Filed Pursuant to Rule 424(b)(5)
File Number 33-51865
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 8, 1994)
$100,000,000
[LOWE'S LOGO]
6 3/8% SENIOR NOTES DUE DECEMBER 15, 2005
Interest on the Notes is payable semi-annually on June 15 and December 15
of each year, beginning June 15, 1996. The Notes may not be redeemed prior to
maturity.
The Notes will be represented by one or more Global Notes (collectively,
the "Global Note") registered in the name of the nominee of The Depository Trust
Company ("DTC"), which will act as Depositary. Interests in the Global Note will
be evidenced only by, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. See "Description of
Notes -- Book-Entry System." Except as described in the Prospectus, Notes in
definitive form will not be issued. Settlement for the Notes will be made in
immediately available funds. All payments of principal and interest will be made
by Lowe's Companies, Inc. in immediately available funds. See "Description of
Notes -- Same-Day Settlement and Payment."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
<S> <C> <C> <C>
Per Note................................ 99.605% .65% 98.955%
Total................................... $99,605,000 $650,000 $98,955,000
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $150,000.
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Notes will be made through the book-entry facilities of DTC on
or about December 18, 1995.
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MONTGOMERY SECURITIES
The date of this Prospectus Supplement is December 13, 1995.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMPANY
Lowe's Companies, Inc. (the "Company" or "Lowe's") is a leading specialty
retailer of products and services for the home improvement, home decor, home
repair and remodeling, and home construction markets. The Company's principal
customer groups are do-it-yourself customers, repair and remodeling contractors,
and new home builders. As of October 31, 1995, the Company operated 362 stores
with 22.8 million square feet of sales floor in 22 states located principally in
the South Atlantic and South Central regions of the United States. According to
NATIONAL HOME CENTER NEWS, an industry publication, Lowe's is the second largest
home center retailer in the United States.
STORE EXPANSION STRATEGY
Since 1989, Lowe's has been implementing an aggressive store expansion
strategy to transform the Company from a chain of small stores into a chain of
destination home improvement superstores. Large stores continue to lead Lowe's
growth in sales and profitability. During fiscal 1994, post-1988 large stores
comprised 57% of total units and contributed 69% of sales and 71% of operating
profits. In the first three quarters of fiscal 1995, large stores were 68% of
total units, and contributed 79% of sales and 80% of operating profits. At the
end of the third quarter of fiscal 1995, the 246 large stores open represented
21.1 million square feet of space or 92% of total square footage. Currently,
Lowe's prototype large store is a 101,000 square foot sales floor unit for
smaller markets and a 115,000 square foot sales floor unit for mid-size and
larger markets, each with a lawn and garden center comprising approximately
30,000 additional square feet. The Company's plans call for operating 365 stores
by the end of fiscal year 1995 and at least 400 stores by the end of fiscal
1996, with a goal of 600 stores by the year 2000. The Company's retail selling
space is expected to increase approximately 5% in the last quarter of fiscal
1995 to approximately 24.0 million square feet.
The following table compares Lowe's store group unit totals as of the end
of the third quarter of fiscal years 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
% OF % % OF % % OF
STORE SIZE (1) TOTAL CHANGE UNITS TOTAL CHANGE UNITS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Small.......................................................... 16% (11)% 59 20% (11)% 66 24%
Medium......................................................... 16 (21) 57 22 (23) 72 31
Large.......................................................... 68 31 246 58 38 188 45
Total.......................................................... 100% 362 100% 326 100%
<CAPTION>
STORE SIZE (1) UNITS
<S> <C>
Small.......................................................... 74
Medium......................................................... 93
Large.......................................................... 136
Total.......................................................... 303
</TABLE>
(1) Small stores average less than 7,500 square feet of sales floor and include
contractor yards; medium stores stem from the Company's 1984-1988 expansion
and average about 23,000 square feet; large stores average approximately
80,000 square feet.
CUSTOMER SERVICE STRATEGY
Lowe's serves both retail and professional customers. Retail customers are
primarily homeowners and others buying for personal and family use. Professional
customers include building contractors, repair and remodeling contractors,
electricians, painters, plumbers and industrial purchasing agents. Because
retail sales are more profitable and less cyclical than professional sales, the
Company has given priority to retail sales growth since 1984 and has
substantially shifted its customer base especially in its new larger stores.
The Company has achieved retail sales growth through increased sales in
existing stores, relocation of stores, expansion of sales floor space, and an
Everyday Competitive Price ("ECP") strategy. ECP builds profitability by
substantially increasing revenues per store without a commensurate increase in
fixed costs. These higher sales per store enhance the Company's ability to sell
its products at low prices. ECP gives the Company's customers the confidence to
buy every day without waiting for promotional sales.
S-2
<PAGE>
PRODUCTS AND STORE SUPPORT
A typical Lowe's superstore stocks on average approximately 40,000 product
items. Product groups include building commodities and millwork (20% of fiscal
1994 sales); home decorating and illumination (20%); structural lumber (15%);
yard, patio and garden (12%); kitchen, bathroom and laundry (11%); heating,
cooling and water systems (6%); tools (6%); special order sales (6%) and
consumer electronics (4%).
The Company has installed new computer hardware and software in its stores
and upgraded its satellite communications. Expanded use of Electronic Data
Interchange has enabled vendors to improve store in-stock positions. Two major
distribution centers are expected to become operational in 1996 to support
growth in the Company's current markets and targeted expansion market areas.
The Company employs 46,080 full time and part-time employees. Lowe's
general offices are located in North Wilkesboro, North Carolina, and its three
major distribution centers are located in North Wilkesboro, Villa Rica, Georgia,
and North Vernon, Indiana.
USE OF PROCEEDS
Net proceeds from the sale of the Notes will be used to finance a portion
of the Company's store expansion program and for general corporate purposes.
Funds not applied immediately to those purposes may be invested temporarily in
short-term marketable securities.
CAPITALIZATION
The following table sets forth the capitalization of the Company and its
consolidated subsidiaries at October 31, 1995, and as adjusted to reflect the
issuance of the Notes offered hereby.
<TABLE>
<CAPTION>
OCTOBER 31, 1995
ACTUAL AS ADJUSTED
<S> <C> <C>
(IN THOUSANDS)
Long-term debt:
Long-term notes payable and capital leases (including $13,636 in current
maturities) with interest rates ranging from 3.00% to 13.45%, due 1995
through 2033............................................................. $ 477,778 $ 477,778
6 3/8% Senior Notes due December 15, 2005................................. -- 100,000
3% Convertible Subordinated Notes due July 22, 2003....................... 284,744 284,744
Total long-term debt................................................. 762,522 862,522
Shareholders' equity:
Common Stock -- $0.50 par value; 160,809,046 shares issued
and outstanding........................................................ 80,389 80,389
Capital in excess of par.................................................. 593,571 593,571
Retained earnings......................................................... 958,304 958,304
Unearned compensation -- restricted stock awards.......................... (4,757) (4,757)
Unrealized loss on available-for-sale securities.......................... (761) (761)
Total shareholders' equity........................................... 1,626,746 1,626,746
Total capitalization........................................................ $2,389,268 $ 2,489,268
</TABLE>
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the consolidated financial statements (including the notes thereto) included in
the Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1995 and the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended April 30, July 31, and October 31, 1995, which are incorporated by
reference herein. Fiscal years end on January 31 of the following calendar year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31, FISCAL YEAR ENDED JANUARY 31,
1995 1994 1995 1994 1993 1992(1)
<S> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, STORE DATA AND RATIO DATA)
SELECTED OPERATING DATA:
Net sales..................... $5,378,740 $4,623,032 $6,110,521 $4,538,001 $3,846,418 $3,056,247
Cost of sales................. 4,034,115 3,501,618 4,597,977 3,456,717 2,945,753 2,320,989
Gross margin.................. 1,344,625 1,121,414 1,512,544 1,081,284 900,665 735,258
Selling, general and
administrative.............. 877,320 710,562 981,806 746,279 653,782 553,322
Depreciation.................. 107,648 78,824 109,647 80,530 69,820 58,298
Employee benefits............. 38,301 37,507 49,687 37,873 35,572 30,461
Interest...................... 27,404 21,580 27,873 18,278 15,599 16,938
Store restructuring charge.... -- -- -- -- -- 71,288
Total expenses................ 1,050,673 848,473 1,169,013 882,960 774,773 730,307
Pre-tax earnings.............. 293,952 272,941 343,531 198,324 125,892 4,951
Provision for income taxes.... 106,100 95,646 119,971 66,538 41,172 (1,536)
Net earnings.................. $ 187,852 $ 177,295 $ 223,560 $ 131,786 $ 84,720 $ 6,487
Earnings per common
share -- assuming full
dilution.................... $ 1.13 $ 1.11 $ 1.39 $ .89 $ 0.58 $ 0.04
Weighted average shares
outstanding................. 160,308 153,439 154,926 147,398 146,152 146,052
Dividends paid per share...... $ 0.14 $ 0.13 $ 0.18 $ .16 $ 0.14 $ 0.14
Ratio of earnings to fixed
charges (2)................. 6.55x 7.45x 6.82x 6.45x 5.73x 1.15x(3)
SELECTED STORE DATA:
Number of stores.............. 362 326 336 311 303 306
Square footage (millions)..... 22.8 16.8 18.6 14.1 10.0 8.0
SELECTED BALANCE SHEET DATA:
Current assets................ $1,705,502 $1,567,516 $1,557,168 $1,083,907 $ 745,554 $ 770,078
Current liabilities........... 1,082,195 838,212 945,892 681,176 499,634 588,951
Working capital............... 623,307 729,304 611,276 402,731 245,920 181,127
Total assets.................. 3,523,598 2,897,326 3,105,992 2,201,648 1,608,877 1,441,228
Long-term debt, excluding
current maturities.......... 748,886 628,288 681,184 592,333 313,562 113,650
Shareholders' equity.......... 1,626,746 1,378,720 1,419,890 873,669 733,220 668,554
</TABLE>
<TABLE>
<CAPTION>
1991
<S> <C>
SELECTED OPERATING DATA:
Net sales..................... $2,833,108
Cost of sales................. 2,130,428
Gross margin.................. 702,680
Selling, general and
administrative.............. 505,918
Depreciation.................. 51,431
Employee benefits............. 27,661
Interest...................... 17,419
Store restructuring charge.... --
Total expenses................ 602,429
Pre-tax earnings.............. 100,251
Provision for income taxes.... 29,164
Net earnings.................. $ 71,087
Earnings per common
share -- assuming full
dilution.................... $ 0.48
Weighted average shares
outstanding................. 148,856
Dividends paid per share...... $ 0.13
Ratio of earnings to fixed
charges (2)................. 4.69x
SELECTED STORE DATA:
Number of stores.............. 309
Square footage (millions)..... 7.1
SELECTED BALANCE SHEET DATA:
Current assets................ $ 616,461
Current liabilities........... 337,676
Working capital............... 278,785
Total assets.................. 1,203,052
Long-term debt, excluding
current maturities.......... 159,204
Shareholders' equity.......... 682,672
</TABLE>
(1) During the fourth quarter of fiscal 1991, the Company recorded a $71.3
million pre-tax charge to earnings related to the planned conversion from a
chain of small stores to a chain of large stores. See Note 15 from the
Company's consolidated financial statements included in its Annual Report on
Form 10-K for the fiscal year ended January 31, 1995.
