<PAGE> 1
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 5, 1996)
HOUGHTON MIFFLIN COMPANY
$125,000,000 [LOGO]
7% Notes due 2006
Interest payable March 1 and September 1
ISSUE PRICE: 99.817%
Interest on the 7% Notes due March 1, 2006 (the "Notes") of Houghton Mifflin
Company (the "Company") offered hereby is payable semi-annually on March 1 and
September 1 of each year, beginning September 1, 1996. The Notes will not be
redeemable prior to maturity and will not be subject to any sinking fund. See
"Description of Notes."
The Notes will be represented by one or more global securities (the "Global
Securities") registered in the name of The Depository Trust Company ("DTC") or
its nominee. Beneficial interests in the Global Securities will be shown on, and
transfers thereof will be effected only through, records maintained by DTC and
its participants. Except as provided herein, Notes in definitive form will not
be issued. Settlement for the Notes will be made in immediately available funds.
So long as the Notes are represented by Global Securities registered in the name
of DTC or its nominee, the Notes will trade in DTC's Same-Day Funds Settlement
System, and secondary market trading activity in the Notes will therefore settle
in immediately available funds. So long as the Notes are represented by Global
Securities, all payments of principal and interest will be made by the Company
in immediately available funds. See "Description of Notes."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Per Note 99.817% .650% 99.167%
- -------------------------------------------------------------------------------------------------
Total $124,771,250 $812,500 $123,958,750
- -------------------------------------------------------------------------------------------------
<FN>
(1) Plus accrued interest, if any, from March 4, 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $350,000.
</TABLE>
The Notes are offered, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to approval of certain legal matters
by Skadden, Arps, Slate, Meagher & Flom, counsel for the Underwriters. It is
expected that delivery of the Notes will be made on or about March 4, 1996
through the facilities of DTC, against payment therefor in same-day funds.
J.P. MORGAN & CO. CS FIRST BOSTON
February 28, 1996
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by any Underwriter.
This Prospectus Supplement and the accompanying Prospectus do not constitute an
offer to sell or the solicitation of an offer to buy the Notes 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 any
person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus Supplement or the Prospectus, nor any sale made
hereunder and thereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained or incorporated by reference herein or
therein is correct as of any time subsequent to the date of such information.
------------------------
<TABLE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<CAPTION>
PAGE
----
<S> <C>
The Company........................................................................... S-3
Recent Developments................................................................... S-4
Capitalization........................................................................ S-5
Ratio of Earnings to Fixed Charges.................................................... S-5
Use of Proceeds....................................................................... S-5
Selected Pro Forma Financial Information.............................................. S-6
Selected Historical Financial Information............................................. S-8
Description of Notes.................................................................. S-9
Underwriting.......................................................................... S-10
PROSPECTUS
Available Information................................................................. 2
Incorporation of Certain Documents by Reference....................................... 2
The Company........................................................................... 3
Ratio of Earnings to Fixed Charges.................................................... 4
Use of Proceeds....................................................................... 4
Description of Debt Securities........................................................ 4
Plan of Distribution.................................................................. 12
Taxation.............................................................................. 13
Validity of Debt Securities........................................................... 15
Trustee's Relationship with Issuer.................................................... 15
Experts............................................................................... 15
</TABLE>
S-2
<PAGE> 3
THE COMPANY
Houghton Mifflin Company (the "Company") was incorporated in 1908 in
Massachusetts as the successor to a partnership founded in 1880. Antecedents of
the partnership date back to 1832. The Company's principal business is
publishing, and it is one of the largest publishers of elementary and high
school textbooks in the United States. The Company's operations are reported in
two industry segments: (1) educational publishing, comprising textbooks and
other educational materials and services for the school and college markets and
(2) general publishing, including fiction, nonfiction, children's books, and
reference materials in a variety of formats and media. With approximately 85% of
the Company's net sales derived from educational publishing, the Company's
quarterly results reflect the seasonality of the educational publishing market.
The second and third calendar quarters typically account for a majority of
annual net sales. Seasonal losses are generally reported in the first and fourth
quarters.
Educational Publishing. The Company maintains a leading market position in
the publication of educational materials, including textbooks and instructional
support material, educational software, and group and individually administered
tests. The Company is a leading publisher of mathematics, reading and language
arts, and social studies materials for the elementary school market, and through
its subsidiary, McDougal Littell Inc., health, literature and language arts,
mathematics, modern languages, science, and social studies materials for the
secondary school market. The Riverside Publishing Company, a subsidiary of the
Company, publishes standardized and clinical tests. The Company also has a
well-established position in the college market in the major disciplines of
business and accounting, chemistry, education, English, history, mathematics,
modern languages, and political science. The Company's acquisition of D.C. Heath
and Company ("D.C. Heath"), a former division of Raytheon Company ("Raytheon"),
described below, is expected to expand the Company's presence in the educational
publishing market. The Company has also established a new division that will
market existing and newly-developed reference, audio-visual, and display
materials; workbooks; manipulatives; and other supplemental materials that
complement the Company's elementary and secondary educational publications.
General Publishing. The Company publishes fiction and nonfiction trade
books for adults and children, dictionaries and other reference works (including
the third edition of The American Heritage Dictionary of the English Language),
and a new line of multimedia products for the consumer market, which includes
children's, reference, and adult hobby titles. The principal markets for trade
books and reference works in this segment are retail stores.
D.C. Heath Acquisition. On October 31, 1995, the Company acquired D.C.
Heath for $455 million in cash (the "Heath Acquisition"). D.C. Heath, which had
revenues of approximately $180 million in 1994, is a leading publisher of
textbooks in language arts, mathematics, modern languages, science, and social
studies.
The Company believes that the Heath Acquisition significantly increases the
Company's revenue base, product breadth, and editorial expertise in the
educational publishing market. The Company plans to integrate its combined
product development and sales and marketing areas and anticipates that the Heath
Acquisition will increase the Company's market presence, operating efficiency,
and sales, in addition to improving the Company's competitive position in its
existing markets for textbooks and related materials. As a result of the Heath
Acquisition, the Company believes that it has enhanced its position as a leader
in elementary, high school, and college textbook publishing in the United
States.
As a result of the increased size of the combined companies, the Company
anticipates that it will be able to spread its product development and sales and
marketing strengths across a larger product base, thereby increasing its
productivity and efficiency. The Company also expects to consolidate
administrative, sales and marketing, and editorial positions, resulting in cost
savings. In addition, the Heath Acquisition provides a more diverse product line
which is expected to increase the efficiency of the Company's school and college
sales forces. In the opinion of management of the Company, the Heath Acquisition
complements existing product lines and should increase the Company's potential
for sustainable long-term growth.
The Company's principal executive offices are located at 222 Berkeley
Street, Boston, Massachusetts 02116. Its telephone number is (617) 351-5000.
Requests for copies of documents incorporated by reference herein should be
directed to Bradley D. Lehan, Assistant Treasurer of the Company, at this
address.
S-3
<PAGE> 4
RECENT DEVELOPMENTS
On February 1, 1996, the Company announced that for the year ended December
31, 1995, excluding the results of D.C. Heath, the Company had net earnings from
operations of $26.3 million, compared to $33.6 million for 1994. Since the Heath
Acquisition, D.C. Heath incurred a net loss from operations of $7.1 million. The
Company reported a net loss for the year of $7.2 million, including $33.5
million of special charges arising from the Heath Acquisition, activities
relating to the Company's former Software Division, INSO Corporation,
outsourcing of distribution, and the sale of a warehouse facility. Net income
reported for 1994 was $51.2 million, including all special items.
The Company attributed lower net earnings from operations in 1995 primarily
to the Trade & Reference Division, which reported a $15.7 million pre-tax
decline in earnings and net sales of $87.2 million, a decline of 7% from the
previous year after adjusting for the spin-off of the Software Division in the
first quarter of 1994. The Trade & Reference Division recorded a $7.5 million
pre-tax, non-cash charge to increase reserves for author advances, inventory
obsolescence, and book returns. Distribution costs increased by $1.6 million
pre-tax for actions required during the transition to outsourced distribution.
In addition, the division reported a lower revenue contribution from the adult
book list and a larger operating loss from Houghton Mifflin Interactive, the
Company's new line of multimedia products.
The Company's core education business reported improved revenues and
earnings in 1995 over the previous year. Excluding the Heath Acquisition,
educational publishing segment revenues increased 9% to $424.0 million from
$387.5 million. Including the Heath Acquisition, educational publishing segment
revenues increased 14% to $441.8 million. Development expense in this segment
increased $15.5 million and distribution costs increased $6.5 million. The bulk
of development spending increases were incurred by the School Division and
McDougal Littell Inc.; both divisions invested heavily in new programs for
adoption opportunities in 1997 through 1999. Both the School Division and
McDougal Littell Inc. reported substantial revenue gains, reflecting the
increase in adoption opportunities as well as the expected leverage from a
dedicated secondary school sales force. College Division net sales rose and The
Riverside Publishing Company reported higher net revenues, reflecting growth in
the clinical testing business.
