursuant thereto, (e) payments under the Guarantee, or (f) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or
the stock issuable upon exercise of such warrants, options or other rights is
the same stock as that on which the dividend is being paid or ranks pari passu
with or junior to such stock). Prior to the termination of an Extension
Period, the Company may further defer the payment of interest, provided that
no Extension Period may exceed 20 consecutive quarterly periods or extend
beyond the Stated Maturity of the Subordinated Debentures or end on a day
other than an Interest Payment Date for the Subordinated Debentures.
Upon the termination of an Extension Period and the payment of all amounts
then due, the Company may elect to begin a new Extension Period. No interest
shall be due and payable during an Extension Period, except at the end
thereof, but the Company may prepay at any time all or any portion of the
interest accrued during an Extension Period. The Company must give the Issuer
Trustees and the Debt Securities Trustee notice of its election of an
Extension Period at least 30 calendar days prior to the date the Distributions
on the Capital Securities would have been payable but for the election to
begin such Extension Period. The Property Trustee will give notice of the
Company's election to begin an Extension Period to the holders of the Capital
Securities. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period. See
"Description of Subordinated Debentures--Option To Extend Interest Payment
Period" and "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount," each in this Prospectus Supplement.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Subordinated
Debentures in which the Issuer Trust will invest the proceeds from the
issuance and sale of the Capital Securities. See "Description of Subordinated
Debentures" in this Prospectus Supplement. If the Company does not make
payments on the Subordinated Debentures, the Issuer Trust will not have funds
available to pay Distributions or other amounts payable on the Capital
Securities. The payment of
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Distributions and other amounts payable on the Capital Securities (if and to
the extent the Issuer Trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by the Company on a
subordinated basis as described under "Description of Guarantee" in this
Prospectus Supplement.
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Subordinated
Debentures, whether at Stated Maturity or upon earlier redemption as provided
in the Subordinated Debentures, the proceeds from such repayment or redemption
shall be applied by the Property Trustee to redeem a Like Amount (as defined
below) of the Trust Securities, upon not less than 30 nor more than 60 days'
notice prior to the date fixed for repayment or redemption, at a redemption
price (the "Redemption Price") equal to 100% of the aggregate Liquidation
Amount of such Trust Securities plus accumulated and unpaid Distributions
thereon to the date of redemption (the "Redemption Date"). See "Description of
Subordinated Debentures--Redemption" in this Prospectus Supplement. If less
than all the Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption pro rata of the Capital Securities and the Common
Securities.
The Company will have the right to redeem the Subordinated Debentures (i) on
or after August 12, 2003, in whole at any time or in part from time to time,
or (ii) prior to August 12, 2003, in whole (but not in part) at any time
within 90 days following the occurrence and continuation of a Tax Event or an
Investment Company Event (each as defined below). See "--Liquidation
Distribution Upon Dissolution" below. A redemption of the Subordinated
Debentures would cause a mandatory redemption of the Capital Securities and
the Common Securities.
"Business Day" means a day other than (a) a Saturday or Sunday, or (b) a day
on which banking institutions in The City of New York are authorized or
required by law or executive order to remain closed.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Subordinated Debentures to be contemporaneously redeemed
in accordance with the Subordinated Debt Indenture, allocated to the Common
Securities and to the Capital Securities based upon the relative Liquidation
Amounts of such classes and (ii) with respect to a distribution of
Subordinated Debentures to holders of Trust Securities in connection with a
dissolution or liquidation of the Issuer Trust, Subordinated Debentures having
a principal amount equal to the Liquidation Amount of the Trust Securities of
the holder to whom such Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
The term "Tax Event" means the receipt by the Issuer Trust of an opinion of
tax counsel to the Company experienced in such matters, who shall not be an
officer or employee of the Company or any of its affiliates, to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official or administrative pronouncement or action or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement, action or decision is
announced on or after the date of issuance of the Capital Securities, there is
more than an insubstantial risk that (i) the Issuer Trust is, or will be
within 90 days of the delivery of such opinion, subject to United States
federal income tax with respect to income received or accrued on the
Subordinated Debentures, (ii) interest payable by the Company on the
Subordinated Debentures is not, or within 90 days of the delivery of such
opinion will not be, deductible by the Company, in whole or in part, for
United States federal income tax purposes or (iii) the Issuer Trust is, or
will be within 90 days of the delivery of the opinion, subject to more than a
de minimis amount of other taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters, who shall not
be an officer or employee of the Company or any of its affiliates, to the
effect that, as a result of the occurrence of a change in law or regulation or
a written change (including any announced prospective change) in
interpretation or application of law or regulation by any
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legislative body, court, governmental agency or regulatory authority, there is
more than an insubstantial risk that the Issuer Trust is or will be considered
an "investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change
or prospective change becomes effective or would become effective, as the case
may be, on or after the date of the issuance of the Capital Securities.
If an event described in clause (i) or (iii) of the definition of Tax Event
has occurred and is continuing and the Issuer Trust is the holder of all the
Subordinated Debentures pursuant to the Subordinated Debt Indenture, the
Company, as borrower, will pay any additional taxes, duties and other
governmental charges (other than United States withholding taxes) to which the
Issuer Trust has become subject as a result of a Tax Event. See "Description
of Subordinated Debentures--Expenses and Taxes."
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at the
Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds then on
hand and legally available for the payment of such Redemption Price. See also
"Description of Capital Securities--Subordination of Common Securities" in the
accompanying Prospectus.
If the Issuer Trust gives a notice of redemption in respect of the Capital
Securities, then, by 10:00 a.m., New York City time, on the Redemption Date,
the Issuer shall deposit sufficient funds with the Property Trustee to pay the
Redemption Price. If such deposit has been made, by 12:00 noon, New York City
time, on the Redemption Date, to the extent funds are available, in the case
of Capital Securities held in global form, the Property Trustee will
irrevocably deposit with DTC funds sufficient to pay the applicable Redemption
Price and will give DTC irrevocable instructions and authority to pay the
Redemption Price to the holders of the Capital Securities. With respect to
Capital Securities not held in global form, the Property Trustee, to the
extent funds are available, will irrevocably deposit with the paying agent for
the Capital Securities funds sufficient to pay the applicable Redemption Price
and will give such paying agent irrevocable instructions and authority to pay
the Redemption Price to the holders thereof upon surrender of their
certificates evidencing the Capital Securities. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any Capital
Securities called for redemption shall be payable to the holders of the
Capital Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit all rights of the holders of such
Capital Securities so called for redemption will cease, except the right of
the holders of such Capital Securities to receive the Redemption Price, but
without interest on such Redemption Price, and such Capital Securities will
cease to be outstanding. If any date fixed for redemption of Capital
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of any such delay), with the
same force and effect as if made on the date such payment was originally
payable. In the event that payment of the Redemption Price in respect of
Capital Securities called for redemption is improperly withheld or refused and
not paid either by the Issuer Trust or by the Company pursuant to the
Guarantee, Distributions on such Capital Securities will continue to
accumulate at the then applicable rate, from the Redemption Date originally
established by the Issuer Trust for such Capital Securities to the date such
Redemption Price is actually paid, in which case the actual payment date will
be the date fixed for redemption for purposes of calculating the Redemption
Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and
from time to time purchase outstanding Capital Securities by tender, in the
open market or by private agreement, and may resell such securities.
If less than all the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated pro
rata to the Capital Securities and the Common Securities based upon the
relative Liquidation
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Amounts of such classes. The particular Capital Securities to be redeemed
shall be selected by the Property Trustee on a pro rata basis not more than 60
days prior to the Redemption Date from the outstanding Capital Securities not
previously called for redemption, or, if the Capital Securities are then held
in the form of a Global Capital Security (as defined below), by DTC on a pro
rata basis based on their respective Liquidation Amounts in accordance with
DTC's customary procedures. The Property Trustee shall promptly notify the
securities registrar for the Trust Securities in writing of the Capital
Securities selected for redemption and, in the case of any Capital Securities
selected for partial redemption, the Liquidation Amount thereof to be
redeemed. For all purposes of the Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Capital
Securities shall relate, in the case of any Capital Securities redeemed or to
be redeemed only in part, to the portion of the aggregate Liquidation Amount
of Capital Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Capital
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Subordinated Debentures, on and after the Redemption
Date interest will cease to accrue on the Subordinated Debentures or portions
thereof called for redemption and, unless payment of the Redemption Price in
respect of the Capital Securities is withheld or refused and not paid either
by the Issuer Trust or the Company pursuant to the Guarantee, Distributions
will cease to accumulate on the Capital Securities or portions thereof called
for redemption.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Capital Securities in the event of any liquidation
of the Issuer Trust is $25 per Capital Security plus accumulated and unpaid
Distributions, subject to certain exceptions, which may be paid in the form of
a distribution of such amount in Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the
first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of the Company; (ii) the distribution of a Like Amount of the
Subordinated Debentures to the holders of the Trust Securities, if the holders
of Common Securities have given written direction to the Property Trustee to
dissolve the Issuer Trust (which direction, subject to the foregoing
restrictions, is optional and wholly within the discretion of the holders of
Common Securities); (iii) the repayment of all the Capital Securities in
connection with the redemption of all the Trust Securities as described above
under "--Redemption;" and (iv) the entry of an order for the dissolution of
the Issuer Trust by a court of competent jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by
distributing, after satisfaction of liabilities to creditors of the Issuer
Trust as provided by applicable law, to the holders of such Trust Securities a
Like Amount of the Subordinated Debentures, unless such distribution is not
practical, in which event such holders will be entitled to receive out of the
assets of the Issuer Trust available for distribution to holders, after
satisfaction of liabilities to creditors of the Issuer Trust as provided by
applicable law, an amount equal to, in the case of holders of Capital
Securities, the aggregate Liquidation Amount plus accumulated and unpaid
Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Issuer Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Issuer Trust on its Capital Securities shall be paid on a pro rata
basis. The holders of the Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
Capital
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Securities, except that if a Debenture Event of Default has occurred and is
continuing as a result of any failure by the Company to pay any amounts in
respect of the Subordinated Debentures when due, the Capital Securities shall
have a priority over the Common Securities. See "Description of Capital
Securities--Subordination of Common Securities" in the accompanying
Prospectus.
After the liquidation date is fixed for any distribution of Subordinated
Debentures (i) the Capital Securities will no longer be deemed to be
outstanding, (ii) DTC or its nominee, as the registered holder of Capital
Securities, will receive a registered global certificate or certificates
representing the Subordinated Debentures to be delivered upon such
distribution with respect to Capital Securities held by DTC or its nominee and
(iii) any certificates representing the Capital Securities not held by DTC or
its nominee will be deemed to represent the Subordinated Debentures having a
principal amount equal to the stated Liquidation Amount of the Capital
Securities and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Capital Securities until such
certificates are presented to the security registrar for the Trust Securities
for transfer or reissuance.
If the Company does not redeem the Subordinated Debentures prior to the
Stated Maturity and the Issuer Trust is not liquidated and the Subordinated
Debentures are not distributed to holders of the Capital Securities, the
Capital Securities will remain outstanding until the repayment of the
Subordinated Debentures and the distribution of the Liquidation Distribution
to the holders of the Capital Securities.
There can be no assurance as to the market prices for the Capital Securities
or the Subordinated Debentures that may be distributed in exchange for Capital
Securities if a dissolution and liquidation of the Issuer Trust were to occur.
Accordingly, the Capital Securities that an investor may purchase, or the
Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Issuer Trust, may trade at a discount to the price that the
investor paid to purchase the Capital Securities offered hereby.
BOOK-ENTRY PROCEDURES, DELIVERY AND FORM
The Capital Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of,
the Depository and registered in the name of the Depository's nominee. Unless
and until it is exchangeable in whole or in part for Capital Securities in
definitive form, a global security may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor of such Depository or a nominee
of such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with the Depository or its nominee ("Participants")
or persons that may hold interests through Participants. The Company expects
that, upon the issuance of a global security, the Depository will credit, on
its book-entry registration and transfer system, the Participants' accounts
with their respective principal amounts of the Capital Securities represented
by such global security. Ownership of beneficial interests in such global
security will be shown on, and the transfer of such ownership interests will
be effected only through, records maintained by the Depository (with respect
to interests of Participants) and on the records of Participants (with respect
to interests of persons holding through Participants). Beneficial owners who
hold through participants will not receive written confirmation from the
Depository of their purchase, but are expected to receive written
confirmations from the Participants through which the beneficial owner entered
into the transaction. Transfers of such ownership interests will be
accomplished by entries on the books of Participants acting on behalf of the
beneficial owners.
So long as the Depository, or its nominee, is the registered owner of a
global security, the Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the Capital Securities represented by
such global security for all purposes under the Trust Agreement. Except as
provided below, owners of beneficial interests in a global security will not
be entitled to receive physical delivery of the Capital Securities in
definitive form and will not be considered the owners or holders thereof under
the Trust Agreement. Accordingly, each person owning a beneficial interest in
such a global security must rely on the procedures of the Depository and, if
such person is not a Participant, on the procedures of the participant through
which such
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person owns its interest, to exercise any rights of a holder under the Trust
Agreement or the Subordinated Debentures. The Company understands that, under
the Depository's existing practices, in the event that the Company requests
any action of holders, or an owner of a beneficial interest in such a global
security desires to take any action which a holder is entitled to take under
the Trust Agreement or the Subordinated Debentures, the Depository would
authorize the Participants holding the relevant beneficial interests to take
such action, and such Participants would authorize beneficial owners owning
through such Participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them. Redemption notices will
also be sent to the Depository.
Distributions on the Capital Securities registered in the name of the
Depository or its nominee will be made to the Depository or its nominee, as
the case may be, as the registered owner of the global security representing
such Capital Securities. None of the Company, the Issuer Trust, the Issuer
Trustees, any Paying Agent, the Administrators or any other agent of the
Company or the Issuer Trust will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the global security for such Capital Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests. Payment of Distributions to Participants shall be the
responsibility of the Depository. The Depository's practice is to credit
Participants' accounts on a payable date in accordance with their respective
holdings shown on the Depository's records unless the Depository has reason to
believe that it will not receive payment on such payable date. Payments by
Participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts
of customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of the Depository, the Company, the
Issuer Trust, the Issuer Trustees, the Paying Agent or any other agent of the
Company or the Issuer Trust, subject to any statutory or regulatory
requirements as may be in effect from time to time.
The Depository may discontinue providing its services as securities
depository with respect to the Capital Securities at any time by giving
reasonable notice to the Property Trustee. If the Depository notifies the
Company that it is unwilling to continue as such, or if it is unable to
continue or ceases to be a clearing agency registered under the Exchange Act
and a successor depository is not appointed by the Company within 90 days
after receiving such notice or becoming aware that the Depository is no longer
so registered, the Company will issue the Capital Securities in definitive
form, at its expense, upon registration of transfer of, or in exchange for,
such global security. In addition, the Company or the Issuer Trust may at any
time and in its sole discretion determine not to have the Capital Securities
represented by one or more global securities and, in such event, will issue
Capital Securities in definitive form, at its expense, in exchange for all of
the global securities representing such Capital Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations such as the Underwriters. Certain of such
Participants (or their representatives), together with other entities, own
DTC. Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship, with a Participant, either directly or indirectly.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates,
or if the Capital Securities are not held by DTC, such payments will be made
by check mailed to the address of the holder entitled thereto as such address
appears on the
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securities register for the Trust Securities. However, a holder of $1 million
or more in aggregate Liquidation Amount of Capital Securities may receive
Distribution payments (other than Distributions payable at the Stated
Maturity) by wire transfer of immediately available funds upon written request
to the Property Trustee not later than 15 calendar days prior to the date on
which the Distribution is payable. The paying agent (the "Paying Agent") will
initially be the Property Trustee and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrators. The Paying Agent will
be permitted to resign as Paying Agent upon 30 days' written notice to the
Property Trustee and the Administrators. If the Property Trustee is no longer
the Paying Agent, the Property Trustee will appoint a successor (which must be
a bank or trust company reasonably acceptable to the Administrators) to act as
Paying Agent.
DESCRIPTION OF SUBORDINATED DEBENTURES
The Subordinated Debentures are a series of Debt Securities to be issued
pursuant to the Subordinated Debt Indenture and the following summary of
certain terms and provisions of the Subordinated Debentures and the
Subordinated Debt Indenture supplements the description of the terms and
provisions of such Debt Securities and such Indenture set forth in the
accompanying Prospectus under the heading "Description of Debt Securities," to
which description reference is hereby made. The summary of certain terms and
provisions of the Subordinated Debentures set forth below does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the Subordinated Debentures and the Subordinated Debt Indenture, to which
reference is hereby made. Copies of the forms of Subordinated Debentures and
the Subordinated Debt Indenture are available from the Debt Securities Trustee
upon request.
GENERAL
Concurrently with the issuance of the Capital Securities, the Issuer Trust
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Subordinated Debentures issued by
the Company. The Subordinated Debentures will bear interest, accruing from and
including August 12, 1998, at the annual rate of 7.50% of the principal amount
thereof, payable quarterly in arrears on February 1, May 1, August 1 and
November 1 of each year (each, an "Interest Payment Date"), commencing
November 1, 1998, to the person in whose name each Subordinated Debenture is
registered at the close of business on the 15th calendar day (whether or not a
Business Day) next preceding such Interest Payment Date. It is anticipated
that, until the liquidation, if any, of the Issuer Trust, each Subordinated
Debenture will be registered in the name of the Issuer Trust and held by the
Property Trustee in trust for the benefit of the holders of the Trust
Securities. The amount of interest payable for any period less than a full
interest period will be computed on the basis of a 360-day year of twelve 30-
day months and the actual days elapsed in a partial month in such period. The
amount of interest payable for any full interest period will be computed by
dividing the rate per annum by four. If any date on which interest is payable
on the Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is
a Business Day (without any interest or other payment in respect of any such
delay) with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof at
the rate per annum of 7.50%, compounded quarterly and computed on the basis of
a 360-day year of twelve 30-day months and the actual days elapsed in a
partial month in such period. The amount of additional interest payable for
any full interest period will be computed by dividing the rate per annum by
four. The term "interest" as used herein includes quarterly interest payments,
interest on quarterly interest payments not paid on the applicable Interest
Payment Date and Additional Sums, as applicable.