(2) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" include pre-tax earnings plus fixed charges. "Fixed charges"
include interest expense, capitalized interest and the portion of rental
expense which is representative of the interest factor in these rentals.
(3) The ratio of earnings to fixed charges before the restructuring charge was
4.01.
S-4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis set forth below should be read in
conjunction with the consolidated financial statements (including the notes
thereto) incorporated by reference into the Prospectus. References to financial
statements are to the financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1995 and the Quarterly
Reports on Form 10-Q for the quarters ended April 30, July 31, and October 31,
1995.
RESULTS OF OPERATIONS
The data below reflect the percentage relationship between sales and major
categories in the Consolidated Statements of Earnings and the percentage change
in the dollar amount of each of the items:
<TABLE>
<CAPTION>
PERCENTAGE
NINE INCREASE OF
MONTHS ENDED FISCAL YEAR ENDED DOLLAR
OCTOBER 31, PERCENTAGE JANUARY 31, AMOUNTS
1995 1994 INCREASE 1995 1994 1993 1995 V. 1994
OF DOLLAR
AMOUNTS
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED STATEMENT
OF EARNINGS DATA:
Net sales........................ 100.0% 100.0% 16.3% 100.0% 100.0% 100.0% 34.7%
Gross margin..................... 25.0 24.3 19.9 24.8 23.8 23.4 39.9
Cost and expenses:
Selling, general and
administrative (1)........... 19.0 17.9 23.7 18.7 19.1 19.7 32.0
Interest....................... 0.5 0.5 27.0 0.5 0.4 0.4 53.0
Earnings before income taxes..... 5.5 5.9 7.7 5.6 4.4 3.3 73.2
Income taxes..................... 2.0 2.1 10.9 1.9 1.5 1.1 80.3
Net earnings..................... 3.5% 3.8% 6.0% 3.7% 2.9% 2.2% 69.6%
</TABLE>
<TABLE>
<CAPTION>
1994 V. 1993
<S> <C>
SELECTED CONSOLIDATED STATEMENT
OF EARNINGS DATA:
Net sales........................ 18.0%
Gross margin..................... 20.1
Cost and expenses:
Selling, general and
administrative (1)........... 13.9
Interest....................... 17.2
Earnings before income taxes..... 57.5
Income taxes..................... 61.6
Net earnings..................... 55.6%
</TABLE>
(1) Includes selling, general and administrative as well as store opening costs,
depreciation and employee benefits.
GENERAL
Analysis of the Company's operating results must center on the changing
structure of the chain and the relative performance of its three store groups
-- small, medium and large. Lowe's large stores, which average approximately
80,000 square feet in size, have led the Company's performance since 1990 and
have outperformed the other store groups in both sales and operating earnings
(defined as profits before corporate expense and intercompany charges, interest,
LIFO adjustment, and income taxes). In fiscal 1994, the average sales
performance of the large stores was 67% greater than sales from other stores,
and operating earnings per large store were 99% greater. The performance of the
Company's large stores should continue to increase earnings as the Company
executes its restructuring plan to increase sales floor area. The Company's
current large store prototypes are 101,000 to 115,000 square feet. By the end of
fiscal 1995, the Company anticipates that its total sales floor area will be
approximately 24.0 million square feet, up from 18.6 million square feet at the
end of fiscal 1994.
THREE AND NINE MONTHS ENDED OCTOBER 31, 1995 COMPARED TO THREE AND NINE MONTHS
ENDED OCTOBER 31, 1994
For the quarter ended October 31, 1995, the Company reported third quarter
sales growth of 12% to $1.77 billion and an earnings decline to $43.9 million,
the first one since the fourth quarter of fiscal 1991. Earnings per share (fully
diluted) were $0.27 compared to $0.33 in the comparable quarter in fiscal 1994.
For the nine months ended October 31, 1995, sales grew 16% to $5.38 billion, net
earnings increased 6% to $187.9 million and earnings per share (fully diluted)
were $1.13 compared to $1.11 in the comparable period in fiscal 1994. Comparable
store sales declined 3.6% quarter to date and increased 0.7% year to date.
Sales in the third quarter of fiscal 1995 were hindered by a softening in
consumer demand. An analysis of product sales shows that consumers are in a
currently cautious mood. Their emphasis is on just "fixing", rather than "fixing
up." Also, there are major variations of economic strength state by state.
Overall, deflation caused a 2% decrease in total sales. The most significant
deflation came in lumber/building materials but prices in electronics, tools and
major appliances were lower also. If present trends continue, the Company
expects that earnings for fiscal 1995 will be flat or slightly up from those for
fiscal 1994.
Gross margin was 24.29% of sales for the quarter ended October 31, 1995,
versus 24.14% in the comparable period in fiscal 1994. Gross margin for the nine
months ended October 31, 1995, was 25.00% versus 24.26% in the comparable period
S-5
<PAGE>
in fiscal 1994. The modest increase in gross margin rate continues to reflect
favorable changes in the Company's product mix as well as the continuing shift
in business from contractor to retail.
Selling, general and administrative ("SG&A") expenses were 16.13% of sales
in the third quarter of fiscal 1995 versus 15.15% in the third quarter of fiscal
1994. SG&A expenses increased 19% compared to a 12% sales gain in the third
quarter of fiscal 1995. There was a 17% store salary increase (excluding those
in store opening costs). For the nine months ended October 31, 1995, SG&A was
15.63% of sales versus 14.82% for the comparable period in fiscal 1994.
For the quarter ended October 31, 1995, store opening costs were $16.3
million versus $10.6 million in the third quarter of fiscal 1994, representing
costs associated with the opening of 16 stores during the quarter (10 new and
six relocated) compared to 10 stores in the third quarter of fiscal 1994 (three
new and seven relocated). Advertising and staff training investments were
enhanced. For the nine months ended October 31, 1995, store opening costs were
$36.4 million versus $25.4 million for the comparable period in fiscal 1994,
representing costs associated with the opening of 42 stores this fiscal year (27
new and 15 relocated) compared to 31 stores in the comparable period in fiscal
1994 (16 new and 15 relocated).
Depreciation was $38.9 million for the quarter ended October 31, 1995 and
$107.6 million for the nine months ended October 31, 1995, increases of 36% and
37%, respectively, over the comparable periods in fiscal 1994. The increases are
due primarily to buildings, fixtures, displays and computer equipment for the
Company's store expansion program.
Employee retirement plan expense was $11.6 million for the three months
ended October 31, 1995, a 13% decrease compared to the comparable period in
fiscal 1994. For the nine months ended October 31, 1995, employee retirement
plan expense was up by only 2% to $38.3 million. The decrease during the quarter
and only modest increase for the nine month period is due to an increase in new
employees who are not yet eligible for the Employee Stock Ownership Plan which
is funded totally by the Company.
Interest expense increased $5.8 million to $27.4 million for the nine
months ended October 31, 1995. This is the result of an increase of $0.9 million
in the first quarter, an increase of $1.6 million in the second quarter and an
increase of $3.3 million in the third quarter. The increase is primarily due to
interest on capitalized building leases.
The Company's effective income tax rate was 35.61% for the three months
ended October 31, 1995, compared to 35.14% for the comparable three months in
fiscal 1994. The effective rate was 36.09% versus 35.04% for the nine months
ended October 31, 1995 and 1994, respectively. The Company's higher effective
tax rates in fiscal 1995 are due primarily to a higher effective state tax rate.
The uses of cash in the first nine months of fiscal 1995 continued to lay
the groundwork for implementing the Company's strategic plan. Merchandise
inventory increased $232.3 million. Real property increased in line with the
Company's strategic plan to continue expansion of sales floor square footage by
relocating from older, smaller stores to larger stores and to expand into new
markets.
The Company's 1995 expansion has been financed through funds from
operations, operating leases, issuance of approximately $37 million in common
stock to the Company's ESOP and external financing. Financing in the first nine
months of fiscal 1995 came from net earnings, short-term borrowings and sales of
investments in the Company's cash management program. In addition to these
sources, the Company has available agreements for up to $155 million in lines of
credit for issuing documentary and standby letters of credit. Another $120
million is available for the purpose of short-term borrowings on a bid basis
from various banks. On April 10, 1995, the Company entered into a five-year,
$300 million revolving credit facility with a group of thirteen commercial banks
to provide alternate liquidity for the Company's commercial paper program and
for general corporate purposes. On September 26, 1995, the Company effectuated a
separate, short-term revolving credit and security agreement not to exceed $100
million and borrowed $90 million.
FISCAL 1994, 1993 AND 1992
The Company achieved record sales of $6.11 billion during fiscal 1994, a
35% increase over fiscal 1993 sales of $4.54 billion. Sales for fiscal 1993 were
18% higher than fiscal 1992 levels. Management believes that this increase is
attributable to customer receptiveness to the large stores with their large
inventory assortment, ECP and enhanced customer service.
The Company's gross margin improved to 24.8% in fiscal 1994 from 23.8% in
fiscal 1993. ECP was implemented during fiscal 1992, causing a temporary margin
reduction to 23.4%. The ECP strategy working in tandem with the Company's large
store marketing strategy creates higher sales volumes and margin dollars.
LIFO charges reduced margins by 1, 34 and 25 basis points for fiscal 1994,
1993 and 1992, respectively. Had inventory costs been stated on a FIFO basis,
year-end inventory totals would have been $65.0, $64.5 and $49.0 million higher,
respectively, for these years.
S-6
<PAGE>
SG&A expenses for fiscal 1994 were $941.0 million or 15.4% of sales, an
improvement over each of the two previous years of 15.8% and 16.7% of sales,
respectively. Carefully managed cost containment measures and leverage on higher
sales volumes were the major contributors to this favorable trend.
Store opening costs were $40.7 million for fiscal 1994. These costs were
$29.3 and $11.0 million for fiscal 1993 and 1992, respectively. These costs
averaged about $800,000 per store in fiscal 1994. Costs grew somewhat higher as
store openings in new markets grew as a percentage of the total.
Depreciation, reflecting continuing fixed asset expansion, increased 36% to
$109.6 million in fiscal 1994. A 15% increase for fiscal 1993, which was
computed from a prior year base of $69.8 million, was in line with expectations.
