AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1997
REGISTRATION NO. 333-37047
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
COUNTRYWIDE CAPITAL III
(Exact name of registrant as specified in its charter)
C/O COUNTRYWIDE CREDIT INDUSTRIES, INC.
4500 PARK GRANADA
CALABASAS, CA 91302
(818) 225-3000
DELAWARE (Address, including zip APPLIED FOR
(State or other jurisdiction code, and telephone number, (I.R.S. Employer
of incorporation or including area code, of Identification
organization) registrant's principal Number)
executive offices)
COUNTRYWIDE HOME LOANS, INC.
(Exact name of registrant as specified in its charter)
4500 PARK GRANADA
CALABASAS, CA 91302
(818) 225-3000
NEW YORK (Address, including zip 13-2631719
(State or other jurisdiction code, and telephone number, (I.R.S. Employer
of incorporation or including area code, of Identification
organization) registrant's principal Number)
executive offices)
COUNTRYWIDE CREDIT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
4500 PARK GRANADA
CALABASAS, CA 91302
(818) 225-3000
DELAWARE (Address, including zip 13-2641992
(State or other jurisdiction code, and telephone number, (I.R.S. Employer
of incorporation or including area code, of Identification
organization) registrant's principal Number)
executive offices)
-----------------------------
DAVIS S. LOEB
DIRECTOR
COUNTRYWIDE HOME LOANS, INC.
AND
PRESIDENT AND CHAIRMAN OF THE BOARD
COUNTRYWIDE CREDIT INDUSTRIES, INC.
4500 PARK GRANADA
CALABASAS, CA 91302
(818) 225-3000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
-----------------------------
COPIES TO:
KENNETH R. BLACKMAN, ESQ. SANDOR E. SAMUELS, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON MANAGING DIRECTOR, LEGAL,
ONE NEW YORK PLAZA GENERAL COUNSEL AND SECRETARY
NEW YORK, NY 10004-1980 COUNTRYWIDE CREDIT INDUSTRIES, INC.
(212) 859-8000 4500 PARK GRANADA
CALABASAS, CA 91302
(818) 225-3000
-----------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===========================================================================
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED EXCHANGE OFFER: As
soon as practicable after the effective date of this Registration
Statement.
-----------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is a
compliance with General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
-----------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
MAXIMUM
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1)(2) OFFERING PRICE(1)(2) FEE
<S> <C> <C> <C> <C>
Subordinated Capital Income
Securities ("Capital
Securities") of Countrywide
Capital III....................
Junior Subordinated Debentures
("Debentures") of
Countrywide Home Loans, Inc.
(3)............................
Guarantees of Capital
Securities of Countrywide
Capital III by Countrywide
Credit Industries, Inc. and
certain back-up undertakings
("Capital Securities
Guarantees") (4)(5)............
Guarantees of Debentures of
Countrywide Home Loans, Inc.
by Countrywide Credit
Industries, Inc. ("Debt
Guarantees") (5)...............
200,000
Capital
Total.......................... Securities 100% $200,000,000 $60,607
<FN>
(1) Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457(f)(2).
(2) Exclusive of accrued interest and distributions, if any.
(3) The Debentures will be issued and sold to Countrywide Capital III.
Such Debentures may later be distributed to the holders of Capital
Securities upon a dissolution of Countrywide Capital III and the
distribution of the assets thereof.
(4) Includes the rights of holders of the Capital Securities under the
Capital Securities Guarantees and certain back-up undertakings
comprised of obligations of Countrywide Home Loans, Inc. ("CHL"),
guaranteed by Countrywide Credit Industries, Inc. (the "Company"), to
provide certain indemnities in respect of, and pay and be responsible
for certain costs, expenses, debts and liabilities of, Countrywide
Capital III (other than with respect to the Capital Securities) and
certain obligations of the Company as set forth in the Indenture and
the Declaration of Countrywide Capital III, in each case as further
described in the Registration Statement. The Company's obligations
under the Capital Securities Guarantees, the Debt Guarantees, the
Indenture and the Declaration, taken together with CHL's obligations
under the Debentures and the Indenture, including CHL's obligations to
pay all costs, expenses and liabilities of Countrywide Capital III
(other than with respect to the Capital Securities), will provide a
full and unconditional guarantee by the Company of all of Countrywide
Capital III's obligations under the Capital Securities.
(5) No separate consideration will be received for any Capital Securities
Guarantees or Debt Guarantees or back-up undertakings.
</FN>
</TABLE>
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1997
PROSPECTUS
COUNTRYWIDE CAPITAL III
OFFER TO EXCHANGE ITS
8.05% SUBORDINATED CAPITAL INCOME SECURITIES, SERIES B (SKISSM*)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND ARE
FULLY AND UNCONDITIONALLY GUARANTEED AS TO DISTRIBUTIONS AND OTHER PAYMENTS,
AS SET FORTH HEREIN, BY COUNTRYWIDE CREDIT INDUSTRIES, INC.
FOR ANY AND ALL OF ITS OUTSTANDING
8.05% SUBORDINATED CAPITAL INCOME SECURITIES, SERIES A (SKISSM*)
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
WHICH ARE
FULLY AND UNCONDITIONALLY GUARANTEED AS TO DISTRIBUTIONS AND OTHER PAYMENTS,
AS SET FORTH HEREIN, BY COUNTRYWIDE CREDIT INDUSTRIES, INC.
-----------------------------
- ---------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
DECEMBER 19, 1997 UNLESS EXTENDED.
- ---------------------------------------------------------------------------
-----------------------------
Countrywide Capital III, a Delaware statutory business trust (the
"Trust"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus (as the same may be amended or supplemented from
time to time, the "Prospectus") and in the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange
up to $200,000,000 aggregate liquidation amount of its 8.05% Capital Income
Securities, Series B (the "New Capital Securities"), which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to the Registration Statement (as defined herein) of which
this Prospectus constitutes a part, for a like liquidation amount of its
outstanding 8.05% Capital Income Securities, Series A (the "Old Capital
Securities"), of which $200,000,000 aggregate liquidation amount is
outstanding. As soon as practicable after the Exchange Offer: (i)
Countrywide Credit Industries, Inc., a Delaware corporation (the
"Company"), will exchange its full and unconditional guarantee with respect
to the payment of Distributions (as defined herein) and payments on
liquidation of the Trust or redemption of the Old Capital Securities (the
"Old Trust Guarantee") for a like guarantee of the New Capital Securities
(the "New Trust Guarantee," and together with the Old Trust Guarantee, the
"Trust Guarantee"); (ii) all of the 8.05% Junior Subordinated Debentures
due June 15, 2027, Series A (the "Old Debentures"), of Countrywide Home
Loans, Inc., a New York corporation and a wholly-owned subsidiary of the
Company ("CHL"), of which $206,200,000 aggregate principal amount is
outstanding, will be exchanged for a like aggregate principal amount of
CHL's 8.05% Junior Subordinated Debentures due June 15, 2027, Series B (the
"New Debentures"); and (iii) the Company will exchange its full and
unconditional guarantee with respect to the payment of principal of,
premium, if any, and interest on the Old Debentures (the "Old Debt
Guarantee") for a like guarantee of the New Debentures (the "New Debt
Guarantee"). The New Trust Guarantee, the New Debentures and the New Debt
Guarantee also have been registered under the Securities Act. The New Trust
Guarantee, together with the New Debt Guarantee, are collectively referred
to as the "New Guarantees," and the New Guarantees, together with the Old
Trust Guarantee, to the extent it shall remain in effect because not all
the Old Capital Securities are exchanged for New Capital Securities, are
collectively referred to as the "Guarantees." The Exchange Offer is being
made pursuant to the terms of a Registration Rights Agreement, dated June
4, 1997 (the "Registration Rights Agreement"), among the Company, CHL, the
Trust and Lehman Brothers Inc., Countrywide Securities Corporation,
Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Salomon Brothers Inc (the "Initial Purchasers") pursuant to the terms
of a Purchase Agreement, dated May 30, 1997, among the Company, CHL, the
Trust and the Initial Purchasers. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer." The Old Capital Securities, the Old Trust
Guarantee, the Old Debentures and the Old Debt Guarantee are collectively
referred to herein as the "Old Securities" and the New Capital Securities,
the New Trust Guarantee, the New Debentures and the New Debt Guarantee are
collectively referred to herein as the "New Securities."
The terms of the New Securities are identical in all material
respects to the terms of the Old Securities, except that the New Securities
have been registered under the Securities Act and therefore will not be
subject to certain restrictions on transfer applicable to the Old
Securities.
-----------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE NEW 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. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------------------------
* SKIS is a servicemark of Lehman Brothers Inc.
-----------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
[RED HERRING]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
The New Capital Securities and the Old Capital Securities (together,
the "Capital Securities") represent undivided beneficial ownership
interests in the assets of the Trust and rank on a parity with each other.
The Company is the owner of all of the beneficial ownership interests
represented by common securities of the Trust (the "Common Securities," and
together with the Capital Securities, the "Trust Securities"). The Trust
was formed for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) investing the gross proceeds thereof in the Old Debentures
and the Old Debt Guarantee, which will be exchanged for the New Debentures
and the New Debt Guarantee, respectively, and (iii) engaging in only those
other activities necessary or incidental thereto, including engaging in the
Exchange Offer.
The New Debentures will mature on June 15, 2027, or earlier in certain
circumstances following the occurrence of a Tax Event (as defined herein).
See "Description of Capital Securities -- Special Event Redemption or
Distribution of New Debentures; Shortening of Stated Maturity." 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."
Holders of Capital Securities will be entitled to receive cumulative
cash distributions ("Distributions"), accumulating from June 4, 1997, the
date of original issuance of the Old Capital Securities, at a rate per
annum equal to 8.05% of the liquidation amount of $1,000 per Capital
Security. Distributions will be payable semi-annually in arrears on June 15
and December 15 of each year, commencing on December 15, 1997, and at
maturity. At all times, the distribution rate in effect on the Capital
Securities, the distribution payment dates and other payment dates for the
Capital Securities will correspond to the interest rate, interest payment
dates and other payment dates for the New Debentures, which, together with
the New Debt Guarantee, will be the exclusive assets of the Trust. See
"Description of Capital Securities -- Distributions."
The Company will guarantee the payment of Distributions and payments
on liquidation of the Trust or redemption of the Capital Securities, but
only, in each case, to the extent of funds held by the Trust, which funds
will not be available except to the extent CHL has made payments of
interest or principal or other payments on the New Debentures or the
Company has made such payments pursuant to the New Debt Guarantee. See
"Description of Trust Guarantee" and "Description of New Debentures and New
Debt Guarantee." If CHL does not make payments on the New Debentures held
by the Trust, and the Company does not make such payments, to the extent
required, under the New Debt Guarantee, the Trust will have insufficient
funds to make payments on the Capital Securities, and the Trust Guarantee
will not apply to such payments until the Trust has sufficient funds
available therefor.
The Company's obligations under the Guarantees, the Indenture (as
defined herein) and the Declaration (as defined herein), taken together
with CHL's obligations under the New Debentures and the Indenture,
including CHL's obligation to pay all costs, expenses and liabilities of
the Trust (other than with respect to the Trust Securities), constitute a
full and unconditional guarantee by the Company of all of the Trust's
obligations under the Capital Securities. See "Relationship Among the
Capital Securities, the New Debentures and the Guarantees." CHL's
obligations under the New Debentures and the Indenture and the Company's
obligations under the Guarantees and the Indenture will be subordinate and
junior in right of payment to all existing and future Senior Indebtedness
(as defined herein) of CHL and the Company, respectively, and will rank
pari passu with the 8% Junior Subordinated Deferrable Interest Debentures
due 2026 of CHL (the "1996 Debentures") and the related guarantee by the
Company, respectively. See "Capitalization." In addition, at all times such
obligations will be structurally subordinated to all existing and future
liabilities and obligations of CHL's and the Company's subsidiaries, as the
case may be. At August 31, 1997, CHL had approximately $5.7 billion
aggregate principal amount of Senior Indebtedness outstanding and the
Company had no indebtedness outstanding (excluding indebtedness of
subsidiaries guaranteed by the Company). In addition, at such date,
subsidiaries of the Company (other than CHL) had outstanding indebtedness
of approximately $16.3 million. The terms of the Capital Securities, the
New Debentures and the Guarantees place no limitation on the amount of
Senior Indebtedness that may be incurred by the Company or CHL or on the
amount of liabilities and obligations of the Company's or CHL's
subsidiaries. See "Description of Trust Guarantee -- Status of the Trust
Guarantee" and "Description of New Debentures and New Debt Guarantee --
Ranking."
CHL has the right to defer payment of interest on the New Debentures
at any time or from time to time for a period not exceeding 10 consecutive
semi-annual periods with respect to each deferral period (each, an
"Extension Period"), provided that no Extension Period may extend beyond
the Stated Maturity (as defined herein) of the New Debentures. Upon the
termination of any such Extension Period and the payment of all amounts
then due on any Interest Payment Date (as defined herein), CHL may elect to
begin a new Extension Period, subject to the requirements set forth herein.
Accordingly, there could be multiple Extension Periods of varying lengths
throughout the term of the New Debentures. If interest payments on the New
Debentures are so deferred, Distributions on the Capital Securities will
also be deferred and (a) the Company and CHL shall not declare or pay
dividends on, or make a distribution with respect to, or redeem, purchase
or acquire, or make a liquidation payment with respect to, any of its
capital stock (other than (i) purchases or acquisitions of shares of any
such capital stock or rights to acquire such capital stock in connection
with the satisfaction by the Company or CHL, respectively, of its
obligations under any employee benefit plans, (ii) as a result of a
reclassification of the Company's or CHL's capital stock or rights to
acquire such capital stock or the exchange or conversion of one class or
series of the Company's or CHL's capital stock or rights to acquire such
capital stock for another class or series of the Company's or CHL's capital
stock or rights to acquire such capital stock, (iii) the purchase of
fractional interests in shares of the Company's or CHL's capital stock
pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged or (iv) dividends and
distributions made on the Company's or CHL's capital stock or rights to
acquire such capital stock with the Company's or CHL's capital stock or
rights to acquire such capital stock) or make any guarantee payments with
respect to any of the foregoing and (b) the Company and CHL shall not make
any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including any guarantees, other
than the Guarantees) issued by the Company or CHL that rank pari passu with
or junior to the New Debentures. During an Extension Period, interest on
the New Debentures will continue to accrue (and the amount of Distributions
to which holders of the Capital Securities are entitled will accumulate) at
8.05% per annum, compounded semi-annually, and holders of the Capital
Securities will be required to accrue income, in the form of original issue
discount ("OID"), for United States federal income tax purposes prior to
receipt of cash related to such interest income. See "Description of New
Debentures and New Debt Guarantee -- Option to Extend Interest Payment
Period" and "Certain United States Federal Income Tax Consequences --
Interest Income and Original Issue Discount."
The Trust Securities are subject to mandatory redemption, in whole but
not in part, upon repayment of the New Debentures held by the Trust at
maturity or their earlier redemption, in an aggregate liquidation amount
equal to the aggregate principal amount of related New Debentures maturing
or being redeemed and at a redemption price equal to the redemption price
of such New Debentures, in each case, plus accumulated and unpaid
Distributions thereon to the date of redemption.
The New Debentures are not redeemable at the option of CHL, other than
in certain circumstances following a Special Event (as defined herein).
Upon the occurrence and continuation of a Special Event, CHL will have the
right, if certain conditions are met, (i) in the case of a Tax Event, to
shorten the Stated Maturity of the New Debentures to a date not earlier
than December 15, 2011 or (ii) to redeem the New Debentures in whole (but
not in part) within 90 days following the occurrence of such Special Event,
at a redemption price equal to 100% of the aggregate principal amount of
such New Debentures, plus accrued and unpaid interest to the date of
redemption. See "Description of New Debentures and New Debt Guarantee --
Redemption."
The Company has the right at any time to dissolve the Trust, and cause
the New Debentures to be distributed to the holders of the Trust Securities
in exchange therefor upon liquidation of the Trust. In the event of the
liquidation of the Trust, after satisfaction of the claims of creditors of
the Trust, if any, as provided by applicable law, the holders of the Trust
Securities will be entitled to receive a liquidation amount of $1,000 per
Capital Security, plus accumulated and unpaid Distributions thereon to the
date of payment, unless, in connection with such liquidation, New
Debentures are distributed to the holders of Trust Securities. If such
liquidation amount can be paid only in part because the Trust has
insufficient assets available to pay in full the aggregate liquidation
amount, then the amounts payable directly by the Trust on the Trust
Securities will 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 Securities, except
that if an Indenture Event of Default (as defined herein) has occurred and
is continuing, the Capital Securities will have a priority over the Common
Securities. See "Description of Capital Securities -- Liquidation
Distribution Upon Dissolution."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE
OFFER.
The Trust will accept for exchange any and all validly tendered Old
Capital Securities on or prior to 5:00 p.m., New York City time, on
December 19, 1997, unless extended by the Trust (as so extended, the
"Expiration Date"). Tenders of Old Capital Securities may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
The Exchange Offer is not conditioned upon any minimum liquidation amount
of Old Capital Securities being tendered for exchange. However, the
Exchange Offer is subject to certain conditions, which may be waived by the
Trust, and to the terms and provisions of the Registration Rights
Agreement. Old Capital Securities may be tendered only in blocks having a
minimum aggregate liquidation amount of $100,000 (100 Old Capital
Securities) and in integral multiples of $1,000 in excess thereof. CHL has
agreed to pay all the expenses of the Exchange Offer. See "The Exchange
Offer."
Any waiver, extension or termination of the Exchange Offer will be
publicly announced by the Trust through a release to the Dow Jones News
Service and as otherwise required by applicable law or regulations.
The New Capital Securities will be obligations of the Trust entitled
to the benefits of the Declaration. The form and terms of the New Capital
Securities will be identical in all material respects to the form and terms
of the Old Capital Securities except that (i) the New Capital Securities
will have been registered under the Securities Act and therefore will not
contain terms with respect to transfer restrictions, (ii) the Distribution
Rate (as defined herein) on the New Capital Securities will not be subject
to increase in certain circumstances relating to the timing of the Exchange
Offer and (iii) the holders of New Capital Securities will not be entitled
to certain rights under the Registration Rights Agreement, which rights
will terminate when the Exchange Offer is consummated. Any Old Capital
Securities not tendered and accepted in the Exchange Offer will remain
outstanding and, except as described herein, will be entitled to all the
rights and preferences, and will be subject to the limitations applicable
thereto, under the Declaration. Following consummation of the Exchange
Offer, the holders of the Old Capital Securities will not be entitled to
any increase in the Distribution Rate thereon and will continue to be
subject to any existing restrictions upon transfer thereof, and none of the
Company, CHL and the Trust will have any further obligation to such holders
(other than under certain limited circumstances) to provide for the
registration under the Securities Act of the Old Capital Securities held by
them. See "The Exchange Offer."
The Company, CHL and the Trust are making the Exchange Offer in
reliance on the position of the staff of the Division of Corporation
Finance of the Securities and Exchange Commission (the "Commission") as set
forth in certain interpretive letters addressed to third parties in other
transactions. However, none of the Company, CHL and the Trust has sought
its own interpretive letter and there can be no assurance that the staff of
the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by
the staff of the Division of Corporation Finance, and subject to the two
immediately following sentences, the Company, CHL and the Trust believe
that New Capital Securities issued pursuant to the Exchange Offer in
exchange for Old Capital Securities may be offered for resale, resold and
otherwise transferred by a holder thereof (other than a holder who is a
broker-dealer or who is an "affiliate" of the Company, CHL or the Trust
within the meaning of Rule 405 of the Securities Act) without further
compliance with the registration and prospectus delivery requirements of
the Securities Act, provided that (i) such New Capital Securities are
acquired in the ordinary course of such holder's business and (ii) such
holder is not participating, does not intend to participate and has no
arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of such New Capital
Securities. However, any holder of Old Capital Securities who is an
"affiliate" of the Company, CHL or the Trust or who intends to participate
in the Exchange Offer for the purpose of distributing New Capital
Securities, or, as to unsold allotments, any broker-dealer who purchased
Old Capital Securities from the Trust to resell pursuant to Rule 144A under
the Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of the
staff of the Division of Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will not be permitted or
entitled to tender such Old Capital Securities in the Exchange Offer and
(c) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale of such Old Capital
Securities, with such resale covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K under the Securities Act, unless such sale is made pursuant
to an exemption from such requirements. In addition, as described below, if
any broker-dealer holds Old Capital Securities acquired for its own account
as a result of market-making or other trading activities and exchanges such
Old Capital Securities for New Capital Securities, then such broker-dealer
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old
Capital Securities for New Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Company, CHL
or the Trust, (ii) any New Capital Securities to be received by it are
being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of such New Capital
Securities and (iv) if such holder is not a broker-dealer, or is a
broker-dealer but will not receive New Capital Securities for its own
account in exchange for Old Capital Securities, such holder is not engaged
in, and does not intend to engage in, a distribution (within the meaning of
the Securities Act) of such New Capital Securities. In addition, the
Company, CHL and the Trust may require such holder, as a condition to such
holder's eligibility to participate in the Exchange Offer, to furnish to
the Company, CHL and the Trust (or an agent thereof) in writing information
as to the number of "beneficial owners" (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
on behalf of whom such holder holds the Old Capital Securities to be
exchanged in the Exchange Offer. Each broker-dealer that receives New
Capital Securities for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Capital Securities for its own account
as a result of market-making activities or other trading activities and
must agree that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Capital
Securities. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. Based
on the position taken by the staff of the Division of Corporation Finance
of the Commission in the interpretive letters referred to above, the
Company, CHL and the Trust believe that broker-dealers who acquired Old
Capital Securities for their own accounts, as a result of market-making or
other trading activities ("Participating Broker-Dealers") may fulfill their
prospectus delivery requirements with respect to the New Capital Securities
received upon exchange of such Old Capital Securities (other than Old
Capital Securities which represent an unsold allotment from the original
sale of the Old Capital Securities) with a prospectus meeting the
requirements of the Securities Act, which may be the prospectus prepared
for an exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such New Capital Securities.
Accordingly, this Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer during the
period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for
its own account as a result of market-making or other trading activities.
Subject to certain provisions set forth in the Registration Rights
Agreement, the Company, CHL and the Trust have agreed that this Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such New Capital
Securities for a period ending 90 days after the Registration Statement of
which this Prospectus constitutes a part is declared effective. However, a
Participating Broker-Dealer who intends to use this Prospectus in
connection with the resale of New Capital Securities received in exchange
for Old Capital Securities pursuant to the Exchange Offer must notify the
Company, CHL and the Trust, or cause the Company, CHL and the Trust to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that
purpose in the Letter of Transmittal or may be delivered to the Exchange
Agent (as defined herein) at one of the addresses set forth herein under
"The Exchange Offer -- Exchange Agent." Any Participating Broker-Dealer who
is an "affiliate" of the Company, CHL or the Trust may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer -- Resales of New Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Old
Capital Securities pursuant to the Exchange Offer will be deemed to have
agreed, by execution of the Letter of Transmittal, that, upon receipt of
notice from the Company, CHL or the Trust of the occurrence of any event or
the discovery of any fact which makes any statement contained in this
Prospectus untrue in any material respect or which causes this Prospectus
to omit to state a material fact necessary in order to make the statements
contained herein, in light of the circumstances under which they were made,
not misleading or of the occurrence of certain other events specified in
the Registration Rights Agreement, such Participating Broker-Dealer will
suspend the sale of New Capital Securities pursuant to this Prospectus
until the Company, CHL and the Trust have amended or supplemented this
Prospectus to correct such misstatement or omission and have furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company, CHL or the Trust has given notice that the
sale of the New Capital Securities may be resumed, as the case may be.
The New Capital Securities will be a new issue of securities for which
there currently is no established trading market. The Trust has been
advised by the Initial Purchasers that following completion of the Exchange
Offer, they currently intend to make a market in the New Capital
Securities; however, they are not obligated to do so and any market-making
activities with respect to the New Capital Securities may be discontinued
at any time. There can be no assurance that an active trading market for
the New Capital Securities will develop. See "Risk Factors -- Absence of
Public Market for the New Capital Securities." The Trust and the Company do
not currently intend to apply for listing of the New Capital Securities on
the New York Stock Exchange (the "NYSE"). To the extent that Old Capital
Securities are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered Old Capital Securities could be adversely
affected. See "Risk Factors -- Consequences of a Failure to Exchange Old
Capital Securities."
None of the Company, CHL and the Trust will receive any proceeds from
the Exchange Offer. No dealer-manager is being used in connection with the
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
-----------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION CONCERNING THE COMPANY, CHL, THE TRUST, THE NEW CAPITAL
SECURITIES OR THE EXCHANGE OFFER NOT CONTAINED IN THIS PROSPECTUS, THE
DOCUMENTS INCORPORATED OR DEEMED INCORPORATED BY REFERENCE IN THIS
PROSPECTUS OR THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, CHL OR THE TRUST. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR THE OFFERING, SALE OR DELIVERY OF ANY NEW CAPITAL SECURITY
SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AT ANY TIME AFTER THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS OR PROSPECTS OF
THE COMPANY, CHL OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR A 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.
-----------------------------
NO EMPLOYEE BENEFIT OR OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION
4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), NO
ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" OF ANY SUCH PLAN BY
REASON OF SUCH PLAN'S INVESTMENT IN THE ENTITY AND NO PERSON INVESTING
"PLAN ASSETS" OF ANY PLAN, MAY ACQUIRE OR HOLD THE NEW CAPITAL SECURITIES
OR ANY INTEREST THEREIN, UNLESS SUCH EXCHANGING PERSON OR HOLDER IS
ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER AN APPLICABLE U.S.
DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTE"),
INCLUDING BUT NOT LIMITED TO PTE 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH
RESPECT TO SUCH ACQUISITION OR HOLDING. ANY PERSON EXCHANGING OLD CAPITAL
SECURITIES FOR NEW CAPITAL SECURITIES OR HOLDER OF THE NEW CAPITAL
SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED AND
COVENANTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (I) THE
EXCHANGING PERSON OR HOLDER IS NOT A PLAN OR ANY ENTITY WHOSE UNDERLYING
ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE
ENTITY AND IS NOT ACQUIRING SUCH NEW CAPITAL SECURITIES ON BEHALF OF OR
WITH "PLAN ASSETS" OF ANY PLAN OR (II) THE EXCHANGE AND HOLDING OF THE NEW
CAPITAL SECURITIES IS COVERED BY ONE OF THE PROHIBITED TRANSACTION CLASS
EXEMPTIONS UNDER ERISA AND THE CODE DESCRIBED ABOVE.
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION..................................................1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................2
PROSPECTUS SUMMARY.....................................................4
RISK FACTORS..........................................................15
USE OF PROCEEDS.......................................................20
RATIO OF EARNINGS TO FIXED CHARGES....................................20
ACCOUNTING TREATMENT..................................................20
CAPITALIZATION........................................................21
THE COMPANY...........................................................22
CHL...................................................................22
THE TRUST.............................................................23
THE EXCHANGE OFFER....................................................24
DESCRIPTION OF CAPITAL SECURITIES.....................................36
DESCRIPTION OF NEW DEBENTURES AND NEW DEBT GUARANTEE..................45
DESCRIPTION OF TRUST GUARANTEE........................................51
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE NEW DEBENTURES
AND THE GUARANTEES..................................................53
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.................54
BOOK-ENTRY ISSUANCE...................................................58
ERISA CONSIDERATIONS..................................................60
PLAN OF DISTRIBUTION..................................................62
LEGAL MATTERS.........................................................62
INDEPENDENT AUDITORS..................................................62
INDEX OF CERTAIN TERMS................................................63
-----------------------------
AVAILABLE INFORMATION
The Company, CHL and the Trust have filed with the Commission a
Registration Statement on Form S-4 (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement") under the
Securities Act with respect to the New Capital Securities offered hereby.
This Prospectus, which forms a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company, CHL, the Trust and the New Capital Securities, reference is made
to the Registration Statement and the exhibits and schedules relating
thereto. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission or incorporated by reference herein are not
necessarily complete, and, in each instance, reference is made to the copy
of such document so filed for a more complete description of the matter
involved. Each such statement is qualified in its entirety by such
reference. The Registration Statement (and the exhibits and schedules
thereto) 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; and at the Commission's regional offices at Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661-2511, and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can also be obtained from the Commission at
prescribed rates through its Public Reference Section at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549.
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements
and other information with the Commission. Such reports, proxy statements
and other information filed by the Company with the Commission pursuant to
the informational requirements of the Exchange Act can be inspected and
copied at the public reference facilities maintained by the Commission at
its offices and the Commission's regional offices at the locations listed
above. Copies of such material can also be obtained from the Public
Reference Section of the Commission in the manner described above. Such
reports and other information can also be inspected at the offices of the
following exchanges on which certain of the Company's securities are
listed: The New York Stock Exchange, 20 Broad Street, New York, New York
10005 and the Pacific Stock Exchange, 115 Sansome Street, San Francisco,
California 94104. The Commission also maintains a Web site
(http://www.sec.gov) that makes available reports, proxy statements and
other information regarding the Company.
No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company and CHL believe such
financial statements would not be material to holders of the New Capital
Securities because (i) all of the voting securities of the Trust are owned
by the Company, a reporting company under the Exchange Act, (ii) the Trust
has no independent operations but exists for the exclusive purposes of
issuing the Trust Securities, representing undivided beneficial ownership
interests in its assets, and investing the gross proceeds thereof in the
Old Debentures and the Old Debt Guarantee, which Old Debentures and Old
Debt Guarantee will be exchanged for the New Debentures and the New Debt
Guarantee, respectively, pursuant to the Exchange Offer and (iii) the
Company's obligations under the Guarantees, the Indenture and the
Declaration, taken together with CHL's obligations under the New Debentures
and the Indenture, including CHL's obligation to pay all costs, expenses
and liabilities of the Trust (other than with respect to the Trust
Securities), constitute a full and unconditional guarantee by the Company
of all of the Trust's obligations under the Capital Securities. See
"Relationship Among the Capital Securities, the New Debentures and the
Guarantees."
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997 and Quarterly Reports on Form 10-Q for the fiscal
quarters ended May 31, 1997 and August 31, 1997, previously filed by the
Company with the Commission, are incorporated by reference in this
Prospectus and shall be deemed to be a part hereof.
Each document filed by the Company with the Commission pursuant to
Sections 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 any offering of
securities made by this Prospectus shall be deemed to be incorporated
herein by reference and to be a part hereof from the date of filing such
document. Any statement contained herein, or in a document all or a portion
of which is 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 other
subsequently filed document which 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.