The Subordinated Debentures will mature on August 1, 2038 (such date, as it
may be advanced as hereinafter described, the "Stated Maturity"). If a Tax
Event occurs, then the Company will have the right, upon notice to the Debt
Securities Trustee prior to the termination of the Issuer Trust, to advance
the Stated Maturity of the Subordinated Debentures to the minimum extent
required in order to allow for the payments of interest in respect of the
Subordinated Debentures to continue to be tax deductible, but in no event
shall the resulting
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maturity of the Subordinated Debentures be less than 15 years from the date of
original issuance thereof. The Stated Maturity may be advanced only if, in the
written opinion of independent tax counsel to the Company experienced in such
matters, delivered to the Debt Securities Trustee, (a) after advancing the
Stated Maturity, interest paid on the Subordinated Debentures will be
deductible for United States federal income tax purposes and (b) advancing the
Stated Maturity will not result in a taxable event to holders of the Capital
Securities.
If the Company elects to advance the Stated Maturity of the Subordinated
Debentures, it will give notice to the Debt Securities Trustee, and the Debt
Securities Trustee will give notice of such change to the holders of the
Subordinated Debentures not less than 30 and not more than 60 days prior to
the effectiveness thereof.
The provisions of the Subordinated Debt Indenture described in the
accompanying Prospectus relating to satisfaction,discharge and defeasance will
not apply to the Subordinated Debentures. See "Description of Debt
Securities--Defeasance of Offered Debt Securities or Certain Covenants in
Certain Circumstances" in the accompanying Prospectus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing, the
Company will have the right at any time during the term of the Subordinated
Debentures to defer the payment of interest at any time or from time to time
for a period not exceeding 20 consecutive quarterly periods with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Subordinated Debentures. At the end of an Extension
Period, the Company must pay all interest then accrued and unpaid (together
with interest thereon at the annual rate of 7.50%, compounded quarterly and
computed on the basis of a 360-day year of twelve 30-day months and the actual
days elapsed in a partial month in such period). The amount of additional
interest payable for any full interest period will be computed by dividing the
rate per annum by four. During an Extension Period, interest will continue to
accrue and holders of Subordinated Debentures (or holders of Capital
Securities while outstanding) will be required to accrue interest income for
United States federal income tax purposes. See "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount" in this Prospectus
Supplement. During an Extension Period, the Company is subject to certain
restrictions. See "--Restrictions on Certain Payments; Certain Covenants of
the Company" below. Prior to the termination of an Extension Period, the
Company may further defer the payment of interest, provided that no Extension
Period may exceed 20 consecutive quarterly periods or extend beyond the Stated
Maturity of the Subordinated Debentures or, except as provided below, end on a
day other than an Interest Payment Date. In the event that the Stated Maturity
is advanced to a date prior to the end of an Extension Period, such Extension
Period shall be deemed to end on such date or such earlier date as may be
determined by the Company. In the event that any Subordinated Debentures are
called for redemption on a date prior to the end of an Extension Period, with
respect to such Subordinated Debentures, such Extension Period shall be deemed
to end on such date or such earlier date as may be determined by the Company.
Upon the termination of an Extension Period and the payment of all amounts
then due, the Company may elect to begin a new Extension Period subject to the
above conditions. No interest shall be due and payable during an Extension
Period, except at the end thereof, but the Company may prepay at any time all
or any portion of the interest accrued during an Extension Period. The Company
must give the Issuer Trustees and the Debt Securities Trustee notice of its
election of such Extension Period at least 30 calendar days prior to the date
the Distributions on the Capital Securities would have been payable but for
the election to begin such Extension Period. If the Property Trustee is not
the only holder, or is not itself the holder, of the Subordinated Debentures
at the time the Company selects an Extension Period, the Company shall give
the holders of the Subordinated Debentures and the Property Trustee written
notice of its selection of such Extension Period at least 10 Business Days
before the earlier of the next succeeding Interest Payment Date or the date
the Company is required to give notice of the record or payment date of such
interest payment to holders of the Subordinated Debentures. The Property
Trustee will give notice of the Company's election to begin an Extension
Period to the holders of the Capital Securities. There is no limitation on the
number of times that the Company may elect to begin an Extension Period.
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REDEMPTION
The Subordinated Debentures are redeemable prior to the Stated Maturity at
the option of the Company (i) on or after August 12, 2003, in whole at any
time or in part from time to time, and (ii) prior to August 12, 2003, in whole
(but not in part) at any time within 90 days following the occurrence and
continuation of a Tax Event or an Investment Company Event (each as defined
under "Description of Capital Securities--Redemption" in this Prospectus
Supplement) (the "90-Day Period"), in each case at a Redemption Price equal to
the accrued and unpaid interest on the Subordinated Debentures so redeemed to
the date fixed for redemption, plus 100% of the principal amount thereof. See
"Description of Capital Securities--Redemption" in this Prospectus Supplement.
The Company's right to redeem the Subordinated Debentures under the
preceding paragraph shall be subject to the condition that if at the time
there is available to the Company or the Issuer Trust the opportunity to
eliminate, within the 90-Day Period, the Tax Event or Investment Company Event
by taking some ministerial action ("Ministerial Action"), such as filing a
form or making an election, or pursuing some other similar reasonable measure
that will have no adverse effect on the Company, the Issuer Trust or the
holders of the Trust Securities and will involve no material cost, the Company
shall pursue such measures in lieu of redemption; provided further, that the
Company shall have no right to redeem the Subordinated Debentures while the
Issuer Trust is pursuing any Ministerial Action pursuant to the Trust
Agreement.
REGISTRATION, DENOMINATION AND TRANSFER
The Subordinated Debentures will initially be registered in the name of the
Issuer Trust. The Subordinated Debentures will be issued in denominations of
$25 and integral multiples thereof. If the Subordinated Debentures are
distributed to holders of Capital Securities, it is anticipated that the
depository arrangements for the Subordinated Debentures will be substantially
identical to those in effect for the Capital Securities. See "Description of
Capital Securities--Book-Entry Procedures, Delivery and Form" in this
Prospectus Supplement.
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days of receipt of notice from DTC to such effect,
the Company will cause the Subordinated Debentures to be issued in definitive
form.
Payments on Subordinated Debentures represented by a global security will be
made to Cede & Co., the nominee for DTC, as the registered holder of the
Subordinated Debentures, as described under "Description of the Capital
Securities--Book-Entry Procedures, Delivery and Form" in this Prospectus
Supplement. If Subordinated Debentures are issued in certificated form,
principal and interest will be payable, the transfer of the Subordinated
Debentures will be registrable, and Subordinated Debentures will be
exchangeable for Subordinated Debentures of other authorized denominations of
a like aggregate principal amount, at the corporate trust office of the Debt
Securities Trustee in New York, New York or at the offices of any Paying Agent
or transfer agent appointed by the Company, provided that payment of interest
may be made at the option of the Company by check mailed to the address of the
persons entitled thereto. However, a holder of $1 million or more in aggregate
principal amount of Subordinated Debentures may receive payments of interest
(other than interest payable at the Stated Maturity) by wire transfer of
immediately available funds upon written request to the Debt Securities
Trustee not later than 15 calendar days prior to the date on which the
interest is payable.
Subordinated Debentures will be exchangeable for other Subordinated
Debentures of like tenor, of any authorized denominations, and of a like
aggregate principal amount. Subordinated Debentures may be presented for
exchange as provided above, and may be presented for registration of transfer
(with the form of transfer endorsed thereon, or a satisfactory written
instrument of transfer, duly executed), at the office of the securities
registrar appointed under the Subordinated Debt Indenture or at the office of
any transfer agent designated by the Company for such purpose without service
charge and upon payment of any taxes and other governmental
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charges as described in the Subordinated Debt Indenture. The Company will
appoint the Debt Securities Trustee as securities registrar under the
Subordinated Debt Indenture. The Company may at any time designate additional
transfer agents with respect to the Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debt Securities
Trustee shall be required to (i) issue, register the transfer of or exchange
Subordinated Debentures during a period beginning 15 days next preceding the
day of selection for redemption of Capital Securities and ending on the close
of business on the day of mailing of the relevant notice of redemption or (ii)
transfer or exchange any Subordinated Debentures so selected for redemption,
except, in the case of any Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debt Securities Trustee or any paying agent,
or then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Subordinated Debenture shall thereafter
look, as a general unsecured creditor, only to the Company for payment
thereof.
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company will covenant that it will not (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation
payment with respect to, any of the Company's capital stock or (ii) make any
payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
in all respects with or junior in interest to the Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company (1) in connection with any employment contract,
benefit plan or other similar arrangement with or for the benefit of any one
or more employees, officers, directors or consultants, (2) in connection with
a dividend reinvestment or stockholder stock purchase plan or (3) in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period
or other event referred to below, (b) as a result of an exchange, redemption
or conversion of any class or series of the Company's capital stock (or any
capital stock of a subsidiary of the Company) for any class or series of the
Company's capital stock or of any class or series of the Company's
indebtedness for any class or series of the Company's capital stock, (c) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights,
stock or other property under any stockholder's rights plan, or the redemption
or repurchase of rights pursuant thereto, (e) payments under the Guarantee, or
(f) any dividend in the form of stock, warrants, options or other rights where
the dividend stock or the stock issuable upon exercise of such warrants,
options or other rights is the same stock as that on which the dividend is
being paid or ranks pari passu with or junior to such stock), if at such time
(i) there has occurred any event (a) of which the Company has actual knowledge
that with the giving of notice or the lapse of time, or both, would constitute
a Debenture Event of Default and (b) that the Company has not taken reasonable
steps to cure, (ii) if the Subordinated Debentures are held by the Issuer
Trust, the Company is in default with respect to its payment of any
obligations under the Guarantee or (iii) the Company has given notice of its
election of an Extension Period as provided in the Subordinated Debt Indenture
and has not rescinded such notice, or such Extension Period, or any extension
thereof, is continuing.
The Company will covenant (i) to continue to hold, directly or indirectly,
100% of the Common Securities, provided that certain successors that are
permitted pursuant to the Subordinated Debt Indenture may succeed to the
Company's ownership of the Common Securities, (ii) as holder of the Common
Securities, not to voluntarily dissolve, windup or liquidate the Issuer Trust,
other than (a) in connection with a distribution of Subordinated Debentures to
the holders of the Capital Securities in liquidation of the Issuer Trust or
(b) in connection with certain mergers, consolidations or amalgamations
permitted by the Trust Agreement and (iii) to use its reasonable efforts,
consistent with the terms and provisions of the Trust Agreement, to cause the
Issuer Trust to continue not to be taxable as a corporation for United States
federal income tax purposes.
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EXPENSES AND TAXES
The Company, as borrower, will agree to pay all debts and other obligations
(other than with respect to the Capital Securities and Common Securities
issued by the Issuer Trust) and all costs and expenses of the Issuer Trust
(including costs and expenses relating to the organization of the Issuer
Trust, the fees and expenses of the Issuer Trustees for the Issuer Trust and
the costs and expenses relating to the operation of the Issuer Trust) and to
pay any and all taxes, duties, assessments or other governmental charges of
whatever nature and all costs and expenses with respect thereto (other than
United States withholding taxes) to which the Issuer Trust might become
subject so that the net amounts received and retained by the Issuer Trust
after paying such debts, obligations, costs, expenses, taxes, duties,
assessments or other governmental charges will be equal to the amounts that
the Issuer Trust would have received and retained had such debts, obligations,
costs, expenses, taxes, duties, assessments or other governmental charges not
been incurred by or imposed on the Issuer Trust. The foregoing obligations of
the Company under the Debt Securities owned by the Issuer Trust are for the
benefit of, and shall be enforceable by, any person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "Creditor") whether or not
such Creditor has received notice thereof. Any such Creditor may enforce such
obligations of the Company directly against the Company, and the Company will
irrevocably waive any right or remedy to require that any such Creditor take
any action against the Issuer Trust or any other person before proceeding
against the Company. The Company will also agree in the Debt Securities owned
by the Issuer Trust to execute such additional agreements as may be necessary
or desirable to give full effect to the foregoing.
MODIFICATION OF SUBORDINATED DEBT INDENTURE
The provisions for modifying the Subordinated Debt Indenture and the Debt
Securities issued thereunder, including the Subordinated Debentures, are
summarized under the heading "Description of Debt Securities--Modification and
Waiver" in the accompanying Prospectus. In addition, so long as any of the
Capital Securities remain outstanding, no such modification may be made that
adversely affects the holders of such Capital Securities in any material
respect, and no termination of the Subordinated Debt Indenture may occur, and
no waiver of any Debenture Event of Default may be effective, without the
prior consent of the holders of at least 66 2/3% of the aggregate Liquidation
Amount of the outstanding Capital Securities unless and until the principal of
(and premium, if any, on) the Subordinated Debentures and all accrued and
unpaid interest thereon have been paid in full and certain other conditions
are satisfied. In addition, the Company may not amend the Subordinated Debt
Indenture to remove the rights of holders of Capital Securities of the Issuer
Trust to institute a Direct Action without the prior written consent of all
the holders of Capital Securities or to remove the obligation to obtain the
consent of holders of Capital Securities as provided for, or without the
consent of the required percentage of holders of the Capital Securities of the
Issuer Trust. So long as the Company acts in accordance with the terms of the
Subordinated Debentures and the Subordinated Debt Indenture, the Company may
advance the Stated Maturity of and defer interest payable on the Subordinated
Debentures, in each case without the consent of the Issuer Trust or the
holders of the Capital Securities.
DEBENTURE EVENTS OF DEFAULT
The Subordinated Debt Indenture provides that any one or more of the events
described under "Description of Debt Securities--Events of Default" in the
accompanying Prospectus constitutes an "Event of Default" with respect to the
Subordinated Debentures. Deferral of any due date for the payment of interest
in connection with an Extension Period does not constitute an Event of
Default. For purposes of the Trust Agreement and this Prospectus Supplement,
each such Event of Default under the Subordinated Debenture is referred to as
a "Debenture Event of Default." As described in "Description of Capital
Securities--Capital Securities Events of Default; Notice" in the accompanying
Prospectus, the occurrence of a Debenture Event of Default will also
constitute an Event of Default in respect of the Capital Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Subordinated Debentures have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
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Debt Securities Trustee. The Debt Securities Trustee or the holders of not
less than 25% in aggregate principal amount of outstanding Subordinated
Debentures may declare the principal due and payable immediately upon a
Debenture Event of Default, and, should the Debt Securities Trustee or such
holders of Subordinated Debentures fail to make such declaration, the holders
of at least 25% in aggregate Liquidation Amount of the outstanding Capital
Securities shall have such right. The holders of a majority in aggregate
principal amount of outstanding Subordinated Debentures, with the consent of a
majority in aggregate Liquidation Amount of the outstanding Capital
Securities, if such Subordinated Debentures are held by the Issuer Trust, may
annul such declaration and waive the default if all defaults (other than the
non-payment of the principal of Subordinated Debentures which has become due
solely by such acceleration) have been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debt Securities Trustee. Should the
holders of Subordinated Debentures fail to annul such declaration and waive
such default, the holders of a majority in aggregate Liquidation Amount of the
outstanding Capital Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Subordinated Debentures affected thereby may, on behalf of the
holders of all the Subordinated Debentures, waive any past default, except a
default in the payment of principal (or premium, if any) or interest (unless
such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debt Securities Trustee) or a default in respect of a
covenant or provision which under the Subordinated Debt Indenture cannot be
modified or amended without the consent of the holder of each outstanding
Subordinated Debenture affected thereby, provided, that if the Subordinated
Debentures are held by the Issuer Trust or an Issuer Trustee, such waiver
shall not be effective as to the Subordinated Debentures unless the holders of
at least a majority in aggregate liquidation amount of the Capital Securities
shall have consented to such waiver; provided further, that if the consent of
the Holder of each outstanding Subordinated Debenture is required, such waiver
shall not be effective unless each holder of the Capital Securities shall have
consented to such waiver. See "Description of Debt Securities--Modification
and Waiver" in the accompanying Prospectus. The Company is required to file
annually with the Debt Securities Trustee a certificate as to whether or not
the Company is in compliance with all the conditions and covenants applicable
to it under the Subordinated Debt Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on
the Subordinated Debentures, and any other amounts payable under the
Subordinated Debentures and the Subordinated Debt Indenture, to be forthwith
due and payable and to enforce its other rights as a creditor with respect to
the Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Capital Securities may institute a
legal proceeding directly against the Company for enforcement of payment to
such holder of an amount equal to the amount payable in respect of
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities held by such holder. The Company
may not amend the Subordinated Debentures to remove the foregoing right to
bring a Direct Action without the prior written consent of the holders of all
the Capital Securities. The Company will have the right under the Subordinated
Debentures to set-off any payment made to such holder of Capital Securities by
the Company in connection with a Direct Action.
The holders of the Capital Securities would not be able to exercise directly
any remedies available to the holders of the Subordinated Debentures except
under the circumstances described in the preceding paragraph. See "Description
of Capital Securities--Capital Securities Events of Default; Notice" in the
accompanying Prospectus.
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DESCRIPTION OF GUARANTEE
The following summary of certain terms and provisions of the Guarantee
supplements the information set forth in the accompanying Prospectus under the
heading "Description of Guarantees." The Guarantee will be executed and
delivered by the Company concurrently with the issuance of Capital Securities
by the Issuer Trust for the benefit of the holders from time to time of the
Capital Securities. This summary of certain provisions of the Guarantee does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Guarantee, including the definitions
therein of certain terms. A copy of the form of the Guarantee is available
upon request from the Guarantee Trustee.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to
the holders of the Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer Trust may have or
assert other than the defense of payment. The following payments with respect
to the Capital Securities, to the extent not paid by or on behalf of the
Issuer Trust (the "Guarantee Payments"), will be subject to the Guarantee: (i)
any accumulated and unpaid Distributions required to be paid on such Capital
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Capital
Securities called for redemption, to the extent that the Issuer Trust has
funds on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of the Issuer Trust (unless
the Subordinated Debentures are distributed to holders of the Capital
Securities), the lesser of (a) the aggregate of the Liquidation Amount of all
outstanding Capital Securities and all accumulated and unpaid Distributions to
the date of payment, and (b) the amount of assets of the Issuer Trust
remaining available for distribution to holders of the Capital Securities on
liquidation of the Issuer Trust. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of the Capital Securities or by causing the Issuer
Trust to pay such amounts to such holders.
The Company will, through the Guarantee, the Trust Agreement, the
Subordinated Debentures and the Subordinated Debt Indenture, taken together,
fully, irrevocably and unconditionally guarantee all the Issuer Trust's
obligations under the Capital Securities. No single document standing alone or
operating in conjunction with fewer than all the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Issuer Trust's obligations in respect of the Capital Securities. See
"Relationship Among the Capital Securities, the Subordinated Debentures and
the Guarantee" in this Prospectus Supplement.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior
Indebtedness (as defined in the Subordinated Debt Indenture) of the Company in
the same manner as the Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Capital Securities of the
Subordinated Debentures.