Depreciation for these years has maintained a percentage to sales of
approximately 1.8%. Approximately one-half of new stores for fiscal 1994 and
1993 were leased.
Employee retirement plan expense for fiscal 1994 was $49.7 million or 0.8%
of sales. This cost is consistent with 0.8% and 0.9% for each of the two
previous years. A lower eligibility rate for plan participation, resulting from
more new hires relating to expansion, accounts for maintaining a favorable
percentage relative to sales for each year.
Interest costs were $27.9 million (0.5% of sales) in fiscal 1994, a 52%
increase above those in fiscal 1993. Interest costs were $18.3 million for
fiscal 1993. Interest costs trended upward during fiscal 1994 while near
historic lows in borrowing rates prevailed for each of the two prior years.
Cash dividends paid to common shareholders were $27.4 and $23.6 million in
fiscal 1994 and 1993, respectively.
BALANCE SHEET MANAGEMENT
Effective inventory turnover is a result of good product management. The
Company calculates "turn" by using cost of sales as the numerator and divides by
the average of beginning inventory plus the subsequent four quarters' ending
inventories. In fiscal 1994, the Company's inventory turned 4.7 times, which
represented no change from the turnover in fiscal 1993.
Accounts receivable totaled $109 million at January 31, 1995 compared to
$49 million for January 31, 1994 and $53 million for January 31, 1993. In 1992,
an undivided fractional interest in a designated pool of receivables was sold,
with this program continuing into 1993 and 1994. Because of the Company's
surplus cash position during the middle of 1994, management decided to carry the
receivables in lieu of continuing with the "pool sales program" in effect at
that time. Management reinstated this program during January 1995. Fees
associated with this program are recorded in SG&A expenses.
Property, less accumulated depreciation, increased 37% to $1.40 billion for
fiscal 1994. In fiscal 1993, it increased 30% over 1992 levels. The majority of
the increase stems from superstore investment, including point-of-sale
equipment, fixtures and displays.
Other assets primarily consist of land and building relating to vacated
stores which are available for sale or lease. These properties are carried at
their net realizable value. At January 31, 1995, this value was approximately
$42 million. During fiscal 1993, vacated properties were valued at $44 million.
At January 31, 1995, seven properties having a book value of approximately $8.5
million were under contract to be sold. Notes receivable relating to sales of
excess properties were $9 million at the end of fiscal 1994, up $5 million from
the end of the previous year. Investments in low income housing at January 31,
1995 were $11 million compared to $7 million at the same time in the previous
year.
Accounts payable, the major financing source for inventory, financed 60% of
fiscal 1994 year-end inventory compared to 55% for fiscal 1993 and 56% for
fiscal 1992. This increase is the result of changes in inventory product mix and
improved payment terms from vendors.
Long-term debt, excluding current maturities, at January 31, 1995 was
$681.2 million, up 15% from January 31, 1994. During fiscal 1993, $287.5 million
3% Convertible Subordinated Notes were issued at a discount, raising $250
million. Medium-term notes were issued in both 1993 and 1992 after the early
retirement of long-term debt carrying double-digit interest rates. In 1992, most
short-term debt was eliminated with this trend carrying over into 1993 and 1994.
The Company took a special one-time restructuring charge of $71.3 million
pre-tax to cover expected costs and expenses incident to its expansion program.
Charges against the restructuring accrual associated with relocating and closing
stores were $19.7, $19.0 and $16.6 million for fiscal 1994, 1993 and 1992,
respectively. The remaining restructuring accrual (short-term and long-term) at
January 31, 1995 was $13.8 million. Charges against this accrual for fiscal 1995
will complete the restructuring program.
S-7
<PAGE>
Shareholders' equity continues to finance the largest portion of assets.
Total shareholders' equity increased by $546.2 million in fiscal 1994 and
financed 45.7% of assets at January 31, 1995. This compared favorably to 39.7%
for fiscal 1993 and 45.6% for fiscal 1992.
CASH FLOW
Primary sources of liquidity are cash flows from operating activities and
certain financing activities. In fiscal 1995, capital leases will be the primary
source of financing for new store facilities.
Working capital at January 31, 1995, was $611.3 million, compared to $402.7
million at January 31, 1994, and $245.9 million at January 31, 1993.
During fiscal 1994, 1993, and 1992, the Company entered into various leases
for new store facilities. Several of these leases were classified as capital
leases, the result of which is to increase long-term debt. Amounts classified as
capital leases were $104.2, $29.3 and $24.6 million for fiscal 1994, 1993 and
1992, respectively.
Major uses of cash continue to be investments in new store facilities. In
fiscal 1994, capital investment was $529 million (cash outlays of $414 million
plus capital leases of $104 million and like-kind exchanges of $11 million)
which did not include operating leases of $113 million.
Fiscal 1995's expansion program has been financed through operations,
operating leases, issuance of approximately $37 million of common stock to the
ESOP and from external financing. Expansion during fiscal 1996 will be financed
similarly with the proceeds from the sale of the Notes offered hereby financing
a portion of the Company's expansion program.
Short-term capital needs will be financed through utilization of Lowe's
bank credit agreements and commercial paper program.
The ratio of long-term debt to equity plus long-term debt was 32.4%, 40.4%
and 30.0% with fixed charge coverage at 6.8x, 6.5x and 5.7x for fiscal 1994,
1993 and 1992, respectively.
OTHER
General inflation has not had a significant impact on the Company during
the past three years. With the exception of certain building commodity products,
deflation has been experienced in most product groupings. Lumber products have
experienced more price volatility than other building commodities due to
variability of demand and supply plus environmental concerns.
Inflation/(deflation) rates experienced by lumber products were (0.4%), 12.0%
and 9.7% for fiscal 1994, 1993 and 1992, respectively.
DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY (REFERRED TO IN THE PROSPECTUS AS "DEBT SECURITIES") SUPPLEMENTS, AND TO
THE EXTENT INCONSISTENT THEREWITH REPLACES, THE DESCRIPTION OF THE GENERAL TERMS
AND PROVISIONS OF DEBT SECURITIES SET FORTH IN THE PROSPECTUS, TO WHICH
DESCRIPTION REFERENCE IS HEREBY MADE.
GENERAL
The Notes are to be issued under an Amended and Restated Indenture, dated
as of December 1, 1995 (the "Senior Indenture"), between the Company and The
First National Bank of Chicago, as trustee (the "Trustee").
The Notes will be issued in fully registered form and in denominations of
$1,000 and integral multiples thereof. The Company does not intend to apply for
the listing of the Notes on a national securities exchange.
The following statements relating to the Notes and the Senior Indenture are
summaries of certain provisions thereof and are subject to the detailed
provisions of the Senior Indenture, to which reference is hereby made for a
complete statement of such provisions. The Senior Indenture has been amended and
restated to include the Trustee, but is otherwise as described in the Prospectus
in all material respects.
The Notes will be unsecured senior obligations of the Company, will mature
December 15, 2005, will be limited to $100 million aggregate principal amount
and will bear interest at the rate set forth on the cover page of this
Prospectus Supplement from date of issuance, payable semiannually on each June
15 and December 15, commencing June 15, 1996, to the persons in whose names the
Notes are registered at the close of business on the December 1 immediately
preceding each December 15 or the June 1 immediately preceding each June 15.
Interest will be computed on the basis of a 360-day year composed of 12 30-day
months. Payments of principal and interest to owners of book-entry interests (as
described below) are expected to be
S-8
<PAGE>
made in accordance with the procedures of DTC and its participants in effect
from time to time. The Notes may not be redeemed prior to maturity.
BOOK-ENTRY SYSTEM
The certificates representing the Notes will be issued in the form of one
or more fully registered Global Securities without coupons. It is expected that
the Notes initially will be represented by a single permanent global certificate
in definitive fully registered form (the "Global Note") and will be deposited
with, or on behalf of, DTC and registered in the name of Cede & Co., as the
nominee of DTC. Except under the circumstances described in the Prospectus under
the caption "Description of Debt Securities -- Global Securities," the Notes
will not be issuable in definitive form. Unless and until it is exchanged in
whole or in part for the individual Notes represented thereby, interests in the
Global Note may not be transferred except as a whole by DTC to a nominee of DTC
or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee
of DTC to a successor depository or any nominee of such successor. See
"Description of Debt Securities -- Global Securities" in the Prospectus.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the Banking Law of the State of New York, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
New York Uniform Commercial Code, and a "clearing agency"registered pursuant to
the provision of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities of its participants ("Participants") and to
facilitate the clearance and settlement of securities transactions among its
Participants in such securities through electronic book-entry changes in
accounts of the Participants, thereby eliminating the need for physical movement
of securities certificates. DTC's Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations, including the Underwriters. DTC is owned by a number of
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of the Securities Dealers, Inc.
Access to DTC's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest in respect of Notes in
book-entry form will be made by the Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until the
Notes are issued in certificated form, and secondary market trading activity in
the Notes will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Notes.
CONCERNING THE TRUSTEE
The First National Bank of Chicago will be the trustee under the Senior
Indenture. The Company and its subsidiaries may maintain deposit accounts or
conduct other banking transactions with the Trustee in the ordinary course of
business.
DEFEASANCE
The provisions of Article 15 of the Senior Indenture relating to defeasance
and covenant defeasance will apply to the Notes.
S-9
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters has severally agreed to
purchase from the Company, the principal amount of the Notes set forth opposite
its name below. In the Purchase Agreement, the Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the Notes offered
hereby if any of the Notes are purchased. In the event of default by an
Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................. $ 30,000,000
Goldman, Sachs & Co. .................................................. 25,000,000
Lehman Brothers Inc. .................................................. 25,000,000
Montgomery Securities.................................................. 20,000,000
Total..................................................... $100,000,000
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes 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 not in excess of .4% of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of .25% of the principal amount of the Notes to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
The Notes are a new issue of securities with no established trading market.
The Company currently has no intention to list the Notes on any securities
exchange. The Company has been advised by the Underwriters that they intend to
make a market in the Notes, but are not 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 the Notes.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon for the
Company by William C. Warden, Jr., Senior Vice President, Secretary and General
Counsel of the Company and by Hunton & Williams, Richmond, Virginia, and for the
Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in the Prospectus and the Registration Statement have been audited by
Deloitte & Touche LLP, independent accountants, to the extent and for the
periods indicated in their report thereon which is also included or incorporated
by reference in the Annual Report on Form 10-K of the Company for the fiscal
year ended January 31, 1995. The consolidated financial statements audited by
Deloitte & Touche LLP have been incorporated by reference in reliance on their
report given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information, as of and for
each of the nine month periods ended October 31, 1995 and October 31, 1994,
which is incorporated herein by reference, Deloitte & Touche LLP have applied
limited procedures in accordance with professional standards for a review of
such information. However, as stated in their report included in the Company's
Quarterly Report on Form 10-Q for the quarter ended October 31, 1995 and
incorporated by reference herein, they did not audit and do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Securities Act for
their report on the unaudited interim financial information because the report
is not a "report" or a "part" of a registration statement prepared or certified
by an accountant within the meaning of Sections 7 and 11 of the Securities Act.