The Company will provide without charge to any person to whom a copy
of this Prospectus is delivered, upon written or oral request, a copy of
any and all of the documents that have been or may be incorporated by
reference herein (other than exhibits to such documents which are not
specifically incorporated by reference into such documents). Request for
such documents should be submitted in writing to the Company at 4500 Park
Granada, Calabasas, California 91302, Attention: Investor Relations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This Prospectus may contain
or incorporate by reference forward-looking statements which reflect the
Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks
and uncertainties, including those identified below, which could cause
future results to differ materially from historical results or those
anticipated. The words "believe," expect," "anticipate," "intend,"
"estimate" and other expressions which indicate future events and trends
identify forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
their dates. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The following factors, among
others, could cause future results to differ materially from historical
results or those anticipated: (1) the level of demand for mortgage credit,
which is affected by such external factors as the level of interest rates,
the strength of the various segments of the economy and demographics of the
Company's lending markets; (2) the direction of interest rates; (3) the
relationship between mortgage interest rates and the cost of funds; (4)
federal and state regulation of the Company's mortgage banking operations;
and (5) competition within the mortgage banking industry. See also "Risk
Factors."
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS ARE
URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. FOR AN INDEX OF CERTAIN
DEFINED TERMS USED IN THIS PROSPECTUS, SEE "INDEX OF CERTAIN TERMS."
THE TRUST
The Trust is a statutory business trust formed under Delaware law
pursuant to (i) a declaration of trust, dated as of May 28, 1997 and (ii)
the filing of a certificate of trust with the Secretary of State of the
State of Delaware on May 28, 1997. The Trust exists for the exclusive
purposes of (i) issuing and selling the Trust Securities representing
undivided beneficial ownership interests in the assets of the Trust, (ii)
investing the gross proceeds from such sales in the Old Debentures and the
Old Debt Guarantee, which will be exchanged for the New Debentures and the
New Debt Guarantee, respectively, pursuant to the Exchange Offer and (iii)
engaging in only those other activities necessary or incidental thereto,
including engaging in the Exchange Offer.
The Trust's registered office in the State of Delaware is c/o The Bank
of New York (Delaware), 400 White Clay Center, Route 273, Newark, Delaware
19711, Attn: Corporate Trust Administration. The principal place of
business of the Trust is c/o Countrywide Credit Industries, Inc., 4500 Park
Granada, Calabasas, California 91302, and its telephone number is (818)
225-3000.
THE COMPANY
The Company is a holding company which through its principal
subsidiary, CHL, is engaged primarily in the mortgage banking business. The
Company, through its other wholly owned subsidiaries, offers products and
services complementary to its mortgage banking business. The Company is a
Delaware corporation and was originally incorporated in New York under the
name of OLM Credit Industries, Inc. in 1969. Its principal executive
offices are located at 4500 Park Granada, Calabasas, California 91302, and
its telephone number is (818) 225-3000.
CHL
CHL, the principal subsidiary of the Company, is engaged primarily in
the mortgage banking business and as such originates, purchases, sells and
services mortgage loans. CHL is a New York corporation, originally
incorporated in 1969. Its principal executive offices are located at 4500
Park Granada, Calabasas, California 91302, and its telephone number is
(818) 225-3000.
THE OFFERING
THE OLD CAPITAL SECURITIES: The Old Capital Securities were sold by the
Trust in an offering consummated on June 4,
1997 (the "Offering"), and were subsequently
resold to Qualified Institutional Buyers (as
defined herein) pursuant to Rule 144A and to
certain foreign purchasers in reliance on
Regulation S under the Securities Act.
REGISTRATION RIGHTS In connection with the Offering, the Company,
AGREEMENT: CHL and the Trust entered into the
Registration Rights Agreement, which granted
holders of the Old Capital Securities certain
exchange and registration rights. The
Exchange Offer is intended to satisfy such
exchange and registration rights, which
terminate upon the consummation of the
Exchange Offer, except under limited
circumstances. See "The Exchange Offer --
Shelf Registration Statement."
THE EXCHANGE OFFER
SECURITIES OFFERED: Up to $200,000,000 aggregate liquidation
amount of New Capital Securities (liquidation
amount $1,000 per New Capital Security)
evidencing undivided beneficial ownership
interests in the assets of the Trust. Holders
of New Capital Securities will be entitled to
a preference over the Common Securities in
certain circumstances with respect to
Distributions and amounts payable on
liquidation, redemption or otherwise.
THE EXCHANGE OFFER: Pursuant to the Exchange Offer, $1,000
liquidation amount of New Capital Securities
will be issued in exchange for each $1,000
liquidation amount of Old Capital Securities
that are validly tendered and not withdrawn.
Old Capital Securities may be tendered only
in blocks having a minimum aggregate
liquidation amount of $100,000 (100 Old
Capital Securities) and in integral multiples
of $1,000 in excess thereof. As of November
17, 1997, there was one registered holder of
Old Capital Securities. On such date,
$200,000,000 aggregate liquidation amount of
Old Capital Securities were outstanding.
The Exchange Offer is not being made to, nor
will the Trust accept surrenders of Old
Capital Securities for exchange from, holders
thereof in any jurisdiction in which the
Exchange Offer or the acceptance thereof
would not be in compliance with the
securities or blue sky laws of such
jurisdiction.
RESALES: The Company, CHL and the Trust are making the
Exchange Offer in reliance on the position of
the staff of the Division of Corporation
Finance of the Commission as set forth in
certain interpretive letters addressed to
third parties in other transactions. However,
none of the Company, CHL and the Trust has
sought its own interpretive letter and there
can be no assurance that the staff of the
Division of Corporation Finance of the
Commission would make a similar determination
with respect to the Exchange Offer as it has
in such interpretive letters to third
parties. Based on these interpretations by
the staff of the Division of Corporation
Finance, and subject to the two immediately
following sentences, the Company, CHL and the
Trust believe that New Capital Securities
issued pursuant to the Exchange Offer in
exchange for Old Capital Securities may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than a
holder who is a broker-dealer or who is an
"affiliate" of the Company, CHL or the Trust
within the meaning of Rule 405 under the
Securities Act) without further compliance
with the registration and prospectus delivery
requirements of the Securities Act, provided
that (i) such New Capital Securities are
acquired in the ordinary course of such
holder's business and (ii) such holder is not
participating, does not intend to participate
and has no arrangement or understanding with
any person to participate, in a distribution
(within the meaning of the Securities Act) of
such New Capital Securities. However, any
holder of Old Capital Securities who is an
"affiliate" of the Company, CHL or the Trust
or who intends to participate in the Exchange
Offer for the purpose of distributing New
Capital Securities, or, as to any unsold
allotments, any broker-dealer who purchased
Old Capital Securities from the Trust to
resell pursuant to Rule 144A or any other
available exemption under the Securities Act,
(a) will not be able to rely on the
interpretations of the staff of the Division
of Corporation Finance of the Commission set
forth in the above-mentioned interpretive
letters, (b) will not be permitted or
entitled to tender such Old Capital
Securities in the Exchange Offer and (c) must
comply with the registration and prospectus
delivery requirements of the Securities Act
in connection with any resale of such Old
Capital Securities, with such resale covered
by an effective registration statement
containing the selling security holder
information required by Item 507 of
Regulation S-K under the Securities Act,
unless such resale is made pursuant to an
exemption from such requirements. In
addition, as described below, if any
broker-dealer holds Old Capital Securities
acquired for its own account as a result of
market-making or other trading activities and
exchanges such Old Capital Securities for New
Capital Securities, then such broker-dealer
must deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resales of such New
Capital Securities.
Each holder of Old Capital Securities who
wishes to exchange Old Capital Securities for
New Capital Securities in the Exchange Offer
will be required to represent that (i) it is
not an "affiliate" of the Company, CHL or the
Trust, (ii) any New Capital Securities to be
received by it are being acquired in the
ordinary course of its business, (iii) it has
no arrangement or understanding with any
person to participate in a distribution
(within the meaning of the Securities Act) of
such New Capital Securities and (iv) if such
holder is not a broker-dealer, or is a
broker-dealer but will not receive New
Capital Securities for its own account in
exchange for Old Capital Securities, such
holder is not engaged in, and does not intend
to engage in, a distribution (within the
meaning of the Securities Act) of such New
Capital Securities. In addition, the Company,
CHL and the Trust may require such holder, as
a condition to such holder's eligibility to
participate in the Exchange Offer, to furnish
to the Company, CHL and the Trust (or an
agent thereof) in writing information as to
the number of "beneficial owners" (within the
meaning of Rule 13d-3 under the Exchange Act
on behalf of whom such holder holds the Old
Capital Securities to be exchanged in the
Exchange Offer. Each broker-dealer that
receives New Capital Securities for its own
account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Capital
Securities for its own account as a result of
market-making activities or other trading
activities and must agree that it will
deliver a prospectus meeting the requirements
of the Securities Act in connection with any
resale of such New Capital Securities. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit
that it is an "underwriter" within the
meaning of the Securities Act. Based on the
position taken by the staff of the Division
of Corporation Finance of the Commission in
the interpretive letters referred to above,
the Company, CHL and the Trust believe that
broker-dealers who acquired Old Capital
Securities for their own accounts, as a
result of market-making or other trading
activities (i.e., Participating
Broker-Dealers) may fulfill their prospectus
delivery requirements with respect to the New
Capital Securities received upon exchange of
such Old Capital Securities (other than Old
Capital Securities which represent an unsold
allotment from the original sale of the Old
Capital Securities) with a prospectus meeting
the requirements of the Securities Act, which
may be the prospectus prepared for an
exchange offer so long as it contains a
description of the plan of distribution with
respect to the resale of such New Capital
Securities. Accordingly, this Prospectus, as
it may be amended or supplemented from time
to time, may be used by a Participating
Broker-Dealer during the period referred to
below in connection with resales of New
Capital Securities received in exchange for
Old Capital Securities where such Old Capital
Securities were acquired by such
Participating Broker-Dealer for its own
account as a result of market-making or other
trading activities. Subject to certain
provisions set forth in the Registration
Rights Agreement, the Company, CHL and the
Trust have agreed that this Prospectus, as it
may be amended or supplemented from time to
time, may be used by a Participating
Broker-Dealer in connection with resales of
such New Capital Securities for a period
ending 90 days after the Registration
Statement of which this Prospectus
constitutes a part is declared effective.
However, a Participating Broker-Dealer who
intends to use this Prospectus in connection
with the resale of New Capital Securities
received in exchange for Old Capital
Securities pursuant to the Exchange Offer
must notify the Company, CHL and the Trust,
or cause the Company, CHL and the Trust to be
notified, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer.
Such notice may be given in the space
provided for that purpose in the Letter of
Transmittal or may be delivered to the
Exchange Agent at one of the addresses set
forth herein under "The Exchange Offer --
Exchange Agent." Any Participating
Broker-Dealer who is an "affiliate" of the
Company, CHL or the Trust may not rely on
such interpretive letters and must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction.
In that regard, each Participating
Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer
will be deemed to have agreed, by execution
of the Letter of Transmittal, that, upon
receipt of notice from the Company, CHL or
the Trust of the occurrence of any event or
the discovery of any fact which makes any
statement contained in this Prospectus untrue
in any material respect or which causes this
Prospectus to omit to state a material fact
necessary in order to make the statements
contained herein, in light of the
circumstances under which they were made, not
misleading or of the occurrence of certain
other events specified in the Registration
Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New
Capital Securities pursuant to this
Prospectus until the Company, CHL and the
Trust have amended or supplemented this
Prospectus to correct such misstatement or
omission and has furnished copies of the
amended or supplemented Prospectus to such
Participating Broker-Dealer or the Company,
CHL or the Trust have given notice that the
sale of the New Capital Securities may be
resumed, as the case may be. See "The
Exchange Offer -- Resales of New Capital
Securities."
EXPIRATION DATE: The Exchange Offer will expire at 5:00 p.m.,
New York City time, on December 19, 1997,
unless extended, in which case the term
"Expiration Date" shall mean the latest date
and time to which the Exchange Offer is
extended. Any extension, if made, will be
publicly announced through a release to the
Dow Jones News Service and as otherwise
required by applicable law or regulations.
See "The Exchange Offer -- Expiration Date;
Extensions; Amendments."
CONDITIONS TO THE EXCHANGE The Exchange Offer is not conditioned upon
OFFER: any minimum liquidation amount of Old Capital
Securities being tendered for exchange.
However, the Exchange Offer is subject to
certain conditions, which may be waived by
the Trust, and to the terms and provisions of
the Registration Rights Agreement. See "The
Exchange Offer -- Conditions of the Exchange
Offer."
The Company, CHL and the Trust reserve the
right, in their sole discretion, subject to
applicable law, (i) to delay accepting any
Old Capital Securities, (ii) to terminate the
Exchange Offer if any conditions set forth
under "The Exchange Offer -- Conditions of
the Exchange Offer" shall not have been
satisfied, (iii) to extend the Expiration
Date of the Exchange Offer and retain all Old
Capital Securities tendered pursuant to the
Exchange Offer, subject, however, to the
right of holders of Old Capital Securities to
withdraw their tendered Old Capital
Securities and (iv) to waive any condition or
otherwise amend the terms of the Exchange
Offer in any manner. See "The Exchange Offer
-- Expiration Date; Extensions; Amendments."
PROCEDURES FOR TENDERING Each holder of Old Capital Securities wishing
OLD CAPITAL SECURITIES: to tender their Old Capital Securities
pursuant to the Exchange Offer must complete,
sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or a facsimile thereof, together
with any other required documentation, and
either with the Old Capital Securities to be
tendered or in compliance with the specified
procedures for guaranteed delivery of Old
Capital Securities, to The Bank of New York,
as exchange agent (the "Exchange Agent"), at
the address set forth herein and therein or
effect a tender of such Old Capital
Securities pursuant to the procedures for
book-entry transfers as provided herein and
in the Letter of Transmittal. See "The
Exchange Offer -- Procedures for Tendering
Old Capital Securities."
Letters of Transmittal and certificates
representing Old Capital Securities should
not be sent to the Company, CHL or the Trust.
Such documents should only be sent to the
Exchange Agent. Questions regarding how to
tender and requests for information should be
directed to the Exchange Agent. See "The
Exchange Offer -- Exchange Agent."
SPECIAL PROCEDURES FOR Any beneficial owner whose Old Capital
BENEFICIAL OWNERS: Securities are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and who wishes to
tender such Old Capital Securities in the
Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering such
owner's Old Capital Securities, either make
appropriate arrangements to register
ownership of the Old Capital Securities in
such owner's name or obtain a properly
completed bond power from the registered
holder. The transfer of registered ownership
may take considerable time and may not be
able to be completed prior to the Expiration
Date. See "The Exchange Offer -- Procedures
for Tendering Old Capital Securities."
GUARANTEED DELIVERY Holders of Old Capital Securities who wish to
PROCEDURES: tender their Old Capital Securities and whose
Old Capital Securities are not immediately
available or who cannot deliver their Old
Capital Securities, the Letter of Transmittal
or any other documents required by such
Letter of Transmittal to the Exchange Agent
prior to the Expiration Date or who cannot
complete the procedures for book-entry
transfer on a timely basis, must tender their
Old Capital Securities according to the
guaranteed delivery procedures set forth in
"The Exchange Offer -- Procedures for
Tendering Old Capital Securities --
Guaranteed Delivery."
UNTENDERED OLD CAPITAL Holders of Old Capital Securities that are
SECURITIES: eligible to participate in the Exchange Offer
whose Old Capital Securities are not tendered
and accepted in the Exchange Offer will
continue to hold such Old Capital Securities
and will be entitled to all the rights and
preferences, and, except as described herein,
will be subject to the limitations applicable
thereto, under the Declaration. Following
consummation of the Exchange Offer, such
holders of Old Capital Securities will
continue to be subject to any existing
restrictions upon transfer thereof, and none
of the Company, CHL and the Trust will have
any further obligation to such holders (other
than under certain limited circumstances) to
provide for the registration under the
Securities Act of the Old Capital Securities
held by them and the Distribution Rate on the
New Capital Securities will not be subject to
increase as the Distribution Rate on the Old
Capital Securities. To the extent that Old
Capital Securities are tendered and accepted
in the Exchange Offer, the liquidation amount
outstanding of Old Capital Securities will be
reduced by the liquidation amount so
exchanged. Accordingly, a holder's ability to
sell untendered Old Capital Securities could
be adversely affected.
CONSEQUENCES OF FAILURE Except for Old Capital Securities that become
TO EXCHANGE: unrestricted securities as a result of
transfers in accordance with Regulation S
under the Securities Act, any Old Capital
Securities that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Capital
Securities (if the holders thereof are not
entitled to the benefit of the shelf
registration statement described below) may
be resold only (i) to CHL, (ii) pursuant to
Rule 144A or Rule 144 under the Securities
Act or pursuant to some other exemption from
registration under the Securities Act, (iii)
outside the United States pursuant to the
requirements of Regulation S under the
Securities Act or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange Offer --
Consequences of Failure to Exchange" and "--
Shelf Registration Statement" and "Risk
Factors -- Consequences of a Failure to
Exchange Old Capital Securities." The New
Capital Securities and any Old Capital
Securities which remain outstanding after
consummation of the Exchange Offer will
constitute a single class of Capital
Securities under the Declaration and,
accordingly, will vote together as a single
class for purposes of determining whether
holders of the requisite percentage in
outstanding liquidation amount thereof have
taken certain actions or exercised certain
rights under the Declaration. See
"Description of Capital Securities --
General" and "-- Voting Rights; Amendment of
the Declaration."
SHELF REGISTRATION If (i) the Company, CHL and the Trust are not
STATEMENT: required to file an Exchange Offer
Registration Statement or permitted to
consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable
law or Commission policy, (ii) CHL has
received an opinion of counsel rendered by a
law firm having a recognized national tax
practice, to the effect that, as a result of
the consummation of the Exchange Offer, there
is more than an insubstantial risk that (x)
the Trust would be subject to United States
federal income tax with respect to income
received or accrued on the Debentures, (y)
interest payable by CHL on such Debentures
would not be deductible by CHL, in whole or
in part, for United States federal income tax
purposes or (z) the Trust would be subject to
more than a de minimis amount of other taxes,
duties or other governmental charges or (iii)
any holder of Old Capital Securities provides
CHL with an opinion of counsel on or before
the twentieth Business Day (as defined
herein) following the consummation of the
Exchange Offer to the effect that (A) such
holder is prohibited by law or Commission
policy from participating in the Exchange
Offer, (B) such holder may not resell the New
Capital Securities it acquired in the
Exchange Offer to the public without
delivering a prospectus and this Prospectus
is not appropriate or available for such
resales or (C) such holder is a broker-dealer
and owns Old Capital Securities acquired
directly from the Trust or an affiliate of
the Trust, then the Company, CHL and the
Trust will use their reasonable best efforts
to file a shelf registration statement with
respect to the resale of Old Capital
Securities (the "Shelf Registration
Statement") with the Commission on or prior
to 150 days after such filing obligation
arises and to cause the Shelf Registration
Statement to be declared effective by the
Commission on or prior to 180 days after such
obligation arises and to keep the Shelf
Registration Statement effective for two
years from the date of the original issuance
of the Old Capital Securities; provided,
however, that if the Company or CHL is
engaged in a material acquisition or
disposition and in certain other
circumstances, the Company, CHL and the Trust
may suspend offers and sales under the Shelf
Registration Statement, subject to certain
conditions, for up to 30 days in each year
during which the Shelf Registration Statement
is required to be effective. See "The
Exchange Offer -- Shelf Registration
Statement."
ACCEPTANCE OF OLD CAPITAL Subject to certain conditions (as described
SECURITIES AND DELIVERY OF more fully in the "The Exchange Offer --
NEW CAPITAL SECURITIES: Conditions of the Exchange Offer"), the Trust
will accept for exchange any and all Old
Capital Securities which are properly
tendered in the Exchange Offer and not
withdrawn, prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Capital
Securities issued pursuant to the Exchange
Offer will be delivered as promptly as
practicable following the Expiration Date.
WITHDRAWAL RIGHTS: Except as otherwise provided herein, tenders
of Old Capital Securities may be withdrawn at
any time prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The
Exchange Offer -- Withdrawal Rights."
TAX CONSIDERATIONS: For a discussion of certain U.S. federal tax
considerations relating to the exchange of
the New Capital Securities for the Old
Capital Securities and the purchase,
ownership and disposition of New Capital
Securities, see "Certain United States
Federal Income Tax Consequences."
EXCHANGE AGENT: The Bank of New York is the Exchange Agent.
The addresses, telephone numbers and
facsimile numbers of the Exchange Agent are
set forth in "The Exchange Offer -- Exchange
Agent" and in the Letter of Transmittal.
SUMMARY OF TERMS OF THE NEW CAPITAL SECURITIES
GENERAL: The form and terms of the New Capital
Securities will be identical in all material
respects to the form and terms of the Old
Capital Securities (which they replace)
except that (i) the New Capital Securities
will have been registered under the
Securities Act and therefore will not contain
terms with respect to transfer restrictions,
(ii) the Distribution Rate on the New Capital
Securities will not be subject to increase in
certain circumstances relating to the timing
of the Exchange Offer and (iii) the holders
of New Capital Securities will not be
entitled to certain rights under the
Registration Rights Agreement, which rights
will terminate when the Exchange Offer is
consummated. The New Capital Securities will
evidence the same undivided beneficial
ownership interests in the assets of the
Trust as the Old Capital Securities and,
except as described herein, will be entitled
to the benefits of the Declaration. See
"Description of Capital Securities."
DISTRIBUTIONS: Holders of New Capital Securities will be
entitled to receive Distributions at a rate
per annum equal to 8.05% of the stated
liquidation amount of $1,000 per New Capital
Security (the "Distribution Rate"), accruing
from the most recent date on which
Distributions were made on the Old Capital
Securities or, if no Distributions have been
made on the Old Capital Securities, from June
4, 1997, and payable semi-annually in arrears
on June 15 and December 15 of each year,
commencing December 15, 1997, and at
maturity. The Distribution Rate, distribution
payment dates and other payment dates for the
New Capital Securities will correspond to the
interest rate, interest payment dates and
other payment dates on the New Debentures.
See "Description of Capital Securities --
Distributions."
NEW DEBENTURES: $206,200,000 aggregate principal amount of
New Debentures, to be exchanged for the Old
Debentures. The Company will fully and
unconditionally guarantee payment of
principal of, premium, if any, and interest
on the New Debentures as hereinafter
described. The New Debentures will mature on
June 15, 2027, or earlier in certain
circumstances, following the occurrence of a
Tax Event (the "Stated Maturity").
The New Debentures and the New Debt Guarantee
will rank subordinate and junior in right of
payment to all existing and future Senior
Indebtedness of CHL and the Company,
respectively, and will rank pari passu with
the 1996 Debentures and the related guarantee
by the Company, respectively. At all times,
CHL's obligations under the New Debentures
and the Company's obligations under the New
Debt Guarantee will be structurally
subordinated to all existing and future
liabilities and obligations of CHL's and the
Company's subsidiaries, respectively. See
"Risk Factors -- Ranking of Obligations Under
the Guarantees and the New Debentures" and
"Description of New Debentures and New Debt
Guarantee -- Ranking."
GUARANTEES: Payment of Distributions out of moneys held
by the Trust, and payments on liquidation of
the Trust or the redemption of Capital
Securities, are guaranteed by the Company to
the extent the Trust has funds available
therefor, which funds will not be available
except to the extent CHL has made payments of
interest or principal or other payments on
the New Debentures or the Company has made
such payments pursuant to the New Debt
Guarantee. If CHL does not make payments on
the New Debentures, and the Company does not
make such payments, to the extent required,
under the New Debt Guarantee, the Trust will
not have sufficient funds to make payments on
the Capital Securities, in which event the
Trust Guarantee will not apply to such
payments until the Trust has sufficient funds
available therefor. The Company's obligations
under the Guarantees, the Indenture and the
Declaration, taken together with CHL's
obligations under the New Debentures and the
Indenture, including CHL's obligation to pay
all costs, expenses and liabilities of the
Trust (other than with respect to the Trust
Securities), constitute a full and
unconditional guarantee by the Company of all
of the Trust's obligations under the Capital
Securities. See "Description of Trust
Guarantee" and "Relationship Among the
Capital Securities, the New Debentures and
the Guarantees." The obligations of the
Company under the New Guarantees will be
subordinate and junior in right of payment to
all existing and future Senior Indebtedness
of the Company. See "Risk Factors -- Ranking
of Obligations Under the Guarantees and the
New Debentures," "Description of Trust
Guarantee" and "Description of New Debentures
and New Debt Guarantee -- Ranking."
RIGHT TO DEFER INTEREST: CHL has the right to defer payment of
interest on the New Debentures by extending
the interest payment period on the New
Debentures, from time to time, for up to 10
consecutive semi-annual periods. There could
be multiple Extension Periods of varying
lengths throughout the term of the New
Debentures. If interest payments on the New
Debentures are so deferred, Distributions on
the Capital Securities will also be deferred
for an equivalent period and (a) the Company
and CHL shall not declare or pay dividends
on, or make a distribution with respect to,
or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of
its capital stock (other than (i) purchases
or acquisitions of shares of any such capital
stock or rights to acquire such capital stock
in connection with the satisfaction by the
Company or CHL, respectively, of its
obligations under any employee benefit plans,
(ii) as a result of a reclassification of the
Company's or CHL's capital stock or rights to
acquire such capital stock or the exchange or
conversion of one class or series of the
Company's or CHL's capital stock or rights to
acquire such capital stock for another class
or series of the Company's or CHL's capital
stock or rights to acquire such capital
stock, (iii) the purchase of fractional
interests in shares of the Company's or CHL's
capital stock pursuant to the conversion or
exchange provisions of such capital stock or
the security being converted or exchanged or
(iv) dividends and distributions made on the
Company's or CHL's capital stock or rights to
acquire such capital stock with the Company's
or CHL's capital stock or rights to acquire
such capital stock) or make any guarantee
payments with respect to any of the foregoing
and (b) the Company and CHL shall not make
any payment of interest, principal or
premium, if any, on or repay, repurchase or
redeem any debt securities (including any
guarantees, other than the Guarantees) issued
by the Company or CHL that rank pari passu
with or junior to the New Debentures. During
an Extension Period, interest on the New
Debentures will continue to accrue (and the
amount of Distributions to which holders of
the Capital Securities are entitled will
accumulate) at the Distribution Rate,
compounded semi-annually. During an Extension
Period, holders of the New Capital Securities
will be required to include the stated
interest on their pro rata share of New
Debentures in their income as OID, subject to
United States federal income tax, even though
the cash payments attributable thereto have
not been made. See "Description of New
Debentures and New Debt Guarantee -- Option
to Extend Interest Payment Period" and
"Certain United States Federal Income Tax
Consequences -- Interest Income and Original
Issue Discount."
REDEMPTION: The Trust Securities will be mandatorily
redeemed upon repayment of the New Debentures
held by the Trust at maturity or their
earlier redemption. The New Debentures are
not redeemable at the option of CHL, other
than in certain circumstances following the
occurrence of a Special Event, as described
under "-- Special Event" below.
SPECIAL EVENT: Upon the occurrence and continuation of a
Special Event, CHL will have the right, if
certain conditions are met, (i) in the case
of a Tax Event, to shorten the Stated
Maturity of the New Debentures to a date not
earlier than December 15, 2011 or (ii) to
redeem the New Debentures in whole (but not
in part) within 90 days following the
occurrence of such Special Event (at a
redemption price equal to 100% of the
principal amount of such New Debentures, plus
accrued and unpaid interest to the date of
redemption) and thereby cause a mandatory
redemption of the Capital Securities. See
"Description of Capital Securities --
Redemption -- Special Event Redemption or
Distribution of New Debentures; Shortening of
Stated Maturity."
LIQUIDATION OF THE TRUST: The Company has the right at any time to
dissolve the Trust, and cause the New
Debentures and the New Debt Guarantee to be
distributed to the holders of the Capital
Securities in exchange therefor upon
liquidation of the Trust. In the event of the
liquidation of the Trust, after satisfaction
of the claims of creditors of the Trust, if
any, as provided by applicable law, the
holders of the Capital Securities will be
entitled to receive a liquidation amount of
$1,000 per Capital Security, plus accumulated
and unpaid Distributions thereon to the date
of payment, unless in connection with such
liquidation, New Debentures are distributed
to the holders of the Capital Securities. If
such liquidation amount can be paid only in
part because the Trust has insufficient
assets available to pay in full the aggregate
liquidation amount, then the amounts payable
directly by the Trust on the 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 Securities, except that if an
Indenture Event of Default has occurred and
is continuing, the Capital Securities shall
have a priority over the Common Securities.
See "Description of Capital Securities --
Liquidation Distribution Upon Dissolution."
RATINGS: The New Capital Securities are expected to be
rated "A" by Standard & Poor's Ratings Group,
"a3" by Moody's Investors Service, Inc. and
"A" by Fitch Investors Service, Inc., which
ratings were the ratings assigned by such
rating agencies to the Old Capital
Securities. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning
rating organization.
USE OF PROCEEDS: None of the Company, CHL or the Trust will
receive any proceeds from the issuance of the
New Capital Securities pursuant to this
Prospectus. See "Use of Proceeds."
ABSENCE OF A PUBLIC The New Capital Securities will be a new
MARKET FOR THE NEW issue of securities for which there currently
CAPITAL SECURITIES: is no established trading market. The Trust
has been advised by the Initial Purchasers
that following completion of the Exchange
Offer, they currently intend to make a market
in the New Capital Securities; however, they
are not obligated to do so and any
market-making activities with respect to the
New Capital Securities may be discontinued at
any time. There can be no assurance that an
active trading market for the New Capital
Securities will develop. The Trust and the
Company do not currently intend to apply for
listing of the New Capital Securities on the
NYSE. See "Risk Factors -- Absence of Public
Market for the New Capital Securities."
RISK FACTORS
For a discussion of certain matters that should be considered in
evaluating an investment in the New Capital Securities, see "Risk Factors."
ERISA CONSIDERATIONS
Prospective investors must carefully consider the restrictions on
purchase set forth under "ERISA Considerations."
SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary consolidated financial data with respect to the
Company set forth below for each of the five fiscal years in the period
ended February 28, 1997 have been derived from, and should be read in
conjunction with, the Company's related audited financial statements and
accompanying notes incorporated by reference herein. The consolidated
financial information presented below as of and for the six-month periods
ended August 31, 1997 and August 31, 1996 is unaudited; however, in the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation have been included. The
results of operations for the six-month period ended August 31, 1997 are
not necessarily indicative of the results of operations that may be
expected for the full year. See "Incorporation of Certain Information by
Reference."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, YEARS ENDED FEBRUARY 28 (29)
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF EARNINGS DATA:
Revenues:
Loan origination fees......................... $ 118,654 $ 101,546 $ 193,079 $ 199,724 $ 203,426 $ 379,533 $ 241,584
Gain (loss) on sale of loans.................. 185,631 105,491 247,450 92,341 (41,342) 88,212 67,537
------------------------------------------------------------------------------
Loan production revenue.................... 304,285 207,037 440,529 292,065 162,084 467,745 309,121
Interest earned............................... 185,862 174,886 350,263 308,449 249,560 300,999 179,785
Interest charges.............................. (181,822) (153,309) (316,705) (281,573) (205,464) (219,898) (128,612)
------------------------------------------------------------------------------
Net interest income........................ 4,040 21,577 33,558 26,876 44,096 81,101 51,173
Loan servicing income......................... 436,083 368,414 773,715 620,835 460,351 326,695 188,895
Amortization and impairment/recovery of
mortgage servicing rights................. (131,341) 13,662 (101,380) (342,811) (95,768) (242,177) (151,362)
Servicing hedge benefit (expense) ............ (11,281) (118,151) (125,306) 200,135 (40,030) 73,400 74,075
Less write-off of servicing hedge............. -- -- -- -- (25,600) -- --
------------------------------------------------------------------------------
Net loan administration income............. 293,461 263,925 547,029 478,159 298,953 157,918 111,608
Commissions, fees and other income............ 64,634 41,558 91,346 63,642 40,650 48,816 33,656
Gain on sale of servicing..................... -- -- -- -- 56,880 -- --
Gain on sale of subsidiary.................... 57,381 -- -- -- -- -- --
------------------------------------------------------------------------------
Total revenues............................. 723,801 534,097 1,112,462 860,742 602,663 755,580 505,558
------------------------------------------------------------------------------
Expenses:
Salaries and related expenses................. 188,585 136,989 286,884 229,668 199,061 227,702 140,063
Occupancy and other office expenses........... 79,488 61,313 129,877 106,298 102,193 101,691 64,762
Guarantee fees................................ 85,388 76,864 159,360 121,197 85,831 57,576 29,410
Marketing expenses............................ 20,642 17,922 34,255 27,115 23,217 26,030 12,974
Other operating expenses...................... 55,111 39,171 80,188 50,264 37,016 43,481 24,894
Branch and administrative office
consolidation costs....................... -- -- -- -- 8,000 -- --
------------------------------------------------------------------------------
Total expenses............................. 429,214 332,259 690,564 534,542 455,318 456,480 272,103
------------------------------------------------------------------------------
Earnings before income taxes.................. 294,587 201,838 421,898 326,200 147,345 299,100 233,455
Provision for income taxes.................... 114,889 78,717 164,540 130,480 58,938 119,640 93,382
------------------------------------------------------------------------------
Net earnings.................................. $ 179,698 123,121 257,358 195,720 88,407 179,460 140,073
==============================================================================
SELECTED BALANCE SHEET DATA AT END OF PERIOD:
Mortgage loans and mortgage-backed securities
shipped and held for sale................. $ 3,733,401 $2,280,778 $2,579,972 $4,740,087 $2,898,825 $3,714,261 $2,316,297
Total assets.................................. 10,359,482 8,747,269 8,089,292 8,657,653 5,710,182 5,631,061 3,369,499
Short-term debt............................... 3,693,412 3,703,795 2,567,420 4,423,738 2,664,006 3,111,945 1,579,689
Long-term debt................................ 2,589,500 2,036,500 2,367,661 1,911,800 1,499,306 1,197,096 734,762
Convertible preferred stock................... -- -- -- -- -- -- 25,800
Common shareholders' equity................... 1,815,023 1,434,301 1,611,531 1,319,755 942,558 880,137 693,105
OPERATING DATA (DOLLAR AMOUNTS IN MILLIONS):
Loan servicing portfolio (at period end)(1)... $ 168,946 $ 148,623 $ 158,585 $ 136,835 $ 113,111 $ 84,678 $ 54,484
Volume of loans originated.................... 19,921 20,172 37,811 34,584 27,866 52,459 32,388
Ratio of earnings to fixed charges(2)......... 2.60 2.29 2.30 2.13 1.69 2.32 2.76
- ------------------
<FN>
(1) Includes warehoused loans and loans under subservicing agreements.
(2) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before federal income taxes, plus fixed
charges. Fixed charges include interest expense on debt and the
portion of rental expenses which is considered to be representative of
the interest factor (one-third of operating leases).
</FN>
</TABLE>
RISK FACTORS
Before investing in the New Capital Securities, prospective
investors should carefully review the information contained elsewhere in
this Prospectus and should particularly consider the following matters.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Trust Enforcement Event (as defined herein) occurs and is
continuing, then the holders of the Capital Securities would rely on, and
in certain circumstances could cause, the enforcement by the Property
Trustee (as defined herein) of its rights as a holder of the New Debentures
and the New Debt Guarantee on behalf of the Trust against CHL and the
Company, respectively. In addition, the holders of a majority in
liquidation amount of the Capital Securities will have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration, including
the right to direct the Property Trustee to exercise the remedies available
to it as a holder of the New Debentures and the New Debt Guarantee. If the
Property Trustee fails to enforce its rights with respect to the New
Debentures or the New Debt Guarantee held by the Trust after a majority in
liquidation amount of the Capital Securities have so directed the Property
Trustee, any registered holder of Capital Securities may institute a legal
proceeding directly against CHL to enforce the Property Trustee's rights
under such New Debentures or against the Company to enforce the Property
Trustee's rights under the New Debt Guarantee without first instituting any
legal proceeding against the Property Trustee or any other person or
entity.
If CHL were to default on its obligation to pay amounts payable
under the New Debentures and the Company does not make such payments, to
the extent required, under the New Debt Guarantee, the 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 Trust Guarantee for
payment of such amounts. However, in the event CHL failed to pay interest
on, premium, if any, or principal of the New Debentures on the payment
dates on which such payments are due and payable (including on any
redemption date) and the Company does not make such payments, to the extent
required, under the New Debt Guarantee, then a registered holder of Capital
Securities may directly institute a proceeding against CHL or the Company,
as the case may be, on or after such respective due dates specified in the
New Debentures for enforcement of payment to such holder of the interest
on, premium, if any, or principal of such New Debentures having an
aggregate principal amount equal to the aggregate liquidation amount of the
Capital Securities of such holder (a "Direct Action"). In connection with
such Direct Action, the Company will be subrogated to the rights of such
holder of Capital Securities under the Declaration to the extent of any
payment made by the Company, pursuant to the New Debt Guarantee, to such
holder of Capital Securities in such 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 New Debentures or assert
directly any other rights in respect of the New Debentures or the New Debt
Guarantee. See "Description of Capital Securities -- Trust Enforcement
Events," "Description of Trust Guarantee" and "Description of New
Debentures and New Debt Guarantee -- Indenture Events of Default." In the
case of the issuance of one or more New Capital Securities in registered
global form (the "Global Securities"), the record owner will be The
Depository Trust Company ("DTC") or its nominee for credit to the account
of Participants (as defined herein) in DTC. Persons who are not direct or
indirect Participants may beneficially own such Global Securities only
through such direct or indirect Participants. See "Book-Entry Issuance."
The Declaration provides that each holder of Capital Securities by
acceptance thereof agrees to the provisions of the Guarantees and the
Indenture.
RANKING OF OBLIGATIONS UNDER THE GUARANTEES AND THE NEW DEBENTURES
The obligations of CHL under the New Debentures and the Indenture
and the obligations of the Company under the Guarantees and the Indenture
will be unsecured and rank subordinate and junior in right of payment to
all existing and future Senior Indebtedness of the Company and CHL,
respectively, but will at all times be senior to common and preferred
equity of the Company and CHL, respectively. In addition, at all times such
obligations will be structurally subordinated to all existing and future
liabilities and obligations of the Company's and CHL's subsidiaries,
respectively. At August 31, 1997, CHL had approximately $5.7 billion
aggregate principal amount of Senior Indebtedness outstanding and the
Company had no indebtedness outstanding (excluding indebtedness of
subsidiaries guaranteed by the Company). In addition, at such date,
subsidiaries of the Company (other than CHL) had outstanding indebtedness
of approximately $16.3 million.
The terms of the Capital Securities, the New Debentures and the
Guarantees place no limitation on the amount of Senior Indebtedness that
may be incurred by the Company or CHL or on the amount of liabilities and
obligations of the Company's or CHL's subsidiaries. See "Description of
Trust Guarantee -- Status of the Trust Guarantee" and "Description of New
Debentures and New Debt Guarantee -- Ranking."
TRUST GUARANTEE COVERS DISTRIBUTION AND OTHER PAYMENTS ONLY TO THE EXTENT
THE TRUST HAS AVAILABLE FUNDS; RELATED REMEDIES
The following payments or distributions with respect to the
Capital Securities, to the extent not paid by or on behalf of the Trust
(the "Trust Guarantee Payments"), will be subject to the Trust Guarantee:
(i) any accumulated and unpaid Distributions required to be paid on the
Capital Securities, to the extent that the Trust has sufficient funds
available therefor at such time, (ii) the Redemption Price (as defined
herein) with respect to any Capital Securities called for redemption, to
the extent that the Trust has sufficient funds available therefor at such
time, or (iii) upon a voluntary or involuntary dissolution, winding up or
liquidation of the Trust (unless the New Debentures are distributed to
holders of the Capital Securities), the lesser of (a) the aggregate
liquidation amount of the Capital Securities and all accrued and unpaid
Distributions thereon to the date of payment, to the extent that the Trust
has sufficient funds available therefor at such time, and (b) the amount of
assets of the Trust remaining available for distribution to holders of
Capital Securities. The Company's obligation to make a Trust 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 Trust to
pay such amounts to such holders.
The Trust Guarantee will apply only to the extent that the Trust
has sufficient funds available to make such payments.
If CHL does not make payments on the New Debentures held by the
Trust and the Company does not make such payments, to the extent required,
under the New Debt Guarantee, the Trust will not be able to make payments
on the Capital Securities and will not have funds legally available
therefor. The Trust Guarantee does not limit the incurrence or issuance of
other secured or unsecured debt of the Company, whether under any existing
indenture or under any other indenture that the Company may enter into in
the future or otherwise.
An event of default under the Trust Guarantee will occur upon the
failure of the Company to perform any of its payment or other obligations
thereunder. The holders of not less than a majority in aggregate
liquidation amount of the Capital Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy
available to the Trust Securities Guarantee Trustee (as defined herein) in
respect of the Trust Guarantee or to direct the exercise of any trust or
power conferred upon the Trust Securities Guarantee Trustee under the Trust
Guarantee. If the Trust Securities Guarantee Trustee fails to enforce the
Trust Guarantee, then any holder of the Capital Securities may institute a
legal proceeding directly against the Company to enforce the Trust
Securities Guarantee Trustee's rights under the Trust Guarantee without
first instituting a legal proceeding against the Trust, the Trust
Securities Guarantee Trustee or any other person or entity. See
"Description of Trust Guarantee."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
CHL has the right under the Indenture to defer the payment of
interest on the New Debentures at any time or from time to time for a
period not exceeding 10 consecutive semi-annual periods, provided that no
Extension Period may extend beyond the Stated Maturity of the New
Debentures. As a consequence of any such deferral, semi-annual
Distributions on the Capital Securities by the Trust will be deferred
during such Extension Period but will continue to accumulate at 8.05% per
annum, compounded semi-annually during any such Extension Period. Prior to
the termination of any such Extension Period, CHL may further extend the
Extension Period, provided that no Extension Period may exceed 10
consecutive semi-annual periods or extend beyond the Stated Maturity of the
New Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due on any Interest Payment Date, CHL may elect
to begin a new Extension Period subject to the above requirements. See
"Description of Capital Securities -- Distributions," "Description of New
Debentures and New Debt Guarantee -- Option to Extend Interest Payment
Period" and "-- Certain Covenants of CHL and the Company."
During any Extension Period, a holder of Capital Securities will
be required to accrue income (in the form of OID) for United States federal
income tax purposes in respect of its pro rata share of the New Debentures
held by the Trust. As a result, holders of Capital Securities will include
such income in their income subject to United States federal income tax, in
advance of the receipt of cash attributable to such income, and will not
receive the cash related to such income from the Trust if the holder
disposes of the Capital Securities prior to the record date for the payment
of Distributions with respect to such Extension Period. See "Certain United
States Federal Income Tax Consequences -- Interest Income and Original
Issue Discount" and "-- Sales of New Capital Securities."
CHL has no current intention of exercising its right to defer
payments of interest by extending any interest payment period on the New
Debentures. However, should CHL elect to exercise such right in the future,
the market price of the Capital Securities is likely to be adversely
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 CHL's right to defer interest
payments, the market price of the Capital Securities (which represent
undivided beneficial ownership interests in the New Debentures and the New
Debt Guarantee) may be more volatile than the market prices of other
similar securities where the issuer does not have such right to defer
interest payments.
LIQUIDATION DISTRIBUTION OF NEW DEBENTURES
At any time, the Company will have the right to dissolve the
Trust and, after the satisfaction of liabilities to creditors of the Trust
(if any), cause the New Debentures, together with the New Debt Guarantee,
to be distributed to the holders of the Trust Securities in liquidation of
the Trust. In addition, upon certain other events, the Trust may be
liquidated and the New Debentures and the New Debt Guarantee may be
distributed to such holders. Under current United States federal income tax
law and interpretations thereof and assuming, as expected, the Trust is
treated as a grantor trust for United States federal income tax purposes, a
distribution by the Trust of the New Debentures and the New Debt Guarantee
pursuant to a liquidation of the Trust will not be a taxable event to the
Trust or to holders of the Capital Securities and will result in a holder
of the Capital Securities receiving directly such holder's pro rata share
of the New Debentures and the New Debt Guarantee (previously held
indirectly through the Trust). If, however, the liquidation of the Trust
were to occur because the Trust is subject to United States federal income
tax with respect to income accrued or received on the New Debentures as a
result of the occurrence of a Tax Event or otherwise, the distribution of
New Debentures and the New Debt Guarantee to holders of the Capital
Securities by the Trust could be a taxable event to the Trust and each
holder, and holders of the Capital Securities may be required to recognize
gain or loss as if they had exchanged their Capital Securities for the New
Debentures and the New Debt Guarantee they received upon the liquidation of
the Trust. See "Certain United States Federal Income Tax Consequences --
Distribution of New Debentures or Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Capital
Securities or the New Debentures and the New Debt Guarantee that may be
distributed in exchange for the Capital Securities if a dissolution or
liquidation of the Trust occurs. Accordingly, the Capital Securities that
an investor may receive or purchase, whether pursuant to the Exchange Offer
or in the secondary market, or the New Debentures and the New Debt
Guarantee that a holder of Capital Securities may receive on dissolution or
liquidation of the Trust, may trade at a discount to the price that the
investor paid to purchase the Capital Securities. Because the ability of
the Trust to pay amounts due on the Capital Securities is wholly dependent
upon CHL's making payments on the New Debentures as and when required, or
the Company's making payments on the New Debt Guarantee as and when
required, and because holders of the Capital Securities may receive the New
Debentures and the New Debt Guarantee upon a dissolution of the Trust,
prospective purchasers of the Capital Securities are also making an
investment decision with regard to the New Debentures and New Debt
Guarantee and should carefully review all the information regarding the New
Debentures, the New Debt Guarantee, CHL and the Company contained or
incorporated herein, and evaluate the credit risk of CHL and the Company.
See "Description of Capital Securities -- Redemption -- Special Event
Redemption or Distribution of New Debentures; Shortening of Stated
Maturity" and "Description of New Debentures and New Debt Guarantee --
General."
SPECIAL EVENT REDEMPTION; SHORTENING OF STATED MATURITY
Upon the occurrence and continuation of a Special Event, CHL will
have the right, if certain conditions are met, (i) in the case of a Tax
Event, to shorten the Stated Maturity of the New Debentures to a date not
earlier than December 15, 2011 or (ii) to redeem the New Debentures in
whole (but not in part) within 90 days following the occurrence of such
Special Event at a redemption price equal to 100% of the aggregate
principal amount of such New Debentures, plus accrued and unpaid interest
to the date of redemption, and thereby cause a mandatory redemption of the
Capital Securities. See "Description of Capital Securities -- Redemption --
Special Event Redemption or Distribution of New Debentures; Shortening of
Stated Maturity."
There can be no assurance as to the market prices for the Capital
Securities (or the New Debentures that may be distributed in exchange for
Capital Securities if a dissolution or liquidation of the Trust were to
occur) if the Stated Maturity of the New Debentures is shortened.
Accordingly, the Capital Securities that an investor may receive or
purchase, whether pursuant to the Exchange Offer or in the secondary
market, or the New Debentures and the New Debt Guarantee that a holder of
Capital Securities may receive on liquidation of the Trust, may trade at a
discount to the price that the investor paid to purchase the Capital
Securities. Because the ability of the Trust to pay amounts due on the
Capital Securities is wholly dependent upon CHL's making payments on the
New Debentures as and when required, or the Company's making payments on
the New Debt Guarantee as and when required, and because holders of Capital
Securities may receive the New Debentures and the New Debt Guarantee upon a
dissolution of the Trust, prospective purchasers of Capital Securities are
also making an investment decision with regard to the New Debentures and
the New Debt Guarantee and should carefully review all the information
regarding the New Debentures, the New Debt Guarantee, CHL and the Company
contained or incorporated herein, and evaluate the credit risk of CHL and
the Company. See "Description of Capital Securities -- Redemption --
Special Event Redemption or Distribution of New Debentures; Shortening of
Stated Maturity."
RECENT TAX LEGISLATION
Recently enacted U.S. federal income tax legislation will have no
effect on the income tax treatment of the Capital Securities. However,
there can be no assurance that future legislation will not adversely affect
the ability of CHL to deduct interest on the New Debentures or otherwise
affect the tax treatment of the transactions described herein. Moreover,
such legislation could give rise to a Tax Event, which would permit CHL to
shorten the maturity of the New Debentures or cause a redemption of the
Capital Securities, as described more fully under "Description of Capital
Securities -- Redemption -- Special Event Redemption or Distribution of New
Debentures; Shortening of Stated Maturity."
DECLARATION MAY BE MODIFIED TO EFFECT ADVERSE CHANGES TO RIGHTS,
POWERS AND/OR PREFERENCES OF CAPITAL SECURITIES WITHOUT THE
CONSENT OF EACH HOLDER OF CAPITAL SECURITIES AFFECTED THEREBY
The Declaration provides that it may be modified and amended if
approved by the Regular Trustees (as defined herein) (and in certain
circumstances, the Property Trustee and the Delaware Trustee (as defined
herein)), provided that, if any proposed amendment would (i) adversely
affect the powers, preferences or special rights of the Trust Securities or
(ii) result in the dissolution, winding-up or termination of the Trust
other than pursuant to the terms of the Declaration, then the holders of
the Trust Securities, voting together as a single class, will be entitled
to vote on such amendment, and such amendment shall not be effective except
with the approval of at least a majority in liquidation amount of the Trust
Securities affected thereby; provided that if any amendment referred to in
clause (i) above would adversely affect only the Capital Securities or the
Common Securities, then only the affected class will be entitled to vote on
such amendment and such amendment shall not be effective except with the
approval of a majority in liquidation amount of such class of Trust
Securities. Notwithstanding any provision of the Declaration, however,
Section 316(b) of the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") provides that the right of any holder of Trust Securities
to receive payment of Distributions and other payments upon redemption or
otherwise on or after their respective due dates, or to institute suit for
the enforcement of any such payment on or after such respective due dates,
shall not be impaired or affected without the consent of such holder.
Accordingly, amendments to the Declaration that may adversely affect the
powers, preferences or special rights of the Capital Securities -- other
than those affecting a holder's rights to receive payments on or after
their respective due dates and to institute suit to enforce such payments
on or after their respective due dates as described in Section 316(b) of
the Trust Indenture Act -- may be effected with the consent of only a
majority in liquidation amount of Capital Securities rather than with the
consent of each holder of Capital Securities affected thereby.
LIMITED VOTING RIGHTS
Holders of Capital Securities generally will have limited voting
rights relating only to the modification of the Capital Securities and
certain other matters described herein. Holders of Capital Securities will
not be entitled to vote to appoint, remove or replace any of the Trustees
(as defined herein), which voting rights are vested exclusively in the
holder of the Common Securities. The Trustees and the Company may amend the
Declaration without the consent of holders of Capital Securities to ensure
that the Trust will be classified as a grantor trust for United States
federal income tax purposes, even if such action adversely affects the
interests of such holders. See "Description of Capital Securities -- Voting
Rights; Amendment of the Declaration."
ABSENCE OF PUBLIC MARKET FOR THE NEW CAPITAL SECURITIES
Although the New Capital Securities will generally be permitted
to be resold or otherwise transferred by the holders (who are not
affiliates of the Company, CHL or the Trust) without compliance with the
registration requirements under the Securities Act, they will constitute a
new issue of securities with no established trading market. Accordingly, no
assurance can be given that an active public or other market will develop
for the New Capital Securities or as to the liquidity of or the trading
market for the New Capital Securities. The Trust and the Company do not
currently intend to apply for a listing of the New Capital Securities on
the NYSE. If an active public market does not develop, the market price and
liquidity of the New Capital Securities may be adversely affected.
If a public trading market develops for the New Capital
Securities, future trading prices of such securities will depend on many
factors, including, among other things, prevailing interest rates, results
of operations and the market for similar securities. Depending on
prevailing interest rates, the market for similar securities and other
factors, including the financial condition of the Company, the New Capital
Securities may trade at a discount.
Notwithstanding the registration of the New Capital Securities,
holders who are "affiliates" (as defined under Rule 405 of the Securities
Act) of the Company, CHL or the Trust may publicly offer for sale or resell
the New Capital Securities only in compliance with the provisions of Rule
144 under the Securities Act.
Each broker-dealer that receives New Capital Securities for its
own account in exchange for Old Capital Securities, where such Old Capital
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such New Capital
Securities. See "Plan of Distribution."
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the
Securities Act or any state securities laws and therefore may not be
offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act and any other applicable
securities laws, or pursuant to an exemption therefrom or in a transaction
not subject thereto, and in each case in compliance with certain other
conditions and restrictions, including the Trust's and the Property
Trustee's right in certain cases to require the delivery of opinions of
counsel, certifications and other information prior to any such transfer.
After consummation of the Exchange Offer, Old Capital Securities that
remain outstanding will continue to bear legends restricting transfers. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding (subject to limited exceptions, if
applicable) will not be entitled to any rights to have such Old Capital
Securities registered under the Securities Act or to any similar rights
under the Registration Rights Agreement. The Trust currently does not
intend to register under the Securities Act any Old Capital Securities
which remain outstanding after consummation of the Exchange Offer (subject
to limited exceptions, if applicable).
To the extent that Old Capital Securities are tendered and
accepted in the Exchange Offer, the liquidation amount of outstanding Old
Capital Securities will be reduced by the liquidation amount so tendered
and exchanged and a holder's ability to sell untendered Old Capital
Securities could be adversely affected. In addition, although the Old
Capital Securities have been designated for trading in the Private
Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market,
to the extent that Old Capital Securities are tendered and accepted in
connection with the Exchange Offer, any trading market for Old Capital
Securities which remain outstanding after the Exchange Offer could be
adversely affected.
The Old Capital Securities provide for certain Distribution Rate
increases if the Exchange Offer is not consummated by January 14, 1998.
Upon consummation of the Exchange Offer, holders of Old Capital Securities
will not be entitled to any increase in the Distribution Rate thereon or
any further registration rights under the Registration Rights Agreement,
except under limited circumstances. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer" and "-- Shelf Registration Statement."
The New Capital Securities and any Old Capital Securities that
remain outstanding after consummation of the Exchange Offer will constitute
a single class of Capital Securities under the Declaration and,
accordingly, will vote together as a single class for purposes of
determining whether holders of a requisite percentage in outstanding
liquidation amount thereof have taken certain actions or exercised certain
rights under the Declaration. See "Description of Capital Securities --
General" and "-- Voting Rights; Amendment of the Declaration."
USE OF PROCEEDS
None of the Company, CHL or the Trust will receive any proceeds
from the issuance of the New Capital Securities offered hereby. In
consideration for issuing the New Capital Securities as contemplated in
this Prospectus, the Trust will receive in exchange Old Capital Securities
in like liquidation amount, the terms and forms of which are identical in
all material respects to the New Capital Securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings
to fixed charges for the Company and its subsidiaries. For purposes of
calculating the ratio of earnings to fixed charges, earnings consist of
income before federal income taxes, plus fixed charges. Fixed charges
include interest expense on debt and the portion of rental expenses which
is considered to be representative of the interest factor (one-third of
operating leases).
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28 (29),
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 2.60 2.29 2.30 2.13 1.69 2.32 2.76
</TABLE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated into
the Company's consolidated financial statements, with the New Capital
Securities shown as "Company-Obligated Mandatorily Redeemable Subordinated
Capital Income Securities of Subsidiary Trust Holding Solely a
Company-Guaranteed Related Subordinated Debt." The Trust's sole assets will
be the New Debentures and the New Debt Guarantee. See "Capitalization."
CAPITALIZATION
The following table sets forth the consolidated capitalization of
the Company at August 31, 1997 on an historical basis and as adjusted to
give effect to the Offering, the application of the proceeds thereof and
the Exchange Offer. The table should be read in conjunction with the
Company's consolidated financial statements and notes thereto incorporated
by reference herein. See "Incorporation of Certain Information by
Reference."
<TABLE>
<CAPTION>
AUGUST 31, 1997
---------------------------------------
ACTUAL ADJUSTED
------------------ ------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
Long-term debt:.................................... $ 2,589,500 $ 2,589,500
Company-Obligated Mandatorily Redeemable preferred
securities of subsidiary trust holding
Company-guaranteed related subordinated debt(1) 300,000 300,000
Company-Obligated Mandatorily Redeemable
Subordinated Capital Income Securities of
subsidiary trust holding a Company-guaranteed
related subordinated debt(2)................... 200,000 200,000(3)
Shareholders' equity:
Preferred Stock -- authorized 1,500,000 shares of
$.05 par value; issued and outstanding, none... 0 0
Common Stock -- authorized, 240,000,000 shares of
$.05 par value; 107,407,149 issued and
outstanding, shares(4)......................... 5,370 5,370
Additional paid-in capital......................... 959,169 959,169
Unrealized loss on available-for-sale securities... (30,972) (30,972)
Retained earnings.................................. 881,456 881,456
------------ ------------
Total shareholders' equity......................... 1,815,023 1,815,023
Total Preferred Stock and common shareholders'
equity......................................... $ 1,815,023 $ 1,815,023
------------ ------------
- --------------------
<FN>
(1) Represents the 8% Capital Trust Pass-through Securities of Countrywide
Capital I, a Delaware business trust.
(2) As described herein, the Trust invested the gross proceeds from the
sale of the Common Securities and the Old Capital Securities in the
Old Debentures in an aggregate principal amount of approximately
$206,200,000 on June 4, 1997. In connection with the Exchange Offer,
CHL intends to exchange the New Debentures for such Old Debentures.
Upon the redemption of such New Debentures, Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount
of New Debentures being redeemed will be mandatorily redeemable. None
of the Company, CHL or the Trust will receive any proceeds from the
issuance of the New Capital Securities or the New Debentures. As
described herein, the sole assets of the Trust will be the New
Debentures and the New Debt Guarantee. The Company owns all of the
Common Securities of the Trust.
(3) Reflects the issuance of the Old Capital Securities on June 4, 1997
and the issuance of New Capital Securities in exchange therefor
pursuant to the Exchange Offer. See Note (2).
(4) Does not include 11,541,477 shares reserved for issuance upon exercise
of stock options of which options for 5,536,939 shares were
exercisable as of August 31, 1997.
</FN>
</TABLE>
THE COMPANY
The Company is a holding company which through its principal
subsidiary, CHL, is engaged primarily in the mortgage banking business, and
as such originates, purchases, sells and services mortgage loans. The
Company's mortgage loans are principally prime credit quality first-lien
mortgage loans secured by single- (one- to four-) family residences ("Prime
mortgages"). The Company also offers home equity loans both in conjunction
with newly produced Prime mortgages and as a separate product. In addition,
the Company offers sub-prime credit quality first-lien single-family
mortgage loans ("Sub-prime loans").
The Company, through its other wholly-owned subsidiaries, offers
products and services complementary to its mortgage banking business. One
of these subsidiaries acts as an agent in the sale of insurance, including
homeowners, fire, flood, earthquake, auto, annuities, home warranty, life
and disability, to CHL's mortgagors and others. The Company also has a
subsidiary that acts as a title insurance agent and provides escrow, credit
reporting and home appraisal services. The Company also has subsidiaries
that reinsure a portion of mortgage insurance losses on loans originated by
the Company that are insured by the mortgage insurance companies with which
the Company entered into the reinsurance agreement. Another subsidiary of
the Company serves as trustee under deeds of trust in connection with
foreclosures on loans in the Company's servicing portfolio in California
and other states. There is a subsidiary of the Company which also provides
tax services to ensure that property taxes are paid current at origination
and throughout the life of the loan. On February 28, 1997, the Company
acquired a mutual fund manager which provides investment advisory services
for 15 affiliated mutual funds and individual investors and management
services for unaffiliated funds. The Company also has a registered
broker-dealer subsidiary, Countrywide Securities Corporation (which is one
of the Initial Purchasers), which trades to other broker-dealers and
institutional investors mortgage-backed securities and other
mortgage-related assets. Through two subsidiaries, the Company issues
mortgage- and asset-backed securities which are backed by Prime mortgage
loans, Sub-prime loans or home equity loans.
The Company is a Delaware corporation, and was originally
incorporated in New York under the name of OLM Credit Industries, Inc. in
1969. Its principal executive offices are located at 4500 Park Granada,
Calabasas, California 91302, and its telephone number is (818) 225-3000.
CHL
CHL, the principal subsidiary of the Company, is engaged
primarily in the mortgage banking business and as such originates,
purchases, sells and services mortgage loans. CHL's mortgage loans are
principally Prime mortgages. CHL also offers home equity loans, both in
conjunction with newly produced Prime mortgages and as a separate product,
and Sub-prime loans. The principal sources of revenue of CHL are: (i) loan
origination fees, (ii) gains from the sale of loans, if any, (iii) interest
earned on mortgage loans during the period that they are held by CHL
pending sale, net of interest paid on funds borrowed to finance such
mortgage loans, (iv) loan servicing fees and (v) interest benefit derived
from the custodial balances associated with CHL's servicing portfolio.
CHL produces mortgage loans through three separate divisions. The
Consumer Markets Division originates loans using direct contact with
consumers through its nationwide network of retail branch offices and its
telemarketing systems. Through its Wholesale Division, CHL originates loans
through and purchases loans from mortgage loan brokers. Through the
Correspondent Division, CHL purchases loans primarily from other mortgage
bankers, commercial banks, savings and loan associations, credit unions and
other financial intermediaries. CHL customarily sells all loans that it
originates or purchases. To guarantee timely and full payment of principal
and interest on mortgage-backed securities and whole loans sold to
permanent investors and to transfer the credit risk of the loans in the
servicing portfolio, the Company pays guarantee fees to the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation
and the Government National Mortgage Association.