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RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE SUBORDINATED DEBENTURES AND THE
GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed by the Company as and to the extent described under
"Description of Guarantee" in this Prospectus Supplement. Taken together, the
Company's obligations under the Subordinated Debentures, the Subordinated Debt
Indenture, the Trust Agreement and the Guarantee provide, in the aggregate, a
full, irrevocable and unconditional guarantee of payments of Distributions and
other amounts due on the Capital Securities. No single document standing alone
or operating in conjunction with fewer than all the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations in respect of the
Capital Securities. If and to the extent that the Company does not make
payments on the Subordinated Debentures, the Issuer Trust will not have
sufficient funds to pay Distributions or other amounts due on the Capital
Securities. The Guarantee does not cover payment of amounts payable with
respect to the Capital Securities when the Issuer Trust does not have
sufficient funds to pay such amounts. In such event, one remedy of a holder of
the Capital Securities would be to institute a legal proceeding directly
against the Company for enforcement of payment of the Company's obligations
under Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Capital Securities held by such holder.
The obligations of the Company under the Subordinated Debentures and the
Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness (as defined in the Subordinated Debt Indenture).
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Subordinated Debentures, such
payments will be sufficient to cover Distributions and other payments
distributable on the Capital Securities, primarily because (i) the aggregate
principal amount of the Subordinated Debentures will be equal to the sum of
the aggregate stated Liquidation Amount of the Capital Securities and Common
Securities; (ii) the interest rate and interest and other payment dates on the
Subordinated Debentures will match the Distribution rate, Distribution Dates
and other payment dates for the Capital Securities; (iii) the Company will pay
for all and any costs, expenses and liabilities of the Issuer Trust except
United States withholding taxes and the Issuer Trust's obligations to holders
of the Trust Securities; and (iv) the Trust Agreement further provides that
the Issuer Trust will not engage in any activity that is not consistent with
the limited purposes of the Issuer Trust.
Notwithstanding anything to the contrary in the Subordinated Debt Indenture,
the Company has the right to set-off any payment it is otherwise required to
make thereunder against and to the extent the Company has theretofore made, or
is concurrently on the date of such payment making, a payment under the
Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other person or entity. See "Description of Guarantee" in this
Prospectus Supplement.
A default or event of default under any Senior Indebtedness (as defined in
the Subordinated Debt Indenture) of the Company would not necessarily
constitute a default or Event of Default in respect of the Capital Securities.
However, in the event of payment defaults under, or acceleration of, Senior
Indebtedness (as so defined) of the Company, the subordination provisions of
the Subordinated Debt Indenture provide that no payments may be made in
respect of the Subordinated Debentures until such Senior Indebtedness has been
paid in full or any payment default thereunder has been cured or waived. See
"Description of Subordinated Debentures--Subordination" in this Prospectus
Supplement.
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<PAGE>
LIMITED PURPOSE OF ISSUER TRUST
The Capital Securities represent undivided beneficial ownership interests in
the assets of the Issuer Trust, and the Issuer Trust exists for the sole
purpose of issuing its Capital Securities and Common Securities, investing the
proceeds thereof in Subordinated Debentures and engaging in only those other
activities necessary, convenient or incidental thereto (such as registering
the transfer of the Trust Securities). A principal difference between the
rights of a holder of a Capital Security and a holder of a Subordinated
Debenture is that a holder of a Subordinated Debenture is entitled to receive
from the Company payments on Subordinated Debentures held, while a holder of
Capital Securities is entitled to receive Distributions or other amounts
distributable with respect to the Capital Securities from the Issuer Trust (or
from the Company under the Guarantee) only if and to the extent the Issuer
Trust has funds available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the Issuer Trust, other than any such dissolution, winding-up or liquidation
involving the distribution of the Subordinated Debentures, after satisfaction
of liabilities to creditors of the Issuer Trust as required by applicable law,
the holders of the Capital Securities will be entitled to receive, out of
assets held by the Issuer Trust, the Liquidation Distribution in cash. See
"Description of Capital Securities--Liquidation Distribution Upon Dissolution"
in this Prospectus Supplement. Upon any voluntary or involuntary liquidation
or bankruptcy of the Company, the Issuer Trust, as registered holder of the
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated and junior in right of payment to all Senior Indebtedness (as
defined in the Subordinated Debt Indenture) as set forth in the Subordinated
Debt Indenture, but entitled to receive payment in full of all amounts payable
with respect to the Subordinated Debentures before any stockholders of the
Company receive payments or distributions. Since the Company is the guarantor
under the Guarantee and has agreed under the Subordinated Debt Indenture to
pay for all costs, expenses and liabilities of the Issuer Trust (other than
United States withholding taxes and the Issuer Trust's obligations to the
holders of the Trust Securities), the positions of a holder of the Capital
Securities and a holder of such Subordinated Debentures relative to other
creditors and to stockholders of the Company in the event of liquidation or
bankruptcy of the Company are expected to be substantially the same.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences that may be relevant to the purchase, ownership and
disposition of the Capital Securities and where noted constitutes the opinion
of Simpson Thacher & Bartlett, special United States federal income tax
counsel to the Company and the Issuer Trust ("Tax Counsel"). Unless otherwise
stated, this summary deals only with Capital Securities held as capital assets
by United States Persons (defined below) who purchase the Capital Securities
upon original issuance at their original offering price. As used herein, a
"United States Person" means (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source, or (iv) any trust if a court within the
United States is able to exercise primary supervision over the administration
of such trust and one or more United States Persons have the authority to
control all the substantial decisions of such trust. The tax treatment of a
holder may vary
depending on his, her or its particular situation. This summary does not
address all the tax consequences that may be relevant to a particular holder
or to holders who may be subject to special tax treatment, such as banks, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, persons holding
Capital Securities as part of a hedging, conversion or constructive sale
transaction or a straddle or foreign investors. In addition, this summary does
not include any description of any alternative minimum tax consequences or the
tax laws of any state, local or foreign government that may be applicable to a
holder of Capital Securities. This summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), the Treasury regulations promulgated
thereunder and
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<PAGE>
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Tax Counsel are not binding on the
Internal Revenue Service ("IRS") or the courts, either of which could take a
contrary position. Moreover, no rulings have been or will be sought by the
Company from the IRS with respect to the transactions described herein.
Accordingly, there can be no assurance that the IRS will not challenge the
opinions expressed herein or that a court would not sustain such a challenge.
Nevertheless, Tax Counsel has advised that it is of the view that, if
challenged, the opinions expressed herein would be sustained by a court with
jurisdiction in a properly presented case.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR
OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE CAPITAL
SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF
CAPITAL SECURITIES--REDEMPTION."
CLASSIFICATION OF THE ISSUER TRUST
In connection with the issuance of the Capital Securities, Tax Counsel is of
the opinion that under current law and assuming full compliance with the terms
of the Trust Agreement and other documents, and based upon certain facts and
assumptions contained in such opinion, the Issuer Trust will be classified as
a grantor trust for United States federal income tax purposes and not as an
association taxable as a corporation. Accordingly, for United States federal
income tax purposes, each beneficial owner (a "holder") of Capital Securities
generally will be treated as owning an undivided beneficial interest in the
Subordinated Debentures and, thus, will be required to include in its gross
income its pro rata share of the interest income or original issue discount
that is paid or accrued on the Subordinated Debentures. See "--Interest Income
and Original Issue Discount."
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
The Company, the Issuer Trust and the holders of the Capital Securities (by
acceptance of a beneficial interest in a Capital Security) will agree to treat
the Subordinated Debentures as indebtedness for all United States tax
purposes. Recently, a petition was filed in the United States Tax Court as a
result of a challenge by the IRS of the petitioner's treatment as indebtedness
of a loan issued in circumstances with similarities to the issuance of the
Subordinated Debentures. Nevertheless, in connection with the issuance of the
Subordinated Debentures, Tax Counsel is of the opinion that under current law,
and based on certain representations, facts and assumptions set forth in such
opinion, the Subordinated Debentures will be classified as indebtedness for
United States federal income tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
It is anticipated that the Subordinated Debentures will not be issued with
an issue price that is less than their stated redemption price at maturity. In
such case, under applicable Treasury regulations, the Subordinated Debentures
will not be considered to have been issued with original issue discount
("OID") within the meaning
of section 1273(a) of the Code. Accordingly, except as set forth below, stated
interest on the Subordinated Debentures generally will be taxable to a holder
as ordinary income at the time it is paid or accrued in accordance with such
holder's regular method of tax accounting.
If, however, the Company exercises its right to defer payments of interest
on the Subordinated Debentures, the Subordinated Debentures will become OID
instruments at such time and all holders will be required to accrue the stated
interest on the Subordinated Debentures on a daily economic accrual basis
(using the constant-yield-to-
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<PAGE>
maturity method of accrual described in section 1272 of the Code) during the
Extension Period even though the Company will not pay such interest until the
end of the Extension Period, and even though some holders may use the cash
method of tax accounting. Moreover, thereafter the Subordinated Debentures
will be taxed as OID instruments for as long as they remain outstanding. Thus,
even after the end of the Extension Period, all holders would be required to
continue to include the stated interest on the Subordinated Debentures (and
any de minimis OID) in income on a daily economic accrual basis, regardless of
their method of tax accounting and in advance of receipt of the cash
attributable to such interest income. Under the OID economic accrual rules, a
holder would accrue an amount of interest income each year that approximates
the stated interest payments called for under the terms of the Subordinated
Debentures, and actual cash payments of interest on the Subordinated
Debentures would not be reported separately as taxable income. Any amount of
OID included in a holder's gross income (whether or not during an Extension
Period) with respect to a Capital Security will increase such holder's tax
basis in such Capital Security, and the amount of distributions received by a
holder in respect of such accrued OID will reduce the tax basis of such
Capital Security.
The Treasury regulations described above have not yet been addressed in any
rulings or other interpretations by the IRS, and it is possible that the IRS
could take a contrary position. For example, if the IRS were to assert
successfully that the stated interest on the Subordinated Debentures was OID
regardless of whether the Company exercises its option to defer payments of
interest on such Subordinated Debentures, all holders of Capital Securities
would be required to include such stated interest in income on a daily
economic accrual basis as described above.
Corporate holders of Capital Securities will not be entitled to a dividends-
received deduction with respect to any income recognized by such holders with
respect to the Capital Securities.
DISTRIBUTION OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE ISSUER
TRUST
As described under the caption "Description of the Capital Securities--
Liquidation Distribution Upon Dissolution," Subordinated Debentures may be
distributed to holders in exchange for the Capital Securities and in
liquidation of the Issuer Trust. Provided the Issuer Trust is classified as a
grantor trust, such a distribution would generally be non-taxable, and would
result in the holder receiving directly its pro rata share of the Subordinated
Debentures previously held indirectly through the Issuer Trust, with a holding
period and aggregate tax basis equal to the holding period and aggregate tax
basis such holder had in its Capital Securities before such distribution. If,
however, a Tax Event occurs which results in the Issuer Trust being treated as
an association taxable as a corporation, the distribution would constitute a
taxable event to holders of Capital Securities, in which event the Company
could, at its option, redeem the Subordinated Debentures and distribute the
resulting cash in liquidation of the Issuer Trust.
A holder would accrue interest in respect of the Subordinated Debentures
received from the Issuer Trust in the manner described above under "--Interest
Income and Original Issue Discount."
Under certain circumstances described herein (see "Description of Capital
Securities"), the Subordinated Debentures may be redeemed for cash, with the
proceeds of such redemption distributed to holders in redemption of their
Capital Securities. Such a redemption would constitute a taxable disposition
of the redeemed Capital Securities for United States federal income tax
purposes, and a holder would recognize gain or loss as if it sold such
redeemed Capital Securities for cash. See "--Sales of Capital Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between the amount realized by the holder on the sale or
redemption of the Capital Securities (except for an amount equal to any
accrued but unpaid interest on such holder's allocable share of the
Subordinated Debentures that such holder has not included in income previously
which will be taxable as such) and the holder's adjusted tax basis in the
Capital Securities sold or redeemed. Such gain or loss generally will be a
capital gain or loss and generally will
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<PAGE>
be a long-term capital gain or loss if the Capital Securities have been held
for more than one year. Capital gains of individuals derived with respect to
capital assets held for more than one year are eligible for reduced rates of
taxation. Holders should consult their own tax advisors regarding the capital
gains rates applicable to them. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any person that is
not a United States Person. As discussed above, the Capital Securities will be
treated as evidence of an indirect beneficial ownership interest in the
Subordinated Debentures. See "--Classification of the Issuer Trust." Thus,
under present United States federal income tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be required
with respect to the payment by the Company or any paying agent of principal
or interest (which for purposes of this discussion includes any OID) on the
Capital Securities (or the Subordinated Debentures) to a Non-United States
Holder, provided (i) that the beneficial owner of the Capital Securities
("Beneficial Owner") does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the Company
entitled to vote within the meaning of section 871(h)(3) of the Code and
the regulations thereunder, (ii) the Beneficial Owner is not a controlled
foreign corporation that is related to the Company through stock ownership,
(iii) the Beneficial Owner is not a bank whose receipt of interest on the
Subordinated Debentures is described in section 881(c)(3)(A) of the Code
and (iv) the Beneficial Owner satisfies the statement requirement
(described generally below) set forth in section 871(h) and section 881(c)
of the Code and the regulations thereunder; and
(b) no withholding of United States federal income tax will be required
with respect to any gain realized by a Non-United States Holder upon the
sale or other disposition of the Capital Securities (or the Subordinated
Debentures).
To satisfy the requirement referred to in (a)(iv) above, the Beneficial
Owner, or a financial institution holding the Capital Securities on behalf of
such owner, must provide, in accordance with specified procedures, to the
Issuer Trust or its paying agent, a statement to the effect that the
Beneficial Owner is not a United States Person. These requirements will be met
if (1) the Beneficial Owner provides his name and address, and certifies,
under penalties of perjury, that it is not a United States Person (which
certification may be made on an IRS Form W-8 (or successor form)) or (2) a
financial institution holding the Capital Securities on behalf of the
Beneficial Owner certifies, under penalties of perjury, that such statement
has been received by it and furnishes a paying agent with a copy thereof.
Under final Treasury regulations ("Final Regulations"), the statement
requirement referred to in (a)(iv) above may also be satisfied with other
documentary evidence for interest paid after December 31, 1999 with respect to
an offshore account or through certain foreign intermediaries.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, payments of premium, if
any, and interest (including any OID) made to such Non-United States Holder
will be subject to a 30% United States withholding tax unless the Beneficial
Owner provides the Company or its paying agent, as the case may be, with a
properly executed (1) IRS Form 1001 (or successor form) claiming an exemption
from, or a reduction of, such withholding tax under the benefit of an
applicable tax treaty or (2) IRS Form 4224 (or successor form) stating that
interest paid on the Capital Securities (or the Subordinated Debentures) is
not subject to such withholding tax because it is effectively connected with
the Beneficial Owner's conduct of a trade or business in the United States.
Under the Final Regulations, Non-United States Holders will generally be
required to provide IRS Form W-8 in lieu of IRS Form 1001 and IRS Form 4224,
although alternative documentation may be applicable in certain situations.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest on the Capital Securities (or Subordinated
Debentures) is effectively connected with the conduct of such trade or
business, the Non-United States Holder, although exempt from the withholding
tax discussed above, will be
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<PAGE>
subject to United States federal income tax on such interest on a net income
basis in the same manner as if it were a United States Person. In addition, if
such Non-United States Holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% (or lesser rate under an applicable tax
treaty) of its effectively connected earnings and profits for the taxable
year, subject to adjustments. For this purpose, such interest would be
included in such foreign corporation's earnings and profits.
Any gain realized upon the sale or other disposition of the Capital
Securities (or the Subordinated Debentures) generally will not be subject to
United States federal income tax unless (i) such gain is effectively connected
with a trade or business in the United States of the Non-United States Holder,
(ii) in the case of a Non-United States Holder who is an individual, such
individual is present in the United States for 183 days or more in the taxable
year of such sale, exchange or retirement, and certain other conditions are
met, or (iii) in the case of any gain representing accrued interest on the
Subordinated Debentures, the requirements described above are not satisfied.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the Capital Securities held of record by United States Persons
(other than corporations and other exempt holders) will be reported annually
to such holders and to the IRS. Such income will be reported to holders on
Forms 1099, which should be mailed to the holders of record prior by January
31 following each calendar year.
"Backup withholding" at a rate of 31% will apply to payments of interest to
non-exempt United States Persons unless the holder furnishes its taxpayer
identification number in the manner prescribed in applicable Treasury
regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
No information reporting or backup withholding will be required with respect
to payments made by the Issuer Trust or any paying agent to Non-United States
Holders if a statement described in (a)(iv) under "Non-United States Holders"
has been received and the payor does not have actual knowledge that the
beneficial owner is a United States Person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, OID or premium on the Capital Securities
(or the Subordinated Debentures) are paid or collected by a foreign office of
a custodian, nominee or other foreign agent on behalf of the Beneficial Owner,
or if a foreign office of a broker (as defined in applicable Treasury
regulations) pays the proceeds of the sale of the Capital Securities (or the
Subordinated Debentures) to the owner thereof. If, however, such nominee,
custodian, agent or broker is, for United States federal income tax purposes,
a United States Person, a controlled foreign corporation or a foreign person
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, or, for taxable years
beginning after December 31, 1999, a foreign partnership in which one or more
United States persons, in the aggregate, own more than 50% of the income or
capital interests in the partnership or which is engaged in a trade or
business in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such
custodian, nominee, agent or broker has documentary evidence in its records
that the Beneficial Owner is not a United States Person and certain other
conditions are met or (2) the Beneficial Owner otherwise establishes an
exemption.
Payment of the proceeds from disposition of Capital Securities (or
Subordinated Debentures) to or through a United States office of a broker is
subject to information reporting and backup withholding unless the holder or
beneficial owner establishes an exemption from information reporting and
backup withholding.
Any amounts withheld from a holder of the Capital Securities under the
backup withholding rules generally will be allowed as a refund or a credit
against such holder's United States federal income tax liability, provided the
required information is furnished to the IRS.