S-10
<PAGE>
PROSPECTUS
$500,000,000
LOWE'S COMPANIES, INC.
SECURITIES
Lowe's Companies, Inc. ("Lowe's" or the "Company") intends to issue from
time to time in one or more series up to $500,000,000 aggregate offering price
of its (i) unsecured debt securities ("Debt Securities"), which may be either
senior debt securities ("Senior Debt Securities") or subordinated debt
securities ("Subordinated Debt Securities"), (ii) shares of preferred stock, par
value $5.00 per share ("Preferred Stock"), which may be issued in the form of
depositary shares evidenced by depositary receipts ("Depositary Shares"), or
(iii) shares of common stock, par value $.50 per share ( "Common Stock"), on
terms to be determined at the time of sale (the Debt Securities, Preferred
Stock, Depositary Shares and Common Stock are referred to collectively as the
"Securities"). The Securities offered hereby (the "Offered Securities") may be
offered separately or as units with other Offered Securities, in separate series
in amounts, at prices and on terms to be determined at the time of sale and to
be set forth in a supplement to this Prospectus (a "Prospectus Supplement").
The Senior Debt Securities will rank equally with all other unsubordinated
and unsecured indebtedness of the Company. The Subordinated Debt Securities will
be subordinated in right of payment to all existing and future Senior
Indebtedness, as defined in the Senior Indenture described herein. See
"Description of Debt Securities."
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered, such as, where applicable, (i) in the case of
Debt Securities, the specific designation (including whether senior or
subordinated), aggregate principal amount, denomination, maturity, premium, if
any, priority, interest rate (which may be variable or fixed), time of payment
of any premium and any interest, terms for optional redemption or repayment or
for sinking fund payments, terms for conversion into or exchange for other
Offered Securities, and the initial public offering price; (ii) in the case of
Preferred Stock, the specific title and stated value, number of shares or
fractional interests therein, and the dividend, liquidation, redemption,
conversion, voting and other rights, the initial public offering price, and
whether interests in the Preferred Stock will be represented by Depositary
Shares; (iii) in the case of Common Stock, the initial offering price; and (iv)
in the case of all Offered Securities, whether such Offered Security will be
offered separately or as a unit with other Offered Securities, will be set forth
in a Prospectus Supplement. The Prospectus Supplement will also contain
information, where applicable, about certain United States federal income tax
considerations relating to, and any listing on a securities exchange of, the
Offered Securities covered by the Prospectus Supplement.
The Offered Securities may be sold for public offering to underwriters or
dealers, which may be a group of underwriters represented by one or more
managing underwriters, or through such firms or other firms acting alone or
through dealers. The Offered Securities may also be sold directly by the Company
or through agents to investors. The names of any agents, dealers or managing
underwriters, and of any underwriters, involved in the sale of the Offered
Securities in respect of which this Prospectus is being delivered, the
applicable agent's commission, dealer's purchase price or underwriter's discount
and the net proceeds to the Company from such sale will be set forth in the
Prospectus Supplement. See "Plan of Distribution."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE THE SALE OF THE SECURITIES
UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 8, 1994.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such reports, proxy statements and
other information concerning the Company may also be inspected at the offices of
the New York Stock Exchange, Inc. at 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission in Washington, D.C. a
Registration Statement on Form S-3 (herein, together with all amendments and
exhibits thereto, referred to as the "Registration Statement") under the
Securities Act with respect to the Securities to which this Prospectus relates.
As permitted by the Rules and Regulations of the Commission, this Prospectus
does not contain all the information set forth in the Registration Statement,
including the exhibits thereto, which may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 upon
payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission under
Section 13 of the Exchange Act are hereby incorporated by reference in this
Prospectus: (i) the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1993; and (ii) the Company's Quarterly Reports on Form 10-Q
for the fiscal quarters ended April 30, July 31 and October 31, 1993.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which is deemed to be incorporated
by reference herein modifies or supersedes such earlier statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus or the Prospectus
Supplement.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the foregoing documents incorporated herein by reference
(other than exhibits to such documents). Written or telephone requests should be
directed to Lowe's Companies, Inc., P. O. Box 1111, North Wilkesboro, North
Carolina 28656, Attention: Richard D. Elledge, (910) 651-4271.
THE COMPANY
Lowe's Companies, Inc. ("Lowe's" or the "Company") is a specialty retailer
of building materials and related products for the do-it-yourself home
improvement, home decor, and home construction, repair and remodeling markets.
As of October 31, 1993, Lowe's operated 303 retail stores with more than 12.0
million square feet of sales floor located principally in the South Atlantic and
South Central regions of the United States. According to National Home Center
News, an industry publication, Lowe's is the second largest home center retailer
in the United States. Lowe's general offices are located in North Wilkesboro,
North Carolina.
USE OF PROCEEDS
Except as may be otherwise set forth in the Prospectus Supplement
accompanying this Prospectus, the net proceeds from the sale of the Securities
will be used for general corporate purposes, which may include financing the
acquisition of land, buildings and equipment for new and existing stores, the
repayment of certain long-term indebtedness and short-term borrowings and the
repurchase of outstanding shares of Common Stock of the Company. Funds not
required immediately for those purposes may be invested temporarily in
short-term marketable securities.
2
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include pretax earnings plus fixed
charges. "Fixed charges" include interest expense, capitalized interest and the
portion of rental expense which is representative of the interest factor in
these rentals.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
OCTOBER 31, YEARS ENDED JANUARY 31,
1993 1992 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Historical ratio earnings to fixed charges................................. 7.27 6.37 5.73 1.15* 4.69 5.20 4.91
</TABLE>
* Pretax earnings for the year ended January 31, 1992 include the effect of a
one-time restructuring charge of $71.3 million. Excluding the effect of this
restructuring charge, the ratio of earnings to fixed charges for the year
ended January 31, 1992 would have been 4.01.
DESCRIPTION OF DEBT SECURITIES
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. Further terms of the Offered Securities are set forth
in the Prospectus Supplement.
The Senior Debt Securities are to be issued under an Indenture (the "Senior
Indenture") between the Company and Chemical Bank, as Trustee (the "Senior
Trustee"). The Subordinated Debt Securities are to be issued under an Indenture
(the "Subordinated Indenture"), between the Company and Wachovia Bank of North
Carolina, N.A., as Trustee (the "Subordinated Trustee"). The Senior Indenture
and the Subordinated Indenture are sometimes referred to individually as an
"Indenture" and collectively as the "Indentures." The Senior Trustee and the
Subordinated Trustee are sometimes referred to individually as a "Trustee"and
collectively as the "Trustees." The forms of the Senior Indenture and
Subordinated Indenture are filed as exhibits to the Registration Statement. The
following summaries of certain provisions of the Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indentures, including the definitions therein of
certain terms. Whenever particular Sections, Articles or defined terms of the
Indentures are referred to, it is intended that such Sections, Articles or
defined terms shall be incorporated herein by reference.
GENERAL
The Debt Securities to be offered by this Prospectus are limited to
$500,000,000 in aggregate principal amount of unsecured debt obligations of the
Company. However, the Indentures do not limit the aggregate principal amount of
Debt Securities which may be issued thereunder and provide that Debt Securities
may be issued thereunder from time to time in one or more series. (Section 301).
No Debt Securities are currently issued and outstanding under the Indentures,
although the Company has outstanding $250 million aggregate principal amount of
Medium-Term Notes, Series A (the "Medium-Term Notes"), issued under an
Indenture, dated April 15, 1992, between the Company and Chemical Bank and $250
million aggregate principal amount of 3% Subordinated Notes due July 22, 2003
(the "3% Subordinated Notes"), issued under an Indenture, dated July 22, 1993,
between the Company and Wachovia Bank of North Carolina, N.A. Neither the
Indentures nor the Debt Securities will limit or otherwise restrict the amount
of Senior Indebtedness which may be incurred by the Company or any of its
subsidiaries.
The Senior Debt Securities will be unsecured obligations of the Company and
will rank on a parity with the Medium-Term Notes and all other unsecured and
unsubordinated indebtedness of the Company. The Subordinated Debt Securities
will be unsecured obligations of the Company, will rank on a parity with the 3%
Subordinated Notes and will be subordinated in right of payment to all Senior
Indebtedness (as defined under "Subordination of Debt Securities"). As of
January 31, 1994, Senior Indebtedness of the Company aggregated approximately
$252 million.
Reference is made to the applicable Prospectus Supplement for the specific
terms of the series of Debt Securities offered thereby including (1) the title
of the Debt Security; (2) the aggregate principal amount and denominations; (3)
the maturity or maturities; (4) the price to be received by the Company from the
sale of such Debt Securities; (5) the interest rate or rates (or the method of
calculation thereof) to be established for the Debt Securities, which rate or
rates may vary from time to time; (6) the date or dates on which principal of
the Debt Securities is payable; (7) the date or dates from which interest on the
Debt Securities shall accrue and the payment and record date or dates for
payments of interest or the methods by which any such dates will be determined;
(8) the place or places where principal of, premium, if any, and interest, if
any, on the Debt Securities is payable; (9) the terms of any sinking fund and
analogous provisions with respect to the Debt Securities; (10) the
3
<PAGE>
respective redemption and repayment rights, if any, of the Company and of the
holders of the Debt Securities and the related redemption and repayment prices
and any limitations on such redemption or repayment rights; (11) any provisions
relating to the conversion or exchange of the Debt Securities; (12) any addition
to or change in the affirmative or negative covenants, if any, to be imposed
upon the Company relating to any of the Debt Securities; (13) any trustee or
fiscal or authenticating or payment agent, issuing and paying agent, transfer
agent or registrar or any other person or entity to act in connection with such
Debt Securities for or on behalf of the holders thereof or the Company or an
affiliate; (14) whether such Debt Securities are to be issuable initially in
temporary global form and whether any such Debt Securities are to be issuable in
permanent global form and, if so, whether beneficial owners of interests in any
such permanent global security may exchange such interests for Debt Securities
of like tenor of any authorized form and denomination and the circumstances
under which any such exchanges may occur; (15) the listing of the Debt
Securities on any securities exchange or inclusion in any other market or
quotation or trading system; and (16) any other specific terms, conditions and
provisions of the Debt Securities.