CHL services substantially all of the mortgage loans that it
originates or purchases. In addition, CHL purchases bulk servicing
contracts to service single-family residential mortgage loans originated by
other lenders. Servicing mortgage loans includes collecting and remitting
loan payments, making advances when required, accounting for principal and
interest, holding custodial (impound) funds for payment of property taxes
and hazard insurance, making any physical inspections of the property,
counseling delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults and generally
administering the loans. CHL receives fee income for servicing mortgage
loans ranging generally from 1/4% to 1/2% per annum on the declining
principal balances of the loans. CHL has sold, and may sell in the future,
a portion of its portfolio of loan servicing rights to other mortgage
servicers.
CHL's principal financing needs are the financing of loan funding
activities and the investment in servicing rights. To meet these needs, CHL
currently utilizes commercial paper supported by its revolving credit
facility, medium-term notes, mortgage-backed securities, repurchase
agreements, subordinated notes, unsecured notes, pre-sale funding
facilities and cash flows from operations. In the past, CHL has utilized
whole loan repurchase agreements, servicing-secured bank facilities, direct
borrowings from its revolving credit facility, privately-placed financings
and contributions from the Company of the proceeds of public offerings of
preferred and common stock.
CHL is a New York corporation, originally incorporated in 1969.
Its principal executive offices are located at 4500 Park Granada,
Calabasas, California 91302, and its telephone number is (818) 225-3000.
THE TRUST
The Trust is a statutory business trust formed under the Delaware
Business Trust Act, as amended (the "Trust Act"), pursuant to (i) a
declaration of trust, dated as of May 28, 1997, as amended and restated as
of June 4, 1997 (as so amended and restated, the "Declaration"), executed
by the Company and (ii) a certificate of trust, dated as of May 28, 1997,
filed with the Secretary of State of the State of Delaware. The Declaration
incorporates such provisions as are required by the Trust Indenture Act.
The Company acquired Common Securities in an aggregate liquidation amount
equal to approximately 3% of the total capital of the Trust, at the same
time as the Old Capital Securities were sold. The Trust used all the
proceeds derived from the issuance of the Trust Securities to purchase the
Old Debentures and Old Debt Guarantee and, accordingly, the assets of the
Trust currently consist solely of the Old Debentures and the Old Debt
Guarantee. Subsequent to the exchange of New Debentures for Old Debentures
and the Old Guarantee for the New Debt Guarantee as described herein, the
assets of the Trust will consist solely of the New Debentures and the New
Debt Guarantee. The Trust exists for the exclusive purposes of (i) issuing
and selling the Trust Securities representing undivided beneficial
ownership interests in the assets of the Trust, (ii) investing the gross
proceeds from such sales in the Old Debentures and the Old Debt Guarantee
which will be exchanged for the New Debentures and the New Debt Guarantee
and (iii) engaging in only those other activities necessary or incidental
thereto, including engaging in the Exchange Offer.
Pursuant to the Declaration, there are five trustees of the Trust
(the "Trustees"). Three of the Trustees (the "Regular Trustees") are
individuals who are employees or officers of or who are affiliated with the
Company. The fourth Trustee is a financial institution that is unaffiliated
with the Company (the "Property Trustee"). The fifth Trustee is an entity
that maintains its principal place of business in the State of Delaware
(the "Delaware Trustee"). The Bank of New York, a New York banking
corporation, currently acts as Property Trustee, and its affiliate, The
Bank of New York (Delaware), a Delaware corporation, currently acts as
Delaware Trustee, and each will continue to serve in such capacity until it
is removed or replaced by the Company as holder of the Common Securities.
The Bank of New York also acts as trustee under the Trust Guarantee and
under the Debt Guarantee and will act as trustee under the New Trust
Guarantee (the "Trust Securities Guarantee Trustee") and the New Debt
Guarantee.
The Property Trustee will hold title to the New Debentures and
New Debt Guarantee for the benefit of the holders of the Trust Securities
and, as the holder of the New Debentures and New Debt Guarantee, the
Property Trustee will have the power to exercise all rights, powers and
privileges of a holder of the New Debentures and New Debt Guarantee under
the Indenture. In addition, the Property Trustee will maintain exclusive
control of a segregated non-interest bearing bank account (the "Property
Account") to hold all payments made in respect of the New Debentures and
New Debt Guarantee for the benefit of the holders of the Trust Securities.
The Trust Securities Guarantee Trustee will hold the New Trust Guarantee
for the benefit of the holders of the Trust Securities. The Property
Trustee will make payments of Distributions and payments on liquidation,
redemption and otherwise to registered holders of the Trust Securities out
of funds in the Property Account. The Company, as the holder of all the
Common Securities, has the right to appoint, remove or replace any of the
Trustees and to increase or decrease the number of Trustees, provided that
the number of Trustees will be at least three; provided further that at
least one Trustee is a Delaware Trustee, at least one Trustee is the
Property Trustee and at least one Trustee is a Regular Trustee. CHL is
obligated to pay all fees and expenses related to the organization and
operations of the Trust (including any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes)
imposed by the United States or any other domestic taxing authority upon
the Trust), the Offering and the Exchange Offer and be responsible for all
debts and obligations of the Trust (other than with respect to the Trust
Securities).
For so long as the Capital Securities remain outstanding, the
Company has covenanted (i) to maintain directly or indirectly 100%
ownership of the Common Securities, (ii) to cause the Trust to remain a
statutory business trust and not to voluntarily dissolve, wind-up,
liquidate or be terminated, except as permitted by the Declaration, (iii)
to use its commercially reasonable efforts to ensure that the Trust will
not be an "investment company" for purposes of the Investment Company Act
of 1940, as amended (the "1940 Act") and (iv) to take no action that would
be reasonably likely to cause the Trust to be classified as an association
or a publicly-traded partnership taxable as a corporation for United States
federal income tax purposes.
The rights of the holders of the Capital Securities, including
economic rights, rights to information and voting rights, are set forth in
the Declaration and the Trust Indenture Act. See "Description of Capital
Securities."
The location of the principal executive office of the Trust is
c/o Countrywide Credit Industries, Inc., 4500 Park Granada, Calabasas,
California 91302, and its telephone number is (818) 225-3000.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Capital Securities were sold by the Trust on June 4, 1997
to the Initial Purchasers in reliance on Section 4(2) of the Securities
Act. The Initial Purchasers offered and sold the Old Capital Securities
only (i) to "Qualified Institutional Buyers" (as defined in Rule 144A) in
compliance with Rule 144A and (ii) outside the United States to persons
other than U.S. Persons, which term includes dealers or other professional
fiduciaries in the United States acting on a discretionary basis for
foreign beneficial owners (other than an estate or trust), in reliance upon
Regulation S under the Securities Act.
In connection with the sale of the Old Capital Securities, the
Company, CHL and the Trust and the Initial Purchasers entered into the
Registration Rights Agreement, pursuant to which the Company, CHL and the
Trust agreed to use their respective reasonable best efforts to file and to
cause to be declared effective by the Commission a registration statement
with respect to the exchange of the Old Capital Securities for capital
income securities with terms identical in all material respects to the
terms of the Old Capital Securities (except as described below). A copy of
the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
The Exchange Offer is being made pursuant to the Registration
Rights Agreement to satisfy the Company's, CHL's and the Trust's
obligations thereunder with regard to the Old Capital Securities. The form
and terms of the New Capital Securities will be identical in all material
respects to the form and terms of the Old Capital Securities except that
(i) the New Capital Securities will have been registered under the
Securities Act and therefore will not contain terms with respect to
transfer restrictions, (ii) the Distribution Rate on the New Capital
Securities will not be subject to increase in certain circumstances
relating to the timing of the Exchange Offer and (iii) the holders of New
Capital Securities will not be entitled to certain rights under the
Registration Rights Agreement, which rights will terminate when the
Exchange Offer is consummated. The Old Capital Securities provide, among
other things, that if the Exchange Offer is not consummated by January 14,
1998 (the "Targeted Consummation Date"), the Distribution Rate will
increase (as a result of a corresponding increase in interest payable on
the Old Debentures) by $.05 per week per $1,000 liquidation amount of Old
Capital Securities during the first 90-day period following the Targeted
Consummation Date and then will increase by $.05 per week per $1,000
liquidation amount of Old Capital Securities during each subsequent 90-day
period following the Targeted Consummation Date up to a maximum of $.25 per
week per $1,000 liquidation amount of Old Capital Securities, until the
Exchange Offer is consummated. See "Risk Factors -- Consequences of a
Failure to Exchange Old Capital Securities" and "Description of Capital
Securities."
Upon the Registration Statement being declared effective, the
Trust will offer the New Capital Securities in exchange for surrender of
the Old Capital Securities. The Company will keep the Exchange Offer open
for not less than 20 Business Days (or longer if required by applicable
law) after the date notice of the Exchange Offer is mailed to the holders
of the Old Capital Securities. For each Old Capital Security surrendered to
the Trust pursuant to the Exchange Offer, the holder of such Old Capital
Security will receive a New Capital Security having a liquidation amount
equal to that of the surrendered Old Capital Security. Distributions on
each New Capital Security will accrue from the last Distribution Payment
Date on which Distributions were made on the Old Capital Security
surrendered in exchange therefor or, if no Distributions have been made on
such Old Capital Security, from June 4, 1997. The term "holder" with
respect to the Exchange Offer means any person in whose name Old Capital
Securities are registered on the Property Trustee's books or any other
person who has obtained a properly completed bond power from the registered
holder, or any person whose Old Capital Securities are held of record by
DTC who desires to deliver such Old Capital Securities, by book-entry
transfer at DTC. See "Book-Entry Issuance."
As soon as practicable after the Expiration Date, and as an
integral part of its obligations under the Registration Rights Agreement,
the Trust will exchange the Old Trust Guarantee for the New Trust
Guarantee, all of the Old Debentures, of which $206,200,000 aggregate
principal amount is outstanding, for a like aggregate principal amount of
the New Debentures and the Old Debt Guarantee for the New Debt Guarantee.
The New Trust Guarantee, the New Debentures and the New Debt Guarantee have
been registered under the Securities Act.
The Exchange Offer is not being made to, nor will the Trust
accept surrenders of Old Capital Securities for exchange from, holders
thereof in any jurisdiction in which the Exchange Offer or the acceptance
thereof would not be in compliance with the securities or blue sky laws of
such jurisdiction.
Participation in the Exchange Offer is voluntary and holders
should carefully consider whether to accept. Holders of the Old Capital
Securities are urged to consult their financial and tax advisors in making
their own decisions on whether to participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange up to $200,000,000 aggregate liquidation amount of
New Capital Securities for a like aggregate liquidation amount of Old
Capital Securities properly tendered on or prior to the Expiration Date and
not properly withdrawn in accordance with the procedures described below.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Trust will accept any and all Old
Capital Securities validly tendered and not withdrawn prior to 5:00 p.m.,
New York City time, on the Expiration Date. Subject to the minimum
denomination requirements of the New Capital Securities, the Trust will
issue $1,000 liquidation amount of New Capital Securities in exchange for
each $1,000 liquidation amount of outstanding Old Capital Securities
accepted in the Exchange Offer. Holders may tender some or all of their Old
Capital Securities pursuant to the Exchange Offer. However, Old Capital
Securities may be tendered only in amounts that are in blocks having a
minimum aggregate liquidation amount of $100,000 (100 Old Capital
Securities) and in integral multiples of $1,000 liquidation amount.
The Exchange Offer is not conditioned upon any minimum aggregate
liquidation amount of Old Capital Securities being tendered for exchange.
As of November 17, 1997, $200,000,000 aggregate liquidation amount of Old
Capital Securities was outstanding with one registered holder. This
Prospectus, together with the Letter of Transmittal, is being sent to such
registered holder.
Holders of Old Capital Securities do not have any appraisal or
dissenters' rights under the Declaration in connection with the Exchange
Offer. The Company, CHL and the Trust intend to conduct the Exchange Offer
in accordance with the provisions of the Registration Rights Agreement and
the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder. Old Capital Securities which are
not tendered for exchange, are tendered but are validly withdrawn or are
tendered but not accepted in connection with the Exchange Offer will remain
outstanding, will continue to be entitled to the benefits of the
Declaration, and Distributions thereon will continue to accrue, but such
Old Capital Securities will not be entitled to any rights or benefits under
the Registration Rights Agreement, except under limited circumstances. See
"Risk Factors -- Consequences of a Failure to Exchange Old Capital
Securities" and "Description of Capital Securities."
The Trust shall be deemed to have accepted validly tendered Old
Capital Securities when, as and if the Trust has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent
for the tendering holders for the purposes of receiving the New Capital
Securities from the Trust. If any tendered Old Capital Securities are not
accepted for exchange because of an invalid tender, the occurrence of
certain other events set forth herein or otherwise, certificates for any
such unaccepted Old Capital Securities will be returned, without expense,
to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Capital Securities in the Exchange Offer
will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect
to the exchange of Old Capital Securities pursuant to the Exchange Offer.
CHL will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the Exchange Offer. See "-- Fees and
Expenses."
Each holder who tenders Old Capital Securities will warrant and
agree in the Letter of Transmittal that it has full power and authority to
tender, exchange, sell, assign and transfer Old Capital Securities, that
the Trust will acquire good, marketable and unencumbered title to the
tendered Old Capital Securities, free and clear of all liens, restrictions,
charges and encumbrances, and the Old Capital Securities tendered for
exchange are not subject to any adverse claims or proxies. The holder also
will warrant and agree that it will, upon request, execute and deliver any
additional documents deemed by the Trust or the Exchange Agent to be
necessary or desirable to complete the exchange, sale, assignment, and
transfer of the Old Capital Securities tendered pursuant to the Exchange
Offer.
The Trust reserves the right in its sole discretion to (a)
purchase or make offers for any Old Capital Securities that remain
outstanding subsequent to the Expiration Date, (b) as set forth under "--
Expiration Date; Extensions; Amendments," to terminate the Exchange Offer
and (c) to the extent permitted by applicable law, purchase Old Capital
Securities in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the
terms of the Exchange Offer.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR ANY TRUSTEE OF THE TRUST
MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL SECURITIES AS TO WHETHER
TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD CAPITAL
SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL
SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND IF SO, THE AGGREGATE LIQUIDATION AMOUNT OF OLD CAPITAL
SECURITIES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN
FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City
time, on December 19, 1997, unless the Company and the Trust extend the
Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended. Although the
Company and the Trust have no current intention to extend the Exchange
Offer, the Company and the Trust reserve the right to extend the Exchange
Offer at any time and from time to time by giving oral or written notice to
the Exchange Agent and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to
the Dow Jones News Service. During any extension of the Exchange Offer, all
Old Capital Securities previously tendered pursuant to the Exchange Offer
and not withdrawn will remain subject to the Exchange Offer. The date of
the exchange of the New Capital Securities for Old Capital Securities will
be the first New York Stock Exchange trading day following the Expiration
Date.
The Company, CHL and the Trust reserve the right, in their sole
discretion, subject to applicable law, (i) to delay accepting any Old
Capital Securities, (ii) to terminate the Exchange Offer if any of the
conditions set forth below under "-- Conditions of the Exchange Offer"
shall not have been satisfied in the good faith determination of the Trust,
(iii) to extend the Expiration Date of the Exchange Offer and retain all
Old Capital Securities tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Old Capital Securities to withdraw
their tendered Old Capital Securities as described under "-- Withdrawal
Rights" and (iv) to waive any condition or otherwise amend the terms of the
Exchange Offer in any manner. If the Exchange Offer is amended in any
manner determined by the Company and the Trust to constitute a material
change, the Company and the Trust will promptly disclose such amendment by
means of a prospectus supplement that will be distributed to the registered
holders and the Company and the Trust will extend the Exchange Offer for a
period of time, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
Any such delay in acceptance, extension, termination, waiver or
amendment will be followed as promptly as practicable by oral or written
notice thereof to the Exchange Agent and by making public announcement
thereof, and such announcement in the case of an extension will be made no
later than 9:00 a.m., New York City time, on the next Business Day after
the previously scheduled Expiration Date. Without limiting the manner in
which the Company and the Trust may choose to make any public announcement,
and subject to applicable law, the Company and the Trust shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
In all cases, issuance of the New Capital Securities for Old
Capital Securities that are accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of
properly completed and duly executed Letters of Transmittal and all other
required documents; provided, however, that the Trust reserves the absolute
right to waive any conditions of the Exchange Offer or defects or
irregularities in the tender of Old Capital Securities. If any tendered Old
Capital Securities are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Capital Securities are
submitted for a greater liquidation amount at maturity than the holder
desires to exchange, as the case may be, such unaccepted or non-exchanged
Old Capital Securities or substitute Old Capital Securities evidencing the
unaccepted portion, as appropriate, will be returned without expense to the
tendering holder, unless otherwise provided in the Letter of Transmittal,
as promptly as practicable after the expiration or termination of the
Exchange Offer.
DISTRIBUTIONS ON THE NEW CAPITAL SECURITIES
Each New Capital Security will pay cumulative Distributions from
the most recent date Distributions were made on the Old Capital Securities
surrendered in exchange for such New Capital Securities or, if no
distributions have been paid on such Old Capital Securities, from June 4,
1997. Holders of the Old Capital Securities whose Old Capital Securities
are accepted for exchange will not receive accumulated Distributions on
such Old Capital Securities for any period from and after the last date
Distributions were made on such Old Capital Securities prior to the
original issue date of the New Capital Securities or, if no such
Distributions have been paid, will not receive any accumulated
Distributions on such Old Capital Securities.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange
Offer, the Trust will exchange, and will issue to the Exchange Agent, New
Capital Securities for Old Capital Securities validly tendered and not
withdrawn (pursuant to the withdrawal rights described under "-- Withdrawal
Rights") promptly after the Expiration Date.
In all cases, delivery of New Capital Securities in exchange for
Old Capital Securities tendered and accepted for exchange pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent
of (i) Old Capital Securities or a book-entry confirmation of a book-entry
transfer of Old Capital Securities into the Exchange Agent's account at
DTC, including an Agent's Message if the tendering holder has not delivered
a Letter of Transmittal, (ii) the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees or (in the case of a book-entry transfer) an Agent's Message in
lieu of the Letter of Transmittal and (iii) any other documents required by
the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of
a book-entry transfer of Old Capital Securities into the Exchange Agent's
account at DTC. The term "Agent's Message" means a message, transmitted by
DTC to and received by the Exchange Agent and forming a part of a
book-entry confirmation, which states that DTC has received an express
acknowledgement from the tendering Participant, which acknowledgement
states that such Participant has received and agrees to be bound by the
Letter of Transmittal and that the Trust and the Company may enforce such
Letter of Transmittal against such Participant.
Subject to the terms and conditions of the Exchange Offer, the
Company and the Trust will be deemed to have accepted for exchange, and
thereby exchanged, Old Capital Securities validly tendered and not
withdrawn as, if and when the Trust gives oral or written notice to the
Exchange Agent of the Company's and the Trust's acceptance of such Old
Capital Securities for exchange pursuant to the Exchange Offer. The
Exchange Agent will act as agent for the Company and the Trust for the
purpose of receiving tenders of Old Capital Securities, Letters of
Transmittal and related documents, and as agent for tendering holders for
the purpose of receiving Old Capital Securities, Letters of Transmittal and
related documents and transmitting New Capital Securities to validly
tendering holders. Such exchange will be made promptly after the Expiration
Date. If, for any reason whatsoever, acceptance for exchange or the
exchange of any Old Capital Securities tendered pursuant to the Exchange
Offer is delayed (whether before or after the Company's and the Trust's
acceptance for exchange of Old Capital Securities) or the Company and the
Trust extend the Exchange Offer or are unable to accept for exchange or
exchange Old Capital Securities tendered pursuant to the Exchange Offer,
then, without prejudice to the Company's and the Trust's rights set forth
herein, the Exchange Agent may, nevertheless, on behalf of the Company and
the Trust and subject to Rule 14e-1(c) under the Exchange Act, retain
tendered Old Capital Securities and such Old Capital Securities may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under "-- Withdrawal Rights."
Pursuant to the Letter of Transmittal or Agent's Message in lieu
thereof, a holder of Old Capital Securities will warrant and agree in the
Letter of Transmittal that it has full power and authority to tender,
exchange, sell, assign and transfer Old Capital Securities, that the Trust
will acquire good, marketable and unencumbered title to the tendered Old
Capital Securities, free and clear of all liens, restrictions, charges and
encumbrances, and the Old Capital Securities tendered for exchange are not
subject to any adverse claims or proxies. The holder also will warrant and
agree that it will, upon request, execute and deliver any additional
documents deemed by the Company, the Trust or the Exchange Agent to be
necessary or desirable to complete the exchange, sale, assignment, and
transfer of the Old Capital Securities tendered pursuant to the Exchange
Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
VALID TENDER
Except as set forth below, in order for Old Capital Securities to
be validly tendered pursuant to the Exchange Offer, a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees or (in the case of a book-entry tender) an
Agent's Message in lieu of the Letter of Transmittal and any other required
documents, must be received by the Exchange Agent at its address set forth
under "-- Exchange Agent," on or prior to the Expiration Date and (i)
tendered Old Capital Securities must be received by the Exchange Agent, or
(ii) such Old Capital Securities must be tendered pursuant to the
procedures for book-entry transfer set forth below and a book-entry
confirmation, including an Agent's Message if the tendering holder has not
delivered a Letter of Transmittal, must be received by the Exchange Agent,
in each case on or prior to the Expiration Date, or (iii) the guaranteed
delivery procedures set forth below must be complied with.
If less than all of the Old Capital Securities are tendered, a
tendering holder should fill in the amount of Old Capital Securities being
tendered in the appropriate box on the Letter of Transmittal or so indicate
in an Agent's Message in lieu of the Letter of Transmittal. The entire
amount of Old Capital Securities delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE
TIMELY DELIVERY.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the
Old Capital Securities at DTC for purposes of the Exchange Offer within two
Business Days after the date of this Prospectus. Any financial institution
that is a participant in DTC's book-entry transfer facility system may make
a book-entry delivery of the Old Capital Securities by causing DTC to
transfer such Old Capital Securities into the Exchange Agent's account at
DTC in accordance with DTC's procedures for transfers. However, although
delivery of Old Capital Securities may be effected through book-entry
transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed,
with any required signature guarantees, or an Agent's Message in lieu of a
Letter of Transmittal, and any other required documents, must in any case
be delivered to and received by the Exchange Agent at its address set forth
under "-- Exchange Agent" on or prior to the Expiration Date, or the
guaranteed delivery procedures set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES
Certificates for the Old Capital Securities need not be endorsed
and signature guarantees on the Letter of Transmittal are unnecessary
unless (i) a certificate for the Old Capital Securities is registered in a
name other than that of the person surrendering the certificate or (ii)
such registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of
Transmittal. In the case of (i) or (ii) above, such certificates for Old
Capital Securities must be duly endorsed or accompanied by a properly
executed bond power, with the endorsement or signature on the bond power
and on the Letter of Transmittal guaranteed by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank;
(ii) a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency;
or (v) a savings association that is a participant in a Securities Transfer
Association (an "Eligible Institution"), unless surrendered on behalf of
such Eligible Institution. See Instruction 1 to the Letter of Transmittal.
GUARANTEED DELIVERY
If a holder desires to tender Old Capital Securities pursuant to
the Exchange Offer and the certificates for such Old Capital Securities are
not immediately available or time will not permit all required documents to
reach the Exchange Agent on or before the Expiration Date, or the
procedures for book-entry transfer cannot be completed on a timely basis,
such Old Capital Securities may nevertheless be tendered, provided that all
of the following guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible
Institution;
(ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying the
Letter of Transmittal, is received by the Exchange Agent, as
provided below, on or prior to the Expiration Date; and
(iii) the certificates (or a book-entry confirmation)
representing all tendered Old Capital Securities, in proper form
for transfer, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof or Agent's
Message in lieu thereof), with any required signature guarantees
and any other documents required by the Letter of Transmittal are
received by the Exchange Agent within three New York Stock
Exchange trading days after the date of execution of such Notice
of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New
Capital Securities in exchange for Old Capital Securities tendered and
accepted for exchange pursuant to the Exchange Offer will in all cases be
made only after timely receipt by the Exchange Agent of Old Capital
Securities, or of a book-entry confirmation with respect to such Old
Capital Securities, and a properly completed and duly executed Letter of
Transmittal (or facsimile thereof or an Agent's Message in lieu thereof),
together with any required signature guarantees and any other documents
required by the Letter of Transmittal. Accordingly, the delivery of New
Capital Securities might not be made to all tendering holders at the same
time, and will depend upon when Old Capital Securities, book-entry
confirmations or an Agent's Message in lieu thereof with respect to Old
Capital Securities and other required documents are received by the
Exchange Agent.
The Company and the Trust's acceptance for exchange of Old
Capital Securities tendered pursuant to any of the procedures described
above will constitute a binding agreement among the tendering holder, the
Company and the Trust upon the terms and subject to the conditions of the
Exchange Offer.
DETERMINATION OF VALIDITY
All questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tendered Old
Capital Securities will be determined by the Company and the Trust, in
their sole discretion, whose determination shall be final and binding on
all parties. The Company and the Trust reserve the absolute right, in their
sole discretion, to reject any and all tenders determined by them not to be
in proper form or the acceptance of which, or exchange for, may, in the
view of counsel to the Company or the Trust, be unlawful. The Company and
the Trust also reserve the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer as set forth under "--
Conditions to the Exchange Offer" or any condition or irregularity in any
tender of Old Capital Securities of any particular holder whether or not
similar conditions or irregularities are waived in the case of other
holders.
The Company's and the Trust's interpretation of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding. No tender of Old
Capital Securities will be deemed to have been validly made until all
irregularities with respect to such tender have been cured or waived. None
of the Company, the Trust, any affiliates or assigns of the Company or the
Trust, the Exchange Agent or any other person shall be under any duty to
give any notification of any irregularities in tenders or incur any
liability for failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of
attorney, or any other document required by the Letter of Transmittal is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
unless waived by the Trust, proper evidence satisfactory to the Company and
the Trust, in their sole discretion, of such person's authority to so act
must be submitted.
A beneficial owner of Old Capital Securities that are held by or
registered in the name of a broker, dealer, commercial bank, trust company
or other nominee or custodian is urged to contact such entity promptly if
such beneficial holder wishes to participate in the Exchange Offer.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital
Securities may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date.
To withdraw a tender of Old Capital Securities in an Exchange
Offer, a written or facsimile transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth herein prior to
5:00 p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Capital Securities to be withdrawn (the "Depositor"), (ii) identify the Old
Capital Securities to be withdrawn (including the certificate number or
numbers and liquidation amount of such Old Capital Securities), (iii)
contain a statement that such holder is withdrawing its election to have
such Old Capital Securities exchanged, (iv) be signed by such holder in the
same manner as the original signature on the Letter of Transmittal by which
such Old Capital Securities were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have
the Trustee with respect to the Old Capital Securities register the
transfer of such Old Capital Securities in the name of the person
withdrawing the tender and (v) specify the name in which any such Old
Capital Securities are to be registered, if different from that of the
Depositor. If Old Capital Securities have been tendered pursuant to the
procedures for book-entry transfer set forth in "-- Procedures for
Tendering Old Capital Securities," the notice of withdrawal must specify
the name and number of the account at DTC to be credited with the
withdrawal of Old Capital Securities, in which case a notice of withdrawal
will be effective if delivered to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. Any notice of withdrawal must
specify the name and number of the account at the book-entry transfer
facility.
All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company and the
Trust, in their sole discretion, whose determination shall be final and
binding on all parties. None of the Company, the Trust, the Exchange Agent
or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Capital
Securities so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no New Capital Securities will be
issued with respect thereto unless the Old Capital Securities so withdrawn
are validly retendered. Withdrawals of tenders of Old Capital Securities
may not be rescinded. Any Old Capital Securities which have been tendered
but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Capital Securities may be retendered by following
one of the procedures described above under "-- Procedures for Tendering
Old Capital Securities " at any time prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other terms of the Exchange Offer, or any
extension of the Exchange Offer, the Company and the Trust shall not be
required to accept for exchange, or to exchange New Capital Securities for,
any Old Capital Securities, and, as described below, may terminate the
Exchange Offer (whether or not any Old Capital Securities have theretofore
been accepted for exchange) or may waive any conditions to, or amend, the
Exchange Offer, if any of the following conditions have occurred or exist
or have not been satisfied:
(a) there shall occur a change in the current
interpretation by the staff of the Division of Corporation
Finance of the Commission which permits the New Capital
Securities issued pursuant to the Exchange Offer in exchange for
Old Capital Securities to be offered for resale, resold and
otherwise transferred by holders thereof (other than
broker-dealers and any such holder which is an "affiliate" of the
Company, CHL or the Trust within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that such New Capital Securities are acquired in the ordinary
course of such holders' business and such holders are not
participating and have no arrangement or understanding with any
person to participate in the distribution of such New Capital
Securities;
(b) any action or proceeding shall have been instituted
or threatened in any court or by or before any governmental
agency or body with respect to the Exchange Offer which, in the
Company's and the Trust's judgment, would reasonably be expected
to impair the ability of the Trust or the Company to proceed with
the Exchange Offer;
(c) any law, statute, rule or regulation shall have
been adopted or enacted which, in the Company's and the Trust's
judgment, would reasonably be expected to impair the ability of
the Trust or the Company to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by
United States federal or New York State authorities which, in the
Company's and the Trust's judgment, would reasonably be expected
to impair the ability of the Trust or the Company to proceed with
the Exchange Offer;
(e) trading on the NYSE or generally in the United
States over-the-counter market shall have been suspended by order
of the Commission or any other governmental authority which, in
the Company's and the Trust's judgment, would reasonably be
expected to impair the ability of the Trust or the Company to
proceed with the Exchange Offer;
(f) a stop order shall have been issued by the
Commission or any state securities authority suspending the
effectiveness of the Registration Statement or proceedings shall
have been initiated or, to the knowledge of the Company or the
Trust, threatened for that purpose or that any governmental
approval has not been obtained, which approval the Company and
the Trust shall, in their sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby;
(g) any change, or any development involving a
prospective change, in the business or financial affairs of the
Trust or the Company or any of its subsidiaries has occurred
which, in the sole judgment of the Company and the Trust, might
materially impair the ability of the Trust or the Company to
proceed with the Exchange Offer; or
(h) there is a reasonable likelihood in the Company's
judgment that, or a material uncertainty exists in the Company's
judgment as to whether, consummation of the Exchange Offer would
result in an adverse tax consequence to the Company.