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<PAGE>
CERTAIN ERISA CONSIDERATIONS
Before authorizing an investment in the Capital Securities, fiduciaries of
pension, profit sharing or other employee benefit plans subject to ERISA
("Plans") should consider, among other matters, (a) ERISA's fiduciary
standards (including its prudence and diversification requirements), (b)
whether such fiduciaries have authority to make such investment in the Capital
Securities under the applicable Plan investment policies and governing
instruments, and (c) rules under ERISA and the Code that prohibit Plan
fiduciaries from causing a Plan to engage in a "prohibited transaction."
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well as
individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from, among other things, engaging in certain
transactions involving "plan assets" with persons who are "parties in
interest" under ERISA or "disqualified persons" under the Code (collectively,
"Parties in Interest") with respect to such Plan. A violation of these
"prohibited transaction" rules may result in an excise tax or other
liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or
administrative exemption. Such administrative exemptions include prohibited
transaction class exemption ("PTCE"). PTCE 96-23 (for certain transactions
determined by in-house asset managers), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 95-60 (for certain
transactions involving insurance company general accounts), PTCE 90-1 (for
certain transactions involving insurance company pooled separate accounts),
and PTCE 84-14 (for certain transactions determined by independent qualified
asset managers).
The Department of Labor has issued a regulation (29 C.F.R. section 2510.3-
101) (the "Plan Assets Regulation") concerning the definition of what
constitutes the assets of a Plan. The Plan Assets Regulation provides that, as
a general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed, for purposes of ERISA, to be assets of the
investing Plan unless certain exceptions apply. If the underlying assets of
the Issuer Trust were deemed to include "plan assets" of investing Plans, the
Property "Trustee and the Company could be treated as fiduciaries under ERISA
with respect to such Plans by virtue of their exercise of authority or control
respecting the management or disposition of the assets of the Issuer Trust.
Under such circumstances, there may have been an improper delegation by the
investing Plans of the responsibility to manage Plan assets and the Company's
redemption of the Subordinated Debentures could constitute a prohibited
transaction under Section 406(a) of ERISA or Section 4975 of the Code.
Pursuant to an exception contained in the Plan Assets Regulation, the assets
of the Trust would not be deemed to be "plan assets" of investing Plans if the
equity interests acquired by employee benefit plans are "publicly-offered
securities"--that is, they are (1) widely held (i.e., owned by more than 100
investors independent of the issuer and of each other), (2) freely
transferable and (3) sold as part of an offering to the public pursuant to an
effective registration statement under the Securities Act and then timely
registered under the Exchange Act. The Underwriters expect that the Capital
Securities will be held by at least 100 independent investors at the
conclusion of the offering, and that the Capital Securities will be sold as
part of an offering pursuant to an effective registration statement under the
Securities Act, and it is anticipated that the Capital Securities will be
timely registered under the Exchange Act. While no significant restrictions
have been imposed on the transfer of the Capital Securities and, therefore, it
is anticipated that the Capital Securities will be "freely tradeable" for
purposes of the Plan Asset regulations, whether a security is "freely
transferable" for purposes of the Plan Assets Regulation is a factual question
to be determined on the basis of all relevant facts and circumstances.
Although it is expected that the Capital Securities will meet the criteria
of "publicly offered securities" described above and that, therefore, the
assets of the Issuer Trust should not be deemed to be "plan assets" of an
investing Plan, if the Company or the Trust is a Party in Interest with
respect to the Plan, in the absence of an applicable exemption, the Plan's
purchase of the Capital Securities from the Company would likely constitute a
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<PAGE>
prohibited transaction under Section 406(a)(1)(A) of ERISA and Section
4975(c)(1)(A) of the Code. In addition, in the absence of an applicable
exemption, certain other transactions coincident to the Capital Securities may
involve a prohibited transaction, such as a distribution of the Subordinated
Debentures from the Issuer Trust to a Plan investor.
Any plans or other entities whose assets include Plan assets subject to
ERISA or Section 4975 of the Code proposing to acquire Capital Securities
should consult with their own counsel to confirm that such investment will not
result in a prohibited transaction that is not subject to an exemption and
will satisfy any other applicable requirements of ERISA and the Code. Each
purchaser using assets of a Plan to acquire Capital Securities will be deemed
to have represented that its purchase and holding of such Capital Securities
will not result in a non-exempt prohibited transaction under ERISA or the Code
and will be covered by the exemptive relief provided by PTCE 96-23, 95-60, 91-
38, 90-1 or 84-14 or another applicable exemption.
Governmental Plans and certain church plans are not subject to ERISA, and
are also not subject to the prohibited transaction provisions of Section 4975
of the Code. However, state laws or regulations governing the investment and
management of the assets of such plans may contain fiduciary and prohibited
transaction provisions similar to those under ERISA and the Code discussed
above. Accordingly, fiduciaries of governmental and church plans, in
consultation with their advisers, should consider the impact of their
respective state laws on investments in the Capital Securities and the
considerations discussed above to the extent applicable.
UNDERWRITERS
Subject to the terms and conditions set forth in the Underwriting Agreement
dated August 5, 1998 (the "Underwriting Agreement") among the Company, the
Issuer Trust, and each of the underwriters named therein (the "Underwriters"),
the Issuer Trust has agreed to sell to the Underwriters, and the Underwriters
have agreed to purchase, severally but not jointly, the respective number of
the Capital Securities set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME CAPITAL SECURITIES
---- ------------------
<S> <C>
Morgan Stanley & Co. Incorporated...................... 911,600
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................. 911,400
NationsBanc Montgomery Securities LLC.................. 911,400
PaineWebber Incorporated............................... 911,400
Prudential Securities Incorporated..................... 911,400
Smith Barney Inc. ..................................... 911,400
Stephens Inc. ......................................... 911,400
BT Alex Brown Incorporated............................. 60,000
Bear, Stearns & Co. Inc. .............................. 60,000
CIBC Oppenheimer Corp. ................................ 60,000
A.G. Edwards & Sons, Inc. ............................. 60,000
Goldman, Sachs & Co. .................................. 60,000
Lehman Brothers Inc. .................................. 60,000
Morgan Keegan & Company, Inc. ......................... 60,000
Schroder & Co. Inc. ................................... 60,000
SG Cowen Securities Corporation........................ 60,000
Advest, Inc. .......................................... 30,000
Robert W. Baird & Co. Incorporated..................... 30,000
William Blair & Company, L.L.C. ....................... 30,000
Blaylock & Partners, L.P. ............................. 30,000
J.C. Bradford & Co. ................................... 30,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
NAME CAPITAL SECURITIES
---- ------------------
<S> <C>
Craigie Incorporated.................................. 30,000
Crowell, Weedon & Co. ................................ 30,000
Dain Rauscher Incorporated............................ 30,000
Davenport & Company LLC............................... 30,000
Doley Securities, Inc. ............................... 30,000
Fahnestock & Co. Inc. ................................ 30,000
Ferris, Baker Watts, Incorporated..................... 30,000
Fidelity Capital Markets,
A Division of National Financial Services Corpora-
tion ................................................ 30,000
Fifth Third/The Ohio Company.......................... 30,000
First Albany Corporation.............................. 30,000
First of Michigan Corporation......................... 30,000
Gibraltar Securities Co. ............................. 30,000
J. J. B. Hilliard, W.L. Lyons, Inc. .................. 30,000
Interstate/Johnson Lane Corporation................... 30,000
Janney Montgomery Scott Inc. ......................... 30,000
Kirkpatrick, Pettis, Smith, Polian Inc. .............. 30,000
Legg Mason Wood Walker, Incorporated.................. 30,000
McDonald & Company Securities, Inc. .................. 30,000
Mesirow Financial, Inc. .............................. 30,000
Olde Discount Corporation............................. 30,000
Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corporation............................... 30,000
Piper Jaffray Inc. ................................... 30,000
Raymond James & Associates, Inc. ..................... 30,000
The Robinson-Humphrey Company, LLC.................... 30,000
Roney Capital Markets
A Division of First Chicago Capital Markets, Inc..... 30,000
Scott & Stringfellow, Inc. ........................... 30,000
Sterne, Agee & Leach, Inc. ........................... 30,000
Stifel, Nicolaus & Company, Incorporated.............. 30,000
Tucker Anthony Incorporated........................... 30,000
Wedbush Morgan Securities............................. 30,000
Wheat First Securities, Inc. ......................... 30,000
---------
Total............................................... 8,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Capital Securities are
subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters are committed to take and pay for
all the Capital Securities if any are taken.
The initial purchase price for the Capital Securities will be the initial
offering price set forth on the cover page of this Prospectus Supplement (the
"Capital Securities Offering Price"). The Underwriters propose to offer the
Capital Securities at the Capital Securities Offering Price, and all or part
to certain dealers at a price that represents a concession not in excess of
$.50 per Capital Security. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $.45 per Capital Security to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed by the Underwriters named on the cover
page hereof.
In view of the fact that the proceeds from the sale of the Capital
Securities will be used to purchase the Subordinated Debentures issued by the
Company, the Underwriting Agreement provides that the Company will
S-42
<PAGE>
pay as compensation for the Underwriters arranging the investment therein of
such proceeds an amount of $.7875 per Capital Security (or $6,300,000 in the
aggregate) for the accounts of the Underwriters.
Prior to this offering, there has been no public market for the Capital
Securities. Application has been made to list the Capital Securities on the
NYSE. Trading of the Capital Securities on the NYSE is expected to commence
within a 30-day period after the initial delivery of the Capital Securities.
The Underwriters have advised the Company that they intend to make a market
in the Capital Securities prior to commencement of trading on the NYSE, but
they are not obligated to do so and may discontinue market making at any time
without notice. No assurance can be given as to the liquidity of the trading
market for the Capital Securities.
In order to meet one of the requirements for listing the Capital Securities
on the NYSE, the Underwriters will undertake to sell lots of 100 or more
Capital Securities to a minimum of 400 beneficial holders.
The Company and the Issuer Trust have agreed that, during the period
beginning on the date of the Underwriting Agreement and continuing to and
including the closing under the Underwriting Agreement, neither will offer,
sell, contract to sell or otherwise dispose of any securities of the Company
or the Issuer Trust that are substantially similar to the Capital Securities,
or that are convertible into or exchangeable for, or otherwise represent a
right to acquire, any such securities, except in the offering or with the
prior written consent of the Underwriters.
The Company and the Issuer Trust have agreed to indemnify the Underwriters
and certain other persons against certain liabilities, including liabilities
under the Securities Act and to contribute to payments the Underwriters may be
required to make in respect thereof.
In connection with the offering of the Capital Securities, the Underwriters
and any selling group members and their respective affiliates may engage in
transactions to stabilize, maintain or otherwise affect the market price of
the Capital Securities. Specifically, the Underwriters may overallot by
selling more Capital Securities than they are committed to purchase from the
Issuer Trust. In such a case, to cover all or part of the short position, the
Underwriters may purchase Capital Securities in the open market following
completion of the initial offering of the Capital Securities. The Underwriters
also may engage in stabilizing transactions in which they bid for, and
purchase, Capital Securities at a level above that which might otherwise
prevail in the open market for the purpose of preventing or retarding a
decline in the market price of the Capital Securities. The Underwriters also
may reclaim any selling concessions allowed to an Underwriter or a dealer if
the Underwriters repurchase Capital Securities distributed by that Underwriter
or dealer. Any of the foregoing transactions may result in the maintenance of
a price for the Capital Securities at a level above that which might otherwise
prevail in the open market. Neither the Company nor any Underwriter makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Capital
Securities. The Underwriters are not required to engage in any of the
foregoing transactions and, if commenced, such transactions may be
discontinued at any time without notice.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or financial services to
the Company, for which such Underwriters or their affiliates have received or
will receive customary fees and commissions. Morgan Stanley & Co. Incorporated
advised the Company with respect to the Acquisition for which it received
customary compensation.
S-43
<PAGE>
$2,500,000,000
DILLARD'S, INC.
DEBT SECURITIES
EQUITY SECURITIES
DILLARD'S CAPITAL TRUST I
DILLARD'S CAPITAL TRUST II
DILLARD'S CAPITAL TRUST III
DILLARD'S CAPITAL TRUST IV
DILLARD'S CAPITAL TRUST V
CAPITAL SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED,
TO THE EXTENT DESCRIBED HEREIN, BY
DILLARD'S, INC.
Dillard's, Inc. (the "Company"), may offer and issue from time to time,
together or separately, (i) its debt securities ("Debt Securities") in one or
more series, (ii) shares of its Class A Common Stock, par value $.01 per share
("Class A Common Stock") and (iii) shares of its Additional Preferred Stock,
par value $.01 per share ("Preferred Stock" and, together with the Class A
Common Stock, "Equity Securities"), with such terms as are described herein
and in the applicable Prospectus Supplement.
Dillard's Capital Trust I, Dillard's Capital Trust II, Dillard's Capital
Trust III, Dillard's Capital Trust IV and Dillard's Capital Trust V, each a
trust created under the laws of the State of Delaware (each an "Issuer Trust,"
and collectively, the "Issuer Trusts"), may severally offer and issue from
time to time equity securities (the "Capital Securities") representing
preferred beneficial ownership interests in such Issuer Trust with such terms
as are described herein and in the applicable Prospectus Supplement. The
Company will be the owner, directly or indirectly, of the common securities
(the "Common Securities" and, together with the Capital Securities, the "Trust
Securities") representing common beneficial ownership interests in each Issuer
Trust. Payment to holders of Capital Securities of cash distributions thereon
("Distributions"), and amounts payable upon redemption thereof, liquidation of
the applicable Issuer Trust or otherwise, will be guaranteed by the Company to
the extent described herein and in the applicable Prospectus Supplement (each,
a "Guarantee"). The only assets of an Issuer Trust will be Debt Securities
purchased from the Company with the proceeds from the issuance of its Trust
Securities. Each Guarantee will rank pari passu with the Debt Securities
purchased with the proceeds of the Capital Securities covered by such
Guarantee. If specified in the applicable Prospectus Supplement, such Debt
Securities may be distributed pro rata to holders of Trust Securities at such
times as may be described herein or in such Prospectus Supplement.
The Debt Securities, Equity Securities, Capital Securities and Guarantees
are sometimes herein referred to individually as a "Security" and collectively
as the "Securities." This Prospectus may not be used to consummate sales of
Securities unless accompanied by a Prospectus Supplement.
----------------
THESE SECURITIES HAVE 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 PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
Securities may be offered through dealers, underwriters or agents designated
from time to time, as set forth in the accompanying Prospectus Supplement. Net
proceeds to the Company will be the purchase price in the case of sales to a
dealer, the public offering price less discount in the case of sales to an
underwriter or the
(continued on next page)
<PAGE>
(continued from previous page)
purchase price less commission in the case of sales through an agent--in each
case, less other expenses attributable to issuance and distribution. See "Plan
of Distribution" for possible indemnification arrangements for dealers,
underwriters and agents.
The aggregate initial public offering price of all Equity Securities, Debt
Securities (other than Debt Securities purchased by Issuer Trusts) and Capital
Securities issued pursuant to the Registration Statement of which this
Prospectus forms a part shall not exceed $2,500,000,000 or the equivalent
thereof in any foreign currency or composite currency. Unless specified in the
applicable Prospectus Supplement, the Debt Securities and the Capital
Securities will be issued in registered form without coupons.
Certain specific terms of the Securities in respect of which this Prospectus
is being delivered will be described in the accompanying Prospectus
Supplement, including without limitation and where applicable, (a) in the case
of the Debt Securities, series designation, ranking, aggregate principal
amount, denominations, maturity date (including any provisions for the
shortening or extension thereof), interest payment dates, interest rate (which
may be fixed or variable) or method of calculating interest, if any, interest
deferral terms, if any, place or places where and currency or currency units
in which principal, premium, if any, and interest, if any, will be payable,
any terms of redemption, any sinking fund provisions, terms for any conversion
or exchange into Class A Common Stock or other securities, initial offering or
purchase price, methods of distribution and any other special terms, and (b)
in the case of Capital Securities, the identity of the Issuer Trust, title,
aggregate stated liquidation amount, number of securities, Distribution rate
or method of calculating such rate, Distribution payment dates, applicable
Distribution deferral terms, if any, place or places where and currency or
currency units in which Distributions and other amounts will be payable, any
terms of redemption, exchange, initial offering or purchase price, methods of
distribution and any other special terms, and (c) in the case of Preferred
Stock, the specific title and stated value, any dividend, liquidation,
redemption, voting and other rights, any terms for conversion into Class A
Common Stock, the initial offering or purchase price, methods of distribution
and any other special terms.
The applicable Prospectus Supplement also will contain information, as
applicable, about certain United States federal income tax consequences
relating to the Securities and will set forth the name of and compensation to
each dealer, underwriter or agent (if any) involved in the sale of the
Securities being offered and the managing underwriters with respect to any
Securities sold to or through underwriters.
No dealer, salesperson or other person has been authorized in connection
with any offering made hereby to give any information or to make any
representations not contained or incorporated by reference in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or any underwriter agent or
dealer. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any security other than the Securities offered hereby, nor
does it constitute an offer to sell or a solicitation of an offer to buy the
Securities to any person in any jurisdiction in which it is unlawful to make
such offer or solicitation to such person. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any
date subsequent to the date hereof or that there has been no change in the
affairs of the Company since the date hereof.
----------------
The date of this Prospectus is July 24, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its Regional
Offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and at Seven World Trade Center, Suite 1300, New
York, New York 10048, and copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Additionally, such material may
be accessed at the Commission's Website (http:/www.sec.gov). Such material can
also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005 on which certain of the Company's securities
are listed.
This Prospectus constitutes a part of a Registration Statement filed by the
Company and the Issuer Trusts with the Commission under the Securities Act of
1933, as amended (the "Securities Act"). This Prospectus omits certain of the
information contained in the Registration Statement in accordance with the
rules and regulations of the Commission. Reference is hereby made to the
Registration Statement and to the related exhibits for further information
with respect to the Company, the Issuer Trusts and the Securities. Statements
contained herein concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such
reference.
No separate financial statements of any Issuer Trust have been included
herein. The Company and the Issuer Trusts do not consider that such financial
statements would be material to holders of the Capital Securities because each
Issuer Trust is a newly formed special purpose entity, has no operating
history or independent operations and is not engaged in and does not propose
to engage in any activity other than holding Debt Securities as trust assets
and issuing the Trust Securities. See "The Issuer Trusts," "Description of
Capital Securities," "Description of Debt Securities" and "Description of
Guarantees." In addition, the Company does not expect that any of the Issuer
Trusts will be filing reports under the Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission under the Exchange Act by
the Company are incorporated herein by reference:
(a) Annual Report on Form 10K for the fiscal year ended January 31, 1998;
(b) Quarterly Report on Form 10-Q for the quarter ended May 2, 1998;
(c) Current Reports on Form 8-K dated February 19, 1998 and May 16, 1998;
and
(d) Description of the Company's Class A Common Stock contained in its
Registration Statement on Form 8-A, dated June 7, 1989.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
3
<PAGE>
Copies of the above documents (excluding exhibits) may be obtained upon
request without charge from the Company, 1600 Cantrell Road, Little Rock,
Arkansas 72201, Attention: James I. Freeman (telephone number 501-376-5200).