The holders of Debt Securities of a specified series that are convertible
into Common Stock ("Convertible Debt Securities") will be entitled at certain
times specified in the Prospectus Supplement relating to such Convertible Debt
Securities, subject to prior redemption, repayment or repurchase, to convert any
Convertible Debt Securities of such series into Common Stock, at the conversion
price set forth in such Prospectus Supplement, subject to adjustment and to such
other terms as are set forth in such Prospectus Supplement. (Senior Indenture,
Article 14; Subordinated Indenture, Article 15).
Unless otherwise provided in the Prospectus Supplement, principal of and
any premium and interest on the Debt Securities shall be payable, and the
transfer of the Debt Securities will be registrable, at the office of the
applicable Trustee, except that, at the option of the Company, interest may be
paid by mailing a check to the address of the person entitled thereto as it
appears on the register for the Debt Securities. (Sections 305 and 1002).
Unless otherwise indicated in the Prospectus Supplement, the Debt
Securities will be issued only in fully registered form without coupons and in
denominations of $1,000 or any integral multiple thereof. No service charge will
be made for any registration of transfer or exchange of the Debt Securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Sections 302 and 305).
Debt Securities may be issued as Original Issue Discount Securities (as
defined in the Indentures) to be sold at a substantial discount below their
principal amount. Special federal income tax and other considerations applicable
thereto will be described in the Prospectus Supplement relating thereto.
CERTAIN COVENANTS APPLICABLE TO SENIOR DEBT SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement with
respect to a series of Senior Debt Securities, Senior Debt Securities will have
the benefit of the following covenants contained in the Senior Indenture. Unless
otherwise indicated in the applicable Prospectus Supplement with respect to
Subordinated Debt Securities of a series, the Subordinated Debt Securities will
not have the benefit of such covenants. Certain capitalized terms used in this
section are defined below under "Certain Definitions." Other capitalized terms
not otherwise defined herein have the meanings ascribed to them in the Senior
Indenture.
RESTRICTIONS ON DEBT. The Senior Indenture provides that the Company will
not itself, and will not permit any Subsidiary to, incur, issue, assume or
guarantee any Debt secured by a Mortgage on any Principal Property of the
Company or any Subsidiary, or any shares of Capital Stock or Debt of any
Subsidiary, without effectively providing that the Securities of each series of
Senior Debt Securities then Outstanding (together with, if the Company shall so
determine, any other Debt of the Company or such Subsidiary then existing or
thereafter created which is not subordinate to the Securities of each series
then Outstanding) will be secured equally and ratably with (or, at the option of
the Company, prior to) such secured Debt, so long as such secured Debt shall be
so secured, and will not permit any Subsidiary to incur, issue, assume or
guarantee any unsecured Debt or to issue any Preferred Stock, in each instance
unless the aggregate amount of all such secured Debt together with the aggregate
preferential amount to which such Preferred Stock would be entitled on any
involuntary distribution of assets and all Attributable Debt of the Company and
its Subsidiaries in respect of sale and leaseback transactions would not exceed
10% of Consolidated Net Tangible Assets. For the purpose of providing such equal
and ratable security, the principal amount of Outstanding Debt Securities of any
series of Original Issue Discount Securities shall be such portion of the
principal amount as specified in the terms of that series that would be payable
upon acceleration of the Maturity thereof at the time of such determination.
This restriction does not apply to, and there shall be excluded in computing
Debt for the purpose of such restriction: (a) Debt secured by Mortgages on any
property acquired, constructed or improved by the Company or any Subsidiary
after the first date on which a Senior Debt Security is authenticated by the
Trustee under the Senior Indenture, which Mortgages are created or assumed
contemporaneously with, or within 30 months after, such acquisition, or
4
<PAGE>
completion of such construction or improvement, or within six months thereafter
pursuant to a firm commitment for financing arranged with a lender or investor
within such 30-month period, to secure or provide for the payment of all or any
part of the purchase price of such property or the cost of such construction or
improvement incurred after the first date on which a Senior Debt Security is
authenticated by the Trustee under the Senior Indenture or Mortgages on any
property existing at the time of the acquisition thereof if any such Mortgage
does not apply to any property previously owned by the Company or any Subsidiary
other than, in the case of any such construction or improvement, any previously
unimproved real property on which the property so constructed, or the
improvement, is located; (b) Debt of any corporation existing at the time such
corporation is merged with or into the Company or a Subsidiary; (c) Debt of any
corporation existing at the time such corporation becomes a Subsidiary; (d) Debt
of a Subsidiary to the Company or to another Subsidiary; (e) Debt secured by
Mortgages securing obligations issued by a state, territory or possession of the
United States, or any political subdivision of any of the foregoing, or the
District of Columbia to finance the acquisition of or construction on property,
and on which the interest is not, in the opinion of counsel, includable in gross
income of the holder; and (f) certain extensions, renewals or replacements of
any Debt referred to in the foregoing clauses (a) through (e) inclusive. This
restriction does not apply to any issuance of Preferred Stock by a Subsidiary to
the Company or another Subsidiary, provided that such Preferred Stock is
thereafter transferable to any Person other than the Company or a Subsidiary.
(Senior Indenture, Section 1008).
RESTRICTIONS ON SALES AND LEASEBACKS. The Senior Indenture provides that
the Company will not itself, and will not permit any Subsidiary to, after the
first date on which a Senior Debt Security is authenticated by the Trustee under
the Senior Indenture, enter into any sale and leaseback transaction involving
any Principal Property which has been or is to be sold or transferred, unless,
after giving effect thereto, the aggregate amount of all Attributable Debt with
respect to such transactions plus all Debt to which Section 1008 of the Senior
Indenture is applicable, would not exceed 10% of Consolidated Net Tangible
Assets. This restriction will not apply to, and there shall be excluded in
computing Attributable Debt for the purpose of such restriction, Attributable
Debt with respect to any sale and leaseback transaction if: (a) the lease in
such transaction is for a period (including renewal rights) not exceeding three
years; (b) the Company or a Subsidiary, within 180 days after such transaction,
applies an amount not less than the greater of the net proceeds of the sale of
the Principal Property leased pursuant to such arrangement or the fair market
value of the Principal Property so leased at the time of entering into such
arrangement (as determined by the Board of Directors) to, subject to certain
restrictions, the retirement of Funded Debt of the Company ranking on a parity
with or senior to the Senior Debt Securities or the retirement of Funded Debt of
a Subsidiary; (c) such transaction is entered into prior to, at the time of, or
within 30 months after the later of the acquisition of the Principal Property or
the completion of the construction thereon; (d) the lease in such transaction
secures or relates to obligations issued by a state, territory or possession or
the United States, or any political subdivision thereof, or the District of
Columbia, to finance the acquisition of or construction on property, and on
which the interest is not, in the opinion of counsel, includable in the gross
income of the holder; or (e) such transaction is entered into between the
Company and a Subsidiary or between Subsidiaries. (Senior Indenture, Section
1009).
CERTAIN DEFINITIONS. The Senior Indenture defines the following terms used
in this section:
"Attributable Debt" means, as to any particular lease under which any
Person is at the time liable, at any date as of which the amount thereof is to
be determined, the total net amount of rent required to be paid by such Person
under such lease during the remaining term thereof (excluding any subsequent
renewal or other extension options held by the lessee), discounted from the
respective due dates thereof to such date at the rate of 10% per annum
compounded annually. The net amount of rent required to be paid under any such
lease for any such period shall be the amount of the rent payable by the lessee
with respect to such period, after excluding amounts required to be paid on
account of maintenance and repairs, insurance, taxes, assessments, water rates
and similar charges and contingent rents (such as those based on sales). In the
case of any lease which is terminable by the lessee upon the payment of a
penalty, such net amount shall also include the amount of such penalty, but no
rent shall be considered as required to be paid under such lease subsequent to
the first date upon which it may be so terminated.
"Capital Stock", as applied to the stock of any corporation, means the
capital stock of every class whether now or hereafter authorized, regardless of
whether such capital stock shall be limited to a fixed sum or percentage with
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of such corporation.
"Consolidated Net Tangible Assets" means the aggregate amount of assets
(less applicable reserves and other properly deductible items) after deducting
therefrom (i) all current liabilities, and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent balance sheet of the Company
and its consolidated subsidiaries and computed in accordance with generally
accepted accounting principles.
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"Debt" means loans, notes, bonds, indentures or other similar evidences of
indebtedness for money borrowed.
"Funded Debt" means all indebtedness for money borrowed having a maturity
of more than 12 months from the date as of which the amount thereof is to be
determined or having a maturity of less than 12 months but by its terms being
renewable or extendible beyond 12 months from such date at the option of the
borrower.
"Preferred Stock" means any stock of any class of the Company which has a
preference over Common Stock in respect of dividends or of amounts payable in
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the Company and which is not mandatorily redeemable or repayable, or
redeemable or repayable at the option of the Holder, otherwise than in shares of
Common Stock or Preferred Stock of another class or series or with the proceeds
of the sale of Common Stock or Preferred Stock.
"Principal Property" means any building, structure or other facility,
together with the land upon which it is erected and fixtures comprising a part
thereof, used primarily for selling home improvement products or the
manufacturing, warehousing or distributing of such products, owned or leased by
the Company or any Subsidiary of the Company. (Senior Indenture, Section 101).
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
The obligations of the Company to make any payment on account of the
principal of and premium, if any, and interest on the Subordinated Debt
Securities will be subordinate and junior in right of payment, to the extent set
forth in the Subordinated Indenture, to all Senior Indebtedness (as defined in
the Subordinated Indenture) of the Company. (Subordinated Indenture, Article
14).
In the event that the Company shall default in the payment of any principal
of or any premium or interest on any Senior Indebtedness when the same becomes
due and payable, whether at maturity or at a date fixed for prepayment or by
declaration of acceleration or otherwise, then, unless and until such default
shall have been cured or waived or shall have ceased to exist, no direct or
indirect payment (in cash, property, securities, by set-off or otherwise) will
be made or agreed to be made for principal of or any premium or interest on the
Subordinated Debt Securities, or in respect of any redemption, retirement,
purchase or other acquisition of any of the Subordinated Debt Securities.