If the Company and the Trust determine in their sole and absolute
discretion that any of the above conditions are not satisfied, the Company
and the Trust may, subject to applicable law, (i) terminate the Exchange
Offer (whether or not any Old Capital Securities have theretofore been
accepted for exchange), refuse to accept any Old Capital Securities and
return all tendered Old Capital Securities to the tendering holders, (ii)
extend the Exchange Offer and retain all Old Capital Securities tendered
prior to the Expiration Date, subject, however, to the right of holders to
withdraw such Old Capital Securities (see " -- Terms of the Exchange Offer"
and " -- Withdrawal Rights") or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer, or amend the terms of the Exchange
Offer, and accept all validly tendered Old Capital Securities which have
not been withdrawn. If such waiver or amendment constitutes a material
change to the Exchange Offer, the Company and the Trust will promptly
disclose such waiver or amendment by means of a prospectus supplement that
will be distributed to the registered holders, and the Company and the
Trust will extend the Exchange Offer for a period of time, depending upon
the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during
such period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other
required documents, questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for the Notice of Guaranteed Delivery should be directed to the
Exchange Agent addressed as follows:
By Hand or Overnight Courier: By Registered or Certified mail:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Corporate Trust Services Window Floor 7E
Ground Floor New York, New York 10286
New York, New York 10286 Attention: Reorganization Section
Attention: Reorganization Section
Facsimile Transmission:
(Eligible Institutions Only)
(212) 815-6339
Confirm by Telephone:
(212) 815-3428
Marcia Brown
For information with respect to the Exchange Offer, call:
The Bank of New York
at (212) 815-3428
Delivery to other than the above addresses or facsimile numbers
will not constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by CHL. The
principal solicitation is being made by mail; however, additional
solicitation may be made by telecopy, telephone or in person by officers
and regular employees of the Company, CHL, the Trust and their respective
affiliates. No additional compensation will be paid to any such officers
and employees who engage in soliciting tenders.
Neither the Company nor the Trust has retained any dealer-manager
or other soliciting agent in connection with the Exchange Offer, and CHL
will not make any payments to brokers, dealers or others soliciting
acceptance of the Exchange Offer. CHL, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for
its reasonable out-of-pocket expenses in connection therewith. CHL may also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of
this Prospectus, the Letter of Transmittal and related documents to the
beneficial owners of the Old Capital Securities and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer
will be paid by CHL. Such expenses include fees and expenses of the
Exchange Agent and transfer agent and registrar, accounting and legal fees
and printing costs, among others.
CHL will pay all transfer taxes, if any, applicable to the
exchange of the Old Capital Securities pursuant to the Exchange Offer. If,
however, New Capital Securities, or Old Capital Securities for principal
amounts not tendered or accepted for exchange, are to be delivered to, or
to be issued in the name of, any person other than the registered holder of
the Old Capital Securities tendered or if a transfer tax is imposed for any
reason other than the exchange of the Old Capital Securities pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by
the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
holder.
RESALES OF NEW CAPITAL SECURITIES
The Company, CHL and the Trust are making the Exchange Offer in
reliance on the position of the staff of the Division of Corporation
Finance of the Commission as set forth in certain interpretive letters
addressed to third parties in other transactions. However, none of the
Company, CHL and the Trust has sought its own interpretive letter and there
can be no assurance that the staff of the Division of Corporation Finance
of the Commission would make a similar determination with respect to the
Exchange Offer as it has in such interpretive letters to third parties.
Based on these interpretations by the staff of the Division of Corporation
Finance, and subject to the two immediately following sentences, the
Company, CHL and the Trust believe that New Capital Securities issued
pursuant to the Exchange Offer in exchange for Old Capital Securities may
be offered for resale, resold and otherwise transferred by a holder thereof
(other than a holder who is a broker-dealer or who is an "affiliate" of the
Company, CHL or the Trust within the meaning of Rule 405 of the Securities
Act) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that (i) such New
Capital Securities are acquired in the ordinary course of such holder's
business and (ii) such holder is not participating, does not intend to
participate and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act)
of such New Capital Securities. However, any holder of Old Capital
Securities who is an "affiliate" of the Company, CHL or the Trust or who
intends to participate in the Exchange Offer for the purpose of
distributing New Capital Securities, or, as to any unsold allotments, any
broker-dealer who purchased Old Capital Securities from the Trust to resell
pursuant to Rule 144A or any other available exemption under the Securities
Act, (a) will not be able to rely on the interpretations of the staff of
the Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled
to tender such Old Capital Securities in the Exchange Offer and (c) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of such Old Capital
Securities, with such resale covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Registration S-K under the Securities Act, unless such resale is made
pursuant to an exemption from such requirements. In addition, as described
below, if any broker-dealer holds Old Capital Securities acquired for its
own account as a result of market-making or other trading activities and
exchanges such Old Capital Securities for New Capital Securities, then such
broker-dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such New Capital
Securities.
Each holder of Old Capital Securities who wishes to exchange Old
Capital Securities for New Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Company, CHL
or the Trust, (ii) any New Capital Securities to be received by it are
being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of such New Capital
Securities and (iv) if such holder is not a broker-dealer or is a
broker-dealer but will not receive New Capital Securities for its own
account in exchange for Old Capital Securities, such holder is not engaged
in, and does not intend to engage in, a distribution (within the meaning of
the Securities Act) of such New Capital Securities. In addition, the
Company, CHL and the Trust may require such holder, as a condition to such
holder's eligibility to participate in the Exchange Offer, to furnish to
the Company, CHL and the Trust (or an agent thereof) in writing information
as to the number of "beneficial owners" (within the meaning of Rule 13d-3
under the Exchange Act) on behalf of whom such holder holds the Old Capital
Securities to be exchanged in the Exchange Offer. Each broker-dealer that
receives New Capital Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Capital Securities
for its own account as a result of market-making activities or other
trading activities and must agree that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of
such New Capital Securities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred
to above, the Company, CHL and the Trust believe that broker-dealers who
acquired Old Capital Securities for their own accounts, as a result of
market-making or other trading activities (i.e., Participating
Broker-Dealers) may fulfill their prospectus delivery requirements with
respect to the New Capital Securities received upon exchange of such Old
Capital Securities (other than Old Capital Securities which represent an
unsold allotment from the original sale of the Old Capital Securities) with
a prospectus meeting the requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of such
New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with
resales of New Capital Securities received in exchange for Old Capital
Securities where such Old Capital Securities were acquired by such
Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions
set forth in the Registration Rights Agreement, the Company, CHL and the
Trust have agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New Capital Securities for
a period ending 90 days after the Registration Statement of which this
Prospectus constitutes a part is declared effective. However, a
Participating Broker-Dealer who intends to use this Prospectus in
connection with the resale of New Capital Securities received in exchange
for Old Capital Securities pursuant to the Exchange Offer must notify the
Company, or cause the Company to be notified, on or prior to the Expiration
Date, that it is a Participating Broker-Dealer. Such notice may be given in
the space provided for that purpose in the Letter of Transmittal or may be
delivered to the Exchange Agent at one of the addresses set forth herein
under " -- Exchange Agent." Any Participating Broker-Dealer who is an
"affiliate" of the Company, CHL or the Trust may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders
Old Capital Securities pursuant to the Exchange Offer will be deemed to
have agreed, by execution of the Letter of Transmittal, that, upon receipt
of notice from the Company, CHL or the Trust of the occurrence of any event
or the discovery of any fact which makes any statement contained in this
Prospectus untrue in any material respect or which causes this Prospectus
to omit to state a material fact necessary in order to make the statements
contained herein, in light of the circumstances under which they were made,
not misleading or of the occurrence of certain other events specified in
the Registration Rights Agreement, such Participating Broker-Dealer will
suspend the sale of New Capital Securities pursuant to this Prospectus
until the Company, CHL and the Trust has amended or supplemented this
Prospectus to correct such misstatement or omission and have furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company, CHL or the Trust has given notice that the
sale of the New Capital Securities may be resumed, as the case may be.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Capital Securities have not been registered under the
Securities Act or any state securities laws and therefore may not be
offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act and any other applicable
securities laws, or pursuant to an exemption therefrom or in a transaction
not subject thereto, and in each case in compliance with certain other
conditions and restrictions, including the Trust's and the Property
Trustee's right in certain cases to require the delivery of opinions of
counsel, certifications and other information prior to any such transfer.
After consummation of the Exchange Offer, Old Capital Securities that
remain outstanding will continue to bear legends restricting transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding (subject to limited exceptions, if
applicable) will not be entitled to any rights to have such Old Capital
Securities registered under the Securities Act or to any similar rights
under the Registration Rights Agreement. The Trust currently does not
intend to register under the Securities Act any Old Capital Securities
which remain outstanding after consummation of the Exchange Offer (subject
to limited exceptions, if applicable).
To the extent that Old Capital Securities are tendered and
accepted in the Exchange Offer, the liquidation amount of outstanding Old
Capital Securities will be reduced by the liquidation amount so tendered
and exchanged and a holder's ability to sell untendered Old Capital
Securities could be adversely affected. In addition, although the Old
Capital Securities have been designated for trading in the PORTAL market,
to the extent that Old Capital Securities are tendered and accepted in
connection with the Exchange Offer, any trading market for Old Capital
Securities which remain outstanding after the Exchange Offer could be
adversely affected.
The New Capital Securities and any Old Capital Securities which
remain outstanding after consummation of the Exchange Offer will constitute
a single Capital Securities under the Declaration and, accordingly, will
vote together as a single class for purposes of determining whether holders
of the requisite percentage in outstanding liquidation amount thereof have
taken certain actions or exercised certain rights under the Declaration.
See "Description of Capital Securities -- General" and " -- Voting Rights;
Amendment of the Declaration."
SHELF REGISTRATION STATEMENT
If (i) the Company, CHL and the Trust are not required to file an
Exchange Offer Registration Statement or permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable
law or Commission policy, (ii) CHL has received an opinion of counsel
rendered by a law firm having a recognized national tax practice, to the
effect that, as a result of the consummation of the Exchange Offer, there
is more than an insubstantial risk that (x) the Trust would be subject to
United States federal income tax with respect to income received or accrued
on the Debentures, (y) interest payable by CHL on such Debentures would not
be deductible by CHL, in whole or in part, for United States federal income
tax purposes or (z) the Trust would be subject to more than a de minimis
amount of other taxes, duties or other governmental charges or (iii) any
holder of Old Capital Securities provides CHL with an opinion of counsel on
or before the twentieth Business Day following the consummation of the
Exchange Offer to the effect that (A) such holder is prohibited by law or
Commission policy from participating in the Exchange Offer, (B) such holder
may not resell the New Capital Securities it acquired in the Exchange Offer
to the public without delivering a prospectus and this Prospectus is not
appropriate or available for such resales or (C) such holder is a
broker-dealer and owns Old Capital Securities acquired directly from the
Trust or an affiliate of the Trust, then the Company, CHL and the Trust
will use their reasonable best efforts to file a shelf registration
statement with respect to the resale of Old Capital Securities with the
Commission on or prior to 150 days after such filing obligation arises and
to cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to 180 days after such obligation arises and to keep
the Shelf Registration Statement effective for two years from the date of
the original issuance of the Old Capital Securities; provided, however,
that if the Company or CHL is engaged in a material acquisition or
disposition and in certain other circumstances, the Company, CHL and the
Trust may suspend offers and sales under the Shelf Registration Statement,
subject to certain conditions, for up to 30 days in each year during which
the Shelf Registration Statement is required to be effective. Each holder
of the Old Capital Securities will be required to deliver information to be
used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set
forth in the Registration Rights Agreement in order to have their Old
Capital Securities included in the Shelf Registration Statement.
ACCOUNTING TREATMENT
The New Capital Securities would be recorded at the same carrying
value as the Old Capital Securities, as reflected in the Company's
accounting records on the date of the exchange. Accordingly, no gain or
loss for accounting purposes will be recognized by the Company. The costs
of the Exchange Offer and the unamortized expenses related to the issuance
of the Old Capital Securities will be amortized over the terms of the
Capital Securities.
DESCRIPTION OF CAPITAL SECURITIES
The Old Capital Securities offered in the Offering were issued,
and the New Capital Securities offered pursuant to the Exchange Offer will
be issued, under the Declaration. Upon the consummation of the Exchange
Offer, the Declaration will be subject to and governed by the Trust
Indenture Act. The following summary of the material provisions of the
Declaration does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of the
Declaration (a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus constitutes a part),
including the definitions of certain terms contained therein and those
terms made part of the Declaration by reference to the Trust Act and the
Trust Indenture Act. For definitions of certain capitalized terms used in
the following summary, see "Index of Certain Terms." References to
"Section" are to sections of the Declaration.
GENERAL
The Capital Securities will rank on a parity, and payments will
be made thereon pro rata, with the Common Securities except as described
under "-- Subordination of Common Securities." Legal title to the New
Debentures and the New Debt Guarantee will be held by the Property Trustee
in trust for the benefit of the holders of the Trust Securities. The Trust
Guarantee executed by the Company for the benefit of the holders of the
Capital Securities will be a guarantee with respect to the Capital
Securities but will not guarantee payment of Distributions or amounts
payable on redemption or liquidation of the Capital Securities when the
Trust does not have sufficient funds available to make such payments. See
"Description of Trust Guarantee." The Company's obligations under the
Guarantees, the Indenture and the Declaration, taken together with CHL's
obligations under the New Debentures and the Indenture, including CHL's
obligation to pay all costs, expenses and liabilities of the Trust (other
than with respect to the Trust Securities), constitute a full and
unconditional guarantee by the Company of all of the Trust's obligations
under the Capital Securities.
Holders of the Capital Securities have no preemptive or similar
rights.
DISTRIBUTIONS
Distributions will accumulate from the most recent date
Distributions were made on the Old Capital Securities or, if no
Distributions have been made on the Old Capital Securities, from June 4,
1997, at a rate per annum equal to 8.05% of the stated liquidation amount
of $1,000 per Capital Security. Distributions will be payable semi-annually
in arrears on June 15 and December 15 of each year, commencing December 15,
1997, and at maturity. In the event that 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 (and without any additional
Distributions or other payments in respect of any such delay), except that,
if such Business Day is in the next succeeding calendar year, such payment
will be made on the immediately preceding Business Day, in each case with
the same force and effect as if made on the date such payment was
originally payable (each date on which Distributions are payable in
accordance with the foregoing, a "Distribution Date"). A "Business Day"
means any day other than a Saturday or a Sunday, or a day on which banking
institutions in The City of New York or Los Angeles, California are
authorized or required by law or executive order to remain closed or a day
on which the principal corporate trust office of the Indenture Trustee (as
defined herein) or the principal corporate trust office of the Property
Trustee is closed for business. The amount of Distributions payable for any
semi-annual distribution period will be computed (i) for any full 180-day
semi-annual distribution period, on the basis of a 360-day year of twelve
30-day months and (ii) for any period shorter than a full 180-day
semi-annual distribution period for which Distributions are computed, on
the basis of the actual number of days elapsed in such 180-day semi-annual
period (assuming each full month elapsed in such period consists of 30
days).
Distributions on the Capital Securities (other than distributions
on a redemption date) will be payable to the holders thereof as they appear
on the register of the Trust as of the close of business on the relevant
record dates, which, as long as the Capital Securities are represented by
one or more global certificated securities ("Global Certificates"), will be
the close of business on the Business Day prior to the relevant
Distribution Dates, unless otherwise provided in the Declaration or unless
a different regular record date is established or provided for the
corresponding interest payment date on the New Debentures. If the Capital
Securities are no longer represented by one or more Global Certificates,
the Regular Trustees will have the right to select record dates, which will
be at least one Business Day prior to the relevant payment dates.
Distributions payable on any Capital Securities that are not punctually
paid on any Distribution Date will cease to be payable to the person in
whose name such Capital Securities are registered on the relevant record
date, and such defaulted Distribution will instead be payable to the person
in whose name such Capital Securities are registered on the special record
date or other specified date determined in accordance with the Declaration.
At all times, the Distribution Rate, the Distribution Dates and
other payment dates for the Capital Securities will correspond to the
interest rate, interest payment dates and other payment dates on the New
Debentures, which, together with the New Debt Guarantee, will be the sole
assets of the Trust.
Distributions on the Capital Securities must be paid on the dates
payable to the extent that the Trust has funds available for the payment of
such Distributions. The revenue of the Trust available for distribution to
holders of its Capital Securities will be limited to payments received from
CHL under the New Debentures or from the Company under the New Debt
Guarantee. See "Description of New Debentures and New Debt Guarantee." If
CHL does not make payments on the New Debentures and the Company does not
make such payments, to the extent required, pursuant to the New Debt
Guarantee, the Property Trustee will not have funds available to make
payments on the Capital Securities, and the Trust Guarantee will not apply
to such payments until the Trust has sufficient funds therefor.
CHL will have the right under the Indenture to defer the payment
of interest on the New Debentures at any time or from time to time for a
period not exceeding 10 consecutive semi-annual periods provided that no
Extension Period may extend beyond the Stated Maturity of the New
Debentures. Accordingly, there could be multiple Extension Periods of
varying terms throughout the term of the New Debentures. As a consequence
of any such extension, semi-annual Distributions on the Capital Securities
will be deferred by the Trust during any such Extension Period.
Distributions to which holders of the Capital Securities are entitled will
accumulate and compound semi-annually at the Distribution Rate from the
relevant Distribution Date for such Distributions. The term "Distributions"
as used herein includes any such compounded amounts unless the context
otherwise requires. During any such Extension Period, (a) the Company and
CHL shall not declare or pay dividends on, or make a distribution with
respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock (other than (i) purchases or
acquisitions of shares of any such capital stock or rights to acquire such
capital stock in connection with the satisfaction by the Company or CHL,
respectively, of its obligations under any employee benefit plans, (ii) as
a result of a reclassification of the Company's or CHL's capital stock or
rights to acquire such capital stock or the exchange or conversion of one
class or series of the Company's or CHL's capital stock or rights to
acquire such capital stock for another class or series of the Company's or
CHL's capital stock or rights to acquire such capital stock, (iii) the
purchase of fractional interests in shares of the Company's or CHL's
capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged or (iv)
dividends and distributions made on the Company's or CHL's capital stock or
rights to acquire such capital stock with the Company's or CHL's capital
stock or rights to acquire such capital stock) or make any guaranteed
payments with respect to any of the foregoing and (b) the Company and CHL
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities (including any guarantees,
other than the Guarantees) issued by the Company or CHL that rank pari
passu with or junior to the New Debentures. Prior to the termination of any
such Extension Period, CHL may further extend the Extension Period,
provided that no Extension Period may exceed 10 consecutive semi-annual
periods or extend beyond the Stated Maturity of the New Debentures. Upon
the termination of any such Extension Period and the payment of all amounts
then due on any Interest Payment Date, CHL may elect to begin a new
Extension Period, subject to the foregoing requirements. See "Description
of the New Debentures and New Debt Guarantee -- Option to Extend Interest
Payment Period" and "Certain United States Federal Income Tax Consequences
- -- Interest Income and Original Issue Discount." CHL has no current
intention of exercising its right to defer any payments of interest by
extending any interest payment period of the New Debentures.
REDEMPTION
GENERAL
Upon the repayment or redemption of the New Debentures held by
the Trust, whether at Stated Maturity or upon earlier redemption as
provided in the Indenture, the proceeds from such repayment or redemption
will be applied by the Property Trustee to redeem the Trust Securities. The
New Debentures are not redeemable at the option of CHL other than in
certain circumstances following a Special Event. See "Description of New
Debentures and New Debt Guarantee -- Redemption."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION OF NEW DEBENTURES;
SHORTENING OF STATED MATURITY
If, at any time, either a Tax Event or an Investment Company
Event (as defined herein) (each, a "Special Event") shall have occurred and
be continuing, the Regular Trustees may, within 90 days following the
occurrence of such Special Event, elect to dissolve the Trust upon not less
than 30 nor more than 60 days' notice and, after satisfaction of
liabilities to creditors of the Trust, if any, cause the New Debentures and
the New Debt Guarantee to be distributed to the holders of the Trust
Securities in liquidation of the Trust. If an Investment Company Event
shall have occurred and be continuing, CHL also has the option to redeem
the New Debentures, in whole but not in part (and thereby cause a mandatory
redemption of the Capital Securities), at any time within 90 days following
the occurrence of such Investment Company Event at a redemption price equal
to 100% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of redemption. In addition, if a Tax Event shall have
occurred and be continuing and in the opinion of counsel, rendered by a law
firm having a recognized national tax practice, there would in all cases,
after effecting the dissolution of the Trust and the distribution of the
New Debentures and the New Debt Guarantee to the holders of the Trust
Securities in exchange therefor upon liquidation of the Trust, be more than
an insubstantial risk that the Tax Event would continue to exist, then CHL
will have the right (a) to shorten the Stated Maturity of the New
Debentures to a date not earlier than December 15, 2011 (a "Maturity
Advancement") such that, in the opinion of such counsel, after advancing
the Stated Maturity of the New Debentures, interest paid on the New
Debentures will be deductible by CHL for United States federal income tax
purposes or (b) to redeem the New Debentures, in whole but not in part (and
thereby cause a mandatory redemption of the Capital Securities), at any
time within 90 days following the occurrence of a Tax Event at a redemption
price equal to 100% of the aggregate principal amount thereof, plus accrued
and unpaid interest to the date of redemption. Under current United States
federal income tax law and interpretations thereof and assuming that, as
expected, the Trust is treated as a grantor trust, a distribution of the
New Debentures and the New Debt Guarantee would not be a taxable event to
holders of the Capital Securities. Should there be a change in law, a
change in legal interpretation, a Tax Event or other circumstances,
however, the distribution could be a taxable event to holders of the
Capital Securities. See "Certain United States Federal Income Tax
Consequences."
If CHL does not elect any of the options described above, the
Capital Securities will remain outstanding until the repayment of the New
Debentures, whether at maturity or their earlier redemption, and in the
event a Tax Event shall have occurred and be continuing, CHL will be
obligated to pay any additional taxes, duties, assessments and other
governmental charges (other than withholding taxes) to which the Trust has
become subject as a result of a Tax Event. See "Description of New
Debentures and New Debt Guarantee."
As used herein:
(i) "Tax Event" means that the Regular Trustees
shall have received an opinion of counsel, rendered by a law firm
having a recognized national tax practice, to the effect that, as
a result of (a) any amendment to, or change (including any
announced proposed change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or
taxing authority thereof or therein or (b) any official
administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is
effective or such proposed change, pronouncement or decision is
announced on or after the date of original issuance of the Old
Capital Securities, there is more than an insubstantial risk that
(i) the Trust is, or will be within 90 days after the date
thereof, subject to United States federal income tax with respect
to interest accrued or received on the New Debentures, (ii) the
Trust is, or will be within 90 days after the date thereof,
subject to more than a de minimis amount of other taxes, duties
or other governmental charges, or (iii) interest payable on the
New Debentures is not, or within 90 days of the date thereof will
not, be deductible, in whole or in part, by CHL for United States
federal income tax purposes.
(ii) "Investment Company Event" means that the
Regular Trustees shall have received an opinion of counsel,
rendered by a law firm having a recognized national securities
practice, to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court,
governmental agency or regulatory authority (a "Change in 1940
Act Law"), there is more than an insubstantial risk that the
Trust is or will be considered an "investment company" which is
required to be registered under the 1940 Act, which Change in
1940 Act Law becomes effective on or after the date of original
issuance of the Old Capital Securities.
REDEMPTION PROCEDURES
Capital Securities redeemed on each redemption date will be
redeemed at the redemption price in respect of the New Debentures plus an
amount equal to accrued and unpaid Distributions thereon through the date
of redemption (the "Redemption Price") with the applicable proceeds from
the contemporaneous redemption or payment of the New Debentures.
Redemptions of the Capital Securities will be made and the Redemption Price
will be payable on each redemption date only to the extent that the Trust
has sufficient funds available for the payment of such Redemption Price.
See also "-- Subordination of Common Securities."
Notice of any redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each holder of Capital
Securities to be redeemed at its registered address. If the Trust gives a
notice of redemption in respect of the Capital Securities, then, by 12:00
noon, New York City time, on the redemption date, to the extent funds are
available, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price for all Capital
Securities held by DTC and will give DTC irrevocable instructions and
authority to pay the Redemption Price to the holders of the Capital
Securities. See "Book-Entry Issuance." If any Capital Securities are not
represented by one or more Global Certificates, the Trust, to the extent
funds are available, will irrevocably deposit with the Paying Agent (as
defined herein) for such Capital Securities funds sufficient to pay the
applicable Redemption Price and will give the 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 Security called for redemption
will be payable to the holders of such Capital Security on the relevant
record dates for the related Distribution Dates. If notice of redemption
shall have been given and funds deposited as required, then immediately
prior to the close of business on 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. In the event that 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 (and without any interest or
other payment in respect of any such delay), except that, if such Business
Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case 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 Trust or by the Company pursuant to the Trust
Guarantee as described under "Description of Trust Guarantee,"
Distributions on such Capital Securities will continue to accumulate at the
Distribution Rate, to the extent permitted by applicable law, from the
redemption date originally established by the Trust for the 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. See " -- Distributions."
Subject to applicable law (including, without limitation, United
States federal securities law), the Company or any of its subsidiaries may
at any time and from time to time purchase outstanding New Capital
Securities by tender, in the open market or by private agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the
Trust Securities, as applicable, shall be made pro rata based on the
liquidation amount of such Trust Securities; provided, however, that, if on
any Distribution Date or redemption date an Indenture Event of Default
shall have occurred and be continuing, no payment of any Distribution on,
or Redemption Price of, any of the Common Securities, and no other payment
on account of the redemption, liquidation or other acquisition of such
Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding Capital
Securities for all Distribution periods terminating on or prior thereto, or
in the case of payment of the Redemption Price, the full amount of such
Redemption Price on all of the outstanding Capital Securities then called
for redemption, shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in
full in cash of all Distributions on, or Redemption Price of, the Capital
Securities then due and payable.
DISTRIBUTION OF THE NEW DEBENTURES
At any time, the Company will have the right to dissolve the
Trust and, after satisfaction of the liabilities of creditors of the Trust
as provided by applicable law, cause the New Debentures and the New Debt
Guarantee to be distributed to the holders of the Trust Securities in
liquidation of the Trust. Under current United States federal income tax
law and interpretation and assuming, as expected, the Trust is treated as a
grantor trust, a distribution of the New Debentures and the New Debt
Guarantee would not be a taxable event to holders of the Capital
Securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to the holders of the Capital
Securities. In addition, a dissolution of the Trust in which holders of the
Capital Securities receive cash would be a taxable event to such holders.
See "Certain United States Federal Income Tax Consequences."
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Declaration, the Trust shall automatically
dissolve on the first to occur of: (i) the bankruptcy of the Company or
CHL, (ii) the filing of a certificate of dissolution or its equivalent with
respect to the Company or CHL and the revocation of the charter of the
Company or CHL and the expiration of 90 days after the date of revocation
without a reinstatement thereof, (iii) the entry of a decree of judicial
dissolution of the Company, CHL or the Trust, (iv) the time when all of the
Trust Securities shall have been called for redemption and the amounts then
due thereon shall have been paid to the holders thereof in accordance with
the terms of the Trust Securities, (v) upon the election of the Regular
Trustees, following the occurrence and continuation of a Special Event
pursuant to which the Trust shall have been dissolved in accordance with
the terms of the Trust Securities and all of the New Debentures and the New
Debt Guarantee shall have been distributed to the holders of the Trust
Securities in exchange for all of the Trust Securities or (vi) the time
when all of the Regular Trustees and the Company shall have consented to
termination of the Trust provided such action is taken before the issuance
of any Trust Securities.
If an early dissolution occurs as described in clause (i), (ii),
(iii), (v) or (vi) above, the Trust shall be liquidated by the Trustees as
expeditiously as the Trustees determine to be possible by distributing,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, to the holders of the Trust Securities their pro rata
interest in the New Debentures and the New Debt Guarantee, unless such
distribution is determined by the Property Trustee not to be practical, in
which event such holders will be entitled to receive out of the assets of
the Trust available for distribution to holders, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, an
amount equal to the aggregate of the stated liquidation amount of $1,000
per Capital Security, plus accrued 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 Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Trust on the Trust
Securities shall be paid on a pro rata basis. The holder(s) of the Common
Securities will be entitled to receive distributions upon any such
liquidation pro rata with the holders of the Capital Securities, except
that if an Indenture Event of Default has occurred and is continuing, the
Capital Securities shall have a priority over the Common Securities with
regard to such distributions.
After the liquidation date is fixed for any distribution of New
Debentures to holders of the Capital Securities, (i) the Capital Securities
will no longer be deemed to be outstanding, (ii) DTC or its nominee, as a
record holder of Capital Securities, will receive a registered Global
Certificate or Certificates representing the New Debentures to be delivered
upon such distribution and (iii) any certificates representing Capital
Securities not held by DTC or its nominee will be deemed to represent New
Debentures having an aggregate principal amount equal to the aggregate
liquidation amount of such Capital Securities, and bearing accrued and
unpaid interest in an amount equal to the accrued and unpaid Distributions
on such Capital Securities until such certificates are presented for
cancellation whereupon CHL will issue to such holder(s), and the Indenture
Trustee will authenticate, a certificate representing such New Debentures.
TRUST ENFORCEMENT EVENTS
An Indenture Event of Default that has occurred and is continuing
constitutes a "Trust Enforcement Event" under the Declaration with respect
to the Trust Securities, provided that pursuant to the Declaration, the
holder of the Common Securities will be deemed to have waived any Trust
Enforcement Event with respect to the Common Securities until all Trust
Enforcement Events with respect to the Capital Securities have been cured,
waived or otherwise eliminated. Until such Trust Enforcement Event with
respect to the Capital Securities has been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the holders of the Capital Securities and only the holders of the
Capital Securities will have the right to direct the Property Trustee with
respect to certain matters under the Declaration, and therefore the
Indenture.
Upon the occurrence of a Trust Enforcement Event, the Indenture
Trustee or the Property Trustee as the holder of the New Debentures will
have the right under the Indenture to declare the principal of, premium, if
any, and interest on the New Debentures to be immediately due and payable.
Each of the Company and the Trust is required to file annually with the
Property Trustee an officers' certificate as to its compliance with all
conditions and covenants under the Declaration.