The special charges of $33.5 million in 1995 reflect after-tax charges
totaling $37.1 million related to the Heath Acquisition consisting of: (1) a
one-time charge of $30.0 million for acquisition and integration-related costs,
(2) operating losses incurred in November and December totaling $2.1 million,
and (3) $5.0 million for amortization of goodwill and financing costs. The $33.5
million net charges also reflect special items from two sources: the Company's
ownership interest in INSO Corporation and outsourcing of distribution. An
after-tax loss of $2.2 million was realized as a result of INSO Corporation's
second-quarter acquisition of Systems Compatibility Corporation and an after-tax
gain of $7.8 million was recorded following INSO Corporation's 600,000 share
equity offering in July 1995. As a result of the Company's decision to outsource
its distribution function, a $4.3 million after-tax charge was recorded in the
second quarter, followed by a fourth-quarter after-tax gain of $2.3 million on
the sale of the Burlington, Massachusetts, warehouse facility.
S-4
<PAGE> 5
CAPITALIZATION
<TABLE>
The following table sets forth (a) the pro forma consolidated
capitalization of the Company at September 30, 1995 reflecting the Heath
Acquisition and the borrowings under the Credit Agreement (as defined herein) to
finance the Heath Acquisition (and subsequent refinancings of borrowings under
the Credit Agreement with the proceeds of issuances of commercial paper (the
"Commercial Paper"), and (b) as adjusted to reflect the sale of the Notes
offered hereby and application of the net proceeds therefrom to repay the
indebtedness incurred in connection with the Heath Acquisition. See "Use of
Proceeds."
<CAPTION>
SEPTEMBER 30, 1995
------------------------------------
PRO FORMA PRO FORMA, AS ADJUSTED
--------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Commercial Paper borrowings........................ $145,000 $145,000
Long-term debt:
Bank borrowings.................................... 200,000 76,391
6% Exchangeable Notes due 1999..................... 126,643 126,643
7 1/8% Notes due 2004.............................. 99,490 99,490
7% Notes due 2006.................................. -- 125,000
-------- --------
Total long-term debt............................. 426,133 427,524
Shareholders' equity.................................... 287,521 287,521
-------- --------
Total capitalization.................................... $858,654 $860,045
======== ========
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<CAPTION>
YEARS ENDED DECEMBER 31,
TWELVE MONTHS ENDED -----------------------------------------
SEPTEMBER 30, 1995 1994 1993 1992 1991 1990
--------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(1)................. 5.6 9.6 8.1 4.5 5.1 4.3
<FN>
- ---------------
(1) For purposes of these computations, earnings before fixed charges consist of
income before provision for income taxes and fixed charges. Fixed charges
consist of interest on indebtedness, including amortization of debt issuance
costs and interest on capital lease obligations, and the portion of rent
expense for each period presented that is deemed by management to be the
interest component of such rentals. Due to the seasonality of its business,
the Company believes that presentation of ratios for a period other than a
full twelve-month period is inappropriate.
</TABLE>
USE OF PROCEEDS
The net proceeds from the offering of the Notes are estimated to be
$123,608,750. The Company expects to use the net proceeds from this offering of
the Notes to repay a portion of the $200 million of indebtedness outstanding
under a $300 million five-year credit facility (the "Credit Agreement") used to
fund a portion of the purchase price for the Heath Acquisition. The indebtedness
to be repaid has a maturity date of October 31, 2000, and bears interest at a
rate of 5.875% per annum. Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan Securities Inc., is the agent and a lender under the
Credit Agreement and is expected to receive approximately $21,631,500 of
principal repayment of indebtedness outstanding under the Credit Agreement from
the proceeds of the sale of the Notes. See "Underwriting."
S-5
<PAGE> 6
<TABLE>
SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated financial information set forth below
is based on historical financial information for the Company for and at the nine
months ended September 30, 1995 and historical financial information for D.C.
Heath for and at the ten months ended October 31, 1995. The unaudited pro forma
consolidated financial information reflects the Heath Acquisition and borrowings
under the Credit Agreement and the Commercial Paper as if such transactions had
occurred as of January 1, 1995 (in the case of statement of income information)
and at September 30, 1995 and October 31, 1995 (in the case of balance sheet
information) for the Company and D.C. Heath, respectively. The historical
financial information of D.C. Heath reflects the financial condition and results
of operations of D.C. Heath as if it were a separate company. Certain general
and administrative expenses of Raytheon have been allocated to D.C. Heath on
various bases, as determined by the management of Raytheon. However, such
expenses may not necessarily be indicative of, and it is not practicable for the
Company's management to estimate, the nature and level of expenses which might
have been incurred had D.C. Heath been operating as a separate company.
Potential future cost savings, if any, from combining the operations of the
Company and D.C. Heath are not reflected in the unaudited pro forma consolidated
statement of income information. The unaudited pro forma adjustments are based
upon available information and upon certain assumptions that the Company
believes are reasonable. All information and financial data concerning D.C.
Heath included herein have been provided to the Company by Raytheon. The
unaudited pro forma consolidated financial information does not purport to be
indicative of the Company's financial condition or results of operations that
would actually have been achieved had the Heath Acquisition and the Credit
Agreement been completed on the dates set forth above, or that may be obtained
in the future. The unaudited pro forma consolidated financial information should
be read in conjunction with the historical financial statements and related
notes of the Company included in its Annual Report on Form 10-K for the year
ended December 31, 1994, and in its Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995, June 30, 1995, and September 30, 1995, and of
D.C. Heath included in the Company's Current Report on Form 8-K filed November
15, 1995, as amended by Form 8-K/A filed January 16, 1996, each of which is
incorporated herein by reference.
<CAPTION>
COMPANY D.C. HEATH
FOR THE NINE FOR THE TEN
MONTHS ENDED MONTHS ENDED PRO FORMA PRO FORMA
SEPT. 30, 1995 OCT. 31, 1995 ADJUSTMENTS COMBINED
-------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................... $423,053 $176,454 $599,507
Costs and expenses
Cost of sales......................... 197,625 87,635 285,260
Selling and administrative............ 153,939 59,217 $ 12,913(a) 226,069
Special charges....................... 7,033 7,033
-------- -------- -------- --------
358,597 146,852 12,913 518,362
-------- -------- -------- --------
Operating income........................ 64,456 29,602 (12,913) 81,145
Other income (expense)
Gain on equity transactions of INSO
Corporation........................ 15,001 15,001
Equity in earnings of INSO
Corporation........................ 273 273
Interest expense, net................. (6,396) (4,009) (23,882)(b) (34,287)
-------- -------- -------- --------
8,878 (4,009) (23,882) (19,013)
-------- -------- -------- --------
Income before taxes and cumulative
effect of accounting change........... 73,334 25,593 (36,795) 62,132
Taxes on income before cumulative effect
of accounting change.................. (28,900) (10,460) 14,501 (24,859)
-------- -------- -------- --------
Income before cumulative effect of
accounting change..................... $ 44,434 $ 15,133 $(22,294) $ 37,273
======== ======== ======== =======
Income per share before cumulative
effect of accounting change........... $ 3.22 $ 2.70
Shares utilized in calculation of income
per share before cumulative effect of
accounting change..................... 13,805 13,805
</TABLE>
S-6
<PAGE> 7
<TABLE>
<CAPTION>
COMPANY D.C. HEATH
SEPTEMBER 30, OCTOBER 31, PRO FORMA PRO FORMA
1995 1995 ADJUSTMENTS COMBINED
------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total current assets............... $448,518 $105,598 $(153,500)(c),(d), $ 400,616
(e),(f)
Property, plant and equipment, at
cost, net of accumulated
depreciation and amortization.... 25,959 13,522 (700)(d) 38,781
Book plates, net of accumulated
amortization..................... 44,484 64,496 (30,000)(e),(f) 78,980
Total assets....................... 711,934 203,267 158,258 (c),(e), 1,073,459
(f),(g)
Total current liabilities.......... 155,513 42,875 2,500 (d),(e) 200,888
Long-term debt..................... 226,133 345,000 (c) 571,133
Total liabilities.................. 424,413 42,875 348,650 (c),(d), 815,938
(e),(f)
Total stockholders' equity......... 287,521 160,392 (190,392)(d),(e),(g) 257,521
<FN>
- --------------------
(a) To record intangible asset amortization expense (in 1995 for nine
months) using an amortization period of approximately 20 years.