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including any documents that are incorporated by reference
as set forth in "Incorporation of Certain Documents by Reference," contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements are indicated by
words or phrases such as "anticipates," "estimates," "projects," "management
believes," "the Company believes" and similar words or phrases. Such
statements involve risks and uncertainties and are subject to change based on
various important factors. The following factors, among others, could affect
the Company's financial performance and could cause actual results to differ
materially from those expressed or implied in any such forward-looking
statements: economic and weather conditions in the regions in which the
Company's stores are located and their effect on the buying patterns of the
Company's customers, changes in consumer spending patterns and debt levels,
trends in personal bankruptcies and the impact of competitive market forces.
4
<PAGE>
THE COMPANY
Dillard's, Inc. is a regional group of traditional department stores
operating, as of January 31, 1998, 270 stores in Alabama, Arizona, Arkansas,
California, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Mississippi, Missouri, Nebraska, Nevada, New Mexico,
North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia,
Utah and Wyoming. The stores vary from 30,000 square feet to 409,000 square
feet in size, with the area of typical stores ranging between 80,000 to
220,000 square feet, and the average store size being approximately 160,000
square feet. The stores are owned either by the Company or a wholly owned
subsidiary, with the exception of 66 stores, which are leased from third
parties. The stores feature branded and private label goods in the middle to
upper-middle price ranges and cater to a broad spectrum of the population.
Most of the stores are full-line department stores and sell quality name-brand
and private label apparel and accessories for men, women and children, as well
as accessories for the home such as linens and domestics, china, silverware,
draperies and housewares. Special emphasis is placed on fashion-oriented
apparel.
The Company is incorporated under the laws of the State of Delaware. The
executive offices of the Company are located at 1600 Cantrell Road, Little
Rock, Arkansas 72201, telephone number: 501-376-5200.
RECENT DEVELOPMENT
The Company has entered into an Agreement and Plan of Merger, dated as of
May 16, 1998 (the "Merger Agreement"), providing for the acquisition of the
stock of Mercantile Stores Company, Inc. ("Mercantile"). Mercantile is a
conventional department store retailer engaged in the general merchandising
business. Mercantile operates 103 department stores and 16 home fashion stores
under 13 different names in a total of 17 states. A subsidiary, Mercantile
Credit Corp., provides servicing for Mercantile's private label credit
program.
MSC Acquisitions, Inc., a Delaware corporation ("NEWCO") and a newly formed
wholly owned subsidiary of the Company, has offered to purchase all of the
outstanding shares of Common Stock, par value $.14 2/3 per share (the
"Shares"), of Mercantile at a purchase price of $80 per Share, net to the
seller in cash without interest thereon.
The Merger Agreement provides that, following the completion of the offer,
NEWCO will be merged with and into Mercantile (the "Acquisition"). Following
the Acquisition, Mercantile will continue as the surviving corporation and
become a direct, wholly owned subsidiary of the Company.
Stockholders of Mercantile representing approximately 40% of the issued and
outstanding Shares have contractually agreed, among other things, to tender
their Shares in the offer, provide the Company with an irrevocable proxy,
grant an option at the $80 offer price and otherwise support the transaction
with the Company.
The offer is conditioned upon, among other things, there being validly
tendered and not properly withdrawn prior to the expiration date for the offer
a number of Shares which, together with any Shares owned, directly or
indirectly, by the Company or NEWCO, constitutes more than 50% of the voting
power (determined on a fully-diluted basis), on the date of purchase, of all
the securities entitled to vote generally in the election of directors or in a
merger (the "Minimum Condition"). If the Company purchases not less than that
number of Shares needed to satisfy the Minimum Condition, it will be able to
effect the Acquisition without the affirmative vote of any other stockholder
of Mercantile.
Under the Merger Agreement, the respective obligations of the Company, NEWCO
and Mercantile under the Acquisition shall be subject to the satisfaction at
or prior to the effective time of the Acquisition of the following conditions
(a) as required by the Delaware General Corporation Law (the "DGCL"), the
Merger Agreement shall have been approved by the affirmative vote of the
stockholders of Mercantile by the requisite vote in accordance with
Mercantile's Certificate of Incorporation and the DGCL (which Mercantile has
represented shall be solely the affirmative vote of a majority of the
outstanding Shares); (b) no statute, rule,
5
<PAGE>
regulation, executive order, decree, ruling, injunction or other order
(whether temporary, preliminary or permanent) shall have been enacted,
entered, promulgated or enforced by any United States, foreign, federal or
state court or governmental authority which prohibits, restrains, enjoins or
restricts the consummation of the Acquisition; (c) NEWCO shall have purchased
Shares pursuant to the offer and (d) any waiting period applicable to the
Acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), shall have been terminated or expired.
The Company believes that the Acquisition is highly probable although there
can be no assurance that the Acquisition will be completed.
The Company issued a press release on June 4, 1998, announcing the receipt
of a request by the Federal Trade Commission (the "FTC") for additional
information in connection with the Company's HSR Act filing. As a result of
the request by the FTC, NEWCO extended the period during which its tender
offer for Shares will remain open to 12:00 Midnight, New York City Time, on
Wednesday, August 5, 1998.
THE ISSUER TRUSTS
Each Issuer Trust is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary
of State on July 14, 1998. Each Issuer Trust will be governed by an amended
and restated trust agreement (each, a "Trust Agreement") among the Company, as
Depositor, Chase Manhattan Bank Delaware, as Delaware Trustee, The Chase
Manhattan Bank, as Property Trustee (together with the Delaware Trustee, the
"Issuer Trustees") and two individuals selected by the holders of the Common
Securities to act as administrators with respect to such Issuer Trust (the
"Administrators") and the holders, from time to time, of the Trust Securities.
The Company, as the holder of the Common Securities, intends to select two
individuals who are employees or officers of or affiliated with the Company to
serve as the Administrators. Each Issuer Trust exists for the exclusive
purposes of (i) issuing and selling its Trust Securities, (ii) using the
proceeds from the sale of such Trust Securities to invest in a series of Debt
Securities and (iii) engaging in only those other activities necessary,
convenient or incidental thereto (such as registering the transfer of Trust
Securities). Accordingly, Debt Securities will be the sole assets of each
Issuer Trust, and payments under the Debt Securities owned by an Issuer Trust
will be the sole revenue of such Issuer Trust.
All of the Common Securities of each Issuer Trust will be owned directly or
indirectly by the Company. The Common Securities of an Issuer Trust will rank
pari passu, and payments will be made thereon pro rata, with the Capital
Securities of such Issuer Trust, except that upon the occurrence and
continuance of a Debenture Event of Default (as defined herein) arising as a
result of any failure by the Company to pay any amounts in respect of the Debt
Securities owned by such Issuer Trust when due, the rights of the Company as
holder of the Common Securities to payment in respect of Distributions and
payments upon liquidation, redemption or otherwise will be subordinated to the
rights of the holders of the Capital Securities of such Issuer Trust. See
"Description of Capital Securities--Subordination of Common Securities."
Unless otherwise specified in the applicable Prospectus Supplement, the
Company will acquire, directly or indirectly, Common Securities in an
aggregate liquidation amount equal to at least 3% of the total capital of each
Issuer Trust. Unless otherwise specified in the applicable Prospectus
Supplement, each Issuer Trust will have a term of approximately 40 years from
the date on which it initially issues its Capital Securities, but may dissolve
earlier as provided in the applicable Trust Agreement and described in the
applicable Prospectus Supplement. Unless otherwise specified in the applicable
Prospectus Supplement, the name and address of the Delaware Trustee for each
Issuer Trust will be Chase Manhattan Bank Delaware, 1201 Market Street,
Wilmington, Delaware 19801, and the name and address of the Property Trustee,
the Guarantee Trustee and the Debt Securities Trustee for each Issuer Trust
will be The Chase Manhattan Bank, 450 West 33rd Street, 15th Floor , New York,
New York 10001.
It is anticipated that no Issuer Trust will be subject to the reporting
requirements under the Exchange Act.
6
<PAGE>
USE OF PROCEEDS
The Issuer Trusts will use all proceeds from the sale of Trust Securities to
purchase Debt Securities from the Company. Unless otherwise set forth in the
applicable Prospectus Supplement, the Company intends to use the net proceeds
from the sale of its Equity Securities and/or Debt Securities (including Debt
Securities issued to the Issuer Trusts) for general corporate purposes, which
may include additions to working capital, financing of acquisitions, the
repurchase of outstanding Class A Common Stock and the repayment of
indebtedness or for such other purposes as are set forth in the applicable
Prospectus Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for each of the years in the five year period ended January 31,
1998 and for the three months ended May 2, 1998 and May 3, 1997. For purposes
of computing the ratio, earnings consist of earnings before income taxes plus
fixed charges (less capitalized interest of preferred stock dividends), and
fixed charges consist of interest expense, capitalized interest and the
interest portion of rent expense which is approximated at one-third of rent
expense.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FISCAL YEAR ENDED
------------------ ------------------------------------------------------------
MAY 2, MAY 3, JAN. 31, FEB. 1, FEB. 3, JAN. 28, JAN. 29,
1998 1997 1998 1997 1996* 1995 1994
------ ------ -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
3.61 3.63 3.69 3.61 2.86 3.72 3.57
</TABLE>
--------
*53 weeks
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred stock dividends for the Company for each of the years in
the five year period ended January 31, 1998 and for the three months ended May
2, 1998 and May 3, 1997. For purposes of computing the ratio, earnings consist
of earnings before income taxes plus fixed charges (less capitalized interest)
and preferred stock dividends, and fixed charges consist of interest expense,
capitalized interest and the interest portion of rent expense which is
approximated at one-third of rent expense.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FISCAL YEAR ENDED
------------------ ------------------------------------------------------------
MAY 2, MAY 3, JAN. 31, FEB. 1, FEB. 3, JAN. 28, JAN. 29,
1998 1997 1998 1997 1996* 1995 1994
------ ------ -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
3.61 3.62 3.69 3.61 2.86 3.72 3.57
</TABLE>
--------
*53 weeks
DESCRIPTION OF DEBT SECURITIES
The Debt Securities in respect of which this Prospectus is being delivered
(the "Offered Debt Securities") will constitute either senior or subordinated
debt of the Company and will be issued, in the case of Debt Securities that
will be senior debt, under an Indenture dated as of May 15, 1988, as
supplemented by a First Supplemental Indenture dated as of December 16, 1988,
a Second Supplemental Indenture dated as of September 14, 1990, and a Third
Supplemental Indenture to be entered into (the Indenture, as supplemented,
being referred to herein as the "Senior Debt Indenture") between the Company
and The Chase Manhattan Bank (formerly known as Chemical Bank), as Trustee,
and, in the case of Debt Securities that will be subordinated debt, under a
Subordinate Indenture to be entered into between the Company and The Chase
Manhattan Bank, as Trustee (the "Subordinated Debt Indenture"), copies of
which are fixed as exhibits to the Registration Statement. The Senior
7
<PAGE>
Debt Indenture and Subordinated Debt Indenture are sometimes hereinafter
referred to individually as an "Indenture" and collectively as the
"Indentures." The following summaries of certain provisions of the Indentures
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the Indentures, including the
definitions therein of certain terms. Whenever particular sections of, or
terms defined in, the Indentures are referred to, such sections or defined
terms are incorporated herein by reference.
GENERAL
The Debt Securities will be either unsecured senior or subordinated
obligations of the Company.
Neither Indenture limits the aggregate principal amount of the Debt
Securities or of any particular series of Offered Debt Securities and provides
that Debt Securities may be issued thereunder from time to time in one or more
series. All Debt Securities of any series need not be issued at the same time
or bear interest at the same rate or mature on the same date.
Reference is made to the Prospectus Supplement (the "Prospectus Supplement")
relating to the Offered Debt Securities for the following terms thereof: (1)
the title of the Offered Debt Securities; (2) classification as senior or
subordinated Debt Securities; (3) any limit on the aggregate principal amount
of the Offered Debt Securities; (4) the date or dates on which the Offered
Debt Securities will mature; (5) the rate or rates per annum (or the method of
calculating such rates) at which the Offered Debt Securities will bear
interest, if any, and the date from which such interest, if any, will accrue;
(6) the Interest Payment Dates on which any such interest on the Offered Debt
Securities will be payable, the Regular Record Date for any interest payable
on any Offered Debt Securities on any Interest Payment Date, any provisions
relating to the deferral of interest, and the extent to which, or the manner
in which, any interest payable on a global Debt Security (a "Global Note") on
an Interest Payment Date will be paid if other than in the manner described
under "Global Notes" below; (7) the dates, if any, on which and the price or
prices at which the Offered Debt Securities may, pursuant to any mandatory or
optional sinking fund provisions, be redeemed by the Company and other
detailed terms and provisions of any such sinking funds; (8) the date, if any,
after which and the price or prices at which the Offered Debt Securities may,
pursuant to any optional redemption provisions, be redeemed at the option of
the Company or of the holder thereof and other detailed terms and provisions
of any such optional redemption; (9) the right of the Company to defease the
Offered Debt Securities or certain covenants under the Indentures; (10) the
currency or currencies, which may be a composite currency such as the European
Currency Unit, of payment of principal of and premium, if any, and interest on
the Offered Debt Securities, if other than U.S. dollars; (11) whether the
Offered Securities are to be issued with original issue discount within the
meaning of Section 1273(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder; (12) whether the Offered
Securities are to be issued in whole or in part in the form of one or more
Global Notes and, if so, the identity of the depositary, if any, for such
Global Note or Notes; (13) any addition to, or modification or deletion of,
any Events of Default or covenants provided for with respect to the Offered
Securities; (14) any index used to determine the amount of payments of
principal of and premium, if any, and interest on the Offered Debt Securities;
and (15) any other terms of the Offered Debt Securities not inconsistent with
the terms of the Indentures.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
principal of and any premium and interest on the Offered Debt Securities will
be payable, and the Offered Debt Securities will be exchangeable and transfers
thereof will be registrable, at the corporate trust office of the Trustee in
New York, New York, provided that, at the option of the Company, payment of
any interest may be made by check mailed to the address of the person entitled
thereto as it appears in the Security Register. Unless otherwise indicated in
the Prospectus Supplement relating thereto, payment of any interest due on any
Offered Debt Security will be made to the Person in whose name such Offered
Debt Security is registered at the close of business on the Regular Record
Date for such interest. (Indentures, Sections 301, 305, 307 and 1002)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Debt Securities will be issued only in fully registered form
without coupons in denominations of $1,000 or any integral multiple
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thereof, and no service charge will be made for any transfer or exchange of
such Offered Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Indentures, Sections 302 and 305)
Debt Securities may be issued under either Indenture as Original Issue
Discount Securities to be offered and sold at a substantial discount from the
principal amount thereof. Special Federal income tax, accounting and other
considerations applicable thereto will be described in the Prospectus
Supplement relating to any such Original Issue Discount Securities.
SENIOR DEBT
Debt Securities that will constitute part of the senior debt of the Company
will be issued under the Senior Debt Indenture and will rank pari passu with
all other unsecured and unsubordinated debt of the Company.
SUBORDINATED DEBT
Debt Securities that will constitute part of the subordinated debt of the
Company will be issued under the Subordinated Debt Indenture.
Debt Securities issued under the Subordinated Debt Indenture will be
subordinate and junior in right of payment, to the extent and in the manner
set forth in the Subordinated Debt Indenture, to all "Senior Indebtedness," as
defined therein, of the Company. The Subordinated Debt Indenture defines
"Senior Indebtedness" as obligations (other than nonrecourse obligations, the
Debt Securities issued under the Subordinated Debt Indenture and any other
obligations specifically designated as being subordinate in right of payment
to such Senior Indebtedness) of, or guaranteed or assumed by, the Company for
borrowed money or evidenced by bonds, debentures, notes or other similar
instruments, and amendments, renewals, extensions, modifications and
refundings of any such indebtedness or obligations. (Subordinated Debt
Indenture, Section 1.01)
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceeding in
respect of the Company or a substantial part of its property, or (b) that (i)
a default shall have occurred with respect to the payment of principal of (and
premium, if any) or any interest on or other monetary amounts due and payable
on any Senior Indebtedness (as defined in the Subordinated Debt Indenture) or
(ii) there shall have occurred an event of default (other than a default in
the payment of principal, premium, if any, or interest, or other monetary
amounts due and payable) with respect to any Senior Indebtedness, as defined
in the Subordinated Debt Indenture or in the instrument under which the same
is outstanding, permitting the holder or holders thereof to accelerate the
maturity thereof (with notice or lapse of time, or both), and such event of
default shall have continued beyond the period of grace, if any, in respect
thereof, and such default or event of default shall not have been cured or
waived or shall not have ceased to exist, or (c) that the principal of and
accrued interest on Debt Securities issued under the Subordinated Debt
Indenture shall have been declared due and payable upon an Event of Default
pursuant to Section 5.01 of the Subordinated Debt Indenture and such
declaration shall not have been rescinded and annulled as provided therein,
then the holders of all Senior Indebtedness (as defined in the Subordinated
Debt Indenture) shall first be entitled to receive payment of the full amount
unpaid thereon, or provision shall be made for such payment in money or
money's worth, before the holders of any of Debt Securities issued under the
Subordinated Debt Indenture are entitled to receive a payment on account of
the principal of (and premium, if any) or any interest on the indebtedness
evidenced by such Debt Securities. (Subordinated Debt Indenture, Section
13.01) If this Prospectus is being delivered in connection with a series of
Debt Securities issued under the Subordinated Debt Indenture, the accompanying
Prospectus Supplement or the information incorporated herein by reference will
set forth the approximate amount of Senior Indebtedness (as defined in the
Subordinated Debt Indenture) outstanding as of the end of the most recent
fiscal quarter.