If the Property Trustee fails to enforce its rights with respect
to the New Debentures or the New Debt Guarantee held by the Trust, after
holders of a majority in liquidation amount of the Capital Securities have
so directed the Property Trustee, any registered holder of Capital
Securities may institute a legal proceeding directly against CHL or the
Company, respectively, to enforce the Property Trustee's rights under the
Indenture and the New Debt Guarantee without first instituting any legal
proceeding against the Property Trustee or any other person or entity. In
addition, if a Trust Enforcement Event has occurred and is continuing and
such event is attributable to the failure of CHL to pay interest, principal
or other required payments on the New Debentures on the date such interest,
principal or other payment is otherwise payable (including any redemption
date), and the Company does not make such payments, to the extent required,
under the New Debt Guarantee, then a registered holder of Capital
Securities may, on or after the respective due dates specified in the New
Debentures, institute a Direct Action against CHL or the Company,
respectively. In connection with such Direct Action, the rights of the
Company will be subrogated to the rights of such holder of Capital
Securities to the extent of any payment made by the Company pursuant to the
New Debt Guarantee to such holder of Capital Securities. In the case of the
issuance of one or more Global Securities, the record owner will be DTC or
its nominee for credit to the account of Participants or Indirect
Participants in DTC. Persons who are not Participants or Indirect
Participants may beneficially own such Global Securities only through such
Participants or Indirect Participants. See "Book-Entry Issuance."
The Declaration provides that the Property Trustee may, under
certain circumstances, withhold from the holders of Capital Securities
notice of a Trust Enforcement Event (except for any default in the payment
of principal of, premium, if any, or interest on the New Debentures) if the
Property Trustee considers it in the interest of such holders to do so.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
Except as provided below and under "Description of Trust
Guarantee -- Amendments and Assignment" and as otherwise required by law
and the Declaration, the holders of the Capital Securities will have no
voting rights.
So long as any New Debentures are held by the Property Trustee,
the holders of a majority in liquidation amount of the Capital Securities
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or to direct
the exercise of any trust or power conferred upon the Property Trustee
under the Declaration, including the right to direct the Property Trustee,
as holder of the New Debentures and the New Debt Guarantee, to (i) exercise
the remedies available to it under the Indenture and the New Debt
Guarantee, (ii) consent to any amendment or modification of the Indenture
or the New Debentures where such consent shall be required or (iii) waive
any past default and its consequences that is waivable under the Indenture;
provided, however, that if an Indenture Event of Default has occurred and
is continuing, then the holders of 25% of the aggregate liquidation amount
of the Capital Securities may direct the Property Trustee to declare the
principal of, premium, if any, and interest on the New Debentures due and
payable; provided, further, that where a consent or action under the
Indenture would require the consent or act of the holders of more than a
majority of the aggregate principal amount of New Debentures affected
thereby, only the holders of the percentage of the aggregate stated
liquidation amount of the Capital Securities which is at least equal to the
percentage required under the Indenture may direct the Property Trustee to
give such consent to take such action. The Property Trustee shall notify
each holder of the Capital Securities of any notice of any Indenture Event
of Default which it receives from CHL with respect to the New Debentures.
Except with respect to directing the time, method, and place of conducting
a proceeding for a remedy, the Property Trustee shall be under no
obligation to take any of the actions described in clauses (i) and (ii) and
(iii) above unless the Property Trustee has obtained an opinion of
independent tax counsel to the effect that the Trust will not fail to be
classified as a grantor trust for United States federal income tax
purposes, as a result of such action, and each holder will be treated as
owning an undivided beneficial ownership interest in the New Debentures and
the New Debt Guarantee.
The Declaration may also be amended without the consent of the
holders of the Trust Securities to (i) cure any ambiguity, (ii) correct or
supplement any provision in the Declaration that may be defective or
inconsistent with any other provision of the Declaration, (iii) add to the
covenants, restrictions or obligations of the Company, (iv) conform to any
change in Rule 3a-5 under the 1940 Act ("Rule 3a-5") or written change in
interpretation or application of Rule 3a-5 by any legislative body, court,
government agency or regulatory authority which amendment does not have a
material adverse effect on the rights, preferences or privileges of the
holders or (v) modify, eliminate and add to any provision of the
Declaration to ensure that the Trust will be classified as a grantor trust
for United States federal income tax purposes at all times that any Trust
Securities are outstanding or to ensure that the Trust will not be required
to register as an "investment company" under the 1940 Act, provided,
however, that such modification, elimination or addition would not
adversely affect in any material respect the rights, privileges or
preferences of any holder of the Trust Securities.
The Declaration provides that it may be modified and amended if
approved by the Regular Trustees (and in certain circumstances, the
Property Trustee and the Delaware Trustee) provided that, if any proposed
amendment would (i) adversely affect the powers, preferences or special
rights of the Trust Securities or (ii) result in the dissolution,
winding-up or termination of the Trust other than pursuant to the terms of
the Declaration, then the holders of the Trust Securities voting together
as a single class will be entitled to vote on such amendment and such
amendment shall not be effective except with the approval of at least a
majority in liquidation amount of the Trust Securities affected thereby;
provided that if any amendment referred to in clause (i) above would
adversely affect only the Capital Securities or the Common Securities, then
only the affected class will be entitled to vote on such amendment and such
amendment shall not be effective except with the approval of a majority in
liquidation amount of such class of Trust Securities. Notwithstanding any
provision of the Declaration, however, Section 316(b) of the Trust
Indenture Act provides that the right of any holder of Trust Securities to
receive payment of Distributions and other payments upon redemption or
otherwise on or after their respective due dates, or to institute suit for
the enforcement of any such payment on or after such respective due dates,
shall not be impaired or affected without the consent of such holder.
Accordingly, amendments to the Declaration that may adversely affect the
powers, preferences or special rights of the Capital Securities -- other
than those affecting a holder's rights to receive payments on or after
their respective due dates and to institute suit to enforce such payments
on or after their respective due dates as described in Section 316(b) of
the Trust Indenture Act -- may be effected with the consent of only a
majority in liquidation amount of Capital Securities rather than with the
consent of each holder of Capital Securities affected thereby.
In addition, the Declaration provides that no amendment shall be
made, and any such purported amendment shall be void and ineffective which
would (i) cause the Trust to be classified other than as a grantor trust
for United States federal income tax purposes, (ii) reduce or otherwise
adversely affect the powers of the Property Trustee in contravention of the
Trust Indenture Act or (iii) cause the Trust to be deemed to be an
"investment company" required to be registered under the 1940 Act.
Any required approval or direction 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 Regular
Trustees 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 holder
of record of Capital Securities in the manner set forth in the Declaration.
No vote or consent of the holders of Capital Securities will be
required for the Trust to redeem and cancel its Capital Securities in
accordance with the Declaration.
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 Trustees or any
affiliate of the Company or any Trustees, shall, for purposes of such vote
or consent, be treated as if they were not outstanding.
EXPENSES AND TAXES
In the Indenture, CHL, as borrower, has agreed to pay all debts
and other obligations (other than with respect to the Trust Securities) and
all costs and expenses of the Trust (including costs and expenses relating
to the organization of the Trust, the fees and expenses of the Trustees and
the costs and expenses relating to the operation of the Trust) and to pay
any and all taxes and all costs and expenses with respect thereto (other
than United States withholding taxes) to which the Trust might become
subject. The foregoing obligations of CHL under the Indenture 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 CHL directly against CHL, and CHL has
irrevocably waived any right or remedy to require that any such Creditor
take any action against the Trust or any other person before proceeding
against CHL. CHL has also agreed in the Indenture to execute such
additional agreements as may be necessary or desirable to give full effect
to the foregoing.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for
the Capital Securities.
Registration of transfers or exchanges of Capital Securities will
be effected without charge by or on behalf of the Trust, but upon payment
of any tax or other governmental charges that may be imposed in connection
with any transfer or exchange, the Trust may charge a sum sufficient to
cover any such payment. The Trust will not be required (i) to issue,
register or cause to be registered the transfer or exchange of any Capital
Securities during a period beginning at the opening of business 15 days
before the day of the mailing of the relevant notice of redemption and
ending at the close of business on the day of such mailing or (ii) to
register or cause to be registered the transfer or exchange of any Capital
Securities to be redeemed.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and
continuance of a Trust Enforcement Event, undertakes to perform only such
duties as are specifically set forth in the Declaration (and no implied
covenants shall be read into the Declaration against the Property Trustee)
and, after the occurrence of such Trust Enforcement Event (which has not
been cured or waived), must exercise the same degree of care and skill as a
prudent person would exercise or use under the circumstances 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
Declaration at the request of any holder of Capital Securities unless it is
offered reasonable security and indemnity against the costs, expenses and
liabilities that might be incurred thereby, provided that the Property
Trustee, upon the occurrence of an Indenture Event of Default, will not be
relieved of its obligation to exercise the rights and powers vested in it
under the Declaration. If no Trust Enforcement Event has occurred and is
continuing and the Property Trustee is required to decide between
alternative courses of action, construe ambiguous provisions in the
Declaration or is unsure of the application of any provision of the
Declaration, and the matter is not one on which holders of Capital
Securities are entitled under the Declaration to vote, then the Property
Trustee may, but shall be under no duty to, take such action as is directed
by the Company and, if not so directed, shall take such action as it deems
advisable and in the best interests of the holders of the Trust Securities
and will have no liability except for its own bad faith, negligence or
willful misconduct.
PAYMENT AND PAYING AGENCY
Payments in respect of the Global Certificates shall be made to
DTC, which shall credit the relevant accounts at DTC on the applicable
Distribution Dates or, if the Capital Securities are not represented by one
or more Global Certificates, such payments shall be made by check mailed to
the address of the holder entitled thereto as such address shall appear on
the register in respect of the registrar. The paying agent (the "Paying
Agent") shall initially be the Property Trustee and any co-paying agent
chosen by the Property Trustee and acceptable to the Regular Trustees and
the Company. The Paying Agent shall be permitted to resign as Paying Agent
upon 30 days' written notice to the Property Trustee and the Company. In
the event that the Property Trustee shall no longer be the Paying Agent,
the Regular Trustees shall appoint a successor (which shall be a bank or
trust company acceptable to the Regular Trustees and the Company) to act as
Paying Agent.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The 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 corporation or other Person (as defined
in the Declaration), except as described below. The Trust may, at the
request of the Company, with the consent of the Regular Trustees or, if
there are more than two, a majority of the Regular Trustees, and without
the consent of the holders of the Capital Securities, the Delaware Trustee
or the Property Trustee, merge with or into, consolidate, amalgamate, 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, provided that (i) such successor entity (if not the Trust)
either (a) expressly assumes all of the obligations of the Trust with
respect to the Capital Securities or (b) substitutes for the Capital
Securities other securities having substantially the same terms as the
Capital Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Capital Securities rank in priority with
respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) the Company expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the New Debentures and the New Debt Guarantee, (iii) the Capital
Securities or any Successor Securities continue to be listed or quoted, or
any Successor Securities will be listed or quoted upon notification of
issuance, on any national securities exchange or with any other
organization on or through which the Capital Securities are then listed or
quoted immediately prior to the effective date of such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
(iv) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the Capital Securities (including any
Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material respect
(other than with respect to any dilution of the holders' percentage
interest in the successor entity), (vi) such successor entity has a purpose
identical to that of the Trust, (vii) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer, or lease, the Company has
received an opinion from independent counsel to the Trust experienced in
such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material respect
(other than with respect to any dilution of the holders' percentage
interest in the successor entity) and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
(1) neither the Trust nor such successor entity will be required to
register as an "investment company" under the 1940 Act and (2) the Trust or
the successor entity will continue to be classified as a grantor trust for
United States federal income tax purposes, (viii) the Company or any
permitted successor or assignee owns all of 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 Trust
Guarantee and (ix) such successor entity expressly assumes all of the
obligations of the Trust with respect to the Trustees. Notwithstanding the
foregoing, the Trust shall not, except with the consent of holders of 100%
in aggregate liquidation amount of the Capital Securities, consolidate,
amalgamate, merge with or into, 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 Trust or the successor entity
to be classified as other than a grantor trust for United States federal
income tax purposes and each holder of the Capital Securities not to be
treated as owning an undivided beneficial interest in the New Debentures
and the New Debt Guarantee.
MERGER OR CONSOLIDATION OF TRUSTEES
Any corporation into which the Property Trustee, the Delaware
Trustee or any Regular Trustee that is not a natural person may be merged
or converted or with which such Trustee may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
such Trustee shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of such Trustee, shall be
the successor of such Trustee under the Declaration, provided such
corporation shall be otherwise qualified and eligible.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not
be deemed to be an "investment company" required to be registered under the
1940 Act or classified as other than a grantor trust for United States
federal income tax purposes and so that the New Debentures will be treated
as indebtedness of CHL for United States federal income tax purposes. In
this connection, the Company and the Regular Trustees are authorized to
take any action, not inconsistent with applicable law, the Certificate of
Trust or the Declaration, that the Company and the Regular Trustees
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 Capital Securities.
The Trust may not borrow money, issue debt, reinvest proceeds
derived from investments, mortgage or pledge any of its assets. In addition
the Trust may not undertake any activity that would cause the Trust not to
be classified as a grantor trust for United States federal income tax
purposes.
DESCRIPTION OF NEW DEBENTURES AND NEW DEBT GUARANTEE
The New Debentures and the New Debt Guarantee are to be issued
pursuant to an Indenture (the "Indenture"), among CHL, as issuer, the
Company, as guarantor, and The Bank of New York, as trustee (the "Indenture
Trustee"). This summary of material terms and provisions of the New
Debentures, the Indenture and the New Debt Guarantee does not purport to be
complete and is subject to, and is qualified in its entirety by reference
to, the provisions of the Indenture (a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus constitutes
a part), including the definitions of certain terms contained therein and
those terms made part of the Indenture by reference to the Trust Indenture
Act. The New Debentures will be fully and unconditionally guaranteed as to
principal, premium, if any, and interest by the Company pursuant to the New
Debt Guarantee. Certain capitalized terms used herein are defined in the
Indenture.
GENERAL
The New Debentures will be in an aggregate principal amount equal
to the aggregate liquidation amount of the Trust Securities. The New
Debentures will accrue interest at a rate equal to 8.05% of the principal
amount thereof, payable semi-annually in arrears on June 15 and December 15
of each year, commencing December 15, 1997, and at maturity. Each of the
foregoing semi-annual interest payment dates is herein referred to as an
"Interest Payment Date."
Interest on the New Debentures is payable to the person in whose
name the New Debentures are registered, subject to certain exceptions, at
the close of business on the Business Day next preceding the relevant
Interest Payment Date. In the event the Capital Securities shall not
continue to be represented by one or more Global Certificates and the New
Debentures are not represented by one or more Global Certificates, CHL
shall have the right to select record dates, which shall be at least one
Business Day before the relevant Interest Payment Date. It is anticipated
that, until the liquidation, if any, of the Trust, each New Debenture will
be held in the name of the Property Trustee in trust for the benefit of the
holders of the Trust Securities. The amount of interest payable for any
semi-annual interest period will be computed (i) for any full 180-day
semi-annual interest payment period, on the basis of a 360-day year of
twelve 30-day months and (ii) for any period shorter than a full 180-day
semi-annual interest payment period for which interest payments are
computed, on the basis of the actual number of days elapsed in such period
(assuming each full month elapsed in such period consists of 30 days). In
the event that any date on which interest is payable on the New 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 (and without
any additional interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in
each case 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 (to the extent permitted by law) at the interest rate
specified for the New Debentures, compounded semi-annually. The term
"interest" as used herein shall include interest payments and interest on
interest payments not paid on the applicable Interest Payment Date.
The New Debentures will mature on June 15, 2027, or earlier, in
certain circumstances, upon the occurrence and continuation of a Tax Event.
See "Description of Capital Securities -- Redemption -- Special Event
Redemption or Distribution of New Debentures; Shortening of Stated
Maturity."
The New Debentures and the New Debt Guarantee will be unsecured
and will rank junior and be subordinate in right of payment to all existing
and future Senior Indebtedness of CHL and the Company, respectively. The
Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of CHL or the Company, whether under any existing indenture
or under any other indenture that CHL or the Company may enter into in the
future or otherwise. See "-- Ranking" and "Risk Factors -- Ranking of
Obligations under the Guarantees and the New Debentures."
The general provisions of the Indenture do not afford holders of
the New Debentures protection in the event of a highly leveraged or other
transaction involving CHL or the Company that may adversely affect holders
of the New Debentures.
NEW DEBT GUARANTEE
The Indenture provides that the Company will fully and
unconditionally guarantee the due and punctual payment of the principal of,
premium, if any, and interest on the New Debentures when the same shall
become due and payable, whether at maturity, upon redemption or otherwise.
Because the Company is a holding company, the right of the Company and,
hence, the right of creditors of the Company (including the holders of the
New Debentures with respect to the New Debt Guarantee) to participate in
any distribution of the assets of any subsidiaries of the Company, whether
upon liquidation, reorganization or otherwise, is subject to prior claims
of creditors of its subsidiaries, except to the extent that claims of the
Company itself as a creditor of a subsidiary may be recognized.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Indenture Event of Default has occurred and is
continuing, CHL has the right under the Indenture to defer the payment of
interest at any time or from time to time for a period not exceeding 10
consecutive semi-annual periods with respect to each Extension Period,
provided that no Extension Period may extend beyond the Stated Maturity of
the New Debentures. At the end of any Extension Period, CHL must pay all
interest then accrued and unpaid (together with interest thereon at the
rate specified for the New Debentures, compounded semi-annually, to the
extent permitted by applicable law). During an Extension Period, interest
will continue to accrue and holders of New Debentures (or holders of
Capital Securities while the Capital Securities are outstanding) will be
required to accrue interest income (as OID) for United States federal
income tax purposes. See "Certain United States Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, (a) the Company and CHL shall
not declare or pay dividends on, or make a distribution with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to,
any of its capital stock (other than (i) purchases or acquisitions of
shares of any such capital stock or rights to acquire such capital stock in
connection with the satisfaction by the Company or CHL, respectively, of
its obligations under any employee benefit plans, (ii) as a result of a
reclassification of the Company's or CHL's capital stock or rights to
acquire such capital stock or the exchange or conversion of one class or
series of the Company's or CHL's capital stock or rights to acquire such
capital stock for another class or series of the Company's or CHL's capital
stock or rights to acquire such capital stock, (iii) the purchase of
fractional interests in shares of the Company's or CHL's capital stock
pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged or (iv) dividends and
distributions made on the Company's or CHL's capital stock or rights to
acquire such capital stock with the Company's or CHL's capital stock or
rights to acquire such capital stock) or make any guarantee payments with
respect to any of the foregoing and (b) the Company and CHL shall not make
any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including any guarantees, other
than the Guarantees) issued by the Company or CHL that rank pari passu with
or junior to the New Debentures. Prior to the termination of any such
Extension Period, CHL may further extend the Extension Period, provided
that no Extension Period may exceed 10 consecutive semi-annual periods or
extend beyond the Stated Maturity of the New Debentures. Upon the
termination of any such Extension Period and the payment of all amounts
then due on any Interest Payment Date, CHL may elect to begin a new
Extension Period, subject to the above requirements. Accordingly, there
could be multiple Extension Periods of varying lengths throughout the term
of the New Debentures. No interest shall be due and payable during an
Extension Period, except at the end thereof. CHL must give the Company, the
Property Trustee, the Regular Trustees and the Indenture Trustee written
notice of its election of such Extension Period not less than one Business
Day prior to the record date for the applicable Interest Payment Date. The
Property Trustee shall give notice of CHL's election to begin a new
Extension Period to the holders of the Capital Securities.
REDEMPTION
The New Debentures are not redeemable at the option of CHL,
unless a Special Event shall have occurred and be continuing. If, at any
time, a Special Event shall have occurred and be continuing, the New
Debentures are redeemable at the option of CHL, in whole (but not in part),
in certain circumstances within 90 days of the occurrence of such Special
Event, at a redemption price equal to 100% of the aggregate principal
amount of such New Debentures, plus accrued and unpaid interest, if any, to
the date of redemption. See "Description of Capital Securities --
Redemption -- Special Event Redemption or Distribution of New Debentures;
Shortening of Stated Maturity."
If the New Debentures are redeemed, the Trust must redeem the
Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of New Debentures so redeemed. See "Description
of Capital Securities -- Redemption."
Notice of any redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each holder of New
Debentures to be redeemed at its registered address. Unless CHL defaults in
payment of the redemption price, on and after the redemption date interest
ceases to accrue on such New Debentures to be redeemed.
CERTAIN COVENANTS OF CHL AND THE COMPANY
CHL has covenanted in the Indenture that if and so long as the
Trust is the holder of all the New Debentures, CHL, as borrower, will pay
all debts and obligations of the Trust (other than with respect to the
Trust Securities), all costs and expenses related to the organization and
operation of the Trust and all other costs and expenses of the Trust
(including any taxes, duties, assessments or governmental charges of
whatever nature (other than withholding taxes) imposed by the United States
or any domestic taxing authority upon the Trust.
The Company and CHL have also covenanted that they will not (i)
declare or pay any dividends or distributions on, or make a distribution
with respect to, or redeem, purchase or acquire, or make a liquidation
payment with respect to, any of its capital stock (other than (1) purchases
or acquisitions of shares of any such capital stock or rights to acquire
such capital stock in connection with the satisfaction by the Company or
CHL, respectively, of its obligations under any employee benefit plans, (2)
as a result of a reclassification of the Company's or CHL's capital stock
or rights to acquire such capital stock or the exchange or conversion of
one class or series of the Company's or CHL's capital stock or rights to
acquire such capital stock for another class or series of the Company's or
CHL's capital stock or rights to acquire such capital stock, (3) the
purchase of fractional interests in shares of the Company's or CHL's
capital stock pursuant to conversion or exchange provisions of such capital
stock or the security being converted or exchanged or (4) dividends and
distributions made on the Company's or CHL's capital stock or rights to
acquire such capital stock with the Company's or CHL's capital stock or
rights to acquire such capital stock) or make any guarantee payments with
respect to any of the foregoing and (ii) make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including any guarantees, other than the Guarantees) issued by
the Company or CHL that rank pari passu with or junior to the New
Debentures, if at such time (x) there shall have occurred any event of
which the Company has actual knowledge that (I) with the giving of notice
or the lapse of time, or both, would constitute an Indenture Event of
Default with respect to New Debentures and (II) in respect of which CHL
shall not have taken reasonable steps to cure, (y) the Company shall be in
default with respect to its payment of any obligations under the New Debt
Guarantee or (z) CHL shall have given notice of its election of an
Extension Period as provided in the Indenture and shall not have rescinded
such notice, or such Extension Period, or any extension thereof, shall be
continuing.
In addition, the Company has also covenanted, with respect to the
New Debentures, that for so long as the Trust Securities remain
outstanding, the Company will, among other things, (i) maintain 100% direct
or indirect ownership of the Common Securities; provided, however, that any
permitted successor of the Company under the New Debt Guarantee may succeed
to the Company's ownership of the Common Securities, (ii) timely perform
its duties as sponsor of the Trust, (iii) use its reasonable efforts to
cause the Trust (a) to remain a business trust classified as a grantor
trust, except in connection with a distribution of the New Debentures and
the New Debt Guarantee to the holders of Capital Securities in liquidation
of the Trust, the redemption of all of the Trust Securities or certain
mergers, consolidations or amalgamations, each as permitted by the
Declaration, and (b) continue not to be treated as an association taxable
as a corporation for United States federal income tax purposes (other than
in connection with a distribution of New Debentures and the New Debt
Guarantee to the holders of Capital Securities in liquidation of the Trust)
and (iv) use its reasonable efforts to cause each holder of Trust
Securities to be treated as owning an undivided beneficial interest in the
New Debentures.
RANKING
The New Debentures will be subordinated and junior in right of
payment to all existing and future Senior Indebtedness of CHL. In addition,
the New Debt Guarantee will be subordinated and junior in right of payment
to all existing and future Senior Indebtedness of the Company. Accordingly:
(i) no payment of principal (including redemption payments) of, premium, if
any, or interest on the New Debentures and no payment under the New Debt
Guarantee may be made if (A) any principal of, premium, if any, or interest
on any Senior Indebtedness of CHL or the Company, as the case may be, is
not paid when due and any applicable grace period with respect to such
payment default under such Senior Indebtedness has ended and such default
has not been cured or waived or (B) the maturity of any Senior Indebtedness
of CHL or the Company, as the case may be, has been accelerated because of
a default; (ii) upon any payment by or any distribution of assets of CHL or
the Company, as the case may be, to creditors upon any dissolution,
winding-up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other
proceedings, all principal of, premium, if any, and interest due or to
become due on all Senior Indebtedness of CHL or the Company, as the case
may be, must be paid in full (or payment thereof provided for) before the
holders of New Debentures or the New Debt Guarantee are entitled to receive
or retain any payment; and (iii) upon satisfaction of all claims of all
Senior Indebtedness then outstanding, the holders of New Debentures or the
New Debt Guarantee will be subrogated to the rights of the holders of
Senior Indebtedness of CHL or the Company, as the case may be, to receive
payments or distributions applicable to Senior Indebtedness until all
amounts owing on the New Debentures or the New Debt Guarantee, as the case
may be, are paid in full.
"Senior Indebtedness" means, with respect to CHL or the Company,
as the case may be, (i) the principal, premium, if any, and interest in
respect of (A) indebtedness of such obligor for money borrowed and (B)
indebtedness evidenced by securities, debentures, bonds or other similar
instruments issued by such obligor, (ii) all capital lease obligations of
such obligor, (iii) all obligations of such obligor issued or assumed as
the deferred purchase price of property, all conditional sale obligations
of such obligor and all obligations of such obligor under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for
reimbursement on any letter of credit, any banker's acceptance, any
security purchase facility, any repurchase agreement or similar
arrangement, any interest rate swap, any other hedging arrangement, any
obligation under options or any similar credit or other transaction, (v)
all obligations of the type referred to in clauses (i) through (iv) above
of other persons for the payment of which such obligor is responsible or
liable as obligor, guarantor or otherwise and (vi) all obligations of the
type referred to in clauses (i) through (v) above of other persons secured
by any lien on any property or asset of such obligor (whether or not such
obligation is assumed by such obligor), except for (1) any such
indebtedness that contains express terms, or is issued under a deed,
indenture or other instrument that contains express terms, providing that
it is subordinate or ranks pari passu with the New Debentures or the New
Debt Guarantee, as the case may be, (2) any indebtedness between or among
CHL or the Company or any affiliate of CHL or the Company and (3) all other
debt securities and guarantees in respect of those debt securities, in any
case issued by CHL or the Company to any trust (including, without
limitation, Countrywide Capital I), or a trustee of such trust, partnership
or other entity affiliated with CHL or the Company that is a financing
vehicle of CHL or the Company (a "financing entity") in connection with the
issuance by such financing entity of securities of a similar nature to the
Capital Securities or of other securities that rank pari passu with, or
junior to, the Capital Securities. Such Senior Indebtedness shall continue
to be Senior Indebtedness and to be entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or
waiver of any term of such Senior Indebtedness.
The Indenture places no limitation on the amount of additional
Senior Indebtedness that may be incurred by the Company or CHL or on the
amount of any indebtedness or other liabilities that may be incurred by the
Company's or CHL's subsidiaries. CHL's obligations under the New Debentures
and the Company's obligations under the New Debt Guarantee will be
structurally subordinated to all existing and future liabilities and
obligations of the Company's and CHL's subsidiaries, as the case may be. At
August 31, 1997, CHL had approximately $5.7 billion aggregate principal
amount of Senior Indebtedness outstanding and the Company had no
indebtedness outstanding (excluding indebtedness of subsidiaries guaranteed
by the Company). In addition, at such date, the Company's subsidiaries
(other than CHL) had outstanding indebtedness of $16.3 million.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following
described events with respect to the New Debentures that has occurred and
is continuing constitutes an "Indenture Event of Default" with respect to
the New Debentures:
(a) default for 30 days in payment of any interest on
the New Debentures when due; provided, however, that a valid
extension of the interest payment period by CHL shall not
constitute a default in the payment of interest on the New
Debentures; or
(b) default in payment of principal and premium, if
any, on the New Debentures when due either at maturity, upon
redemption, by declaration or otherwise; or
(c) default by CHL or the Company in the performance of
any other of the covenants or agreements in the Indenture which
shall not have been remedied for a period of 90 days after
notice; or
(d) certain events of bankruptcy, insolvency or
reorganization of CHL or the Company; or
(e) the voluntary or involuntary dissolution,
winding-up or termination of the Trust, except in connection with
the distribution of the New Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption of all of
the Trust Securities of the Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the
Declaration.
The Indenture provides that the Indenture Trustee may, under
certain circumstances, withhold from the holders notice of default with
respect to the New Debentures (except for any default in the payment of
principal of, premium, if any, or interest on the New Debentures) if the
Indenture Trustee considers it in the interest of such holders to do so.
The Indenture provides that if an Indenture Event of Default on
the New Debentures shall have occurred and be continuing, either the
Indenture Trustee or the holders of not less than 25% in aggregate
principal amount of the New Debentures then outstanding may declare the
principal of, premium, if any, and accrued interest on all the New
Debentures to be due and payable immediately, but upon certain conditions
such declarations may be annulled and past defaults may be waived (except
defaults in payment of principal of, premium, if any, or interest on the
New Debentures, which must be cured or paid in full) by the holders of a
majority in aggregate principal amount of the New Debentures.
No holder of any New Debenture shall have any right to institute
any suit, action or proceeding for any remedy under the Indenture, unless
such holder previously shall have given to the Indenture Trustee written
notice of a continuing Indenture Event of Default with respect to the New
Debentures and unless the holders of not less than 25% in aggregate
principal amount of the New Debentures then outstanding shall have given
the Indenture Trustee a written request to institute such action, suit or
proceeding and shall have offered to the Indenture Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to
be incurred thereby, and the Indenture Trustee for 60 days after its
receipt of such notice, request and offer of indemnity shall have failed to
institute any such action, suit or proceeding; provided that no holder of
New Debentures shall have any right to prejudice the rights of any other
holder of New Debentures, obtain priority or preference over any other such
holder or enforce any right under the Indenture except as provided in the
Indenture and for the equal, ratable and common benefit of all holders of
New Debentures. Notwithstanding the foregoing, the right of any holder of
any New Debenture to receive payment of the principal of, premium, if any,
and interest, if any, on such New Debenture when due, or to institute suit
for the enforcement of any such payment, shall not be impaired or affected
without the consent of such holder.
The holders of a majority in aggregate principal amount of the
New Debentures then outstanding shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to,
or exercising any trust or power conferred on, the Indenture Trustee under
the Indenture; provided, however, that, except under certain circumstances,
the Indenture Trustee may decline to follow any such direction if the
Indenture Trustee determines that the action so directed would be unjustly
prejudicial to holders not taking part in such direction or unlawful or
would involve the Indenture Trustee in personal liability. The Indenture
requires the annual filing by CHL with the Indenture Trustee of a
certificate as to the absence of certain defaults under the Indenture.