(b) To record estimated net interest expense associated with the Heath
Acquisition financing at 7% for nine months in 1995.
(c) To record the operating cash, marketable securities and borrowings
associated with consummation of the Heath Acquisition.
(d) To adjust for certain D.C. Heath assets and liabilities that were not
acquired.
(e) To record an estimate of the non-recurring charges and the related tax
effects resulting from the transaction and the integration of D.C. Heath with
and into the Company. These charges relate to excess inventory and duplicate
titles, as well as provisions for transaction and transition costs.
(f) To adjust certain D.C. Heath assets acquired to estimated fair market
value.
(g) To eliminate D.C. Heath stockholders' equity and net worth.
</TABLE>
S-7
<PAGE> 8
<TABLE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected financial information for the
Company for each of the fiscal years in the three year period ended December 31,
1994 and for and at the nine month periods ended September 30, 1995 and 1994,
respectively. The selected financial information for the three year periods have
been derived from the Company's audited consolidated financial statements. Such
information is contained in and should be read in conjunction with the
consolidated financial statements and accompanying notes included in the
Company's Annual Reports on Form 10-K for such years, incorporated herein by
reference. The selected financial information for and at the nine month periods
below has been derived from the Company's unaudited interim financial
statements, which in the opinion of the Company's management include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and
results of operations of the Company for these periods. Operating results and
balance sheet information for and at the nine months ended September 30, 1995
are not necessarily indicative of the operating results or financial condition
that may be expected for the full year. The nine month information is contained
in and should be read in conjunction with the Company's Quarterly Reports on
Form 10-Q for such periods, incorporated herein by reference.
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................. $423,053 $396,833 $483,076 $462,969 $454,706
Costs and expenses
Cost of sales....................................... 197,625 182,351 230,674 227,969 220,278
Selling and administrative.......................... 153,939 143,248 192,425 173,070 190,118
Special charges..................................... 7,033 6,513 6,513 10,560 --
-------- -------- -------- -------- --------
358,597 332,112 429,612 411,599 410,396
-------- -------- -------- -------- --------
Operating income...................................... 64,456 64,721 53,464 51,370 44,310
Other income (expense)
Gain on equity transaction of INSO Corporation and
gain on sale of Software Division................ 15,001 36,212 36,212 -- --
Equity in earnings of INSO Corporation.............. 273 1,221 1,973 -- --
Loss on disposition of foreign publishing
operations....................................... -- -- -- -- (13,527)
Net interest expense................................ (6,396) (5,005) (6,509) (2,347) (2,339)
-------- -------- -------- -------- --------
8,878 32,428 31,676 (2,347) (15,866)
-------- -------- -------- -------- --------
Income before taxes, extraordinary item, and
cumulative effect of accounting changes............. 73,334 97,149 85,140 49,023 28,444
Taxes on income before extraordinary item and
cumulative effect of accounting changes............. 28,900 37,666 32,710 17,650 9,373
-------- -------- -------- -------- --------
Income before extraordinary item and cumulative
effect of accounting changes......................... 44,434 59,483 52,430 31,373 19,071
Extraordinary item, net of taxes:
Loss on early extinguishment of debt................ -- (1,239) (1,239) (1,002) --
Cumulative effect of accounting changes, net of
taxes:
Postretirement healthcare benefits.................. -- -- -- -- (13,357)
Income taxes........................................ -- -- -- -- (1,300)
-------- -------- -------- -------- --------
Net income............................................ $ 44,434 $ 58,244 $ 51,191 $ 30,371 $ 4,414
Per share:
Income before extraordinary item and cumulative
effect of accounting changes..................... $ 3.22 $ 4.30 $ 3.79 $ 2.27 $ 1.35
Loss on early extinguishment of debt................ -- (0.09) (0.09) (0.07) --
Cumulative effect of accounting changes............. -- -- -- -- (1.04)
-------- -------- -------- -------- --------
Net income.......................................... $ 3.22 $ 4.21 $ 3.70 $ 2.20 $ 0.31
Dividends paid per share............................ $ 0.69 $ 0.645 0.87 0.83 0.79
BALANCE SHEET DATA:
Cash and marketable securities........................ $ 95,480 $ 12,699 $ 47,193 $ 84,956 $ 68,635
Working capital....................................... $293,005 $155,087 $145,391 $156,186 $149,837
Total assets.......................................... $711,934 $544,633 $497,266 $398,086 $371,421
Total debt, including commercial paper................ $226,133 $114,410 $ 99,445 $ 52,998 $ 54,653
Stockholders' equity.................................. $287,521 $253,592 $244,473 $224,082 $199,839
</TABLE>
S-8
<PAGE> 9
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements the description of the general terms of the Securities (as
defined in the accompanying Prospectus) set forth under the heading "Description
of Debt Securities" in the accompanying Prospectus, to which description
reference is hereby made.
GENERAL
The Notes offered hereby will be unsecured general obligations of the
Company, and will constitute a series of Debt Securities to be issued under the
Indenture referred to in the accompanying Prospectus, as such terms are defined
therein. The Notes will be limited to $125,000,000 aggregate principal amount
and will mature on March 1, 2006. The Notes will bear interest at the rate set
forth on the cover page of this Prospectus Supplement from March 4, 1996, or
from the most recent date to which interest has been paid or provided for,
payable semi-annually in arrears on March 1 and September 1 of each year,
commencing September 1, 1996 to holders of record at the close of business on
the preceding February 15 and August 15, as the case may be. The Notes are not
redeemable prior to maturity and do not provide for any sinking fund. The Notes
are subject to legal defeasance and discharge and covenant defeasance, as
described under "Defeasance," "Defeasance and Discharge," and "Defeasance of
Certain Obligations" under "Description of Debt Securities" in the accompanying
Prospectus.
GLOBAL SECURITIES
The Notes initially will be issued as Global Securities. See "Description
of Debt Securities -- Global Securities" in the accompanying Prospectus for
additional information concerning the Notes, the Indenture, and the book-entry
system. DTC will be the Depositary (as defined in the accompanying Prospectus)
with respect to the Notes.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters (as defined
below) in immediately available funds. All payments of principal and interest to
the Depositary will be made by the Company in immediately available funds. The
Notes will trade in the DTC's Same-Day Funds Settlement System until maturity,
and secondary market trading activity in the Notes will therefore settle in
immediately available funds. No assurance can be given as to the effect, if any,
of settlements in immediately available funds on trading activity in the Notes.
S-9
<PAGE> 10
UNDERWRITING
<TABLE>
Subject to the terms and conditions set forth in an Underwriting Agreement
dated the date of this Prospectus Supplement (the "Underwriting Agreement"), the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), severally, and each of the Underwriters has severally agreed to
purchase, the principal amount of Notes set forth opposite its name below:
<CAPTION>
PRINCIPAL AMOUNT
NAME OF NOTES
- ---- ---------------
<S> <C>
J.P. Morgan Securities Inc............................................... $ 62,500,000
CS First Boston Corporation.............................................. 62,500,000
------------
Total.......................................................... $125,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Notes, if any are
taken.
The Underwriters initially propose to offer the Notes directly to the
public at the public offering price set forth on the cover page of this
Prospectus Supplement and to certain dealers at such price less a concession of
.40% of the principal amount of the Notes. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of .25% of the principal amount
of the Notes on sales to certain other dealers. After the initial public
offering, the public offering price and such concessions to dealers may be
changed by the Underwriters.
The Notes are a new issue of securities with no established trading market
and will not be listed on any national securities exchange. The Company has been
advised by the Underwriters that the Underwriters intend to make a market for
the Notes, but are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, as
amended, or contribute to payments which the Underwriters may be required to
make in respect thereof.
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have engaged, are engaging or may in the future engage, in
commercial banking and investment banking transactions with the Company and its
affiliates. The net proceeds of this offering of the Notes are expected to be
used to repay approximately $123.6 million aggregate principal amount of
outstanding indebtedness of the Company under the Credit Agreement, under which
Morgan Guaranty Trust Company of New York, an affiliate of J. P. Morgan
Securities Inc., is the agent and a lender. See "Use of Proceeds." Accordingly,
this offering will be made in accordance with Section 44(c)(8) of Article III of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. J. P. Morgan Securities Inc. will not receive any benefit in connection
with this offering other than customary managing, underwriting and selling fees.
S-10
<PAGE> 11
HOUGHTON MIFFLIN COMPANY
DEBT SECURITIES
------------------------
Houghton Mifflin Company (the "Company") may offer from time to time its
unsecured debt securities (the "Debt Securities") on terms to be determined, at
an aggregate initial offering price of not more than $300,000,000. The specific
designation, aggregate principal amount, authorized denominations, purchase
price, maturity, rate (which may be fixed or variable) and time of payment of
any interest, optional or mandatory redemption or repayment or other required
payment terms, terms for sinking fund payments, and other specific terms in
connection with the offering and sale of Debt Securities, and any listing on a
securities exchange of the Debt Securities in respect of which this Prospectus
is being delivered ("Offered Debt Securities") are set forth in the accompanying
prospectus supplement ("Prospectus Supplement"), together with the terms of
offering of the Offered Debt Securities.