(Subordinated Indenture, Section 1401). Senior Indebtedness is defined in the
Subordinated Indenture as (a) all indebtedness of the Company for money borrowed
or constituting reimbursement obligations with respect to letters of credit and
interest or currency swap agreements (including indebtedness secured by a
mortgage, conditional sales contract or other lien which is (i) given to secure
all or a part of the purchase price of property subject thereto, whether given
to the vendor of such property or to another, or (ii) existing on property at
the time of acquisition thereof); (b) all indebtedness of the Company evidenced
by notes, debentures, bonds or other securities sold by the Company for money;
(c) lease obligations (including but not limited to capitalized lease
obligations); (d) all indebtedness of others of the kinds described in either of
the preceding clauses (a) or (b) and all lease obligations and obligations of
others of the kind described in the preceding clause (c) assumed by or
guaranteed in any manner by the Company or in effect guaranteed by the Company
through an agreement to purchase, contingent or otherwise; and (e) all (whether
initial or seriatim) renewals, deferrals, increases, extensions or refundings of
and modifications to indebtedness of the kinds described in any of the preceding
clauses (a), (b) or (d) and all renewals or extensions of leases of the kinds
described in either of the preceding clauses (c) or (d); unless, in the case of
any particular indebtedness, lease, renewal, extension or refunding, the
instrument or lease creating or evidencing the same or the assumption or
guarantee of the same expressly provides that such indebtedness, lease, renewal,
extension, deferral, increase, modification or refunding is not superior in
right of payment to the Subordinated Debt Securities or is expressly
subordinated by its terms in right of payment to all other indebtedness of the
Company (including the Subordinated Debt Securities).
In the event of (1) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Company, its creditors or its property; (2) any proceeding for the
liquidation, dissolution or other winding up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings; (3)
any assignment by the Company for the benefit of creditors; or (4) any other
marshalling of the assets of the Company, all Senior Indebtedness (including any
interest thereon accruing after the commencement of any such proceedings) shall
first be paid in full before any payment or distribution, whether in cash,
securities or other property, is made to any holder of any of the Subordinated
Debt Securities on account thereof. In such event, any payment or distribution
on account of the principal of or any premium or interest on the Subordinated
Debt Securities, whether in cash, securities or other property (other than
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in the subordination provisions with respect to the
Subordinated Debt Securities, to the payment of all Senior Indebtedness at the
time outstanding, and to any securities issued
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in respect thereof under any such plan of reorganization or readjustment), which
would otherwise (but for the subordination provisions) be payable or deliverable
in respect of the Subordinated Debt Securities, shall be paid or delivered
directly to the holders of Senior Indebtedness in accordance with the priorities
then existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any such proceedings) has
been paid in full. In the event of any such proceeding, after payment in full of
all sums owing with respect to Senior Indebtedness, the Holder or Holders of
Subordinated Debt Securities, together with the holders of any obligations of
the Company ranking on a parity with the Subordinated Debt Securities, shall be
entitled to be paid from the remaining assets of the Company the amounts at the
time due and owing on account of unpaid principal of (and premium, if any) and
interest on the Subordinated Debt Securities and such other obligations before
any payment or other distribution, whether in cash, property or otherwise, shall
be made on account of any capital stock or obligations of the Company ranking
junior to the Subordinated Debt Securities and such other obligations. If any
payment or distribution on account of the principal of or any premium or
interest on the Subordinated Debt Securities of any character, whether in cash,
securities or other property (other than securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinate, at least to the extent provided in the subordination
provisions with respect to the Subordinated Debt Securities, to the payment of
all Senior Indebtedness at the time outstanding and to any securities issued in
respect thereof under any such plan of reorganization or readjustment), or any
security shall be received by the Trustee or any Holder of any Subordinated Debt
Securities in contravention of any of the terms of the Indenture and before all
the Senior Indebtedness shall have been paid in full, such payment or
distribution or security will be received in trust for the benefit of, and will
be paid over or delivered and transferred to, the holders of the Senior
Indebtedness at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full. (Subordinated Indenture, Section 1401).
By reason of such subordination, in the event of the insolvency of the
Company, holders of Senior Indebtedness may receive more, ratably, and any
Holder or Holders of the Subordinated Debt Securities having a claim pursuant to
such Subordinated Debt Securities may receive less, ratably, than the other
creditors of the Company. Such subordination will not prevent the occurrence of
an Event of Default in respect of the Subordinated Debt Securities.
EFFECT OF CORPORATE STRUCTURE
The Debt Securities are obligations exclusively of the Company. Because the
operations of the Company are currently conducted through subsidiaries, the cash
flow and the consequent ability to service debt of the Company, including the
Debt Securities, are dependent, in part, upon the earnings of its subsidiaries
and the distribution of those earnings to the Company or upon loans or other
payments of funds by those subsidiaries to the Company. The subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Debt Securities or to make any
funds available therefor, whether by dividends, loans or other payments. In
addition, the payment of dividends and the making of loans and advances to the
Company by its subsidiaries may be subject to statutory or contractual
restrictions, are contingent upon the earnings of those subsidiaries and are
subject to various business considerations.
Although the Senior Indenture limits the incurrence of such indebtedness,
as described above under "Certain Covenants Applicable to Senior Debt
Securities," the Debt Securities will be effectively subordinated to all
indebtedness and other liabilities, including current liabilities and
commitments under leases, if any, of the Company's subsidiaries. Any right of
the Company to receive assets of any of its subsidiaries upon liquidation or
reorganization of the subsidiary (and the consequent right of the holders of the
Debt Securities to participate in those assets) will be effectively subordinated
to the claims of that subsidiary's creditors (including trade creditors), except
to the extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinated
to any security interests in the assets of such subsidiary and any indebtedness
of such subsidiary senior to that held by the Company.
NO RESTRICTION ON SALE OR ISSUANCE OF STOCK OF SUBSIDIARIES
The Indentures contain no covenant that the Company will not sell, transfer
or otherwise dispose of any shares of, or securities convertible into, or
options, warrants, or rights to subscribe for or purchase shares of, voting
stock of any of its subsidiaries, nor do they prohibit any subsidiary from
issuing any shares of, securities convertible into, or options, warrants or
rights to subscribe for or purchase shares of, voting stock of such subsidiary.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holder or Holders of any of the
outstanding Debt Securities, may consolidate or merge with or into, or convey,
transfer or lease its properties and assets substantially as an entirety, to any
corporation
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organized under the laws of any domestic jurisdiction, provided that the
successor corporation assumes the Company's obligations on the Debt Securities
and under the Indentures and that 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, has occurred and is continuing, and that certain other
conditions are met. (Section 801).
EVENTS OF DEFAULT
Events of Default with respect to Debt Securities of any series issued
thereunder are defined in the Indentures as being: default for thirty days in
payment when due of any interest on any Debt Security of that series or any
additional amount payable with respect to Debt Securities of such series as
specified in the applicable Prospectus Supplement; default in payment when due
of principal, premium, if any, or on redemption or otherwise, or in the making
of a mandatory sinking fund payment of any Debt Securities of that series;
default for sixty days after notice to the Company by the Trustee for such
series, or by the holders of 25% in aggregate principal amount of the Debt
Securities of such series then outstanding, in the performance of any other
agreement in the Debt Securities of that series, in the Indentures or in any
supplemental indenture or board resolution referred to therein under which the
Debt Securities of that series may have been issued; default resulting in
acceleration of other indebtedness of the Company for borrowed money where the
aggregate principal amount so accelerated exceeds $10 million and such
acceleration is not rescinded or annulled within ten days after the written
notice thereof to the Company by the trustee or to the Company and the Trustee
by the holders of 25% in aggregate principal amount of the Debt Securities of
such series then outstanding, provided that such Event of Default will be cured
or waived if the default that resulted in the acceleration of such other
indebtedness is cured or waived; and certain events of bankruptcy, insolvency or
reorganization of the Company. (Section 501). Events of Default with respect to
a specified series of Debt Securities may be added to the Indentures under which
the series is issued and, if so added, will be described in the applicable
Prospectus Supplement. (Section 301). No Event of Default with respect to a
particular series of Debt Securities issued under the Indentures necessarily
constitutes an Event of Default with respect to any other series of Debt
Securities issued thereunder.
The Indentures provide that the Trustee for any Series of Debt Securities
shall, within ninety days after the occurrence of a Default with respect to Debt
Securities of that series, give to the holder of the Debt Securities of that
series notice of all uncured Defaults known to it, provided, that, except in the
case of default in payment on the Debt Securities of that series, the Trustee
may withhold the notice if and so long as it in good faith determines that
withholding such notice is in the interest of the holders of the Debt Securities
of that series, provided, further, that no notice of a default made in the
performance of any covenant or a breach of any warranty contained in the
Indentures shall be given until at least 60 days after the occurrence thereof.
"Default" means any event which is, or, after notice or passage of time or both,
would be, an Event of Default. (Section 602).
If an Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, either the Trustee or the Holder or
Holders of at least 25% in aggregate principal amount of the outstanding Debt
Securities of that series may declare the principal amount (or, if the Debt
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms of that series) of all
the Debt Securities of that series to be due and payable immediately. At any
time after a declaration of acceleration with respect to Debt Securities of any
series has been made, but before a judgment or decree based on acceleration has
been obtained, the Holder or Holders of a majority in aggregate principal amount
of outstanding Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. (Section 502).
The Indentures provide that, subject to the duty of the Trustees in the
case of an Event of Default to act with the required standard of care, the
Trustees will be under no obligation to exercise any of these rights or powers
under the Indentures at the request or direction of any of the Holders, unless
such Holder or Holders shall have offered to the Trustees reasonable indemnity.
(Sections 601 and 603). Subject to such provisions for the indemnification of
the Trustees, the Holder or Holders of a majority in aggregate principal amount
of the outstanding Debt Securities of each series will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustees, or exercising any trust or power conferred on the Trustees with
respect to the Debt Securities of that series. (Section 512).
The Company is required to furnish to the Trustees annually a statement as
to the performance by the Company of certain of its obligations under the
Indentures and as to any default in such performance. (Section 1005).
GLOBAL SECURITIES
The Debt Securities of a series may be issued in the form of one or more
fully registered securities in global form (each a "Global Security") that will
be deposited with, or on behalf of, a depositary (the "Depositary") identified
in the Prospectus
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Supplement relating to such series and will be registered in the name of the
Depositary or its nominee. In such case, 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 represented by
such Global Security or Securities. Unless and until any such Global Security is
exchanged in whole or in part for Debt Securities in definitive certificated
form, such Global Security may not be transferred except as a whole by the
Depositary for such Global Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor and except as described in the
applicable Prospectus Supplement. (Section 303).
The specific terms of the depositary arrangement with respect to a series
of Debt Securities to be represented by a Global Security will be described in
the Prospectus Supplement relating to such series. The Company anticipates that
the following provisions will apply to all depositary arrangements. Upon the
issuance of any Global Security, and the deposit of such Global Security with or
on behalf of the Depositary for such Global Security, the Depositary will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Debt Securities represented by such Global Security to
the accounts of institutions ("participants") that have accounts with such
Depositary or its nominee. The accounts to be credited will be designated by the
underwriters or agents engaging in the distribution or placement of such Debt
Securities or by the Company, if such Debt Securities are offered and sold
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. Ownership of beneficial interests by participants in such
Global Security will be shown by book-keeping entries on, and the transfer of
that ownership interest will be effected only through book-keeping entries to,
records maintained by the Depositary or its nominee for such Global Security.