In case an Indenture Event of Default shall occur and be
continuing, the Property Trustee will have the right to declare the
principal of and premium, if any, and the interest on such New Debentures
and any other amounts payable under the Indenture, to be forthwith due and
payable and to enforce its other rights as a creditor with respect to such
New Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
An Indenture Event of Default that has occurred and is continuing
constitutes a Trust Enforcement Event. The holders of Capital Securities in
certain circumstances have the right to direct the Property Trustee to
exercise its rights as the holder of the New Debentures and the New Debt
Guarantee. See "Description of Capital Securities -- Trust Enforcement
Events" and "-- Voting Rights; Amendment of the Declaration." If CHL were
to default on its obligation to pay amounts payable under the New
Debentures and the Company does not make such payments, to the extent
required, under the New Debt Guarantee, the 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 New Trust Guarantee for
payment of such amounts. However, in the event CHL failed to pay interest
on, premium, if any, or principal of the New Debentures on the payment date
on which such payment is due and payable (including on any redemption date)
and the Company does not make such payments, to the extent required, under
the New Debt Guarantee, then a registered holder of Capital Securities may
directly institute a proceeding against CHL or the Company, as the case may
be, on or after such respective due dates specified in the New Debentures
for enforcement of payment to such holder of the interest on, premium, if
any, or principal of such New Debentures having a principal amount equal to
the aggregate liquidation amount of the Capital Securities of such holder.
In connection with such Direct Action, the Company will be subrogated to
the rights of such holder of Capital Securities under the Declaration to
the extent of any payment made by the Company, pursuant to the New Debt
Guarantee, to such holder of Capital Securities in such Direct Action.
Except to the extent described above under "Description of Capital
Securities -- Trust Enforcement Events" and "-- Voting Rights; Amendment of
the Declaration," the holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of the New
Debentures and the New Debt Guarantee.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
Nothing contained in the Indenture or in the New Debentures or
New Debt Guarantee shall prevent any consolidation or merger of CHL or the
Company with or into any other corporation (whether or not affiliated with
CHL or the Company, as the case may be) or successive consolidations or
mergers in which CHL or the Company, as the case may be, or its successor
or successors shall be a party, or shall prevent any sale, conveyance,
transfer or other disposition of the property of CHL or the Company, as the
case may be, or its successor or successors as an entirety, or
substantially as an entirety, to any other corporation (whether or not
affiliated with CHL or the Company, as the case may be, or its successor or
successors) authorized to acquire and operate the same; provided, however,
CHL or the Company, as the case may be, shall, upon any such consolidation,
merger, sale, conveyance, transfer or other disposition, cause the
obligations of CHL under the New Debentures or the obligations of the
Company under the New Debt Guarantee, as the case may be, and under the
Indenture, to be expressly assumed, by supplemental indenture satisfactory
in form to the Indenture Trustee and executed and delivered to the
Indenture Trustee, by the successor entity formed by such consolidation or
into which CHL or the Company, as the case may be, shall have been merged,
or which shall have acquired such property. Upon execution and delivery of
such supplemental indenture to the Indenture Trustee, such successor entity
will be substituted under the Indenture, the New Debentures or the New Debt
Guarantee, as the case may be, and thereupon CHL or the Company, as the
case may be, will be relieved of any further liability or obligation
thereunder.
MODIFICATION OF INDENTURE
The Indenture contains provisions permitting CHL, the Company and
the Indenture Trustee, with the consent of the holders of not less than a
majority in principal amount of the New Debentures at the time outstanding,
to modify the Indenture or the rights of the holders of the New Debentures;
provided, however, that no such modification shall, without the consent of
the holder of each outstanding New Debenture affected thereby, (a) change
the stated maturity of, the principal of, or any installment of interest
on, any New Debenture, or reduce the principal amount thereof or the rate
of interest thereon, or change the place of payment where, or the coin or
currency in which, any New Debenture or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the stated maturity thereof (or, in the case of redemption, on
or after the redemption date), or modify the provisions of the Indenture
with respect to the subordination of the New Debentures in a manner adverse
to the holders of the New Debentures, (b) reduce the percentage in
principal amount of the New Debentures outstanding, the consent of whose
holders is required for any such modification, or the consent of whose
holders is required for any waiver (of compliance with certain provisions
of the Indenture or certain defaults thereunder and their consequences)
provided for in the Indenture or (c) modify any of the provisions of the
Indenture regarding amendment with the consent of the holders of the New
Debentures, waiver of defaults and waiver of compliance with covenants,
except to (i) increase the percentage of aggregate principal amount of
outstanding New Debentures required to consent to such modification or (ii)
to provide that certain other provisions of the Indenture cannot be
modified or waived without the consent of the holder of each outstanding
New Debenture affected thereby; provided, that, so long as any of the
Capital Securities remains outstanding, no such amendment shall be made
that adversely affects the holders of the Capital Securities, and no
termination of the Indenture shall occur, and no waiver of any Indenture
Event of Default or compliance with any covenant under the Indenture shall
be effective, without the prior consent of the holders of at least a
majority of the aggregate liquidation amount of the outstanding Capital
Securities unless and until the principal of and any premium on the New
Debentures and all accrued and unpaid interest thereon have been paid in
full.
Without the consent of any holders of the New Debentures, CHL and
the Company, when authorized by appropriate board resolutions, and the
Indenture Trustee, may enter into one or more supplemental indentures: (a)
to evidence the succession of another person to CHL or the Company and the
assumption by any such successor of the covenants of CHL or the Company in
the Indenture and in the New Debentures, (b) to add to the covenants of CHL
or the Company for the benefit of the holders of the New Debentures, or to
surrender any right or power herein conferred upon CHL or the Company, (c)
to cure any ambiguity, to correct or supplement any provision in the
Indenture which may be inconsistent with any other provision in the
Indenture, or to make any other provisions with respect to matters or
questions arising under the Indenture which will not be inconsistent with
the provisions of the Indenture, provided that such action shall not
adversely affect the interests of the holders of the New Debentures or, so
long as any of the Capital Securities shall remain outstanding, the holders
of the Capital Securities, or (d) to comply with the requirements of the
Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
DEFEASANCE AND DISCHARGE
The Indenture provides that CHL, at its option: (a) will be
discharged from any and all obligations in respect of the New Debentures
(except for certain obligations to register the transfer or exchange of New
Debentures, replace mutilated, defaced, destroyed, lost or stolen New
Debentures, maintain paying agencies and hold moneys for payment in trust)
or (b) need not comply with certain covenants of the Indenture (including
those described under "-- Certain Covenants of CHL and the Company" above),
in each case, if CHL deposits, in trust with the Indenture Trustee or the
Defeasance Agent (as defined in the Indenture), money or U.S. Government
Obligations, or any combination thereof, which through the payment of
interest thereon and principal thereof in accordance with their terms will
provide money in an amount sufficient to pay all the principal of, premium,
if any, and interest on, the New Debentures on the dates such payments in
respect thereof are due in accordance with the terms of such New
Debentures. To exercise any such option, CHL, among other things, is
required to deliver to the Indenture Trustee and the Defeasance Agent, if
any, an opinion of counsel to the effect that the deposit and related
defeasance would not cause the holders of the New Debentures to recognize
income, gain or loss for United States federal income tax purposes and that
such holders will be subject to United States federal income tax on the
same amount and in the same manner and at the same times, as would have
been the case if such deposit, defeasance and/or discharge had not
occurred, and, in the case of a discharge pursuant to clause (a), such
opinion shall be based on the fact that (x) CHL has received from, or there
has been published by, the Internal Revenue Service a ruling or (y) since
the date of the Indenture, there has been a change in applicable federal
income tax law, in each case, to such effect.
DISTRIBUTIONS OF NEW DEBENTURES; BOOK-ENTRY ISSUANCE
At any time, New Debentures may be distributed to the holders of
the Trust Securities in liquidation of the Trust after satisfaction of
liabilities to creditors of the Trust as provided by applicable law. If
distributed to holders of New Capital Securities in liquidation, the New
Debentures will initially be issued in the form of Global Certificates.
DTC, or any successor depositary, will act as depositary for such Global
Certificates. It is anticipated that the depositary arrangements for such
Global Certificates would be substantially identical to those in effect for
the Capital Securities. For a description of Global Certificates, see
"Book-Entry Issuance."
If New Debentures are distributed to holders of Capital
Securities in liquidation, CHL will use its reasonable efforts to arrange
to list, or seek approval for quotation of, such New Debentures on any
securities exchange or other organization on which the Capital Securities
are then listed or quoted, if any.
There can be no assurance as to the market price of any New
Debentures that may be distributed to the holders of Capital Securities.
See "Risk Factors-- Liquidation Distribution of New Debentures."
PAYMENT AND PAYING AGENTS
CHL initially will act as Paying Agent with respect to the New
Debentures except that, if the New Debentures are distributed to the
holders of the Capital Securities in liquidation of such holders' interests
in the Trust, the Indenture Trustee will act as the Paying Agent. CHL at
any time may designate additional Paying Agents or rescind the designation
of any Paying Agent or approve a change in the office through which any
Paying Agent acts, except that CHL will be required to maintain a Paying
Agent at the place of payment.
Any moneys deposited with the Indenture Trustee or any Paying
Agent, or then held by CHL in trust, for the payment of the principal of
and premium, if any, or interest on any New Debentures 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 CHL, be repaid
to CHL, and the holder of such New Debentures shall thereafter look, as a
general unsecured creditor, only to CHL for payment thereof.
GOVERNING LAW
The Indenture is, and the New Debentures will be, governed by and
construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee has been and is subject to all the duties
and responsibilities specified with respect to an indenture trustee under
the Trust Indenture Act. Subject to such provisions, the Indenture Trustee
is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of New Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Indenture Trustee is not
required to expend or risk its own funds or otherwise incur personal
financial liability in the performance of its duties if the Indenture
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
DESCRIPTION OF TRUST GUARANTEE
The New Trust Guarantee will be executed and delivered by the
Company concurrently with the issuance by the Trust of the New Capital
Securities for the benefit of the holders from time to time of such New
Capital Securities. The Bank of New York will act as Trust Securities
Guarantee Trustee under the New Trust Guarantee. This summary of material
provisions of the New Trust Guarantee and the Old Trust Guarantee does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Trust Guarantee, including the
definitions therein of certain terms and the provisions of the Trust
Indenture Act made a part thereof. The Trust Securities Guarantee Trustee
will hold the New Trust Guarantee for the benefit of the holders of the New
Capital Securities.
GENERAL
The Company will irrevocably and unconditionally agree to pay in
full, to the extent set forth herein, the Trust Guarantee Payments to the
holders of the Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or
assert. The following payments or distributions with respect to the Capital
Securities, to the extent not paid by or on behalf of the Trust, will be
subject to the Trust Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on the New Capital Securities, to the
extent that the Trust has sufficient funds available therefor at such time,
(ii) the Redemption Price with respect to any Capital Securities called for
redemption, to the extent that the Trust has sufficient funds available
therefor at such time, or (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of the Trust (unless the New
Debentures are distributed to holders of the Capital Securities), the
lesser of (a) the aggregate liquidation amount of the Capital Securities
and all accrued and unpaid Distributions thereon to the date of payment, to
the extent that the Trust has sufficient funds available therefor at such
time, and (b) the amount of assets of the Trust remaining available for
distribution to holders of Capital Securities. The Company's obligation to
make a Trust 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 Trust to pay such amounts to such holders.
The Trust Guarantee will apply only to the extent that the Trust
has sufficient funds available to make such payments.
If CHL does not make payments on the New Debentures held by the
Trust and the Company does not make such payments, to the extent required,
under the New Debt Guarantee, the Trust will not be able to make payments
on the Capital Securities and will not have funds legally available
therefor. The Trust Guarantee does not limit the incurrence or issuance of
other secured or unsecured debt of the Company, whether under any existing
indenture or under any other indenture that the Company may enter into in
the future or otherwise.
The Company's obligations under the New Guarantees, the Indenture
and the Declaration, taken together with CHL's obligations under the New
Debentures and the Indenture, including CHL's obligation to pay all costs,
expenses and liabilities of the Trust (other than with respect to the Trust
Securities) constitute a full and unconditional guarantee by the Company of
all of the Trust's obligations under the Capital Securities. No single
document standing alone or operating in conjunction with fewer than all of
the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full and
unconditional guarantee by the Company of the Trust's obligations under the
Capital Securities. See "Relationship Among the Capital Securities, the New
Debentures and the Guarantees."
STATUS OF THE TRUST GUARANTEE
The Old Trust Guarantee ranks, and the New Trust Guarantee will
rank, subordinate and junior in right of payment to all existing and future
Senior Indebtedness of the Company. The Trust Guarantee does not place a
limitation on the amount of additional Senior Indebtedness that may be
incurred by the Company. See "Risk Factors -- Ranking of Obligations under
the Guarantees and the New Debentures."
The Trust 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
Trust Guarantee without first instituting a legal proceeding against any
other person or entity). The Trust Guarantee will be held by the Trust
Securities Guarantee Trustee for the benefit of the holders of the Capital
Securities. The Trust Guarantee will not be discharged except by payment of
the Trust Guarantee Payments in full to the extent not paid by the Trust or
upon distribution of the New Debentures to the holders of the Capital
Securities in exchange for all of the Capital Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially
adversely affect the rights of holders of the Capital Securities (in which
case no consent of such holders will be required), the Trust Guarantee may
not be amended without the prior approval of the holders of not less than a
majority of the aggregate liquidation amount of the outstanding Capital
Securities. All guarantees and agreements contained in the Trust Guarantee
shall bind the successors, assigns, receivers, trustees and representatives
of the Company and shall inure to the benefit of the holders of the Capital
Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Trust Guarantee will occur upon the
failure of the Company to perform any of its payment or other obligations
thereunder. The holders of not less than a majority in aggregate
liquidation amount of the Capital Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy
available to the Trust Securities Guarantee Trustee in respect of the Trust
Guarantee or to direct the exercise of any trust or power conferred upon
the Trust Securities Guarantee Trustee under the Trust Guarantee.
If the Trust Securities Guarantee Trustee fails to enforce the
Trust Guarantee, then any holder of the Capital Securities may institute a
legal proceeding directly against the Company to enforce the Trust
Securities Guarantee Trustee's rights under the Trust Guarantee without
first instituting a legal proceeding against the Trust, the Trust
Securities Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the
Trust Securities 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 Trust Guarantee.
INFORMATION CONCERNING THE TRUST SECURITIES GUARANTEE TRUSTEE
The Trust Securities Guarantee Trustee, other than during the
occurrence and continuance of a default by the Company in performance of
the Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in the New Trust Guarantee and, after default with
respect to the Trust Guarantee (that has not been cured or waived) that is
actually known to a responsible officer of the Trust Securities Guarantee
Trustee, must exercise the same degree of care and skill as a prudent
person would exercise or use under the circumstances in the conduct of his
or her own affairs. Subject to this provision, the Trust Securities
Guarantee Trustee is under no obligation to exercise any of the powers
vested in it by the Trust Guarantee at the request of any holder of any
Capital Security unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE TRUST GUARANTEE
The Trust Guarantee will terminate and be of no further force and
effect upon full payment of the Redemption Price of all of the Capital
Securities, upon full payment of the amounts payable upon liquidation of
the Trust or upon distribution of New Debentures to the holders of the
Capital Securities in exchange for all of the Capital Securities. The Trust
Guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of the Capital Securities must restore
payment of any sums paid under the Capital Securities or the Trust
Guarantee.
GOVERNING LAW
The Old Trust Guarantee is and the New Trust Guarantee will be
governed by and construed and interpreted in accordance with the laws of
the State of New York.
RELATIONSHIP AMONG THE CAPITAL SECURITIES,
THE NEW DEBENTURES AND THE GUARANTEES
Payments of Distributions and other amounts due on the Capital
Securities (to the extent the Trust has funds available for such payments)
are fully, unconditionally and irrevocably guaranteed by the Company to the
extent set forth under "Description of Trust Guarantee." If and to the
extent that CHL does not make payments under the New Debentures and the
Company does not make such payments, to the extent required, under the New
Debt Guarantee, the Trust will not pay Distributions or other amounts due
on the Capital Securities. The Trust Guarantee does not cover payment of
Distributions and such other amounts when the Trust has insufficient funds
to pay the same. In such event, a holder of Capital Securities may
institute a legal proceeding directly against CHL or the Company to enforce
payment of such amounts to such holder after the respective due dates.
Taken together, the Company's obligations under the Guarantees, the
Indenture and the Declaration, and CHL's obligations under the Indenture
and the New Debentures, including CHL's obligation to pay all costs,
expenses and liabilities of the Trust (other than with respect to the Trust
Securities), provide, in the aggregate, a full and unconditional guarantee
by the Company 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 of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has
the effect of providing a full and unconditional guarantee by the Company
of the Trust's obligations under the Capital Securities.
SUFFICIENCY OF PAYMENTS
As long as payments of interest, principal and other payments are
made when due on the New Debentures, such payments will be sufficient to
cover Distributions and other payments due on the Capital Securities,
primarily because (i) the aggregate principal amount of the New Debentures
will be equal to the sum of the aggregate stated liquidation amount of the
Trust Securities; (ii) the interest rate, the Interest Payment Dates and
the other payment dates on the New Debentures will match the Distribution
Rate, the Distribution Dates and the other payment dates for the Capital
Securities; (iii) CHL will pay for all and any costs, expenses and
liabilities of the Trust except the Trust's obligations under the Trust
Securities; and (iv) the Declaration further provides that the Trust will
not engage in any activity that is not consistent with the limited purposes
of the Trust.
Notwithstanding anything to the contrary in the Indenture, the
Company has the right to set-off any payment it is otherwise required to
make thereunder with and to the extent the Company has theretofore made, or
is concurrently on the date of such payment making, a related payment under
the Trust Guarantee.
LIMITED PURPOSE OF TRUST
The Capital Securities evidence an undivided beneficial ownership
interest in the assets of the Trust, and the Trust exists for the exclusive
purposes of issuing the Trust Securities and investing the proceeds thereof
in the Old Debentures and the Old Debt Guarantee, which Old Debentures and
Old Debt Guarantee, will be exchanged for the New Debentures and New Debt
Guarantee, respectively, pursuant to the Exchange Offer. A principal
difference between the rights of a holder of Capital Securities and a
holder of New Debentures is that a holder of New Debentures is entitled to
receive from CHL (or from the Company under the New Debt Guarantee) the
principal amount of, premium, if any, and interest accrued on New
Debentures held, while a holder of Capital Securities is entitled to
receive Distributions from the Trust (or from the Company under the Trust
Guarantee if and to the extent the Trust has funds available for the
payment of such Distributions).
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary dissolution of the Trust
involving the liquidation of the Trust, the holders of the Capital
Securities will be entitled to receive, out of assets held by the Trust,
the Liquidation Distribution in cash. See "Description of Capital
Securities -- Liquidation Distribution Upon Dissolution." Upon any
voluntary or involuntary liquidation or bankruptcy of CHL or the Company,
the Property Trustee, as holder of the New Debentures and the New Debt
Guarantee, would be a subordinated creditor of CHL and the Company,
subordinated in right of payment to all Senior Indebtedness, but entitled
to receive payment in full of principal and interest before any
stockholders of CHL or the Company, as the case may be, receive payments or
distributions. Because the Company is the guarantor under the Guarantees
and CHL has agreed to pay for all costs, expenses and liabilities of the
Trust (other than the Trust's obligations to the holders of the Trust
Securities), the positions of a holder of Capital Securities and a holder
of the New Debentures relative to other creditors and to stockholders of
CHL or the Company in the event of liquidation or bankruptcy of CHL or the
Company would be substantially the same.
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following is a general summary of certain U.S. federal income
tax consequences of the purchase, ownership and disposition of the New
Capital Securities and the exchange of Old Capital Securities for New
Capital Securities, but it does not purport to be a comprehensive
description of all the tax considerations that may be relevant to a
decision to purchase, own and dispose of the New Capital Securities or
exchange Old Capital Securities for New Capital Securities. This summary
does not describe any tax consequences arising under the laws of any state,
locality or taxing jurisdiction other than the United States.
PROSPECTIVE PURCHASERS OF THE NEW CAPITAL SECURITIES AND HOLDERS
OF OLD CAPITAL SECURITIES CONSIDERING AN EXCHANGE OF OLD CAPITAL SECURITIES
FOR NEW CAPITAL SECURITIES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
U.S. AND OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE NEW CAPITAL SECURITIES AND THE EXCHANGE OF OLD CAPITAL SECURITIES
FOR NEW CAPITAL SECURITIES, INCLUDING THE PARTICULAR TAX CONSEQUENCES TO
THEM IN LIGHT OF THEIR PARTICULAR INVESTMENT CIRCUMSTANCES.
GENERAL
In addition to the two specific opinions referred to below under
"-- Classification of the Trust" and "-- Classification of the New
Debentures," Fried, Frank, Harris, Shriver & Jacobson (a partnership which
includes professional corporations), special counsel to the Company, CHL
and the Trust ("Counsel"), has rendered its opinion generally to the effect
that, subject to the exceptions and qualifications set forth therein, the
discussion of United States federal income taxation which follows
summarizes the material United States federal income tax consequences of
the purchase, ownership and disposition of New Capital Securities.
This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations thereunder, and administrative
and judicial interpretations thereof, each as of the date hereof, all of
which are subject to change, possibly on a retroactive basis, and is for
general information only.
Except as otherwise stated, this summary deals only with a
Security held as a capital asset by a holder who or which (i) purchased New
Capital Securities upon original issuance (an "Initial Holder") and (ii) is
a US Holder (as defined below). It does not deal with all aspects of United
States federal income taxation, nor with the particular United States
federal income tax (hereafter, "income tax") consequences which may be
applicable to certain classes of US Holders (such as banks, thrift
institutions, real estate investment trusts, regulated investment
companies, insurance companies, brokers and dealers in securities or
currencies, other financial institutions, tax-exempt organizations, persons
holding New Capital Securities as a position in a "straddle," as part of a
"synthetic security or hedge," as part of a "conversion transaction" or as
part of any other integrated investment, persons having a functional
currency other than the U.S. Dollar and certain United States expatriates).
Further, this summary does not address (a) the income tax consequences to
shareholders in, or partners or beneficiaries of, a holder of New Capital
Securities, (b) the United States federal alternative minimum tax
consequences of the purchase, ownership or disposition of New Capital
Securities or (c) any state, local or foreign tax consequences of the
purchase, ownership and disposition of New Capital Securities.
A "US Holder" is a holder of New Capital Securities who or which
is a citizen or individual resident (or is treated as a citizen or
individual resident) of the United States for income tax purposes, a
corporation or partnership created or organized (or treated as created or
organized for income tax purposes) in or under the laws of the United
States or any political subdivision thereof, or a trust or estate the
income of which is includable in its gross income for income tax purposes
without regard to its source. (For taxable years beginning after December
31, 1996 (or for the immediately preceding taxable year, if the trustee of
a trust so elects), a trust is a US Holder for income tax purposes if, and
only if (i) a court within the United States is able to exercise primary
supervision over the administration of the trust, and (ii) one or more
United States trustees have the authority to control all substantial
decisions of the trust.)
EXCHANGE OF NEW CAPITAL SECURITIES
The issuance of New Capital Securities in exchange for Old
Capital Securities will not be a taxable event, and the federal tax
characteristics of the New Capital Securities (e.g., tax basis and holding
period) will be the same as those of the Old Capital Securities surrendered
in exchange therefor.
CLASSIFICATION OF THE TRUST
Counsel has rendered its opinion generally to the effect that,
under then current law and assuming full compliance with the terms of the
Declaration (and other documents), and based on certain assumptions and
qualifications referenced in the opinion, the Trust will be characterized
for United States federal income tax purposes as a grantor trust, and will
not be characterized as an association taxable as a corporation for such
purposes. Accordingly, for income tax purposes, each holder of New Capital
Securities generally will be considered the owner of an undivided interest
in the New Debentures owned by the Trust, and each US Holder will be
required to include all income or gain recognized for income tax purposes
with respect to its allocable share of the New Debentures on its own income
tax return.
CLASSIFICATION OF THE NEW DEBENTURES
The Company, CHL, the Trust and the holders of the New Capital
Securities (by acceptance of a beneficial interest in a New Capital
Security) will agree to treat the New Debentures as indebtedness for all
United States income tax purposes. Counsel has rendered its opinion
generally to the effect that, under then current law and assuming full
compliance with the terms of the Indenture (and other documents), and based
on certain assumptions and qualifications referenced in the opinion, the
New Debentures will be characterized for United States federal income tax
purposes as debt of CHL.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under the terms of the New Debentures, CHL has the option to
defer payments of interest from time to time for a period not exceeding 10
consecutive semi-annual periods, but not beyond the Stated Maturity of the
New Debentures. Recently issued Treasury regulations under Section 1273 of
the Code provide that debt instruments like the New Debentures will not be
considered issued with OID by reason of CHL's option to defer payments of
interest if the likelihood of deferral is "remote."
CHL has concluded, and this discussion assumes, that, as of the
date of this Prospectus, the likelihood of exercise of that option is
"remote" within the meaning of the applicable regulations, in part because
exercising that option would prevent the Company and CHL from declaring
dividends on their stock and would prevent the Company and CHL from making
any payments with respect to debt securities that rank pari passu or junior
to the New Debentures. Therefore, the New Debentures should not be treated
as issued with OID by reason of CHL's deferral option. Rather, stated
interest on the New Debentures will generally be taxable to a US Holder, as
ordinary income, when paid or accrued in accordance with that holder's
method of accounting for income tax purposes. It should be noted, however,
that these regulations have not yet been addressed in any rulings or other
interpretations by the Internal Revenue Service ("IRS"). Accordingly, it is
possible that the IRS could take a position contrary to the interpretation
described herein.
In the event CHL subsequently exercised its option to defer
payments of interest, the New Debentures would be treated as reissued for
OID purposes and the sum of the remaining interest payments on the New
Debentures (and any de minimis OID on the New Debentures (discussed below))
would thereafter be treated as OID, which would accrue, and be includable
in a US Holder's taxable income, on an economic accrual basis (regardless
of the US Holder's method of accounting for income tax purposes) over the
remaining term of the New Debentures (including any period of interest
deferral), without regard to the timing of payments under the New
Debentures. (Subsequent distributions of interest on the New Debentures
generally would not be taxable.) The amount of OID that accrued in any
period would generally equal the amount of interest that accrued on the New
Debentures in that period at the stated interest rate (adjusted for any de
minimis OID on the New Debentures). Consequently, during any period of
interest deferral, US Holders will include OID in gross income in advance
of the receipt of cash, and a US Holder which disposes of a New Capital
Security prior to the record date for payment of Distributions on the New
Debentures following that period will be subject to income tax on OID
accrued through the date of disposition (and not previously included in
income), but will not receive cash from the Trust with respect to that OID.
In the absence of CHL's election to defer an interest payment
period, de minimis OID would not be subject to income tax until a holder's
New Debentures were sold, redeemed or retired, in which event the de
minimis OID would increase any gain or decrease any loss recognized by the
holder. De minimis OID will be present with respect to the New Debentures,
in an amount equal to the excess of (a) the stated redemption price at
maturity (as defined for income tax purposes) of a New Debenture, over (b)
the issue price of an Old Debenture, if such amount is less than the
product of (x) 0.25% of that redemption price, and (y) the number of
complete calendar years from an Old Debenture's issue date to the maturity
of a New Debenture.
If CHL's option to defer payments of interest were not treated as
remote, the Old Debentures and the New Debentures would be treated as
initially issued with OID in an amount equal to the aggregate stated
interest over the term of the Old Debentures and the New Debentures, plus
the amount of de minimis OID on the Old Debentures and the New Debentures.
That OID would generally be includable in a US Holder's taxable income,
over the term of the Old Debentures and the New Debentures, on an economic
accrual basis.
Because the income underlying the New Capital Securities will not
be characterized as dividends for income tax purposes, corporate holders of
New Capital Securities will not be entitled to a dividend received
deduction for any income recognized with respect to the New Capital
Securities.
MARKET DISCOUNT AND BOND PREMIUM
Holders of New Capital Securities other than Initial Holders may
be considered to have acquired their undivided interests in the New
Debentures with market discount or acquisition premium (as each phrase is
defined for income tax purposes).
DISTRIBUTION OF NEW DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under the circumstances described under the caption "Description
of New Capital Securities -- Redemption -- Special Event Redemption or
Distribution of New Debentures; Shortening of Stated Maturity" above, New
Debentures, together with the New Debt Guarantee, may be distributed to
holders in exchange for the New Capital Securities and in liquidation of
the Trust. Except as discussed below, such a distribution would not be a
taxable event for income tax purposes, and each US Holder would have an
aggregate adjusted basis in its New Debentures (including the New Debt
Guarantee) for income tax purposes equal to such holder's aggregate
adjusted basis in its New Capital Securities. For income tax purposes, a US
Holder's holding period in the New Debentures (including the New Debt
Guarantee) received in such a liquidation of the Trust would include the
period during which the New Capital Securities were held by the holder. If,
however, the relevant event is a Tax Event which results in the Trust being
treated as an association taxable as a corporation, the distribution would
likely constitute a taxable event to US Holders of the New Capital
Securities for income tax purposes.
Upon retirement of the New Capital Securities, and under certain
circumstances described herein (see "Description of Capital Securities"),
the New Debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their New Capital
Securities. Such a redemption would be taxable for income tax purposes, and
a US Holder would recognize gain or loss as if it had sold the New Capital
Securities for cash. See " -- Sales of New Capital Securities" below.
SALES OF NEW CAPITAL SECURITIES
A US Holder that sells New Capital Securities will recognize gain
or loss equal to the difference between its adjusted basis in the New
Capital Securities and the amount realized on the sale of such New Capital
Securities. A US Holder's adjusted basis in the New Capital Securities
generally will be its initial purchase price, increased by OID, if any,
previously included (or currently includable) in such holder's gross income
to the date of disposition, and decreased by payments received on the New
Capital Securities subsequent to the effective date of CHL's first exercise
of its option to defer payments of interest. Any such gain or loss
generally will be capital gain or loss, and generally will be a long-term
capital gain or loss if the New Capital Securities have been held for more
than one year.
A holder who disposes of its New Capital Securities between
record dates for payments of Distributions will be required to include
accrued but unpaid interest (or OID) on the New Debentures through the date
of disposition in its taxable income for United States federal income tax
purposes (notwithstanding that the holder may receive a separate payment
from the purchaser with respect to accrued interest), and to deduct that
amount from the sales proceeds received (including the separate payment, if
any, with respect to accrued interest) for the New Capital Securities (or
as to OID only, to add such amount to such holder's adjusted tax basis in
its New Capital Securities). To the extent the selling price is less than
the holder's adjusted tax basis (which will include accrued but unpaid OID,
if any), a holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
RECENT TAX LEGISLATION
Recently enacted U.S. federal income tax legislation will have no
effect on the income tax treatment of the Capital Securities. However,
there can be no assurance that future legislation will not adversely affect
the ability of CHL to deduct interest on the New Debentures, or otherwise
affect the tax treatment of the transactions described herein. Moreover,
such legislation could give rise to a Tax Event, which would permit CHL to
shorten the maturity of the New Debentures or cause a redemption of the
Capital Securities, as described more fully under "Description of Capital
Securities -- Redemption -- Special Event Redemption or Distribution of New
Debentures; Shortening of Stated Maturity."