The Debt Securities may be sold through agents designated from time to
time, through underwriters or dealers or directly by the Company. If any agents
of the Company or any underwriters are involved in the sale of the Offered Debt
Securities in respect of which this Prospectus is being delivered, the names of
such agents or underwriters and any applicable commissions or discounts will be
set forth in the Prospectus Supplement. The net proceeds to the Company from
such sale will also be set forth in the Prospectus Supplement.
Debt Securities of a series may be issuable in registered form, without
coupons ("Registered Securities") or in the form of one or more global
securities (each, a "Global Security" and collectively, "Global Securities") and
may be issued in the name of a depositary institution as book-entry 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.
------------------------
This Prospectus may not be used to consummate sales of
Debt Securities unless accompanied by a Prospectus Supplement.
The date of this Prospectus is January 5, 1996
<PAGE> 12
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY AGENT, UNDERWRITER OR DEALER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices at 7 World Trade Center, Suite 1300,
New York, New York 10048, and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can
also be obtained from the Public Reference Section of the Commission at
prescribed rates. Such reports, proxy statements and other information can also
be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005, on which certain of the Company's securities
are listed.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), with
respect to the Debt Securities to be offered by this Prospectus. This Prospectus
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto in accordance with the rules and regulations of
the Commission. For further information regarding the Company and the Debt
Securities offered hereby, reference is made to the Registration Statement and
the exhibits and schedules filed therewith, which may be inspected and copied at
the locations set forth above. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are
incorporated herein by reference: (a) the Company's Annual Report on Form 10-K
for the year ended December 31, 1994; (b) the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, June 30 and September 30, 1995; (c)
the Company's definitive proxy statement dated March 27, 1995, relating to its
1995 Annual Meeting of Stockholders; (d) the Company's Current Report on Form
8-K filed with the Commission on October 6, 1995; and (e) the Company's Current
Report on Form 8-K filed with the Commission on November 15, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities and Exchange Act of 1934 after the date of this
Prospectus and prior to the termination of the offering of the Debt Securities
shall be deemed to be incorporated by reference in this Prospectus and to be
part hereof from the date of filing of such documents. Any statement contained
in a document incorporated or deemed to be a statement contained herein, or
contained in the accompanying Prospectus Supplement, 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 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 each person to whom a copy of
this Prospectus has been delivered, on the written or oral request of any such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference in this Prospectus, other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Requests for such
copies should be directed to Bradley D. Lehan, Assistant Treasurer, Houghton
Mifflin Company, 222 Berkeley Street, Boston, Massachusetts 02116 (telephone
617-351-5000).
2
<PAGE> 13
THE COMPANY
Houghton Mifflin Company (the "Company") was incorporated in 1908 in
Massachusetts as the successor to a partnership founded in 1880. Antecedents of
the partnership date back to 1832. The Company's principal business is
publishing, and it is one of the largest publishers of elementary and high
school textbooks in the United States. The Company's operations are reported in
two industry segments: (1) educational publishing, comprising textbooks and
other educational materials and services for the school and college markets and
(2) general publishing, including fiction, nonfiction, children's books, and
reference materials in a variety of formats and media. With approximately 85% of
the Company's net sales derived from educational publishing, the Company's
quarterly results reflect the seasonality of the educational publishing market.
The second and third calendar quarters typically account for a majority of
annual net sales. Seasonal losses are generally reported in the first and fourth
quarters.
Educational Publishing. The Company maintains a leading market position in
the publication of educational materials, including textbooks and instructional
support material, educational software, and group and individually administered
tests. The Company is a leading publisher of mathematics, reading and language
arts, and social studies materials for the elementary school market, and through
its subsidiary, McDougal Littell Inc., health, literature and language arts,
mathematics, modern languages, science, and social studies materials for the
secondary school market. The Riverside Publishing Company, a subsidiary of the
Company, publishes standardized and clinical tests. The Company also has a
well-established position in the college market in the major disciplines of
business and accounting, chemistry, education, English, history, mathematics,
modern languages, and political science. The Company's acquisition of D.C. Heath
and Company ("D.C. Heath"), a former division of Raytheon Company ("Raytheon"),
described below, is expected to expand the Company's presence in the educational
publishing market. The Company has also established a new division that will
market existing and newly-developed reference, audio-visual, and display
materials; workbooks; manipulatives; and other supplemental materials that
complement the Company's elementary and secondary educational publications.
General Publishing. The Company publishes fiction and nonfiction trade
books for adults and children, dictionaries and other reference works (including
the third edition of The American Heritage Dictionary of the English Language),
and a new line of multimedia products for the consumer market, which includes
children's, reference, and adult hobby titles. The principal markets for trade
books and reference works in this segment are retail stores.
D.C. Heath Acquisition. On October 31, 1995, the Company acquired D.C.
Heath for $455 million in cash (the "Heath Acquisition"). D.C. Heath, which had
revenues of approximately $180 million in 1994, is a leading publisher of
textbooks in language arts, mathematics, modern languages, science, and social
studies.
The Company believes that the Heath Acquisition significantly increases the
Company's revenue base, product breadth, and editorial expertise in the
educational publishing market. The Company plans to integrate its combined
product development and sales and marketing areas and anticipates that the Heath
Acquisition will increase the Company's market presence, operating efficiency,
and sales, in addition to improving the Company's competitive position in its
existing markets for textbooks and related materials. As a result of the Heath
Acquisition, the Company believes that it has enhanced its position as a leader
in elementary, high school, and college textbook publishing in the United
States.
As a result of the increased size of the combined companies, the
Company anticipates that it will be able to spread its product development and
sales and marketing strengths across a larger product base, thereby increasing
its productivity and efficiency. The Company also expects to consolidate
administrative, sales and marketing, and editorial positions, resulting in cost
savings. In addition, the Heath Acquisition provides a more diverse product
line which is expected to increase the efficiency of the Company's school and
college sales forces. In the opinion of management of the Company, the Heath
Acquisition complements existing product lines and should increase the
Company's potential for sustainable long-term growth.
3
<PAGE> 14
The Company's principal executive offices are located at 222 Berkeley
Street, Boston, Massachusetts 02116. Its telephone number is (617) 351-5000.
Requests for copies of documents incorporated by reference herein should be
directed to Bradley D. Lehan, Assistant Treasurer of the Company, at this
address.
<TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<CAPTION>
YEARS ENDED DECEMBER 31,
TWELVE MONTHS ENDED ----------------------------------------
SEPTEMBER 30, 1995 1994 1993 1992 1991 1990
------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(1).......................... 5.6 9.6 8.1 4.5 5.1 4.3
<FN>
- ---------------
(1) For purposes of these computations, earnings before fixed charges consist of
income before provision for income taxes and fixed charges. Fixed charges
consist of interest expense, including amortization of debt issuance costs
and interest on capital lease obligations, and the portion of rent expense
for each period presented that is deemed by management to be the interest
component of such rentals. Due to the seasonality of its business, the
Company believes that presentation of ratios for a period other than a full
twelve-month period is inappropriate.
</TABLE>
USE OF PROCEEDS
Except as may otherwise be disclosed in the Prospectus Supplement, the net
proceeds to the Company from the sale of the Debt Securities offered hereby are
expected to be used for general operations (including capital expenditures and
working capital requirements), stock repurchases, acquisitions or repayment or
refinancing of outstanding indebtedness. Proceeds will be added to general
corporate cash and invested in investment grade, interest-bearing short-term
securities until needed.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture dated as of March 15,
1994, as supplemented by a First Supplemental Indenture dated as of July 27,
1995 (collectively, the "Indenture"), each between the Company and State Street
Bank and Trust Company (the "Trustee"), as successor trustee to The First
National Bank of Boston. The statements under this caption are brief summaries
of certain provisions of the Indenture, do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all provisions
of the Indenture, including the definitions therein of certain terms. The Debt
Securities may be issued from time to time in one or more series. The particular
terms of each series of Debt Securities offered by any Prospectus Supplement or
Prospectus Supplements will be described in such Prospectus Supplement or
Prospectus Supplements. Wherever particular sections of the Indenture or terms
not defined herein that are defined in the Indenture are referred to herein or
in a Prospectus Supplement, it is intended that such sections or defined terms
be incorporated by reference herein or therein, as the case may be.