CERTAIN COVENANTS OF THE COMPANY
Restrictions on Liens. The Senior Debt Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, issue, assume or
guarantee any Indebtedness secured by any mortgage, security
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interest, pledge, lien or other encumbrance (herein referred to as a
"Mortgage" or "Mortgages") upon any Operating Property or Operating Asset of
the Company or any Restricted Subsidiary, whether such assets are now owned or
hereafter acquired, without in any such case effectively providing that the
Debt Securities (together with, if the Company shall so determine, any other
Indebtedness ranking equally with the Debt Securities) shall be secured
equally and ratably with such Indebtedness except that the foregoing
restrictions shall not apply to (i) the giving, simultaneously with or within
180 days after the latest of May 15, 1988, or the acquisition or construction
of such property, of a purchase money Mortgage on property acquired or
constructed after May 15, 1988, or the acquisition after May 15, 1988, of
property subject to any Mortgage which is limited to such property and which
secures Indebtedness not in excess of the lesser of the cost or fair market
value of such property, (ii) the giving by the Company or a Restricted
Subsidiary of a Mortgage on real property which is the sole security for
Indebtedness incurred within two years after the latest of May 15, 1988, the
acquisition of the property or completion of the first substantial
improvements thereon, provided that the Indebtedness does not exceed the
lesser of the cost of the property and improvements or their fair market value
and the holder of such Indebtedness is entitled to enforce its payment only by
resorting to such security, and (iii) Mortgages, or renewals thereof, existing
on the date of the Senior Debt Indenture or on assets of a Restricted
Subsidiary existing on the date it became a Subsidiary. Notwithstanding the
foregoing, the Company or any Restricted Subsidiary may create or assume
Mortgages in addition to those permitted above, and renew, extend or replace
such Mortgages provided that at the time of such creation, assumption,
renewal, extension or replacement, and after giving effect thereto, Exempted
Debt does not exceed 5% of Consolidated Net Tangible Assets. (Senior Debt
Indenture, Section 1007) On May 15, 1988, no Operating Properties were subject
to any liens.
Restrictions on Sale and Leaseback Transactions. The Senior Debt Indenture
provides that the Company will not, nor will it permit any Restricted
Subsidiary to, enter into any arrangement with any person providing for the
leasing by the Company or any Restricted Subsidiary of any Operating Property
or Operating Asset which has been or is to be sold or transferred by the
Company or such Restricted Subsidiary to such person (a "Sale and Leaseback
Transaction") unless the net proceeds of such sale or transfer have been
determined by the Company's Board of Directors to be at least equal to the
fair value of such Operating Property or Operating Assets at the time of such
sale and transfer and (i) within 180 days after the receipt of the proceeds of
such sale and transfer, either the Company or any Restricted Subsidiary
applies an amount equal to such net proceeds to the prepayment or retirement
(other than any mandatory prepayment or retirement) of Senior Funded Debt of
the Company or such Restricted Subsidiary, or (ii) the Company or such
Restricted Subsidiary would be entitled, at the time of the effective date of
such sale or transfer, to incur indebtedness secured by a Mortgage on such
Operating Property or Operating Assets in an amount at least equal to the
Attributable Debt in respect thereof, without equally and ratably securing the
Debt Securities pursuant to the "Restrictions on Liens" described above. The
foregoing restriction shall not apply to (i) any Sale and Leaseback
Transaction for a term of not more than two years, including renewals, (ii) in
the case of any Operating Property acquired or constructed subsequent to May
15, 1986, any Sale and Leaseback Transaction with respect thereto (including
presently owned real property upon which such Operating Property is to be
constructed) if a binding commitment is entered into within two years after
the later of the acquisition of the property or completion of the first
substantial improvements thereon and (iii) any Sale and Leaseback Transaction
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries provided that the lessor shall be the Company or a whollyowned
Restricted Subsidiary. (Senior Debt Indenture, Section 1008)
Exempted Debt. Notwithstanding the restrictions in the Senior Debt Indenture
on (i) Mortgages and (ii) Sale and Leaseback Transactions, the Company or its
Restricted Subsidiaries may, in addition to amounts permitted under such
restrictions, create Indebtedness secured by Mortgages, or enter into Sale and
Leaseback Transactions, provided that, after giving effect thereto, the
aggregate outstanding amount of all such Indebtedness secured by Mortgages
plus Attributable Debt resulting from such Sale and Leaseback Transactions
does not exceed 5% of Consolidated Net Tangible Assets (collectively, the
"Exempted Debt"). (Senior Debt Indenture, Sections 1007(b) and 1008(b))
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No Special Protection in the Event of a Highly Leveraged Transaction. Unless
otherwise indicated in the Prospectus Supplement relating thereto, the terms
of the Offered Debt Securities will not afford the holders special protection
in the event of a highly leveraged transaction.
CERTAIN DEFINITIONS
Set forth below are certain significant terms which are defined in Section
101 of the Senior Debt Indenture:
"Attributable Debt" in respect of a Sale and Leaseback Transaction means, at
the time of determination, the present value (discounted at the actual rate of
interest of such transaction) of the obligation of the lessee for net rental
payments during the remaining term of the lease included in such Sale and
Leaseback Transaction (including any period for which such lease has been
extended or may, at the option of the lessor, be extended).
"Capitalized Lease Obligations" means obligations created pursuant to leases
which are required to be shown on the liability side of a balance sheet in
accordance with generally accepted accounting principles.
"Consolidated" when used with respect to any of the terms defined in the
Senior Debt Indenture, refers to such terms as reflected in a consolidation of
the accounts of the Company and its Restricted Subsidiaries in accordance with
generally accepted accounting principles.
"Funded Debt" means indebtedness which matures more than one year from the
date of computation, or which is extendable or renewable at the sole option of
the obligor so that it may become payable more than one year from such date,
but, generally, shall not include obligations created pursuant to leases.
"Indebtedness" means, generally, all obligations for borrowed money,
including obligations secured by liens on property owned by a person whether
or not such person is directly liable therefor.
"Investment" means and includes any investment in stock, evidences of
indebtedness, loans or advances, however made or acquired, but shall not
include accounts receivable of the Company or of any Restricted Subsidiary
arising from transactions in the ordinary course of business, or any evidences
of indebtedness, loans or advances made in connection with the sale to any
Subsidiary of accounts receivable of the Company or any Restricted Subsidiary
arising from transactions in the ordinary course of business of the Company or
any Restricted Subsidiary.
"Net Tangible Assets" means the total amounts of assets (less depreciation
and valuation reserves and other reserves and items deductible from gross book
value of specific asset accounts under generally accepted accounting
principles) which under generally accepted accounting principles would be
included on a balance sheet after deducting therefrom (i) all liability items
except Funded Debt, Capitalized Lease Obligations, stockholders' equity and
reserves for deferred income taxes, (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, which in each such case would be so included on such balance
sheet, (iii) Investments (less applicable reserves) in, or equity in the net
assets of, NonRestricted Subsidiaries in excess of the amount of such
Investments and equity in net assets on January 30, 1988, and (iv) capitalized
property rights created pursuant to Capitalized Lease Obligations. As of
January 30, 1988, the amount of Investments in, or equity in the net assets
of, NonRestricted Subsidiaries totaled approximately $308,320,000.
"Operating Assets" means all merchandise inventories, furniture, fixtures
and equipment (including all transportation and warehousing equipment but
excluding office equipment and data processing equipment) owned by the Company
or a Restricted Subsidiary.
"Operating Property" means all real property and improvements thereon owned
by the Company or a Restricted Subsidiary and constituting, without
limitation, any store, warehouse, service center or distribution center
wherever located; provided that such term shall not include any store,
warehouse, service center or distribution center which the Company's Board of
Directors declares by resolution not to be of material importance to the
business of the Company and its Restricted Subsidiaries.
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"Restricted Subsidiaries" means all Subsidiaries other than NonRestricted
Subsidiaries. "NonRestricted Subsidiaries" means (i) any Subsidiary so
designated by the Board of Directors of the Company in accordance with the
Indenture, and (ii) any other Subsidiary of which the majority of the voting
stock is owned directly or indirectly by one or more NonRestricted
Subsidiaries. The Senior Debt Indenture provides that the Company's Board of
Directors may change the designations of Restricted Subsidiaries and
NonRestricted Subsidiaries. (Senior Debt Indenture, Section 1009) Initially
the Company will have no Restricted Subsidiaries.
"Senior Funded Debt" means all Funded Debt of the Company or any person
(except Funded Debt, the payment of which is subordinated to the payment of
the Debt Securities).
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having voting power under ordinary circumstances to elect a
majority of the board of directors of said corporation or business entity is
at the time owned or controlled by the Company, or by the Company and one or
more Subsidiaries, or by any one or more Subsidiaries.
MERGER AND CONSOLIDATION
Each Indenture provides that the Company may, without the consent of the
Holders of the Debt Securities, consolidate with or merge into any other
corporation, or convey, transfer or lease its properties and assets
substantially as an entirety to any person, provided that in any such case (i)
the successor corporation shall be a domestic corporation and such corporation
shall assume by a supplemental indenture the Company's obligations under such
Indenture and the Debt Securities, (ii) immediately after such transaction, no
Event of Default shall have happened and be continuing, and (iii) if as a
result of any such merger, consolidation, or such conveyance, transfer or
lease an Operating Property of the Company would become subject to a Mortgage
which would not be permitted under "Restrictions on Liens" described above,
the senior Debt Securities would be secured, equally and ratably with (or
prior to) all indebtedness so secured. Upon compliance with these provisions
by a successor corporation, the Company (except in the case of a lease) would
be relieved of its obligations under each Indenture and the Debt Securities.
(Indentures, Sections 801 and 802)
EVENTS OF DEFAULT
The following will be Events of Default under each Indenture with respect to
Debt Securities of any series: (a) default in payment of principal of or
premium, if any, on any Debt Security of that series when due; (b) default in
payment of any interest on any Debt Security of that series when due,
continued for 30 days; (c) default in the deposit of any sinking fund payment,
when due, in respect of any Debt Security of that series; (d) default in the
performance or breach of any other covenant or warranty of the Company in such
Indenture (other than a covenant or warranty a default in whose performance or
whose breach is elsewhere in such Indenture specifically dealt with or which
has been included in such Indenture solely for the benefit of series of Debt
Securities other than that series), continued for 60 days after written notice
as provided in such Indenture; (e) if so specified in the Prospectus
Supplement accompanying this Prospectus that this clause (e) shall apply to
the Debt Securities of that series (and set forth in the Prospectus Supplement
relating to the Debt Securities of that series), acceleration of any
indebtedness for money borrowed by the Company or any of its Subsidiaries
under the terms of the instrument under which such indebtedness is issued or
secured in an aggregate principal amount exceeding $20 million, if such
acceleration is not discharged within 10 days after written notice as provided
in such Indenture, or failure by the Company or any of its Subsidiaries to pay
any such indebtedness at the later of final maturity or upon expiration of any
applicable period of grace with respect to such principal amount, and such
failure to pay shall not have been cured by the Company or any of its
Subsidiaries within 30 days after such failure; (f) bankruptcy, insolvency or
reorganization; and (g) any other Event of Default provided with respect to
Debt Securities of that series. No Event of Default with respect to a
particular series of Debt Securities issued under such Indenture (except as to
such events in bankruptcy, insolvency or reorganization) necessarily
constitutes an Event of Default with respect to any other series of Debt
Securities issued thereunder. (Indentures, Section 501)
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If an Event of Default (other than an Event of Default specified in clause
(f) above) with respect to Debt Securities of any series at the time
Outstanding shall occur and be continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Debt Securities of that series may, by a notice in writing to the
Company (and to the Trustee if given by Holders), declare to be due and
payable immediately the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities, such portion of the principal
amount as may be specified in the terms of that series) of all Debt Securities
of that series. However, at any time after such a declaration of acceleration
with respect to Debt Securities of any series has been made, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in principal amount of Outstanding Debt
Securities of that series may, subject to certain conditions, rescind and
annul such acceleration if all Events of Default, other than the non-payment
of accelerated principal, with respect to Debt Securities of that series have
been cured or waived as provided in such Indenture. (Indentures, Section 502)
For information as to waiver of defaults, see "Modification and Waiver"
herein. Reference is made to the Prospectus Supplement relating to any series
of Offered Debt Securities which are Original Issue Discount Securities for
the particular provisions relating to acceleration of a portion of the
principal amount of such Original Issue Discount Securities upon the
occurrence of an Event of Default and the continuation thereof. If an Event of
Default specified in clause (f) above occurs, the principal amount (or, if the
Debt Securities of that series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of that
series) of all Debt Securities then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder.
Subject to the provisions of the Indentures relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, each
Indenture provides that the Trustee will be under no obligation to exercise
any of its rights or powers under such Indenture at the request or direction
of any of the Holders, unless such Holders shall have offered to the Trustee
reasonable security and indemnity. (Indentures, Sections 601 and 603) Subject
to such provisions for security and indemnification of the Trustee and certain
other rights of the Trustee, the Holders of a majority in principal amount of
the Outstanding Debt Securities of any series shall have the right to direct
the time, method and place of conducting any proceedings for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Debt Securities of that series. (Indentures,
Section 512)
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to either Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to Debt
Securities of that series and unless also the Holders of at least 25% in
principal amount of the Outstanding Debt Securities of that series shall have
made written request, and offered reasonable security and indemnity, to the
Trustee to institute such proceeding as trustee, and the Trustee shall not
have received from the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
(Indentures, Section 507) Notwithstanding the foregoing, the Holder of any
Debt Security will have an absolute and unconditional right to receive payment
of the principal of (and premium, if any) and any interest on such Debt
Security on or after the due dates expressed in such Debt Security and to
institute suit for the enforcement of any such payment. (Indentures, Section
508)
Each Indenture requires the Company to furnish to the Trustee annually a
statement as to compliance with such Indenture. (Indentures, Section 1011)
Each Indenture provides that the Trustee may withhold notice to the Holders of
Debt Securities of any series of any default (except in payment of principal,
any premium, interest or any sinking fund payments) with respect to Debt
Securities of such series if it considers it in the interest of the Holders of
Debt Securities of such series to do so. (Indentures, Section 602)
MODIFICATION AND WAIVER
Modifications and amendments of each Indenture may be made by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the Outstanding Debt Securities of each series affected
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by such modifications or amendments; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Debt Security affected thereby, (a) change the stated maturity
date of the principal of, or any installment of principal of or interest on,
any Debt Security, (b) reduce the principal amount of, or the premium (if any)
or any interest on, any Debt Security or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon
acceleration, (c) change the place or currency of payment of principal of, or
premium (if any) or interest on, any Debt Security, (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Debt Security after the stated maturity date, or (e) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
whose Holders is required for modification or amendment of such Indenture, for
waiver of compliance with certain provisions of such Indenture or for waiver
of certain defaults. (Indentures, Section 902)
The Holders of 66 2/3% in principal amount of the Outstanding Debt
Securities of any series may on behalf of the Holders of all Debt Securities
of that series waive, insofar as that series is concerned, compliance by the
Company with certain restrictive provisions of the applicable Indenture.
(Indentures, Section 1012) The Holders of a majority in principal amount of
the Outstanding Debt Securities of any series may on behalf of the Holders of
all Debt Securities of that series waive any past default under the applicable
Indenture with respect to that series except a default in the payment of the
principal of (or premium, if any) or any interest on any Debt Security of that
series or in respect of a provision which under such Indenture cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security of that series affected. (Indentures, Section 513)
The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding Debt Securities issued thereunder without the
written consent of each holder of Senior Indebtedness (as defined therein)
then outstanding that would be adversely affected thereby. (Subordinated Debt
Indenture, Section 8.06)
DEFEASANCE OF OFFERED DEBT SECURITIES OR CERTAIN COVENANTS IN CERTAIN
CIRCUMSTANCES
Defeasance and Discharge. Each Indenture provides that the Board of
Directors of the Company may provide by resolution that the Company will be
discharged from any and all obligations in respect of the Debt Securities of
any series (except for certain obligations to register the transfer or
exchange of Debt Securities of such series, to replace stolen, lost or
mutilated Debt Securities of such series, to maintain paying agencies and hold
moneys for payment in trust) upon the deposit with the Trustee, in trust, of
money and/or U.S. Government Obligations (as defined), which through the
payment of interest and principal thereof in accordance with their terms will
provide money in an amount sufficient to pay any installment of principal (and
premium, if any) and interest on and any mandatory sinking fund payments in
respect of the Debt Securities of such series on the stated maturity of such
payments in accordance with the terms of such Indenture and such Debt
Securities. Such discharge may only occur if (i) the Company has received
from, or there has been published by, the United States Internal Revenue
Service a ruling to the effect that such a discharge will not be deemed, or
result in, a taxable event with respect to Holders of the Debt Securities of
such series; and such discharge will not be applicable to any Debt Securities
of such series then listed on the New York Stock Exchange or any other
securities exchange if the provision would cause said Debt Securities to be
de-listed as a result thereof (Indentures, Section 403), and (ii) in the case
of the Subordinated Debt Indenture (a) no event or condition shall exist that
would prevent the Company from making payments of principal of (and premium,
if any) and interest on the Debt Securities issued pursuant to the
Subordinated Debt Indenture at the date of the irrevocable deposit referred to
above or at any time during the period ending on the 91st day after such
deposit date and (b) the Company delivers to the Debt Securities Trustee for
the Subordinated Debt Indenture an opinion of counsel to the effect that (1)
the trust funds will not be subject to any rights of holders of Senior
Indebtedness (as defined for purposes of the Subordinated Debt Indenture) and
(2) after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally, except that if a court
were to rule under any such law in any case or proceeding that the trust funds
remained property of the Company, then the relevant Debt Securities Trustee
and the holders of such Debt Securities would be entitled to certain rights as
secured creditors in such trust funds.
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Defeasance of Certain Covenants. The Senior Debt Indenture provides that the
Board of Directors of the Company may by resolution provide that the terms of
any series of Debt Securities may provide the Company with the option to omit
to comply with certain restrictive covenants described in Sections 1007
through 1009 of the Indentures. The Company, in order to exercise such option,
will be required to deposit with the Trustee money and/or U.S. Government
Obligations (as defined) which through the payment of interest and principal
thereof in accordance with their terms will provide money in an amount
sufficient to pay principal (and premium, if any) and interest on and any
mandatory sinking fund payments in respect of the Debt Securities of such
series on the stated maturity of such payments in accordance with the terms of
such Indenture and such Debt Securities. The Company will also be required to
deliver to the Trustee an opinion of counsel to the effect that the deposit
and related covenant defeasance will not cause the Holders of the Debt
Securities of such series to recognize income, gain or loss for Federal income
tax purposes. (Indentures, Section 1010)
Defeasance and Events of Default. In the event the Company exercises its
option to omit compliance with certain covenants of an Indenture with respect
to any series of Debt Securities and the Debt Securities of such series are
declared due and payable because of the occurrence of any Event of Default,
the amount of money and U.S. Government Obligations on deposit with the
Trustee will be sufficient to pay amounts due on the Debt Securities of such
series at the time of their Stated Maturity but may not be sufficient to pay
amounts due on the Debt Securities of such series at the time of the
acceleration resulting from such Event of Default. However, the Company shall
remain liable for such payments.