Ownership of beneficial interests in such Global Security by persons that hold
through participants will be shown by book-keeping entries on, and the transfer
of that ownership interest among or through such participants will be effected
only through book-keeping entries to, records maintained by such participants.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive certificated form rather
than book-entry form. Such laws may impair the ability to own, transfer or
pledge beneficial interests in any 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
Indentures. Except as set forth below or otherwise specified in the applicable
Prospectus Supplement, owners of beneficial interests in a Global Security will
not be entitled to have Debt Securities of the series represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Debt Securities of such series in definitive certificated
form and will not be considered the holders thereof for any purposes under the
Indentures. Accordingly, each person owning a beneficial interest in such Global
Security must rely on the procedures of the Depositary and, if such person is
not a participant, on the procedures of the participant through which such
person directly or indirectly owns its interest, to exercise any rights of a
holder under the Indentures. The Indentures provide that the Depositary may
grant proxies and otherwise authorize participants to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action which
a holder is entitled to give or take under the Indenture. (Section 104). The
Company understands that under existing industry practices, if the Company
requests any action of holders or any owner of a beneficial interest in such
Global Security desires to give any notice or take any action that a holder is
entitled to give or take under the Indentures, the Depositary for such Global
Security would authorize the participants holding the relevant beneficial
interest to give such notice or take such action, and such participants would
authorize beneficial owners owning through such participants to give such notice
or take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Principal and any premium and interest payments on Debt Securities
represented by a Global Security registered in the name of a Depositary or its
nominee will be made to such Depositary or its nominee, as the case may be, as
the registered owner of such Global Security. None of the Company, the Trustee
or any paying agent 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 any Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. (Section 308).
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The Company expects that the Depositary for any series of Debt Securities
represented by a Global Security, upon receipt of any payment of principal,
premium or interest, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security as shown on the records of such
Depositary. The Company also expects that payments by participants to owners of
beneficial interests in such Global Security or Securities held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in "street name," and will be the responsibility of such participants.
If the Depositary for any series of Debt Securities represented by a Global
Security is at any time unwilling or unable to continue as Depositary and a
successor Depositary is not appointed by the Company within 90 days, the Company
will issue such Debt Securities in definitive certificated form in exchange for
such Global Security. In addition, the Company may at any time and in its sole
discretion determine not to have the Debt Securities of a series represented by
one or more Global Securities and, in such event, will issue Debt Securities of
such series in definitive certificated form in exchange for the Global Security
representing such series of Debt Securities. (Section 305).
Further, an owner of a beneficial interest in a Global Security
representing Debt Securities of a series may, on terms acceptable to the Company
and the Depositary for such Global Security, receive Debt Securities of such
series in definitive certificated form, if the Company so specifies with respect
to the Debt Securities of such series. In any such instance, an owner of a
beneficial interest in a Global Security will be entitled to have Debt
Securities of the series represented by such Global Security equal in principal
amount to such beneficial interest registered in its name and will be entitled
to physical delivery of such Debt Securities in definitive certificated form.
Debt Securities of such series so issued in definitive certificated form will,
except as set forth in the applicable Prospectus Supplement, be issued in
denominations of $1,000 and integral multiples thereof and will be issued in
registered form. (Section 305).
MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made by the Company
and the applicable Trustee with the consent of the Holder or Holders of a
majority in principal amount of the Debt Securities of all affected series;
provided, however, that no such modification or amendment may, without the
consent of the Holder or Holders of all of the outstanding Debt Securities
affected thereby, (i) change the stated maturity date of the principal of, or
any installment of principal of, or premium, if any, or interest, if any, on,
any Debt Security; (ii) reduce the principal amount of, or premium, if any, or
interest, if any, on, any Debt Security, change the method of calculation
thereon or reduce the amount payable on redemption thereof; (iii) reduce the
amount of principal of a Debt Security payable upon acceleration of the maturity
thereof; (iv) change the place or currency of payment of principal of, or
premium, if any, or interest, if any, on, any Debt Security; (v) impair the
rights of any holder of any Debt Securities to conversion rights; (vi) impair
the right to institute suit for the enforcement of any payment on or with
respect to any Debt Security; or (vii) reduce the percentage in principal amount
of the Debt Security, the consent of whose Holder or Holders is required for
modification or amendment of the Indentures or for waiver of compliance with
certain provisions of the Indentures or for waiver of certain defaults.
(Sections 901 and 902).
The Holder or Holders of a majority in principal amount of the Debt
Securities of all affected series may, on behalf of the Holder or Holders of
such Debt Securities, waive compliance by the Company with certain restrictive
provisions of the Indentures. The Holder or Holders of a majority in principal
amount of the Debt Securities of all affected series also may, on behalf of the
Holder or Holders of all such Debt Securities, waive any past default under the
Indentures with respect to such Debt Securities, except a default in the payment
of the principal, or premium, if any, or interest on, any Debt Security or in
respect of a provision which under the Indentures cannot be modified or amended
without the consent of the Holder or Holders of all of the outstanding Debt
Securities affected thereby. (Section 513).
REGARDING THE TRUSTEES
Chemical Bank will be the Trustee under the Senior Indenture. Notice to the
Senior Trustee Bank should be directed to its Corporate Trust Office, 450 West
33rd Street, New York, New York 10001-2697.
Wachovia Bank of North Carolina, N.A. will be the Trustee under the
Subordinated Indenture. Notice to the Subordinated Trustee should be directed to
its Corporate Trust Office, P.O. Box 3001, Winston-Salem, North Carolina 27102.
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DESCRIPTION OF PREFERRED STOCK
GENERAL
The following summary does not purport to be complete and is subject in all
respects to applicable North Carolina law and the Company's Restated and Amended
Charter and Bylaws.
The Company is authorized by its Restated and Amended Charter to issue
5,000,000 shares of Preferred Stock. The Board of Directors is authorized to
designate with respect to each new series of Preferred Stock the number of
shares in each series, the dividend rates and dates of payment, voluntary and
involuntary liquidation preferences, redemption prices, whether or not dividends
shall be cumulative and, if cumulative, the date or dates from which the same
shall be cumulative, the sinking fund provisions, if any, for redemption or
purchase of shares, the rights, if any, and the terms and conditions on which
shares can be converted into or exchanged for, or the rights to purchase, shares
of any other class or series, and the voting rights, if any. Any Preferred Stock
issued will rank prior to the Common Stock as to dividends and as to
distributions in the event of liquidation, dissolution or winding up of the
Company. The ability of the Board of Directors to issue Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting
powers of holders of Common Stock and, under certain circumstances, may
discourage an attempt by others to gain control of the Company. The Company may
amend from time to time its Restated and Amended Charter to increase the number
of authorized shares of Preferred Stock. Any such amendment would require the
approval of the holders of a majority of the outstanding shares of Common Stock,
and the approval of the holders of a majority of the outstanding shares of all
series of Preferred Stock voting together as a single class without regard to
series. As of the date of this Prospectus, the Company had no shares of
Preferred Stock outstanding.
The Prospectus Supplement relating to each series of the Preferred Stock
will describe the following terms thereof:
(a) title and stated value of such series;
(b) the number of shares in such series;
(c) the dividend payment dates and the dividend rate or method of
determination or calculation of such terms applicable to the series;
(d) applicable redemption provisions, if any;
(e) sinking fund or purchase fund provisions, if any;
(f) the fixed liquidation price and fixed liquidation premium, if any,
applicable to the series;
(g) the rate or basis of exchange or conversion into other securities or
method of determination thereof applicable to the series, if any;
(h) the conversion rights, if any;
(i) applicable voting rights; and
(j) any other terms applicable thereto.
REDEMPTION
A series of Preferred Stock may be redeemable, in whole or in part, at the
option of the Company, and may be subject to mandatory redemption pursuant to a
sinking fund, in each case upon terms, at the times and at the redemption prices
set forth in the Prospectus Supplement relating to such series.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption shall specify the number of shares of such
series of Preferred Stock which shall be redeemed by the Company in each year
commencing after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to any accrued and unpaid dividends
thereon to the date of redemption.
If fewer than all the outstanding shares of any series of Preferred Stock
are to be redeemed, whether by mandatory or optional redemption, the selection
of the shares to be redeemed shall be determined by lot or pro rata as may be
determined by the Board of Directors or a duly authorized committee thereof, or
by any other method which may be determined by the Board of Directors or such
committee to be equitable. From and after the date of redemption (unless default
shall be made by
11
<PAGE>
the Company in providing for the payment of the redemption price), dividends
shall cease to accrue on the shares of Preferred Stock called for redemption and
all rights of the holders thereof (except the right to receive the redemption
price) shall cease.
CONVERSION RIGHTS; PREEMPTIVE RIGHTS
The Prospectus Supplement for any series of Preferred Stock will state the
terms, if any, on which shares of that series are convertible into shares of
Common Stock or another series of preferred stock of the Company. The Preferred
Stock will have no preemptive rights.
DIVIDEND RIGHTS
The holders of the Preferred Stock of each series shall be entitled to
receive, if and when declared payable by the Board of Directors, out of assets
available therefor, dividends at, but not exceeding, the dividend rate for such
series (which may be fixed or variable), payable at such intervals and on such
dates as are provided in the resolution of the Board of Directors creating such
series. If such intervals and dividend payment dates shall vary from time to
time for such series, such resolution shall set forth the method by which such
intervals and such dates shall be determined. Such dividends on Preferred Stock
shall be paid before any dividends, other than a dividend payable in Common
Stock of the Company, may be paid upon or set apart for any shares of capital
stock ranking junior to the Preferred Stock in respect of dividends or
liquidation rights (referred to in this Prospectus as "stock ranking junior to
the Preferred Stock").
VOTING RIGHTS
Except as indicated below or in the Prospectus Supplement relating to a
particular series of Preferred Stock, or except as expressly required by the
laws of the State of North Carolina or other applicable law, the holders of the
Preferred Stock will not be entitled to vote. Except as indicated in the
Prospectus Supplement relating to a particular series of Preferred Stock, each
such share will be entitled to one vote on matters on which holders of such
series of the Preferred Stock are entitled to vote. However, as more fully
described below under "Depositary Shares," if the Company elects to issue
Depositary Shares representing a fraction of a share of a series of Preferred
Stock, each such Depositary Share will, in effect, be entitled to such fraction
of a vote, rather than a full vote. Since each full share of any series of
Preferred Stock shall be entitled to one vote, the voting power of such series,
on matters on which holders of such series and holders of other series of
preferred stock are entitled to vote as a single class, shall depend on the
number of shares in such series, not the aggregate liquidation preference or
initial offering price of the shares of such series of Preferred Stock.