TERMS
The Indenture does not limit the aggregate amount of Debt Securities which
may be issued thereunder, and Debt Securities may be issued thereunder up to the
aggregate principal amount which may be authorized from time to time by the
Company for each series. The Debt Securities will be unsecured obligations of
the Company and will rank on a parity with all other unsecured and
unsubordinated indebtedness of the Company.
The Prospectus Supplement or Prospectus Supplements relating to Offered
Debt Securities will describe: (1) the title of the Debt Securities of the
series; (2) any limit on the aggregate principal amount of the Debt Securities
of the series which may be authenticated and delivered under the Indenture; (3)
whether any Debt Securities of the series are to be issuable initially in
temporary global form and whether any Debt Securities of the series are to be
issuable in permanent global form and, if so, whether beneficial owners of
interest in any such permanent Global Security may exchange such interests for
Debt Securities of such series and of like tenor of any authorized form and
denomination and the circumstances under which any such exchanges may
4
<PAGE> 15
occur; (4) the Person to whom any interest on any Registered Security of the
series shall be payable, if other than the Person in whose name that Debt
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, and the extent to which,
or the manner in which, any interest payable on a temporary global Debt Security
on an Interest Payment Date will be paid; (5) the date or dates on which the
principal of the Debt Securities of the series is payable; (6) the rate or rates
at which the Debt Securities of the series shall bear interest, if any, or the
formula pursuant to which such rate or rates shall be determined, the date or
dates from which any such interest shall accrue, the Interest Payment Dates on
which any such interest shall be payable, and the Regular Record Date for any
interest on any Registered Securities on any Interest Payment Date; (7) the
place or places where the principal of and any premium and interest on Debt
Securities of the series shall be payable, any Registered Securities of the
series may be surrendered for registration of transfer, Debt Securities of the
series may be surrendered for exchange, and notices and demands to or upon the
Company in respect of the Debt Securities of the series and the Indenture may be
served; (8) the period or periods within which, the price or prices at which and
the terms and conditions upon which Debt Securities of the series may be
redeemed, in whole or in part, at the option of the Company; (9) the period or
periods within which, the price or prices at which and the terms and conditions
upon which Debt Securities of the series may be redeemed, in whole or in part,
at the option of the Holders; (10) the obligation, if any, of the Company to
redeem or purchase Debt Securities of the series, or particular Debt Securities
within the series, pursuant to any sinking fund or analogous provisions or at
the option of a Holder thereof; (11) the denominations in which any Debt
Securities of the series shall be issuable, if other than denominations of
$1,000 and any integral multiple thereof; (12) if other than the principal
amount thereof, the portion of the principal amount of any Debt Securities of
the series which shall be payable upon declaration of acceleration of the
Maturity thereof; (13) the Person who shall be the Security Registrar, if other
than the Company; (14) whether the Debt Securities of the series shall be issued
upon original issuance, in whole or in part, in the form of one or more
Book-Entry Securities and, in such cases, (a) the Depositary with respect to
such Book-Entry Security or Securities and (b) the circumstances under which any
such Book-Entry Security may be exchanged for Debt Securities registered in the
name of, and any transfer of such Book-Entry Security may be registered to, a
Person other than such depositary or its nominee; (15) if the defeasance
provisions of the Indenture are applicable to Debt Securities of the series; and
(16) any other terms of the series not inconsistent with the provisions of the
Indenture. (Section 301) Any such Prospectus Supplement will also describe any
special provisions for the payment of additional amounts with respect to the
Debt Securities.
The Debt Securities may be issuable in definitive form as Registered
Securities. Debt Securities of a series may be issuable, in whole or in part, in
the form of one or more Global Securities, as described below under "Global
Securities." Unless the Prospectus Supplement relating thereto specifies
otherwise, Registered Securities will be issued only in denominations of $1,000
or any integral multiple thereof. (Section 302) One or more Global Securities
will be issued in a denomination or aggregate denominations equal to the
aggregate principal amount of Outstanding Debt Securities of the series to be
represented by such Global Security or Securities. (Section 203) No service
charge will be made for any transfer or exchange of Debt Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Section 305)
Registered Securities may be presented for exchange and (other than a
Global Security) for transfer (with the form of transfer endorsed thereon duly
executed), at the office of the transfer agent or at the office of the Security
Registrar or at the office of any transfer agent designated by the Company for
such purpose with respect to any series of Debt Securities and referred to in an
applicable Prospectus Supplement, without service charge and upon payment of any
taxes and other governmental charges as described in the Indenture. Such
transfer or exchange will be effected upon the transfer agent or the Security
Registrar, as the case may be, being satisfied with the documents of title and
identity of the person making the request. (Section 305) If a Prospectus
Supplement refers to any transfer agents (in addition to the Security Registrar)
initially designated by the Company with respect to any series of Debt
Securities, the Company may at any time rescind the designation of any such
transfer agent, except that the Company is required to maintain a transfer agent
in each Place of Payment for such series. The Company may at any time designate
additional transfer agents with respect to any series of Debt Securities.
(Section 1002)
5
<PAGE> 16
In the event of any redemption in part, the Company shall not be required
to (i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before any
selection of Debt Securities of that series to be redeemed and ending at the
close of business on the day of mailing of the relevant notice of redemption or
(ii) register the transfer of or exchange any Registered Security, or portion
thereof, called for redemption, except the unredeemed portion of any Registered
Security being redeemed in part. (Section 305)
Debt Securities may be issued under the Indenture as Original Issue
Discount Securities to be offered and sold at a substantial discount from their
stated principal amount. Federal income tax consequences and other special
considerations applicable to any Original Issue Discount Securities will be
described in the Prospectus Supplement relating thereto. "Original Issue
Discount Securities" means any Debt Securities that provide for an amount less
than the principal amount thereof to be due and payable upon declaration of
acceleration of the Maturity thereof upon the occurrence of an Event of Default
and the continuation thereof. (Section 101)
Except as may be set forth in any Prospectus Supplement, the Debt
Securities will not contain any provisions that would limit the ability of the
Company to incur indebtedness or that would afford holders ("Holders") of any
series of Debt Securities protection in the event of a highly leveraged or
similar transaction, or in the event of a change of control, involving the
Company that may adversely affect Holders of Debt Securities. To the extent that
any covenant or provision governing any series of Debt Securities that would
afford protection to Holders of such series of Debt Securities in the event of a
highly leveraged or similar transaction or a change of control may be (a) waived
by the Board of Directors of the Company or the Trustee or (b) limited in its
applicability in the event of a leveraged buy-out or similar transaction
initiated or supported by the Company, management of the Company or any
affiliate, the relevant Prospectus Supplement will describe such provisions.
Reference is made to the applicable Prospectus Supplement for information
with respect to any deletions from, modifications of, or additions to, the
Events of Default or covenants of the Company that are described below,
including any covenant or other provision providing event risk or similar
protection.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a depositary (the "Depositary") identified in the Prospectus Supplement
relating to such series. Global Securities, if any, issued in the United States
are expected to be deposited with The Depository Trust Company ("DTC"), as
Depositary. Global Securities may be issued in fully registered form and may be
issued in either temporary or permanent form. Unless and until it is exchanged
in whole or in part for the individual Debt Securities represented thereby, a
Global Security may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or to a successor Depositary or any nominee of such
successor.
The specific terms of the depositary arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company expects that unless otherwise indicated in the
applicable Prospectus Supplement, the following provisions will apply to
depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depositary ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by the Company if such Debt Securities are offered directly by
the Company. Ownership of beneficial interests in such Global Security will be
limited to Participants or persons that may hold interests through
Participants.
The Company expects that, pursuant to procedures established by DTC,
ownership of beneficial interests in any Global Security with respect to which
DTC is the Depositary will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with respect
to beneficial interests of Participants) and records of Participants (with
respect to beneficial interests of persons who hold
6
<PAGE> 17
through Participants). Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC or any of its
Participants relating to beneficial ownership interests in the Debt Securities.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to own, pledge or transfer beneficial interest in a
Global Security.
So long as the Depositary for a Global Security or its nominee is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as described below or in the applicable Prospectus
Supplement, owners of beneficial interests in a Global Security will not be
entitled to have any of the individual Debt Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of any such Debt Securities in definitive form and
will not be considered the owners or Holders thereof under the Indenture for any
purpose, including with respect to the giving of any direction, instruction or
approval to the Trustee thereunder. Accordingly, each person owning a beneficial
interest in a Global Security with respect to which DTC is the Depositary must
rely on the procedures of DTC and, if such person is not a Participant, on the
procedures of the Participant through which such person owns its interests, to
exercise any rights of a Holder under the Indenture. The Company understands
that, under existing industry practice, if it requests any action of Holders or
if an owner of a beneficial interest in a Global Security desires to give or
take any action which a Holder is entitled to give or take under the Indenture,
DTC would authorize the Participants holding the relevant beneficial interest to
give or take such action, and such Participants would authorize beneficial
owners through such Participants to give or take such actions or would otherwise
act upon the instructions of beneficial owners holding through them.