The Prospectus Supplement will state if any defeasance provision will apply
to the Offered Debt Securities.
CONCERNING THE TRUSTEE
The Chase Manhattan Bank (formerly known as Chemical Bank) ("Chase") is the
Trustee under the Indentures and is also the trustee under prior indentures
between the Company and Chase. Chase maintains normal banking relations with
the Company, including participating in and acting as Agent for a credit
agreement for the Company and Dillard Investment Co., Inc., a wholly owned
subsidiary of the Company ("DIC"). Chase also is the trustee under indentures
between DIC and Chase.
GOVERNING LAW
The Debt Securities and the Indentures will be governed by and construed in
accordance with the laws of the State of New York.
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock is qualified in its
entirety by the provisions of the Company's Restated Certificate of
Incorporation, as amended, which is an exhibit to the registration statement
of which this Prospectus is a part.
GENERAL
The authorized capital stock of the Company consists of 5,000 shares of 5%
Cumulative Preferred Stock (the "5% Preferred Stock"), par value $100 per
share; 289,000,000 shares of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"); 11,000,000 shares of Class B Common Stock, par
value $.01 per share (the "Class B Common Stock"); and 10,000,000 shares of
Additional Preferred Stock, par value $.01 per share (the "Additional
Preferred Stock"). At July 14, 1998, 4,400 shares of the authorized 5%
Preferred Stock were issued and outstanding, 102,797,508 shares of the
authorized Class A Common Stock were issued and outstanding, 4,016,929 shares
of the Class B Common Stock were issued and outstanding, and no shares of
Additional Preferred Stock were issued and outstanding.
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VOTING RIGHTS
The holders of the Class A and the Class B Common Stock have the right to
one vote per share upon all matters which may come before stockholders'
meetings, except that the holders of Class A Common Stock are empowered as a
class to elect one-third of the members of the Board of Directors and the
holders of Class B Common Stock are empowered as a class to elect two-thirds
of the members of the Board of Directors. The entire Board of Directors is
elected annually.
The affirmative vote of the holders of four-fifths of both the Class A and
Class B Common Stock considered as one class is required (i) for the adoption
of any agreement for the merger or consolidation of the Company with or into
any other corporation, (ii) to authorize the sale, lease or exchange of all or
substantially all of the assets of the Company, or any sale, lease or exchange
of assets to the Company or any subsidiary of the Company in exchange for
securities of the Company, or (iii) to authorize the dissolution or
liquidation of the Company. Such vote, however, is not required (i) if the
Board of Directors shall have approved a memorandum of understanding with
respect to such transaction, or (ii) in the event of a merger or consolidation
of the Company with, or any sale, lease or exchange to the Company or any
subsidiary of any of the assets of, any corporation of which a majority of the
outstanding voting securities is owned of record or beneficially by the
Company and its subsidiaries.
Since holders of Class A and Class B Common Stock do not have cumulative
voting rights, holders of more than 50% of the Class A Common Stock voting for
the election of Directors can elect one-third of the Board of Directors and
the holders of more than 50% of the Class B Common Stock voting for the
election of Directors can elect two-thirds of the Board of Directors. In such
event, holders of the remaining shares voting for the election of the
Directors will be unable to elect Directors. W.D. Company, Inc. ("W.D.
Company") owns 99.2% of the Company's Class B Common Stock and can therefore
elect two-thirds of the Company's Board of Directors. William Dillard,
Chairman of the Board of Directors of the Company, William Dillard II, Chief
Executive Officer, Alex Dillard, President, and Mike Dillard, Executive Vice
President, are directors and officers of W.D. Company and own 21.3%, 25.1%,
23.3% and 22.0%, respectively, of the outstanding voting stock of W.D.
Company.
The holders of the 5% Preferred Stock have no voting rights, except as
provided by Section 242 of the Delaware General Corporation Law, which states
that the holders of the outstanding shares of any class of capital stock shall
be entitled to vote as a class upon any proposed amendment to the certificate
of incorporation, whether or not entitled to vote thereon by the certificate
of incorporation, if the amendment would increase or decrease the aggregate
number of authorized shares of such class (subject to certain conditions),
increase or decrease the par value of the shares of such class, or alter or
change the powers, preferences, or special rights of the shares of such class
so as to affect them adversely.
The Company's Restated Certificate of Incorporation, as amended, authorizes
the Board of Directors to fix by resolution the designations, preferences, and
relative rights, qualifications and limitations, of shares of Additional
Preferred Stock, including, among other things, (a) the number of shares and
the distinctive designation of each series, if any, and whether the shares of
any series would rank prior to, junior to, or on a parity with, the shares of
another series; (b) the dividend rate, conditions and preferences over the
Company's Common Stock, if any, and the date on which any dividends would be
declared and paid; (c) whether, and to what extent, the holders would have
voting rights in addition to those prescribed by statute; (d) whether, and
upon what terms, the shares would be convertible into or exchangeable for
other securities; (e) whether, and upon what terms, the shares would be
redeemable; (f) whether or not a sinking fund would be provided for the
redemption of the securities, and, if so, the terms and conditions thereof;
and (g) preference, if any, to which the class or series thereof would be
entitled in the event of voluntary or involuntary liquidation, dissolution or
winding up of the Company.
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CONVERSION AND PRE-EMPTIVE RIGHTS
Shares of Class B Common Stock are convertible at any time at the option of
any holder thereof into shares of Class A Common Stock at the rate of one
share of Class B Common Stock for one share of Class A Common Stock. Under
Delaware law and the Company's Restated Certificate of Incorporation, no
holder of capital stock has preemptive rights.
DIVIDENDS
Holders of 5% Preferred Stock are entitled to receive dividends at the rate
of 5% per annum, payable February 1 and August 1 of each year, before any
dividends may be paid on Class A and Class B Common Stock. Dividends on the 5%
Preferred Stock shall be cumulative from year to year if not paid and all
accrued and unpaid dividends must be paid on the 5% Preferred Stock before any
dividends may be paid upon the Common Stock in any year. Holders of Class A
and Class B Common Stock are entitled to receive equally, share for share, any
dividends which may be declared upon Common Stock. No dividend may be declared
on Common Stock of either class unless a similar dividend is declared on
Common Stock of the other class. However, in the case of dividends in stock of
the Company or stock splits, holders of each class of Common Stock are
entitled to receive only shares of the same class.
LIQUIDATION AND REDEMPTION RIGHTS
Upon final liquidation of the Company, holders of 5% Preferred Stock are
entitled to receive $100 per share plus accrued dividends before any
distribution to holders of Common Stock, and holders of Common Stock are
entitled to share equally, share for share, in the distribution of the
remaining assets of the Company. The Company may redeem all or any part of the
5% Preferred Stock at par value plus accrued dividends at any time. The Common
Stock is not subject to redemption.
OTHER
All outstanding shares of the Company's capital stock are fully paid and
nonassessable.
The transfer agent and registrar for the Class A Common Stock is
ChaseMellon, Ridgefield Park, New Jersey.
DESCRIPTION OF CAPITAL SECURITIES
Each Issuer Trust will issue only one series of Capital Securities and one
series of Common Securities. The Trust Agreement for each Issuer Trust will be
qualified as an indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The Capital Securities will have such terms and
will be subject to such conditions as shall be set forth in the Trust
Agreement or made a part thereof by the Trust Indenture Act. This summary of
certain provisions of the Capital Securities and each Trust Agreement does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of each Trust Agreement, including the
definitions therein of certain terms. Wherever particular defined terms of a
Trust Agreement are referred to herein, such defined terms are incorporated
herein by reference. A copy of the form of the Trust Agreement is available
upon request from the Issuer Trustees.
GENERAL
The Capital Securities will represent preferred undivided beneficial
interests in the assets of the applicable Issuer Trust. The only assets of an
Issuer Trust, and its only source of its revenues, will be the Debt Securities
purchased by such Issuer Trust with the proceeds from the issuance of its
Trust Securities. Accordingly, Distributions and other payment dates for such
Trust Securities will correspond with the interest and other payment dates for
such Debt Securities. See "Description of Debt Securities" in this Prospectus
and in the
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applicable Prospectus Supplement for a description of such Debt Securities. If
the Company does not make payments on such Debt Securities in accordance with
their terms, such Issuer Trust will not have funds available to pay
Distributions or other amounts payable on the Trust Securities issued by such
Issuer Trust in accordance with their terms. The Capital Securities issued by
an Issuer Trust will rank pari passu, and payments thereon will be made
thereon pro rata, with the Common Securities issued by such Issuer Trust
except as described below under "--Subordination of Common Securities" and in
the applicable Prospectus Supplement. Capital Securities will be fully and
unconditionally guaranteed by the Company, to the extent described herein
under "Description of Guarantees" and in the applicable Prospectus Supplement.
Reference is made to the applicable Prospectus Supplement for the following
terms of and information relating to the Capital Securities offered hereby and
thereby (to the extent such terms are applicable to such Capital Securities):
(i) the specific designation, stated amount per Capital Security (the
"Liquidation Amount"), number to be issued by the applicable Issuer Trust and
purchase price; (ii) the currency or units based on or relating to currencies
in which Distributions and other payments thereon will or may be payable;
(iii) the Distribution rate or rates (or the method by which such rate or
rates will be determined), if any; (iv) the date or dates on which any such
Distributions will be payable; (v) any provisions relating to deferral of
Distribution payments; (vi) the place or places where Distributions and other
amounts payable on such Capital Securities will be payable; (vii) any
repayment, redemption, prepayment or sinking fund provisions; (viii) the
voting rights, if any, of holders of such Capital Securities; (ix) the terms
and conditions, if any, upon which the assets of such Issuer Trust may be
distributed to holders of such Capital Securities; (x) any applicable United
States federal income tax consequences; and (xi) any other specific terms of
such Capital Securities.
DISTRIBUTIONS
Distributions on the Capital Securities will be cumulative. Distributions
will accumulate from the date of original issuance and will be payable on such
dates as specified in the applicable Prospectus Supplement. The amount of
Distributions payable for any period less than a full Distribution period will
be computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period, unless otherwise
specified in the applicable Prospectus Supplement. Distributions payable for
each full Distribution period will be computed by dividing the rate per annum
by four, unless otherwise specified in the applicable Prospectus Supplement.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and other amounts payable under the Capital
Securities and Common Securities issued by an Issuer Trust shall be made pro
rata based on the Liquidation Amount of such Capital Securities and Common
Securities. However, unless otherwise provided in the applicable Prospectus
Supplement, if on any date on which Distributions or other amounts are payable
with respect to such Capital Securities and Common Securities, an "Event of
Default" with respect to the Debt Securities owned by such Issuer Trust (a
"Debenture Event of Default") has occurred and is continuing as a result of
any failure by the Company to pay any amounts in respect of such Debt
Securities when due, no payment of any Distribution on or other amounts
payable under such Common Securities shall be made unless payment in full in
cash of all accumulated amounts then due and payable with respect to all of
such Issuer Trust's outstanding Capital Securities shall have been made or
provided for, and all funds immediately available to the Property Trustee
shall first be applied to the payment in full in cash of all Distributions on,
and all other amounts with respect to, Capital Securities then due and
payable.
In the case of any Capital Securities Event of Default (as defined below)
resulting from a Debenture Event of Default, the holders of the applicable
Issuer Trust's Common Securities will be deemed to have waived any right to
act with respect to any such Capital Securities Event of Default under the
applicable Trust Agreement until the effects of such Debenture Event of
Default with respect to such Capital Securities have been cured, waived or
otherwise eliminated. See "--Capital Securities Events of Default; Notice" and
"Description of Debt Securities--Events of Default." Until all such Capital
Securities Events of Default have been so cured, waived
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or otherwise eliminated, the Property Trustee will act solely on behalf of the
holders of the Capital Securities and not on behalf of the holders of the
Common Securities, and only the holders of the Capital Securities will have
the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on Capital Securities in the event of any liquidation of
an Issuer Trust will be the stated amount per Capital Security or such other
amount as specified in the applicable Prospectus Supplement plus accumulated
and unpaid Distributions, which, if specified in the applicable Prospectus
Supplement, may be in the form of a distribution of the Debt Securities owned
by such Issuer Trust.
The holders of all the outstanding Common Securities of an Issuer Trust will
have the right at any time to dissolve such Issuer Trust and, after
satisfaction of liabilities to creditors of such Issuer Trust as provided by
applicable law, cause the Debt Securities owned by such Issuer Trust to be
distributed to the holders of the Capital Securities and Common Securities in
liquidation of such Issuer Trust as described in the applicable Prospectus
Supplement. Other terms for the dissolution of an Issuer Trust and the
distribution or liquidation of its assets to holders of Trust Securities will
be set forth in the applicable Prospectus Supplement.
CAPITAL SECURITIES EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under a
Trust Agreement (a "Capital Securities Event of Default") with respect to the
Capital Securities issued pursuant thereto (whatever the reason for such
Capital Securities Event of Default and whether it is voluntary or involuntary
or effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(i) the occurrence of an Event of Default with respect to the Debt
Securities in which the proceeds of the Capital Securities have been
invested (a "Debenture Event of Default") (see "Description of Debt
Securities--Events of Default" and the applicable Prospectus Supplement);
or
(ii) default by the applicable Issuer Trust or the Property Trustee in
the payment of any Distribution on such Capital Securities when it becomes
due and payable, and continuation of such default for a period of 30 days;
or
(iii) default by an Issuer Trust or the Property Trustee in the payment
of any redemption price of any Trust Security issued pursuant to such Trust
Agreement when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the applicable Issuer Trustees (other than a
covenant or warranty, a default in the performance of which or the breach
of which is dealt with in clause (ii) or (iii) above), and continuation of
such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to such Issuer Trustees and the Company by
the holders of at least 25% in aggregate Liquidation Amount of such Capital
Securities outstanding, a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default" under the applicable Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee or all or substantially all of its property
if a successor Property Trustee has not been appointed within 90 days
thereof.
Within ten Business Days after the occurrence of any Capital Securities
Event of Default actually known to the Property Trustee, the Property Trustee
will transmit notice of such Event of Default to the holders of the applicable
Trust Securities and the Administrators, unless such Capital Securities Event
of Default has been cured or waived. The Company, as Depositor, and the
Administrators are required to file annually with the Property Trustee a
certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under each Trust Agreement.
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If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Debt
Securities owned by an Issuer Trust when due, the Capital Securities issued by
such Issuer Trust will have a preference over the Common Securities issued by
such Issuer Trust with respect to payments of any amounts in respect of such
Capital Securities as described above. See "--Subordination of Common
Securities."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Capital Securities, the successor may be appointed by the holders of at least
25% in Liquidation Amount of Capital Securities. If an Issuer Trustee resigns,
such Issuer Trustee will appoint its successor. If an Issuer Trustee fails to
appoint a successor, the holders of at least 25% in Liquidation Amount of the
outstanding Capital Securities may appoint a successor. If a successor has not
been appointed by the holders, any holder of Capital Securities or Common
Securities or another Issuer Trustee may petition a court of competent
jurisdiction to appoint a successor. Any Delaware Trustee must meet the
applicable requirements of Delaware law. Any Property Trustee must be a
national- or state-chartered bank, and at the time of appointment have capital
and surplus of at least $50,000,000. No resignation or removal of an Issuer
Trustee and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the applicable Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which an Issuer Trustee may be merged or converted or with
which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Issuer Trustee is a party, or any
entity succeeding to all or substantially all the corporate trust business of
such Issuer Trustee, will be the successor of such Issuer Trustee under each
Trust Agreement, provided such entity is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUSTS
An Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the applicable Trust Agreement. An Issuer Trust may, at
the request of the holders of the Common Securities and with the consent of
the holders of at least a majority in aggregate Liquidation Amount of its
outstanding Capital Securities, merge with or into, consolidate, amalgamate,
or be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of
any State, so long as (i) such successor entity either (a) expressly assumes
all the obligations of the Issuer Trust with respect to the Issuer Trust's
Capital Securities or (b) substitutes for the Issuer Trust's Capital
Securities other securities having substantially the same terms as the Issuer
Trust's Capital Securities (the "Successor Securities") so long as the
Successor Securities have the same priority as the Issuer Trust's Capital
Securities with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) a trustee of such successor entity, possessing
the same powers and duties as the Property Trustee, is appointed to hold the
corresponding Debt Securities, (iii) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Issuer Trust's
Capital Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the holders of
the Issuer Trust's Capital Securities (including any Successor Securities) in
any material respect, (v) such successor entity has a purpose substantially
identical to that of the Issuer Trust, (vi) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Issuer Trust has received an opinion from independent counsel experienced in
such matters to the effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights,
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preferences and privileges of the holders of the Issuer Trust's Capital
Securities (including any Successor Securities) in any material respect and
(b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Issuer Trust nor such successor
entity will be required to register as an investment company under the
Investment Company Act, and (vii) the Company or any permitted successor or
assignee owns, directly or indirectly, all the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the related
Guarantee. Notwithstanding the foregoing, an Issuer Trust may not, except with
the consent of holders of 100% in aggregate Liquidation Amount of the Issuer
Trust's Capital Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to, any other entity or permit any other entity
to consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease would cause the Issuer Trust or the successor entity to be taxable as a
corporation for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENTS
Except as provided below and under "--Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantees--Amendments and
Assignment" and as otherwise required by law and the applicable Trust
Agreement, the holders of the Capital Securities will have no voting rights.