NON-UNITED STATES HOLDERS
The following discussion applies to an Initial Holder who is not
a US Holder (a "Non-US Holder").
Payments to a holder of a New Capital Security which is a Non-US
Holder will generally not be subject to withholding of income tax, provided
that (a) the beneficial owner of the New Capital Security does not
(directly or indirectly, actually or constructively) own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote, (b) the beneficial owner of the New Capital Security is not a
controlled foreign corporation that is related to the Company through stock
ownership, and (c) either (i) the beneficial owner of the New Capital
Securities certifies to the Trust or its agent, under penalties of perjury,
that it is a Non-US Holder and provides its name and address, or (ii) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
(a "Financial Institution"), and holds the New Capital Security in such
capacity, certifies to the Trust or its agent, under penalties of perjury,
that such a statement has been received from the beneficial owner by it or
by another Financial Institution between it and the beneficial owner in the
chain of ownership, and furnishes the Trust or its agent with a copy
thereof.
As discussed above (see "Description of Capital Securities --
Redemption -- Special Event Redemption or Distribution of New Debentures;
Shortening of Stated Maturity"), changes in legislation affecting the
income tax consequences of the New Debentures are possible, and could
adversely affect the ability of CHL to deduct the interest payable on the
New Debentures. Moreover, any such legislation could adversely affect
Non-US Holders by characterizing income derived from the New Debentures as
dividends, generally subject to a 30% income tax (on a withholding basis)
when paid to a Non-US Holder, rather than as interest which, as discussed
above, is generally exempt from income tax in the hands of a Non-US Holder.
A Non-US Holder of a New Capital Security will generally not be
subject to withholding of income tax on any gain realized upon the sale or
other disposition of a New Capital Security.
A Non-US Holder which holds New Capital Securities in connection
with the active conduct of a United States trade or business will be
subject to income tax on all income and gains recognized with respect to
its proportionate share of the New Debentures.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to
payments made on, and proceeds from the sale of, New Capital Securities
held by a noncorporate US Holder within the United States. In addition,
payments made on, and payments of the proceeds from the sale of, New
Capital Securities to or through the United States office of a broker are
subject to information reporting unless the holder thereof certifies as to
its non-United States status or otherwise establishes an exemption from
information reporting and backup withholding. Taxable income on the New
Capital Securities for a calendar year should be reported to US Holders on
Forms 1099 by the following January 31st.
Payments made on, and proceeds from the sale of, the New Capital
Securities may be subject to a "backup" withholding tax of 31% unless the
holder complies with certain identification or exemption requirements. Any
amounts so withheld will be allowed as a credit against the holder's income
tax liability, or refunded, provided the required information is provided
to the IRS.
* * *
THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS
THE CONSEQUENCES TO A PARTICULAR HOLDER OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NEW CAPITAL SECURITIES. POTENTIAL HOLDERS OF NEW CAPITAL
SECURITIES ARE URGED TO CONTACT THEIR OWN TAX ADVISORS TO DETERMINE THEIR
PARTICULAR TAX CONSEQUENCES.
BOOK-ENTRY ISSUANCE
The description of book-entry procedures in this Prospectus
includes summaries of certain rules and operating procedures of DTC that
affect transfers of interests in the Global Certificate or Certificates
issued in connection with sales of New Capital Securities. Except as
described in the next paragraph, the New Capital Securities will be issued
only as fully registered securities registered in the name of Cede & Co.
(as nominee for DTC). One or more fully registered Global Certificates will
be issued, representing, in the aggregate, the New Capital Securities, and
will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in the Global
Securities as represented by a Global Certificate.
DTC has advised the Company and the Trust that it is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act.
DTC holds securities that its participants ("Participants") deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange Inc., the American
Stock Exchange, Inc., and the National Association of Securities Dealers,
Inc. Access to the DTC system is also available to others, such as
securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial
relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants
are on file with the Commission.
Purchases of New Capital Securities within the DTC system must be
made by or through Direct Participants, which will receive a credit of the
New Capital Securities on DTC's records. The ownership interest of each
actual purchaser of each New Capital Security ("Beneficial Owner") is in
turn to be recorded on the Direct Participants' and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from DTC
of their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners purchased New Capital Securities.
Transfers of ownership interests in the New Capital Securities are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the New Capital Securities,
except in the event that use of the book-entry system for the New Capital
Securities is discontinued.
To facilitate subsequent transfers, all the New Capital
Securities deposited by Participants with DTC will be registered in the
name of DTC's nominee, Cede & Co. The deposit of New Capital Securities
with DTC and their registration in the name of Cede & Co. will effect no
change in beneficial ownership. DTC will have no knowledge of the actual
Beneficial Owners of the New Capital Securities. DTC's records will reflect
only the identity of the Direct Participants to whose accounts such New
Capital Securities are credited, which may or may not be the Beneficial
Owners. The Direct Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
So long as DTC, or its nominee, is the registered owner or holder
of a Global Certificate in respect of the New Capital Securities, DTC or
such nominee, as the case may be, will be considered the sole owner or
holder of the New Capital Securities represented thereby for all purposes
under the Declaration and such New Capital Securities. No Beneficial Owner
of an interest in a Global Certificate will be able to transfer that
interest except in accordance with DTC's applicable procedures.
DTC has advised the Company that it will take any action
permitted to be taken by a holder of New Capital Securities (including the
presentation of New Capital Securities for exchange as described below)
only at the direction of one or more Participants to whose accounts the DTC
interests in the Global Certificates are credited and only in respect of
such portion of the aggregate liquidation amount of New Capital Securities
as to which such Participant or Participants has or have given such
direction. However, if there is a Declaration Event of Default with respect
to the New Capital Securities, DTC will, upon notice, exchange the Global
Certificates in respect of such New Capital Securities for certificated
securities, which it will distribute to its Participants.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices in respect of the New Capital Securities held
in book-entry form will be sent to Cede & Co. If less than all of the New
Capital Securities are being redeemed, the New Capital Securities will be
redeemed on a pro rata basis.
Although voting with respect to the New Capital Securities is
limited, in those cases where a vote is required, neither DTC nor Cede &
Co. will itself consent or vote with respect to the New Capital Securities.
Under its usual procedures, DTC would mail an omnibus proxy to the Trust as
soon as possible after the record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose
accounts the New Capital Securities are credited on the record date
(identified in a listing attached to the omnibus proxy).
Distributions on the New Capital Securities held in book-entry
form will be made to DTC in immediately available funds. DTC's practice is
to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment
date. Payments by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by standing instructions and customary
practices and will be the responsibility of such Direct Participants and
Indirect Participants and not of DTC, the Trust or the Company, subject to
any statutory or regulatory requirements as may be in effect from time to
time. Payment of distributions to DTC is the responsibility of the Trust,
disbursement of such payments to Direct Participants is the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a
Global Certificate will not be entitled to receive physical delivery of New
Capital Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC, the Direct Participants and the Indirect Participants to
exercise any rights under the New Capital Securities.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Certificates among the
Participants of DTC, DTC is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any
time. None of the Company, the Trust or the Trustees will have any
responsibility for the performance by DTC or its Direct Participants or
Indirect Participants under the rules and procedures governing DTC. DTC may
discontinue providing its services as a securities depositary with respect
to the Capital Securities at any time by giving notice to the Trust. Under
such circumstances, in the event that a successor securities depositary is
not obtained, New Capital Security certificates will be required to be
printed and delivered. Additionally, the Trust (with the consent of the
Company) may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor depositary) with respect to the New
Capital Securities of the Trust. In that event, certificates for such New
Capital Securities will be printed and delivered.
The information in this section concerning DTC and DTC's
book-entry system has been obtained from sources that the Company and the
Trust believes to be reliable, but none of the Company, DTC, or the Trust
takes responsibility for the accuracy thereof.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code ("Plans"), may purchase New Capital Securities,
subject to the investing fiduciary's determination that the investment in
New Capital Securities satisfies ERISA's fiduciary standards and other
requirements applicable to investments by the Plan. Accordingly, an
investing fiduciary of a Plan should consider whether the investment
satisfies ERISA's diversification and prudence requirements, whether the
investment constitutes unauthorized delegation of fiduciary authority and
whether the investment is in accordance with the documents and instruments
governing such Plan.
The Department of Labor ("DOL") has issued a regulation (29
C.F.R. Section 2510.3-101) (the "DOL Regulation") concerning the definition
of what constitutes the assets of a Plan. The DOL 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, where such investment interest does not represent a
"publicly offered security" or a security issued by an investment company
registered under the 1940 Act, will be deemed for purposes of ERISA to be
assets of the investing plan unless it is established either that the
entity is an operating company or that equity participation by benefit plan
investors is not significant. Under the DOL Regulation, equity
participation by benefit plan investors will not be considered
"significant" on any date only if, immediately after the most recent
acquisition of New Capital Securities, the aggregate interest in the New
Capital Securities held by benefit plan investors will be less than 25% of
the value of the New Capital Securities.
There can be no assurance that any of the exceptions set forth in
the DOL Regulation will apply to the purchase of New Capital Securities
offered hereby and, as a result, an investing Plan's assets could be
considered to include an undivided beneficial interest in the New
Debentures held by the Trust. In the event that assets of the Trust are
considered assets of an investing Plan, the Company, CHL and the Trustees
and other persons, in providing services with respect to the New
Debentures, may be considered fiduciaries to such Plan and subject to the
fiduciary responsibility provisions of Title I of ERISA (including the
prohibited transaction provisions thereof). In addition, the prohibited
transaction provisions of Section 4975 of the Code could apply with respect
to transactions engaged in by any "disqualified person," as defined below,
involving such assets unless a statutory or administrative exemption
applies.
Even if they are not fiduciaries, the Company and/or any of its
affiliates may be considered a "party in interest" (within the meaning of
ERISA) or a "disqualified person" (within the meaning of Section 4975 of
the Code) with respect to certain Plans. The acquisition and ownership of
New Capital Securities by a Plan (or by an individual retirement
arrangement or other plan described in Section 4975(e)(1) of the Code) may
constitute or result in a prohibited transaction under ERISA or Section
4975 of the Code, unless such New Capital Securities are acquired pursuant
to and in accordance with an applicable exemption. As a result, Plans with
respect to which the Company or any of its affiliates is a party in
interest or a disqualified person should not acquire New Capital Securities
unless such New Capital Securities are acquired pursuant to and in
accordance with an applicable exemption, including but not limited to:
Prohibited Transaction Class Exemption ("PTE") 90-1, regarding investments
by insurance company pooled separate accounts; PTE 91-38, regarding
investments by bank collective investment funds; PTE 84-14, regarding
transactions effected by qualified professional asset managers; PTE 96-23,
regarding transactions effected by in-house asset managers; or PTE 95-60,
regarding investments by insurance company general accounts. Any purchaser
or holder of the New Capital Securities or any interest therein will be
deemed to have represented and covenanted by its purchase and holding
thereof that either (i) the purchaser and holder is not a Plan or any
entity whose underlying assets include "plan assets" by reason of any
Plan's investment in the entity and is not purchasing such New Capital
Securities on behalf of or with "plan assets" of any Plan or (ii) the
purchase and holding of the New Capital Securities is covered by one of the
prohibited transaction class exemptions under ERISA and the Code described
above.
Notwithstanding the foregoing, it is possible that the New
Capital Securities may qualify as "publicly offered securities" under the
DOL Regulation if, in addition to an effective registration statement filed
in connection with the Exchange Offer, they are also "widely held" and
"freely transferable" following consummation of the Exchange Offer. Under
the DOL Regulation, a class of New Capital Securities is "widely held" only
if it is a class of New Capital Securities owned by 100 or more investors
independent of the issuer and each other. Although it is possible that at
the time of the Exchange Offer the New Capital Securities will be "widely
held", no assurances can be given that will be true. If the New Capital
Securities are "publicly offered securities" following consummation of the
Exchange Offer, the assets of the Trust would not be assets of the
Investing Plans as of such time. If the New Capital Securities did not
qualify as "publicly offered securities", the foregoing discussion about
plan assets in the preceding paragraphs would also be applicable to the New
Capital Securities.
Government plans and certain church plans (as defined in Sections
3(32) and 3(33) of ERISA, respectively), are not subject to ERISA, and are
also not subject to the prohibited transaction provisions under 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 requirements similar to those under ERISA and
the Code discussed above. Accordingly, fiduciaries of governmental or
church plans, in consultation with their advisors, should consider the
impact of their respective state pension codes on investments in the New
Capital Securities, and the considerations discussed above, to the extent
applicable.
The foregoing discussion is general in nature and is not intended
to be all inclusive. Thus, any Plans or other entities whose assets include
Plan assets subject to ERISA or Section 4975 of the Code proposing to
acquire New Capital Securities should consult with their own counsel.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its
own account in connection with the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such New Capital
Securities. This Prospectus, as it may be amended or supplemented from time
to time, may be used by Participating Broker-Dealers during the period
referred to below in connection with resales of New Capital Securities
received in exchange for Old Capital Securities if such Old Capital
Securities were acquired by such Participating Broker-Dealers for their own
accounts as a result of market-making or other trading activities. The
Company, CHL and the Trust have agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New Capital Securities for
a period ending 90 days after the date the Registration Statement of which
this Prospectus is a part is declared effective. However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the
resale of New Capital Securities received in exchange for Old Capital
Securities pursuant to the Exchange Offer must notify the Company, CHL and
the Trust, or cause the Company, CHL and the Trust to be notified, on or
prior to the Expiration Date, that it is a Participating Broker-Dealer.
Such notice may be given in the space provided for that purpose in the
Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "The Exchange Offer -- Exchange
Agent." See "The Exchange Offer -- Resales of New Capital Securities."
The Company will not receive any proceeds from any sale of New
Capital Securities by broker-dealers. New Capital Securities received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Capital Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
New Capital Securities.
Any Participating Broker-Dealer that resells New Capital
Securities that were received by it for its own account pursuant to the
Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of the New Capital
Securities and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the
New Capital Securities will be passed upon for the Trust by Morris Nichols
Arsht & Tunnell, special Delaware counsel to the Company, CHL and the
Trust. The validity of the New Debentures and the New Guarantees will be
passed upon for CHL and the Company by Fried, Frank, Harris, Shriver &
Jacobson (a partnership which includes professional corporations). Edwin
Heller (whose professional corporation retired as a partner of Fried,
Frank, Harris, Shriver & Jacobson in September 1996) is of counsel to
Fried, Frank, Harris, Shriver & Jacobson and is a director of the Company.
Fried, Frank, Harris, Shriver & Jacobson will rely on the opinion of Morris
Nichols Arsht & Tunnell as to matters of Delaware law.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company appearing in
the Company's Annual Report on Form 10-K for the year ended February 28,
1997, have been audited by Grant Thornton LLP, independent auditors, as set
forth in their report thereon, included therein and incorporated herein by
reference.
INDEX OF CERTAIN TERMS
Page
----
1940 Act................................................................23
1996 Debentures.........................................................ii
Agent's Message.........................................................26
beneficial owners........................................................v
book-entry confirmation.................................................26
Business Day............................................................35
Capital Securities......................................................ii
Change in 1940 Act Law..................................................37
CHL......................................................................i
Code....................................................................vi
Commission..............................................................iv
Common Securities.......................................................ii
Company..................................................................i
Counsel.................................................................54
Creditor................................................................41
Declaration.............................................................22
Delaware Trustee........................................................22
Depositor...............................................................29
Direct Action...........................................................14
Direct Participants.....................................................59
Distribution Date.......................................................35
Distribution Rate........................................................9
Distributions...........................................................ii
DOL.....................................................................60
DOL Regulation..........................................................60
DTC.....................................................................14
Eligible Institution....................................................28
ERISA...................................................................60
Exchange Act.............................................................v
Exchange Agent ..........................................................7
Exchange Offer...........................................................i
Expiration Date.........................................................iv
Extension Period.......................................................iii
Financial Institution...................................................58
financing entity........................................................47
Global Certificates.....................................................35
Global Securities.......................................................14
Guarantees...............................................................i
income tax..............................................................55
Indenture...............................................................44
Indenture Event of Default..............................................47
Indenture Trustee.......................................................44
Indirect Participants...................................................59
Initial Holder..........................................................55
Initial Purchasers.......................................................i
interest................................................................44
Interest Payment Date...................................................44
Investment Company Event................................................37
IRS.....................................................................56
Letter of Transmittal....................................................i
Liquidation Distribution................................................39
Maturity Advancement....................................................37
New Capital Securities...................................................i
New Debentures...........................................................i
New Debt Guarantee ......................................................i
New Guarantees...........................................................i
New Securities...........................................................i
New Trust Guarantee......................................................i
Non-US Holder...........................................................57
NYSE....................................................................vi
Offering.................................................................3
OID....................................................................iii
Old Capital Securities...................................................i
Old Debentures...........................................................i
Old Debt Guarantee.......................................................i
Old Securities ..........................................................i
Old Trust Guarantee......................................................i
Participants............................................................59
Participating Broker-Dealers.............................................v
Paying Agent............................................................42
Plans...................................................................60
PORTAL..................................................................18
Prime mortgages.........................................................21
Property Account........................................................22
Property Trustee........................................................22
Prospectus...............................................................i
PTE.....................................................................61
Qualified Institutional Buyers..........................................23
Redemption Price........................................................37
Registration Rights Agreement............................................i
Registration Statement...................................................1
Regular Trustees........................................................22
Rule 144A...............................................................iv
Rule 3a-5...............................................................40
Securities Act...........................................................i
Senior Indebtedness ....................................................47
Shelf Registration Statement.............................................8
Special Event...........................................................36
Stated Maturity.........................................................10
Sub-prime loans.........................................................21
Successor Securities....................................................42
Targeted Consummation Date..............................................23
Tax Event...............................................................37
Trust....................................................................i
Trust Act...............................................................22
Trust Enforcement Event.................................................39
Trust Guarantee..........................................................i
Trust Guarantee Payments................................................15
Trust Indenture Act.....................................................17
Trust Securities........................................................ii
Trust Securities Guarantee Trustee......................................22
Trustees................................................................22
US Holder...............................................................55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20., INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents
in connection with actions, suits or proceedings brought against them by a
third party or in the right of the corporation, by reason of the fact that
they were or are such directors, officers, employees or agents, against
expenses incurred in any such action, suit or proceeding. The Delaware
General Corporation Law also provides that Delaware corporations may
purchase insurance on behalf of any such director, officer, employee or
agent. Sections 722, 723, 725 and 726 of the Delaware General Corporation
Law.
Article SIXTH of the Certificate of Incorporation of CCI provides
that CCI may indemnify its directors and officers to the full extent
permitted by the laws of the State of Delaware. Article VIII of CCI's
Bylaws provides that CCI shall indemnify its directors and officers, and
persons serving as directors and officers of CHL at the request of CCI,
against any threatened, pending or completed action, suit or proceeding or
investigation brought against such directors and officers by reason of the
fact that such persons were such directors or officers, provided that such
persons acted in good faith and in a manner which they reasonably believed
to be in or not opposed to the best interests of CCI; except that in the
case of actions brought by or in the right of CCI to procure a judgment in
its favor, no indemnification is permitted in respect of any claim, issue
or matter as to which any such director or officer shall have been adjudged
to be liable to CCI unless the court in which the action was brought
determines that such person is entitled to indemnification. CCI's Bylaws
further contemplate that the indemnification provisions permitted
thereunder are not exclusive of any rights to which such directors and
officers are otherwise entitled by means of Bylaw provisions, agreements,
vote of stockholders or disinterested directors or otherwise. CCI has
entered into indemnity agreements with certain of its directors and
executive officers (including the directors and executive officers of CHL),
whereby such individuals are indemnified by CCI up to an aggregate limit of
$5,000,000 for any claims made against such individual based on any act,
omission or breach of duty committed while acting as a director or officer,
except, among other things, cases involving dishonesty or improper personal
benefit. CCI also maintains an insurance policy pursuant to which its
directors and officers (including the directors and executive officers of
CHL) are insured against certain liabilities which might arise out of their
relationship with CCI as directors and officers.
Article SEVENTH of the Certificate of Incorporation of CCI
provides that a director of CCI shall have no personal liability to CCI or
its stockholders for monetary damages for breach of his fiduciary duty of
care as a director to the full extent permitted by the Delaware General
Corporation Law, as it may be amended from time to time.
ITEM 21., EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- --------
4.1 Certificate of Trust of Countrywide Capital III,
dated May 28, 1997*
4.2 Declaration of Trust of Countrywide Capital III,
dated May 28, 1997*
4.3 Amended and Restated Declaration of Trust of
Countrywide Capital III, dated as of June 4, 1997*
4.4 Indenture, dated as of June 4, 1997, among Countrywide
Home Loans, Inc., as Issuer, Countrywide Credit
Industries, Inc., as Guarantor, and The Bank of
New York, as Trustee*
4.5 Form of New Capital Security (included in Exhibit
4.3 above)*
4.6 Form of New Debenture (included in Exhibit 4.4 above)*
4.7 Guarantee Agreement, dated as of June 4, 1997, between
Countrywide Credit Industries, Inc. and The Bank of
New York, as trustee for the benefit of the holders of
Trust Securities*
4.8 Registration Rights Agreement, dated as of June 4, 1997,
among Countrywide Capital III, Countrywide Credit
Industries, Inc., Countrywide Home Loans, Inc., and
certain Initial Purchasers*
5.1 Opinion of Morris, Nichols, Arsht & Tunell as to the
validity of the New Capital Securities*
5.2 Opinion of Fried, Frank, Harris, Shriver & Jacobson
as to the validity of the New Debentures and the
New Debt Guarantee*
8.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson
as to certain United States federal income tax matters*
12.1 Statement regarding computation of ratio of earnings
to fixed charges of Countrywide Credit Industries, Inc.
(incorporated by reference to Exhibit 12.1 to the
Quarterly Report on Form 10-Q of Countrywide Credit
Industries, Inc. for the fiscal quarter ended
August 31, 1997)
23.1 Consent of Grant Thornton LLP**
23.2 Consent of Morris, Nichols, Arsht & Tunell (included
in Exhibit 5.1)*
23.3 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 5.2)*
23.4 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 8.1)*
24.1 Powers of Attorney*
25.1 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Indenture Trustee under the Indenture
(bound separately)*
25.2 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Property Trustee under the Amended and
Restated Declaration of Trust of Countrywide Capital
III (bound separately)*
25.3 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Trust Guarantee Trustee under the Trust
Securities Guarantee of Countrywide Credit Industries,
Inc. for the benefit of the holders of Capital
Securities (bound separately)*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to Registered Holders*
99.4 Form of Instructions to Registered Holders*
99.5 Form of Letter to Clients*
- -------------------
[FN]
* Previously filed.
** Filed herewith.
</FN>
ITEM 22., UNDERTAKINGS.
(a) The undersigned, Countrywide Capital III, CHL and the Company
(collectively, the "Registrants"), hereby undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement
(or the most recent post-effective amendment hereof) which,
individually of in the aggregate, represent a fundamental change
in the information set forth in this Registration Statement;
notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of a prospectus filed
with the Securities and Exchange Commission (the "Commission")
pursuant to Rule 424(b) under the Securities Act of 1933, as
amended (the "Securities Act") if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information
in this Registration Statement; provided, however, that the
undertakings set forth in paragraphs (1)(i) and (ii) above do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Company pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) Each of the undersigned Registrants hereby undertakes that,
for purposes of determining any liability under the Securities Act, each
filing of CCI's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the provisions permitted under Item
20 above or otherwise, the Registrants have been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants in the successful defense
of any action, suit or proceeding) is asserted against the Registrants by
such director, officer or controlling person in connection with the
securities being registered hereby, the Registrants will, unless in the
opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by them is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of
such issue.
(d) The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrants
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the
time if was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(e) The undersigned Registrants hereby undertake to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
undertaking includes information contained in documents filed subsequent to
the effective date of this Registration Statement through the date of
responding to the request.
(f) The undersigned Registrants hereby undertake to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was not
the subject of and included in the registration statement when it became
effective.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
COUNTRYWIDE CAPITAL III CERTIFIES THAT IT HAS DULY CAUSED THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-37047) TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CALABASAS, STATE OF CALIFORNIA, ON THE 19TH DAY OF NOVEMBER, 1997.
COUNTRYWIDE CAPITAL III
By: COUNTRYWIDE CREDIT INDUSTRIES, INC.,
AS SPONSOR
By: /s/ Angelo R. Mozilo
---------------------------
Angelo R. Mozilo
Executive Vice President and
Vice Chairman of the Board of Directors
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
COUNTRYWIDE HOME LOANS, INC. CERTIFIES THAT IT HAS DULY CAUSED THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 (FILE NO.
333-37047) TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CALABASAS, STATE OF CALIFORNIA, ON THE 19TH DAY
OF NOVEMBER, 1997.
COUNTRYWIDE HOME LOANS, INC.
By: COUNTRYWIDE CREDIT INDUSTRIES, INC.,
AS SPONSOR
By: /s/ Angelo R. Mozilo
----------------------------
Angelo R. Mozilo
Chairman of the Board of Directors
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT NO. 1 REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-37047) HAS
BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director November 19, 1997
- ------------------------------------------
David S. Loeb
/s/ Angelo R. Mozilo Chairman of the Board of November 19, 1997
- ------------------------------------------ Directors and Chief Executive
Angelo R. Mozilo Officer (Principal Executive
Officer); Director
* President and Chief Operating November 19, 1997
- ------------------------------------------ Officer; Director
Stanford L. Kurland
* Managing Director and Chief November 19, 1997
- ------------------------------------------ Financial Officer (Principal
Thomas K. McLaughlin Financial and Accounting
Officer)
* /s/ Angelo R. Mozilo
- ------------------------------------------
Angelo R. Mozilo
Attorney-in-Fact
</TABLE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
COUNTRYWIDE CREDIT INDUSTRIES, INC. CERTIFIES THAT IT HAS DULY CAUSED THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 (FILE NO.
333-37047) TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CALABASAS, STATE OF CALIFORNIA, ON THE 18TH DAY
OF NOVEMBER, 1997.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
By: COUNTRYWIDE CREDIT INDUSTRIES, INC.
By: /s/ Angelo R. Mozilo
--------------------------
Angelo R. Mozilo
Executive Vice President and
Vice Chairman of the Board of Directors
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 (FILE NO.
333-37047) HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board of November 19, 1997
- ------------------------------------------ Directors and President
David S. Loeb (Principal Executive
Officer); Director
/s/ Angelo R. Mozilo Executive Vice President and November 19, 1997
- ------------------------------------------ Vice Chairman of the Board
Angelo R. Mozilo of Directors; Director
* Managing Director -- November 19, 1997
- ------------------------------------------ Finance, Chief Financial
Carlos M. Garcia Officer and Chief
Accounting Officer
(Principal Financial and
Accounting Officer)
*
- ------------------------------------------ Director November 19, 1997
Robert J. Donato
* Director November 19, 1997
- ------------------------------------------
Ben M. Enis
* Director November 19, 1997
- ------------------------------------------
Edwin Heller
* Director November 19, 1997
- ------------------------------------------
Harley W. Snyder
* /s/ Angelo R. Mozilo
- ------------------------------------------
Angelo R. Mozilo
Attorney-in-Fact
</TABLE>
EXHIBIT INDEX
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- --------
4.1 Certificate of Trust of Countrywide Capital III,
dated May 28, 1997
4.2 Declaration of Trust of Countrywide Capital III,
dated May 28, 1997
4.3 Amended and Restated Declaration of Trust of
Countrywide Capital III, dated as of
June 4, 1997
4.4 Indenture, dated as of June 4, 1997, among
Countrywide Home Loans, Inc., as Issuer,
Countrywide Credit Industries, Inc., as
Guarantor, and The Bank of New York, as
Trustee
4.5 Form of New Capital Security (included in
Exhibit 4.3 above)
4.6 Form of New Debenture (included in
Exhibit 4.4 above)
4.7 Guarantee Agreement, dated as of June 4, 1997,
between Countrywide Credit Industries,
Inc. and The Bank of New York, as trustee
for the benefit of the holders of Trust
Securities
4.8 Registration Rights Agreement, dated as
of June 4, 1997, among Countrywide Capital
III, Countrywide Credit Industries Inc.,
Countrywide Home Loans, Inc., and certain
Initial Purchasers
5.1 Opinion of Morris, Nichols, Arsht & Tunell
as to the validity of the New Capital
Securities
5.2 Opinion of Fried, Frank, Harris, Shriver &
Jacobson as to the validity of the New
Debentures and the New Debt Guarantee
8.1 Opinion of Fried, Frank, Harris, Shriver
& Jacobson as to certain United States
federal income tax matters
12.1 Statement regarding computation of ratio of
earnings to fixed charges of Countrywide
Credit Industries, Inc. (incorporated by
reference to Exhibit 12.1 to the Quarterly
Report on Form 10-Q of Countrywide Credit
Industries, Inc. for the fiscal quarter
ended August 31, 1997)
23.1 Consent of Grant Thornton LLP
23.2 Consent of Morris, Nichols, Arsht & Tunell
(included in Exhibit 5.1)
23.3 Consent of Fried, Frank, Harris, Shriver &
Jacobson (included in Exhibit 5.2)
23.4 Consent of Fried, Frank, Harris, Shriver &
Jacobson (included in Exhibit 8.1)
24.1 Powers of Attorney (included on signature pages)
25.1 Form T-1 Statement of Eligibility under the
Trust Indenture Act of 1939, as amended,
of The Bank of New York, as Indenture Trustee
under the Indenture (bound separately)
25.2 Form T-1 Statement of Eligibility under the
Trust Indenture Act of 1939, as amended,
of The Bank of New York, as Property Trustee
under the Amended and Restated Declaration of
Trust of Countrywide Capital III (bound separately)
25.3 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank
of New York, as Trust Guarantee Trustee under
the Trust Securities Guarantee of Countrywide
Credit Industries, Inc. for the benefit of the
holders of Capital Securities (bound separately)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Registered Holders
99.4 Form of Instructions to Registered Holders
99.5 Form of Letter to Clients
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We have issued our report dated April 22, 1997, accompanying the
consolidated financial statements and schedules of Countrywide Credit
Industries, Inc. and Subsidiaries appearing in the Annual Report on Form
10-K for the year ended February 28, 1997, which is incorporated by
reference in Amendment No. 1 to the Registration Statement on Form S-4
(File No. 333-37047) (the "Amendment"). We consent to the incorporation by
reference in the Amendment of the aforementioned report.
GRANT THORNTON LLP
/s/GRANT THORNTON LLP
- ---------------------
Los Angeles, California
November 18, 1997