Payments of principal of, any premium and any interest on individual Debt
Securities represented by a Global Security registered in the name of a
Depositary or its nominee will be made to or at the direction of the Depositary
or its nominee, as the case may be, as the registered owner of the Global
Security under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose name Debt Securities, including a
Global Security, are registered as the owners thereof for the purpose of
receiving such payments. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owners of Debt Securities (including principal, premium, if any, and
interest). The Company believes, however, that it is currently the policy of DTC
to immediately credit the accounts of relevant Participants with such payments,
in amounts proportionate to their respective holdings of beneficial interests in
the relevant Global Security as shown on the records of DTC or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in such Global Security held through such Participants will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
street name, and will be the responsibility of such Participants. Redemption
notices with respect to any Debt Securities represented by a Global Security
will be sent to the Depositary or its nominee. If less than all of the Debt
Securities of any series are to be redeemed, the Company expects the Depositary
to determine the amount of the interest of each Participant in such Debt
Securities to be redeemed to be determined by lot. None of the Company, the
Trustee, any Paying Agent, or the Security Registrar for such Debt Securities
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Security for such Debt Securities or for maintaining, supervising or reviewing
any records related to such beneficial ownership interests.
Neither the Company nor the Trustee will be liable for any delay by the
Holders of a Global Security or the Depositary in identifying the beneficial
owners of Debt Securities and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Holder of a
Global Security or the Depositary for all purposes. The rules applicable to DTC
and its Participants are on file with the Commission.
If a Depositary for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, or after an Event of Default has occurred and is
continuing, or after an event that would be an Event of Default after notice or
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<PAGE> 18
lapse of time has occurred, Debt Securities registered in the name of persons
other than the Depositary will be issued in exchange for the Global Security
representing such Debt Securities. In addition, the Company may at any time and
in its sole discretion, subject to any limitations described in the Prospectus
Supplement relating to such Debt Securities, determine not to have any of such
Debt Securities represented by one or more Global Securities and in such event
Debt Securities registered in the name of persons other than the Depositary will
be issued in exchange for the Global Security or Securities representing such
Debt Securities. Individual Debt Securities so issued will be issued in
denominations of $1,000 and integral multiples thereof. (Section 305)
PAYMENT AND PAYING AGENTS
Payment of principal of and premium, if any, or interest on Registered
Securities will be made against surrender of such Registered Securities at the
office of such Paying Agent or Paying Agents as the Company may designate from
time to time, except that at the option of the Company, payment of any interest
may be made by check mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register. Unless otherwise indicated
in the Prospectus Supplement, payment of any installment of interest on
Registered Securities will be made to the person in whose name such Debt
Security is registered at the close of business on the Regular Record Date for
such interest. (Section 307) Unless otherwise indicated in the Prospectus
Supplement, payments of such interest will be made at the office or agency of
the Trustee or by a check mailed to each Holder at the Holder's registered
address. (Section 1002)
All moneys paid by the Company to a paying agent for the payment of
principal of or premium, if any, or interest on any Debt Security that remains
unclaimed at the end of two years after such principal, premium or interest
shall have become due and payable will be repaid to the Company and the Holder
of such Debt Security will thereafter look only to the Company for payment
thereof (Section 1003)
CERTAIN COVENANTS OF THE COMPANY
The Indenture contains a covenant of the Company that, so long as any
of the Debt Securities remains outstanding, it will not, nor will it permit any
Subsidiary (as herein defined) to issue, assume or guarantee any debt for money
borrowed, including but not limited to any Funded Debt, (herein referred to as
"Debt") if such Debt is secured by a mortgage, pledge, security interest or
lien (herein referred to as a "mortgage") upon any assets, stock or other
indebtedness of the Company now owned or hereafter acquired, without in any
such case effectively providing, concurrently with the issuance, assumption or
guarantee of such Debt, that the Debt Securities (together with, if the Company
shall so determine, any other indebtedness of or guarantee by the Company or
such Subsidiary ranking equally with the Debt Securities then outstanding and
existing or thereafter created) will be secured equally and ratably with (or
prior to) such Debt. This restriction, however, does not apply to: (1)
mortgages on any property acquired, constructed or improved by the Company or
any Subsidiary after the date of the Indenture which are created or assumed
contemporaneously with, or within 180 days after, such acquisition (or in the
case of property constructed or improved, after the completion and commencement
of commercial operation of such property, whichever is later) to secure or
provide for the payment of any part of the purchase price of such property or
the cost of such construction or improvement, or mortgages on any property
existing at the time of acquisition thereof, except that in the case of any
such construction or improvement, the mortgage shall not apply to any property
theretofore owned by the Company or any Subsidiary, other than any theretofore
unimproved real property on which the property so constructed, or the
improvement is located; (2) mortgages on any property acquired from a
corporation which is merged with or into the Company or a Subsidiary or
mortgages outstanding at the time any corporation becomes a Subsidiary; (3)
mortgages in favor of the Company or any Subsidiary; and (4) any extension,
renewal or replacement (or successive extensions, renewals or replacements), in
whole or in part, of any mortgage referred to in the foregoing causes (1) to
(3), inclusive; provided, however, that the principal amount of Debt secured
thereby shall not exceed the principal amount of Debt so secured at the time of
such extension, renewal or replacement, and that such extension, renewal or
replacement shall be limited to all or part of the property which secured the
mortgage so extended, renewed or replaced, plus improvements on such property.
Notwithstanding the above, the Company or any Subsidiary may issue, assume or
guarantee secured Debt, including any Funded Debt, which would otherwise be
subject to the foregoing restrictions, in an aggregate
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amount which together with all other such Debt and all Attributable Debt in
respect of Sale and Lease-Back Transactions of the Company and its Subsidiaries
existing at such time does not at the time exceed 10% of the stockholders'
equity of the Company and its consolidated Subsidiaries, computed in accordance
with generally accepted accounting principles applied on a consistent basis, as
shown on the audited consolidated balance sheet contained in the latest annual
report to stockholders of the Company. Notwithstanding the provisions described
above, the Company's Subsidiaries may not issue, assume, guarantee or otherwise
incur Funded Debt in excess of $5,000,000 in the aggregate at any time
outstanding. (Section 1007)
The Indenture also provides that the Company will not, nor will it permit
any Subsidiary to, enter into any arrangement with any person providing for the
leasing to the Company or a Subsidiary of any real property (except for
temporary leases for a term of not more than three years), which property has
been owned and, in the case of any such Facility, has been placed in commercial
operation more than 180 days by the Company or such Subsidiary and has been or
is to be sold or transferred by the Company or such Subsidiary to such person
(herein referred to as "Sale and Lease-Back Transactions"), unless either (a)
the Company or such Subsidiary would be entitled to incur Debt secured by a
mortgage on the property to be leased in an amount equal to the Attributable
Debt with respect to such Sale and Lease-Back Transactions without equally and
ratably securing the Securities pursuant to the Indenture or (b) the Company
shall, and in any such case the Company covenants that it will, apply an amount
equal to the fair value (as determined by the Board of Directors) of the
property so leased to the retirement, within 180 days of the effective date of
any such Sale and Lease-Back Transactions, of Securities or of Funded Debt of
the Company which ranks on a parity with the Securities. (Section 1008)
DEFINITION OF CERTAIN TERMS
"Subsidiary" means any corporation of which a majority of the outstanding
stock having by the terms thereof ordinary voting power to elect a majority of
the board of directors of such corporation (whether or not at the time stock of
any other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Company, or by one or more Subsidiaries,
or by the Company and one more Subsidiaries.
"Funded Debt" means indebtedness for money borrowed which by its terms
matures at, or is extendible or renewable at the option of the obligor, to a
date more than twelve months after the date of the creation of such
indebtedness.