Each Trust Agreement may be amended from time to time by the holders of a
majority in aggregate Liquidation Amount of the Common Securities and the
Property Trustee, without the consent of the holders of the Capital
Securities, (i) to cure any ambiguity, correct or supplement any provisions in
such Trust Agreement that may be inconsistent with any other provision, or to
make any other provisions with respect to matters or questions arising under
such Trust Agreement, provided that any such amendment does not adversely
affect in any material respect the interests of any holder of Trust
Securities, or (ii) to modify, eliminate or add to any provisions of such
Trust Agreement to such extent as may be necessary to ensure that the Issuer
Trust will not be taxable as a corporation for United States federal income
tax purposes at any time that any Trust Securities are outstanding or to
ensure that the Issuer Trust will not be required to register as an
"investment company" under the Investment Company Act, and any such amendments
of such Trust Agreement will become effective when notice of such amendment is
given to the holders of Trust Securities. Each Trust Agreement may be amended
by the holders of a majority in aggregate Liquidation Amount of the Common
Securities and the Property Trustee with (i) the consent of holders
representing not less than a majority in aggregate Liquidation Amount of the
outstanding Capital Securities and (ii) receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will
not cause the Issuer Trust to be taxable as a corporation for United States
federal income tax purposes or affect the Issuer Trust's exemption from status
as an "investment company" under the Investment Company Act, except that,
without the consent of each holder of Trust Securities affected thereby, a
Trust Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified date or (ii) restrict the right of a holder of Trust Securities
to institute suit for the enforcement of any such payment on or after such
date.
So long as any Debt Securities are held by an Issuer Trust, the Property
Trustee will not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debt Securities Trustee, or execute
any trust or power conferred on the Property Trustee with respect to the Debt
Securities, (ii) waive any past default that may be waived under Section 5.10
of such applicable Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal amount of such Debt Securities shall be due and
payable or (iv) consent to any amendment, modification or termination of such
Indenture or Debt Securities, where such consent shall be required, without,
in each case, obtaining the prior approval of the holders of at least a
majority in aggregate Liquidation Amount of the outstanding Capital
Securities, except that, if a consent under such Indenture would require the
consent of each holder of such Debt Securities affected thereby, no such
consent will be given by the Property Trustee without the prior consent of
each holder of such Capital Securities. The Property Trustee may not revoke
any action previously authorized or approved by a vote of the holders of such
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Capital Securities except by subsequent vote of the holders of Capital
Securities issued by such Issuer Trust. The Property Trustee will notify each
holder of such Capital Securities of any notice of default with respect to
such Debt Securities. In addition to obtaining the foregoing approvals of the
holders of such Capital Securities, before taking any of the foregoing
actions, the Property Trustee will obtain an opinion of counsel experienced in
such matters to the effect that the Issuer Trust will not be taxable as a
corporation for United States federal income tax purposes on account of such
action.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
given to each registered holder of Capital Securities in the manner set forth
in each Trust Agreement.
No vote or consent of the holders of Capital Securities will be required to
redeem and cancel Capital Securities in accordance with the applicable Trust
Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
EXPENSES AND TAXES
In connection with the Debt Securities owned by an Issuer Trust, the
Company, as borrower, will agree to pay all debts and other obligations (other
than with respect to the Capital Securities issued by such Issuer Trust) and
all costs and expenses of such Issuer Trust (including costs and expenses
relating to the organization of such Issuer Trust, the fees and expenses of
the Issuer Trustees for such Issuer Trust and the costs and expenses relating
to the operation of such Issuer Trust) and to pay any and all taxes and all
costs and expenses with respect thereto (other than United States withholding
taxes) to which such Issuer Trust might become subject. The foregoing
obligations of the Company under the Debt Securities owned by an Issuer Trust
are for the benefit of, and shall be enforceable by, any person to whom any
such debts, obligations, costs, expenses and taxes are owed (a "Creditor")
whether or not such Creditor has received notice thereof. Any such Creditor
may enforce such obligations of the Company directly against the Company, and
the Company will irrevocably waive any right or remedy to require that any
such Creditor take any action against such Issuer Trust or any other person
before proceeding against the Company. The Company will also agree in the Debt
Securities owned by an Issuer Trust to execute such additional agreements as
may be necessary or desirable to give full effect to the foregoing.
PAYMENT AND PAYING AGENCY
The applicable Prospectus Supplement will specify the manner in which
payments in respect of the Capital Securities will be made. The paying agent
(the "Paying Agent") for Capital Securities will initially be the Property
Trustee and any copaying agent chosen by the Property Trustee and acceptable
to the Administrators. The Paying Agent will be permitted to resign as Paying
Agent upon 30 days' written notice to the Property Trustee and the
Administrators. If the Property Trustee is no longer the Paying Agent, the
Property Trustee will appoint a successor (which must be a bank or trust
company reasonably acceptable to the Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable Prospectus Supplement, the
Property Trustee will act as registrar and transfer agent for the Capital
Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of each Issuer Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any
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transfer or exchange. The Issuer Trusts will not be required to register or
cause to be registered the transfer of their Capital Securities after such
Capital Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of a
Capital Securities Event of Default, undertakes to perform only such duties as
are specifically set forth in each Trust Agreement and, after such Capital
Securities Event of Default, must exercise the same degree of care and skill
as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the applicable Trust
Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationship between the Property Trustee and
the Company, see "Description of Debt Securities--Concerning the Trustee."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer Trusts in such a way that the
Issuer Trusts will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Debt Securities
owned by the Issuer Trusts will be treated as indebtedness of the Company for
United States federal income tax purposes. In this connection, the Property
Trustee and the holders of Common Securities are authorized to take any
action, not inconsistent with applicable law, the certificate of trust of each
Issuer Trust or each Trust Agreement, that the Property Trustee and the
holders of Common Securities determine in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the related Capital
Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer Trusts may not borrow money or issue debt or mortgage or pledge
any of their assets.
GOVERNING LAW
Each Trust Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
GLOBAL SECURITIES
The registered Debt Securities and Capital Securities of any series may be
issued in the form of one or more fully registered global Securities (a
"Registered Global Security") that will be deposited with a depository (a
"Depository") or with a nominee for a Depository identified in the Prospectus
Supplement relating to such series and registered in the name of such
Depository or nominee thereof. In such case, one or more Registered Global
Securities will be issued in a denomination or aggregate denominations equal
to the portion of the aggregate principal or face amount of outstanding
registered Securities of the series to be represented by such Registered
Global Securities. Unless and until it is exchanged in whole for Securities in
definitive registered form, a Registered Global Security may not be
transferred except as a whole by the Depository for such Registered Global
Security to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by such Depository or
any such nominee to a successor of such Depository or a nominee of such
successor.
The specific terms of the depository arrangement with respect to any portion
of a series of Securities to be represented by a Registered Global Security
will be described in the Prospectus Supplement relating to such series. The
Company anticipates that the following provisions will apply to all depository
arrangements.
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Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depository for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the
Depository for such Registered Global Security will credit, on its book-entry
registration and transfer system, the participants' accounts with the
respective principal or face amounts of the Securities represented by such
Registered Global Security beneficially owned by such participants. The
accounts to be credited shall be designated by any dealers, underwriters or
agents participating in the distribution of such Securities. Ownership of
beneficial interests in such Registered Global Security will be shown on, and
the transfer of such ownership interests will be effected only through,
records maintained by the Depository for such Registered Global Security (with
respect to interests of participants) and on the records of participants (with
respect to interests of persons holding through participants). The laws of
some states may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge beneficial interests in
Registered Global Securities.
So long as the Depository for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depository or
such nominee, as the case may be, will be considered the sole owner or holder
of the Securities represented by such Registered Global Security for all
purposes under the applicable Indenture or Trust Agreement. Except as set
forth below, owners of beneficial interests in a Registered Global Security
will not be entitled to have the Securities represented by such Registered
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of such Securities in definitive form and will not
be considered the owners or holders thereof under the applicable Indenture or
Trust Agreement. Accordingly, each person owning a beneficial interest in a
Registered Global Security must rely on the procedures of the Depository for
such Registered Global Security and, if such person is not a participant, on
the procedures of the participant through which such person owns its interest,
to exercise any rights of a holder under the applicable Indenture or Trust
Agreement. The Company understands that under existing industry practices, if
it requests any action of holders or if an owner of a beneficial interest in a
Registered Global Security desires to give or take any action which a holder
is entitled to give or take under the applicable Indenture or Trust Agreement,
the Depository for such Registered Global Security would authorize the
participants holding the relevant beneficial interests to give or take such
action, and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners holding through them.
Principal, premium, if any, and interest payments on Debt Securities, and
any payments to holders with respect to Capital Securities, represented by a
Registered Global Security registered in the name of a Depository or its
nominee will be made to such Depository or its nominee, as the case may be, as
the registered owner of such Registered Global Security. None of the Company,
the Debt Securities Trustees, the Issuer Trustees or any other agent of the
Company, agent of the applicable Issuer Trust or agent of any such Trustees,
as the case may be, will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in such Registered Global Security or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
The Company and the Issuer Trusts expect that the Depository for any
Securities represented by a Registered Global Security, upon receipt of any
payment of principal, premium, interest or other distribution of underlying
securities to holders in respect of such Registered Global Security, will
immediately credit participants' accounts in amounts proportionate to their
respective beneficial interests in such Registered Global Security as shown on
the records of such Depository. The Company and the Issuer Trusts also expect
that payments by participants to owners of beneficial interests in such
Registered Global Security held through such participants will be governed by
standing customer instructions and customary practices, as is now the case
with the securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of such
participants.
If the Depository for any Securities represented by a Registered Global
Security is at any time unwilling or unable to continue as Depository or
ceases to be a clearing agency registered under the Exchange Act, and a
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successor Depository registered as a clearing agency under the Exchange Act is
not appointed by the Company or the applicable Issuer Trust, as the case may
be, within 90 days, the Company or the applicable Issuer Trust, as the case
may be, will issue such Securities in definitive form in exchange for such
Registered Global Security. In addition, the Company or the applicable Issuer
Trust, as the case may be, may at any time and in its sole discretion
determine not to have any of the Securities of a series represented by one or
more Registered Global Securities and, in such event, will issue Securities of
such series in definitive form in exchange for all of the Registered Global
Security or Securities representing such Securities. Any Securities issued in
definitive form in exchange for a Registered Global Security will be
registered in such name or names as the Depository shall instruct the relevant
Trustee or other relevant agent of the Company, the applicable Issuer Trust or
such Trustee. It is expected that such instructions will be based upon
directions received by the Depository from participants with respect to
ownership of beneficial interests in such Registered Global Security.
DESCRIPTION OF GUARANTEES
A Guarantee will be executed and delivered by the Company concurrently with
the issuance by each Issuer Trust of its Capital Securities for the benefit of
the holders from time to time of such Capital Securities. This summary of
certain provisions of the Guarantees does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions
of each Guarantee, including the definitions therein of certain terms. A copy
of the form of the Guarantee is available upon request from the Guarantee
Trustee. The Guarantee Trustee will hold each Guarantee for the benefit of the
holders of the related Issuer Trust's Capital Securities.
GENERAL
Pursuant to a Guarantee, the Company will irrevocably and unconditionally
agree to pay in full, to the extent set forth therein, the Guarantee Payments
(as defined below) to the holders of the Capital Securities covered by such
Guarantee, as and when due, regardless of any defense, right of setoff or
counterclaim that the Issuer Trust that issued such Capital Securities may
have or assert other than the defense of payment. The following payments with
respect to Capital Securities, to the extent not paid by or on behalf of the
Issuer Trust that issued such Capital Securities (the "Guarantee Payments"),
will be subject to the Guarantee thereon: (i) any accumulated and unpaid
Distributions required to be paid on such Capital Securities, to the extent
that such Issuer Trust has funds on hand available therefor at such time, if
any, (ii) the redemption price with respect to any Capital Securities called
for redemption, including all accumulated and unpaid Distributions thereon
(the "Redemption Price"), to the extent that such Issuer Trust has funds on
hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, windingup or liquidation of such Issuer Trust (unless
the Debt Securities owned by such Issuer Trust are distributed to holders of
such Capital Securities in accordance with the terms thereof), the lesser of
(a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, and (b) the amount of assets of such
Issuer Trust remaining available for distribution to holders of Capital
Securities on liquidation of such Issuer Trust. The Company's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of the Capital Securities or by causing
the applicable Issuer Trust to pay such amounts to such holders.
Each Guarantee will be an irrevocable guarantee of the related Issuer
Trust's obligations under the Capital Securities covered thereby, but will
apply only to the extent that such Issuer Trust has funds sufficient to make
such payments, and is not a guarantee of collection.
If the Company does not make payments on the Debt Securities owned by an
Issuer Trust, such Issuer Trust will not be able to pay any amounts payable in
respect of its Capital Securities and will not have funds legally available
therefor and, in such event, holders of the Capital Securities would not be
able to rely upon the Guarantee for payment of such amounts. Each Guarantee
will have the same ranking as the Debt Securities owned by the Issuer Trust
that issues the Capital Securities covered thereby. See "--Status of the
Guarantees." No Guarantee will limit the incurrence or issuance of other
secured or unsecured debt of the Company.
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STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of the Company and
will rank pari passu in right of payment with the Debt Securities owned by the
Issuer Trust that issues the Capital Securities covered thereby.
Each Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). Each
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the related Capital Securities. Each Guarantee will not be discharged
except by payment of the Guarantee Payments in full to the extent not paid by
the Issuer Trust or, if applicable, distribution to the holders of the Capital
Securities of the Debt Securities owned by such Issuer Trust.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities issued by an Issuer Trust (in
which case no vote will be required), the Guarantee that covers such Capital
Securities may not be amended without the prior approval of the holders of not
less than a majority of the aggregate Liquidation Amount of such Capital
Securities outstanding. The manner of obtaining any such approval will be as
set forth under "Description of the Capital Securities--Voting Rights;
Amendment of Trust Agreements" and in the applicable Prospectus Supplement.
All guarantees and agreements contained in each Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company
and shall inure to the benefit of the holders of the covered Capital
Securities then outstanding.
EVENTS OF DEFAULT
An event of default under each Guarantee will occur upon the failure of the
Company to perform any of its payment obligations thereunder, or to perform
any nonpayment obligation if such nonpayment default remains unremedied for 30
days. The holders of not less than a majority in aggregate Liquidation Amount
of the outstanding Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of such Guarantee or to direct the exercise of
any trust or power conferred upon the Guarantee Trustee under such Guarantee.
Any registered holder of Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee thereon
without first instituting a legal proceeding against the Issuer Trust, the
Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantees.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in the performance of any Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after the occurrence of an event of default with respect to the Guarantee,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by any Guarantee at the request of any holder of the
Capital Securities covered thereby unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
For information concerning the relationship between the Guarantee Trustee
and the Company, see "Description of Debt Securities--Concerning the Trustee."
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TERMINATION OF THE GUARANTEE
Each Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Capital Securities covered
thereby, upon full payment of the amounts payable with respect to such Capital
Securities upon liquidation of the related Issuer Trust or upon distribution
of the Debt Securities owned by such Issuer Trust to the holders of such
Capital Securities. Each Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of such Capital
Securities must repay any sums with respect to such Capital Securities or such
Guarantee.
GOVERNING LAW
Each Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
PLAN OF DISTRIBUTION
The Company may sell Debt Securities and Equity Securities and an Issuer
Trust may sell the Capital Securities being offered hereby in three ways: (i)
through agents, (ii) through underwriters and (iii) through dealers.
Offers to purchase Securities may be solicited by agents designated by the
Company and/or an Issuer Trust, as the case may be, from time to time. Any
such agent, who may be deemed to be an underwriter as that term is defined in
the Securities Act, involved in the offer or sale of the Securities in respect
of which this Prospectus is delivered will be named, and any commissions
payable by the Company to such agent will be set forth, in the Prospectus
Supplement. Any such agent will be acting on a reasonable efforts basis for
the period of its appointment or, if indicated in the applicable Prospectus
Supplement, on a firm commitment basis.
If any underwriters are utilized in the sale of the Securities in respect of
which this Prospectus is delivered, the Company and/or an Issuer Trust, as the
case may be, will enter into an underwriting agreement with such underwriters
at the time of the sale to them and the names of the underwriters and the
terms of the transaction will be set forth in the Prospectus Supplement, which
will be used by the underwriters to make resales of the Securities in respect
of which this Prospectus is delivered to the public.
If a dealer is utilized in the sale of the Securities in respect of which
the Prospectus is delivered, the Company and/or an Issuer Trust, as the case
may be, will sell such Securities to the dealer, as principal. The dealer may
then resell such Securities to the public at varying prices to be determined
by such dealer at the time of resale.
In order to facilitate the offering of the Securities, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price
of the Securities or any other securities the prices of which may be used to
determine payments on such Securities. Specifically, the underwriters may
overallot in connection with the offering, creating a short position in the
Securities for their own accounts. In addition, to cover overallotments or to
stabilize the price of the Securities or of any such other securities, the
underwriters may bid for, and purchase, the Securities or any such other
securities in the open market. Finally, in any offering of the Securities
through a syndicate of underwriters, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Securities in the offering if the syndicate repurchases previously distributed
Securities in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Securities above independent market
levels. The underwriters are not required to engage in these activities, and
may end any of these activities at any time.
If so indicated in the Prospectus Supplement, the Company and/or an Issuer
Trust, as the case may be, will authorize agents, underwriters or dealers to
solicit offers by certain purchasers to purchase Securities from the Company
at the public offering price set forth in the Prospectus Supplement pursuant
to delayed delivery contracts providing for payment and delivery on a
specified date in the future. Such contracts will be subject to
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only those conditions set forth in the Prospectus Supplement, and the
Prospectus Supplement will set forth the commission payable for solicitation
of such offers.
Any underwriter, agent or dealer utilized in the initial offering of
Securities will not confirm sales to accounts over which it exercises
discretionary authority without the prior specific written approval of its
customer.
VALIDITY OF SECURITIES
The validity of the Capital Securities will be passed on for the Issuer
Trusts by Richards, Layton & Finger, P.A. The validity of the Equity
Securities, the Debt Securities and the Guarantees will be passed upon for the
Company by Friday, Eldredge & Clark, Little Rock, Arkansas. Certain legal
matters relating to the Securities will be passed upon for the Underwriters by
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017.
William H. Sutton and Paul B. Benham III, partners in Friday, Eldredge &
Clark, beneficially own 4,000 and 2,000 shares, respectively, of the Company's
Class A Common Stock either directly or indirectly through segregated accounts
in a retirement plan maintained by the law firm. Additionally, Mr. Sutton is a
director of the Company. Simpson Thacher & Bartlett from time to time acts as
counsel in various matters for the Company.
EXPERTS
The consolidated financial statements incorporated by reference in this
prospectus and the related financial statement schedules incorporated by
reference in this registration statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports incorporated by
reference in this registration statement (which express an unqualified opinion
and include an explanatory paragraph relating to a change in accounting for
the impairment of long-lived assets and for long-lived assets to be disposed
of), and have been so included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements of Mercantile Stores Company, Inc.
which are incorporated by reference in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
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