"Attributable Debt" means, at the time of determination, the present value
(discounted at the interest rate, compounded semiannually, equal to the weighted
average yield to maturity of the Debt Securities then outstanding) of the
obligation of a lessee for net rental payments during the remaining term of any
lease (including any period for which such lease has been extended) entered into
in connection with a Sale and Lease-Back Transaction.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of the Debt
Securities, may consolidate or merge with or into, sell, lease, transfer or
otherwise dispose of its assets substantially as an entirety to any Person which
is a corporation, partnership or trust organized under the laws of any domestic
jurisdiction, or may permit any such Person to consolidate or merge with or into
the Company or sell, lease, transfer or otherwise dispose of its assets
substantially as an entirety to the Company, provided that any successor Person
assumes the Company's obligations on the Debt Securities that, under the
Indenture, after giving effect to the transaction no Event of Default, and no
event which, after notice or lapse of time, would become an Event of Default,
shall have occurred and be continuing, and that certain other conditions are
met. (Section 801)
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of each series affected by such
modification or amendment, except that no such modification or amendment may,
without the consent of the Holder of each Outstanding Security affected thereby,
(a) change the Stated Maturity of the principal of, or any installment of
principal of or interest on, any Debt Security, (b) reduce the principal
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amount of, or premium or rate of interest on, any Debt Security, (c) except as
contemplated by the Indenture, change any obligation of the Company to pay
additional amounts, (d) reduce the amount of principal of an Original Issue
Discount Security payable upon acceleration of the maturity thereof, (e) change
the coin or currency in which any Debt Security or any premium or interest
thereon is payable, (f) impair the right to institute suit for the enforcement
of any payment on or with respect to any Debt Security, (g) reduce the
percentage in principal amount of Outstanding Securities of any series, the
consent of whose Holders is required for modification or amendment of the
Indenture or for waiver of compliance with certain provisions of the Indenture
or for waiver of certain defaults, (h) reduce the requirements contained in the
Indenture for consent to or approval of certain matters, (i) change any
obligation of the Company to maintain an office or agency in the places and for
the purpose, required by the Indenture, or (j) modify any of the above
provisions. (Section 902)
The Holders of a majority in aggregate principal amount of the Outstanding
Securities of each series may, on behalf of the Holders of all the Debt
Securities of that series, waive, insofar as that series is concerned,
compliance by the Company with certain restrictive provisions of the Indenture.
(Section 1010) The Holders of a majority in aggregate principal amount of the
Outstanding Securities of each series may, on behalf of all Holders of Debt
Securities of that series, waive any past default under the Indenture with
respect to Debt Securities of that series, except a default (a) in the payment
of principal of, or premium, if any, or any interest on any Debt Security of
such series, and (b) in respect of a covenant or provision of the Indenture
which cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected. (Section 513)
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver thereunder, the
principal amount of an Original Issue Discount Security deemed to be outstanding
shall be the amount of the principal thereof that would be due and payable as of
the date of such determination upon acceleration of the maturity thereof.
(Section 101)
EVENTS OF DEFAULT
The Indenture defines an Event of Default with respect to any series of
Debt Securities as being any one of the following events and such other event as
may be established for the Debt Securities of a particular series: (a) failure
to pay any payment of interest on Debt Securities of such series when due, which
failure continues for 30 days; (b) failure to pay principal or premium, if any,
on Debt Securities of such series when due; (c) failure to deposit any sinking
fund installment on Debt Securities of such series when due; (d) the
acceleration of the Company's obligation to pay any indebtedness in an amount
greater than $10,000,000; (e) failure to perform any other covenant of the
Company in the Indenture (other than a covenant included in the Indenture solely
for the benefit of series of Debt Securities other than that series), which
failure continues for 60 days after written notice as provided in the Indenture;
or (f) certain events involving bankruptcy, insolvency or reorganization.
(Section 501)
The Indenture provides that if an Event of Default shall occur and be
continuing with respect to any series of Debt Securities, either the Trustee or
the Holders of not less than 25% in principal amount of the Debt Securities of
such series then outstanding may declare the principal (or in the case of
Original Issue Discount Securities, such portion of the principal amount
thereof as may be specified in the terms thereof of the Debt Securities of such
series (or of all the Debt Securities as the case may be)) to be due and
payable. (Section 502) In certain cases, the Holders of a majority in principal
amount of the outstanding Debt Securities of any series may on behalf of the
Holders of all the Debt Securities of any such series waive any past default,
except (i) a default in payment of the principal of (or premium, if any) or a
continuing default in the payment of any interest on any of the Debt Securities
of such series or (ii) a default in respect of a covenant or provision which
cannot be modified or amended without the consent of the Holders of all the
Debt Securities of such series. (Section 513)
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during any default under the Indenture to act with the
required standard of care, to be indemnified by the Holders of the Debt
Securities of any series before proceeding to exercise any right or power under
the Indenture with respect
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to such series at the request of such Holders. (Section 601) The Indenture
provides that no Holder of any Debt Securities of any series may institute any
proceeding, judicial or otherwise, to enforce such Indenture, except where the
Trustee has, for 60 days after it is given written notice of default, failed to
act and where there has been both a written request to enforce such Indenture by
the Holders of not less than 25% in aggregate principal amount of the then
outstanding Debt Securities of such series and an offer of reasonable indemnity
to the Trustee. (Section 507) This provision does not prevent any Holder of Debt
Securities from enforcing payment of the principal thereof and premium if any,
and interest thereon at the respective due dates thereof (Section 508) The
Holders of a majority in aggregate principal amount of the Debt Securities of
any series then outstanding may direct the time, method and place of conducting
any proceedings for any remedy available to the Trustee or exercising any trust
or power conferred on it with respect to the Debt Securities of such series.
However, the Trustee may refuse to follow any direction that conflicts with law
or the Indenture or which would be unjustly prejudicial to Holders not joining
therein. (Section 512)
The Company is required to furnish to the Trustee annually a certificate as
to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (Section 1009)
DEFEASANCE
If so specified with respect to any particular series of Debt Securities,
the Company may discharge its indebtedness and its obligations or certain of its
obligations under the Indenture with respect to such series by depositing U.S.
Government Obligations in an amount sufficient to pay and discharge the
Company's obligations with respect to such series of Debt Securities with the
Trustee.
DEFEASANCE AND DISCHARGE
The Indenture provides that, if so specified with respect to the Debt
Securities of any series, the Company will be discharged from any and all
obligations in respect of the Debt Securities of such series (except for certain
obligations relating to temporary Debt Securities and exchange of Debt
Securities, registration of transfer or exchange of Debt Securities of such
series, replacement of stolen, lost or mutilated Debt Securities of such series,
maintenance of paying agencies, holding monies for payment in trust and payment
of additional amounts, if any, required in consequence of United States
withholding taxes imposed on payments to non-United States persons) upon the
deposit with the Trustee, in trust, of money or U.S. Government Obligations
which through the payment of interest and principal thereof in accordance with
their terms will provide money in an amount sufficient to pay the principal of
(and premium, if any), each installment of interest on and any sinking fund
payments on the Debt Securities of such series on the stated maturity of such
payments in accordance with the terms of the Indenture and the Debt Securities
of such series. Such a trust may only be established if, among other things, (a)
the Company has delivered to the Trustee an Opinion of Counsel to the effect
that (i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the date of the Indenture there
has been a change in applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that, the
Holders of Debt Securities of such series will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit, defeasance and
discharge, and will be subject to federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, and (b) the Debt Securities
of such series, if then listed on any domestic or foreign securities exchange,
will not be delisted as result of such deposit, defeasance and discharge.
(Section 403) In the event of any such defeasance and discharge of Debt
Securities of such series, Holders of Debt Securities of such series would be
able to look only to such trust fund for payment of principal of and any premium
and any interest on their Debt Securities until maturity.
DEFEASANCE OF CERTAIN OBLIGATIONS
The Indenture provides that, if so specified with respect to the Debt
Securities of any series, the Company may omit to comply with the restrictive
covenants described under "Certain Covenants of the Company" above and any such
omission shall not be an Event of Default with respect to the Debt Securities of
such series, upon the deposit with the Trustee, in trust, of money or U.S.
Government Obligations which
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through the payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay the principal
of (and premium, if any) each installment of interest on and any sinking fund
payments on the Debt Securities of such series on the Stated Maturity of such
payments in accordance with the terms of the Indenture and the Debt Securities
of such series. The obligations of the Company under the Indenture and the Debt
Securities of such series other than with respect to such covenant shall remain
in full force and effect. Such a trust may be established only if, among other
things, the Company has delivered to the Trustee an Opinion of Counsel to the
effect that (i) the Holders of the Debt Securities of such series will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain obligations and will be subject to
federal income tax on the same amounts and in the same manner and at the same
time as would have been the case if such deposit and defeasance had not occurred
and (ii) the Debt Securities of such series, if then listed on any domestic or
foreign securities exchange, will not be delisted as a result of such deposit
and defeasance. (Section 1011)
In the event the Company exercises its option to omit compliance with the
covenants described under "Certain Covenants of the Company" above with respect
to the Debt Securities of any series as described above and the Debt Securities
of such series are declared due and payable because of the occurrence of any
Event of Default, then the amount of money and U S. Government Obligations on
deposit with the Trustee will be sufficient to pay amounts due on the Debt
Securities of such series at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the Debt Securities of such series at the time
of the acceleration resulting from such Default. The Company shall in any event
remain liable for such payments as provided in the Indenture.
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through underwriters or dealers
and also may sell Debt Securities directly to other purchasers or through
agents. Any such underwriter or agent involved in the offer and sale of the Debt
Securities will be named in an applicable Prospectus Supplement.
Underwriters may offer and sell the Debt Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company also may offer and sell the Debt Securities in
exchange for one or more issues of its outstanding debt securities or
exchangeable or convertible debt securities. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
the Debt Securities upon the terms and conditions as shall be set forth in any
Prospectus Supplement. In connection with the sale of Debt Securities,
underwriters may be deemed to have received compensation from the Company in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of Debt Securities for whom they may act as agent. Underwriters
may sell Debt Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions (which may be changed from time to time) from
the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or
agents in connection with the offering of Debt Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Debt Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Debt Securities may be deemed
to be underwriting discounts and commissions, under the Act. Underwriters,
dealers and agents may be entitled, under agreements with the Company, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Act, and to reimbursement by the Company for
certain expenses.
If so indicated in an applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Debt Securities for the Company at the public offering
price set forth in such Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount not
less than, and the aggregate principal amount of Debt Securities sold
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pursuant to Contracts, shall not be less nor more than, the respective amounts
stated in such Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and other institutions, but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
(i) the purchase by an institution of the Debt Securities covered by its
Contracts shall not at the time of delivery thereof be prohibited under the laws
of any jurisdiction in the United States to which such institution is subject,
and (ii) if any of the Debt Securities are being sold to underwriters, the
Company shall have sold to such underwriters the total principal amount of the
Debt Securities less the principal amount thereof covered by Contracts. Agents
and underwriters will have no responsibility in respect of the delivery or
performance of Contracts.
All Debt Securities will be a new issue of securities with no established
trading market. Any underwriters to whom Debt Securities are sold by the Company
for public offering and sale may make a market in such Debt Securities, but such
underwriters will not be obligated to do so and may discontinue any market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for any Debt Securities.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.
TAXATION
The following is a summary of certain federal income tax consequences to
purchasers of the Debt Securities. The summary does not discuss all aspects of
federal income taxation which may be relevant to particular investors in view of
their specific investment circumstances, nor does it discuss any foreign, state
or local income or other tax considerations. The summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), and on regulations,
rulings and decisions that are in effect as of the date of this Prospectus, all
of which are subject to change. The summary assumes that the Debt Securities are
held as "capital assets" (generally, property held for investment purposes)
within the meaning of Section 1221 of the Code.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF
PURCHASING, HOLDING AND DISPOSING OF THE DEBT SECURITIES.
STATED INTEREST
In general, interest payments on a Debt Security calculated on the basis of
a single fixed rate of interest, or a variable rate tied to a single objective
index of market interest rates, that is actually and unconditionally payable at
fixed periodic intervals of one year or less over the entire term of the Debt
Security (including short periods) will be included in the Holder's gross income
as ordinary interest income in accordance with such Holder's method of tax
accounting.
ORIGINAL ISSUE DISCOUNT
Debt Securities with a term greater than one year may be issued with
original issue discount for federal income tax purposes. Original Issue
Discount will arise if the stated principal amount at maturity of a Debt
Security exceeds its issue price by more than a de minimis amount, or if a Debt
Security has certain interest payment characteristics (e.g., interest holidays,
interest payable in additional Debt Securities or stepped rates). If a Debt
Security is issued with original issue discount, the Holder of the Debt
Security will be required to include amounts in gross income for federal income
tax purposes in advance of the receipt of the cash payment to which such income
is attributable. The amount of original issue discount to be included in income
in any tax period will be determined using a constant yield to maturity method.
Any amounts included in income as original issue discount will, however,
increase a Holder's tax basis in the Debt Security.
Any Debt Security issued with original issue discount will bear a legend
setting forth the issue date, the total amount of original issue discount, the
yield to maturity and certain other information. The Company will also report
annually to the Internal Revenue Service (the "IRS") and to each Holder of such
Debt Security
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the original issue discount accrued with respect to the Debt Security.
Prospective Holders are advised to consult their tax advisors with respect to
the particular original issue characteristics of the Debt Security that is being
purchased.
ACQUISITION DISCOUNT OF SHORT-TERM DEBT SECURITIES
Debt Securities that have a fixed maturity of one year or less may be
issued with acquisition discount. Acquisition discount will arise under the
circumstances set forth above with respect to original issue discount. Accrual
basis taxpayers and taxpayers in certain specified classes would be required to
include acquisition discount in income currently in an amount and manner similar
to that applicable to original issue discount. In addition, taxpayers not
required to include acquisition discount in income currently may elect to
include acquisition discount in income currently. A Holder who makes such an
election cannot revoke such election without the consent of the IRS, and such
election applies to all short-term obligations acquired by the Holder in the
taxable year in which the election is made and in all subsequent taxable years.
Taxpayers not subject to the above rules and not electing to be subject to such
rules and holding Debt Securities with acquisition discount are not required to
include accrued acquisition discount in income until the cash payments
attributable to such amounts are received, which amounts will be treated as
ordinary income. A Holder who does not recognize acquisition discount currently
may, however, be subject to limitations on the deductibility of interest on
indebtedness incurred to purchase or carry such a Debt Security.
MARKET DISCOUNT
If a Holder purchases a Debt Security for an amount that is less than its
principal amount, the amount of the difference will be treated as "market
discount" for federal income tax purposes, unless such difference is less than a
specified de minimis amount. Under the market discount rules, a Holder will be
required to treat any principal payment on, or any gain on the sale, exchange,
retirement or other disposition of, a Debt Security as ordinary income to the
extent of the market discount which has not previously been included in income
and is treated as having accrued on such Debt Security at the time of such
payment or disposition. In addition, the Holder may be required to defer, until
the maturity of the Debt Security or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Debt Security.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Debt Security, unless
the Holder elects to accrue on a constant interest method. A Holder of a Debt
Security may elect to include market discount in income currently as it accrues
(on either a ratable or constant interest method), in which case the rule
described above regarding deferral of interest deductions will not apply. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first taxable year to
which the election applies and may not be revoked without the consent of the
IRS.
AMORTIZABLE BOND PREMIUM
A Holder that purchases a Debt Security for an amount in excess of the
sum of its principal amount will be considered to have purchased the Debt
Security at a "premium." A Holder generally may elect to amortize the premium
over the remaining term of the Debt Security on a constant yield method. The
amount amortized in any year will be treated as a reduction of the Holder's
interest income from the Debt Security. Bond premium on a Debt Security held by
a Holder that does not make such an election will decrease the gain or increase
the loss otherwise recognized on disposition of the Debt Security. The election
to amortize premium on a constant yield method once made applies to all debt
obligations held or subsequently acquired by the electing Holder on or after
the first day of the first taxable year to which the election applies and may
not be revoked without the consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF DEBT SECURITIES
A Holder's tax basis in a Debt Security will, in general, be the Holder's
cost therefor, increased by market discount previously included in income by the
Holder and reduced by any amortized premium. Upon the sale, exchange or
retirement of a Debt Security, a Holder will recognize gain or loss equal to the
difference between
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the amount realized upon the sale, exchange or retirement (less any accrued
interest, which will be taxable as such) and the adjusted tax basis of the Debt
Security. Except as described above with respect to market discount, such gain
or loss will be capital gain or loss and will be long-term capital gain or loss
if at the time of sale, exchange or retirement the Debt Security has been held
for more than one year. Under current law, long-term capital gains of
individuals are, under certain circumstances, taxed at lower rates than items of
ordinary income. The deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Debt Securities and to the
proceeds of sale of a Debt Security made to Holders other than certain exempt
recipients (such as corporations). A 31% backup withholding tax will apply to
such payments if the Holder fails to provide a taxpayer identification number or
certification of foreign or other exempt status or fails to report in full
dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such Holder's United States federal income tax
liability provided the required information is furnished to the IRS.
VALIDITY OF DEBT SECURITIES
The validity of the Debt Securities will be passed upon for the Company by
Goodwin, Procter & Hoar, Boston, Massachusetts, and certain legal matters in
connection with the offering of the Debt Securities will be passed upon for any
underwriters or agents by Skadden, Arps, Slate, Meagher & Flom, Boston,
Massachusetts.
TRUSTEE'S RELATIONSHIP WITH ISSUER
State Street Bank and Trust Company acts as Trustee for Debt Securities
issued under the Indenture and from time to time makes or participates in loans
to, and performs other services for, the Company in the normal course of
business. It also acts as trustee for certain of the Company's employee benefit
plans. Nader F. Darehshori, the Chairman of the Board, President, and Chief
Executive Officer, and a director of the Company, and Joseph A. Baute, a
director of the Company, serve as directors of State Street Bank and Trust
Company.
EXPERTS
The consolidated financial statements of the Company included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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