In addition to the foregoing voting rights, under the North Carolina
Business Corporation Act as now in effect, the holders of Preferred Stock will
have the voting rights set forth above under "General" with respect to
amendments to the Company's Restated and Amended Charter which would increase
the number of authorized shares of Preferred Stock of the Company.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Preferred Stock shall be entitled to receive, for each share
thereof, the fixed liquidation or stated value for the respective series
together in all cases with all dividends accrued or in arrears thereon, before
any distribution of the assets shall be made to the holders of any stock ranking
junior to the Preferred Stock. If the assets distributable among the holders of
Preferred Stock should be insufficient to permit the payment of the full
preferential amounts fixed for all series, then the distribution shall be made
among the holders of each series ratably in proportion to the full preferential
amounts to which they are respectively entitled.
DEPOSITARY SHARES
GENERAL. The Company may, at its option, elect to offer fractional shares
of Preferred Stock, rather than full shares of Preferred Stock. In the event
such option is exercised, the Company will issue to the public receipts for
Depositary Shares, each of which will represent a fraction (to be set forth in
the Prospectus Supplement relating to a particular series of Preferred Stock) of
a share of a particular series of Preferred Stock as described below.
The shares of any series of Preferred Stock represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between the Company and a bank or trust company selected by the Company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000 (the "Depositary Bank"). Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to
12
<PAGE>
the applicable fraction of a share of Preferred Stock represented by such
Depositary Share, to all the rights and preferences of the Preferred Stock
represented thereby (including dividend, voting, redemption and liquidation
rights).
The Depositary Shares will be evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). Depositary Receipts
will be distributed to those persons purchasing the fractional shares of
Preferred Stock in accordance with the terms of the offering. If Depositary
Shares are issued, copies of the forms of Deposit Agreement and Depositary
Receipt will be incorporated by reference to the Registration Statement of which
this Prospectus is a part, and the following summary is qualified in its
entirety by reference to such documents.
Pending the preparation of definitive engraved Depositary Receipts, the
Depositary Bank may, upon the written order of the Company, issue temporary
Depositary Receipts substantially identical to (and entitling the holders
thereof to all the rights pertaining to) the definitive Depositary Receipts but
not in definitive form. Definitive Depositary Receipts will be prepared
thereafter without unreasonable delay, and temporary Depositary Receipts will be
exchangeable for definitive Depositary Receipts at the Company's expense.
DIVIDENDS AND OTHER DISTRIBUTIONS. The Depositary Bank will distribute all
cash dividends or other cash distributions received in respect of the Preferred
Stock to the record holders of Depositary Shares relating to such Preferred
Stock in proportion to the number of such Depositary Shares owned by such
holders.
In the event of a distribution other than in cash, the Depositary Bank will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary Bank determines that it is not feasible
to make such distribution, in which case the Depositary Bank may, with the
approval of the Company, sell such property and distribute the net proceeds from
such sale to such holders.
REDEMPTION OF DEPOSITARY SHARES. If a series of Preferred Stock represented
by Depositary Shares is subject to redemption, the Depositary Shares will be
redeemed from the proceeds received by the Depositary Bank resulting from the
redemption, in whole or in part, of such series of Preferred Stock held by the
Depositary Bank. The redemption price per Depositary Share will be equal to the
applicable fraction of the redemption price per share payable with respect to
such series of Preferred Stock. Whenever the Company redeems shares of Preferred
Stock held by the Depositary Bank, the Depositary Bank will redeem as of the
same redemption date the number of Depositary Shares representing the shares of
Preferred Stock so redeemed. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by lot or pro
rata as may be determined by the Depositary Bank.
VOTING THE PREFERRED STOCK. Upon receipt of notice of any meeting at which
the holders of Preferred Stock are entitled to vote, the Depositary Bank will
mail the information contained in such notice of meeting to the record holders
of the Depositary Shares relating to such Preferred Stock. Each record holder of
such Depositary Shares on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the Depositary
Bank as to the exercise of the voting rights pertaining to the amount of
Preferred Stock represented by such holder's Depositary Shares. The Depositary
Bank will endeavor, insofar as practicable, to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all action which may be deemed
necessary by the Depositary Bank in order to enable the Depositary Bank to do
so. The Depositary Bank may abstain from voting shares of Preferred Stock to the
extent it does not receive specific instructions from the holders of Depositary
Shares representing such Preferred Stock.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT. The form of
Depositary Receipt evidencing the Depositary Shares and any provision of the
Deposit Agreement may at any time be amended by agreement between the Company
and the Depositary Bank. However, any amendment that materially and adversely
alters the rights of the holders of Depositary Shares will not be effective
unless such amendment has been approved by the holders of at least a majority of
the Depositary Shares then outstanding. The Deposit Agreement may be terminated
by the Company or the Depositary only if (i) all outstanding Depositary Shares
have been redeemed or (ii) there has been a final distribution in respect of the
Preferred Stock in connection with any liquidation, dissolution or winding up of
the Company and such distribution has been distributed to the holders of
Depositary Receipts.
CHARGES OF DEPOSITARY BANK. The Company will pay all transfer and other
taxes and governmental charges arising solely from the existence of the
depositary arrangements. The Company will pay charges of the Depositary Bank in
connection with the initial deposit of the Preferred Stock and any redemption of
the Preferred Stock. Holders of Depositary Receipts will pay other transfer and
other taxes and governmental charges and such other charges, including a fee for
the withdrawal of shares of Preferred Stock upon surrender of Depositary
Receipts, as are expressly provided in the Deposit Agreement to be for their
accounts.
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<PAGE>
MISCELLANEOUS. The Depositary Bank will forward to holders of Depository
Receipts all reports and communications from the Company that are delivered to
the Depositary Bank and that the Company is required to furnish to the holders
of Preferred Stock.
Neither the Depositary Bank nor the Company will be liable if it is
prevented or delayed by law or any circumstance beyond its control in performing
its obligations under the Deposit Agreement. The obligations of the Company and
the Depositary Bank under the Deposit Agreement will be limited to performance
in good faith of their duties thereunder and they will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary Shares or
Preferred Stock unless satisfactory indemnity is furnished. They may rely upon
written advice of counsel or accountants, or upon information provided by
persons presenting Preferred Stock for deposit, holders of Depositary Receipts
or other persons believed to be competent and on documents believed to be
genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY BANK. The Depositary Bank may resign
at any time by delivering to the Company notice of its election to do so, and
the Company may at any time remove the Depositary Bank, any such resignation or
removal to take effect upon the appointment of a successor Depositary Bank and
its acceptance of such appointment. Such successor Depositary Bank must be
appointed within 60 days after delivery of the notice of resignation or removal
and must be a bank or trust company having its principal office in the United
States and having a combined capital and surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock when issued and full consideration is received for such
Preferred Stock will be fully paid and nonassessable.
DESCRIPTION OF COMMON STOCK
GENERAL
The following summary does not purport to be complete and is subject in all
respects to applicable North Carolina law, the Company's Restated and Amended
Charter and Bylaws, and the Rights Agreement, dated September 9, 1988, between
the Company and Wachovia Bank of North Carolina, N.A., as Rights Agent.
The Company is authorized by its Restated and Amended Charter to issue
120,000,000 shares of Common Stock and had 73,908,985 shares of Common Stock
outstanding at October 31, 1993. Each share of Common Stock is entitled to one
vote on all matters submitted to a vote of shareholders. Holders of Common Stock
are entitled to receive dividends when and as declared by the Board of Directors
of the Company out of funds legally available therefor. Dividends may be paid on
the Common Stock only if all dividends on any outstanding Preferred Stock have
been paid or provided for.
The issued and outstanding shares of Common Stock are fully paid and
nonassessable. Holders of Common Stock have no preemptive or conversion rights
and are not subject to further calls or assessments by the Company.
In the event of the voluntary or involuntary dissolution, liquidation or
winding up of the Company, holders of Common Stock are entitled to receive, pro
rata, after satisfaction in full of the prior rights of creditors and holders of
Preferred Stock, if any, all the remaining assets of the Company available for
distribution.
Directors are elected by a vote of the holders of Common Stock. Holders of
Common Stock are not entitled to cumulative voting rights.
Wachovia Bank of North Carolina, N.A., Winston-Salem, North Carolina acts
as the transfer agent and registrar for the Common Stock.
RIGHTS
In 1988, pursuant to the Company's Shareholder Rights Plan, the Company
distributed as a dividend one Right for each outstanding share of Common Stock.
As a consequence of a two-for-one Common Stock split, effective as of June 29,
1992, the number of Rights outstanding was adjusted such that each share of
Common Stock had associated with it one-half Right. Each Right entitles the
holder to buy one one-thousandth of a share of Participating Cumulative
Preferred Stock, Series A, at an exercise price of $100, subject to adjustment.
The Rights will become exercisable only if a person or group acquires or
announces a tender offer for 20% or more of the outstanding Common Stock. When
exercisable, the Company may issue a share of Common Stock in exchange for each
Right other than those held by such person or group. If a person or group
14
<PAGE>
acquires 30% or more of the outstanding Common Stock, each Right will entitle
the holder, other than the acquiring person, upon payment of the exercise price,
to acquire Preferred Stock or, at the option of the Company, Common Stock,
having a value equal to twice the Right's exercise price. If the Company is
acquired in a merger or other business combination or if 50% of its earnings
power is sold, each Right will entitle the holder, other than the acquiring
person, to purchase securities of the surviving company having a market value
equal to twice the exercise price of the Right. The Rights will expire on
September 9, 1998, and may be redeemed by the Company at a price of $.01 per
right at any time prior to the tenth day after an announcement that a 20%
position has been acquired.
Until such time as a person or group acquires or announces a tender offer
for 20% or more of the Common Stock, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates, and (ii) the surrender for transfer of any certificate for
Common Stock will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate. Rights may not be transferred,
directly or indirectly (i) to any person or group that has acquired, or obtained
the right to acquire, beneficial ownership of 20% or more of the Rights (an
"Acquiring Person"); (ii) to any person in connection with a transaction in
which such person becomes an Acquiring Person; or (iii) to any affiliate or
associate of any such person. Any Right that is the subject of a purported
transfer to any such person will be null and void.
The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that acquires more than 20% of the
outstanding shares of Common Stock of the Company if certain events thereafter
occur without the Rights having been redeemed. However, the Rights should not
interfere with any merger or other business combination approved by the Board of
Directors and the shareholders because the Rights are redeemable under certain
circumstances.
CHANGE OF CONTROL PROVISIONS
The rights of holders of Common Stock are governed by other provisions
which are intended to affect any attempted change of control of the Company.
BOARD OF DIRECTORS. The Restated and Amended Charter classifies the Board
of Directors into three separate classes, with the term of one-third of the
directors expiring at each annual meeting. A director may be removed only upon
the affirmative vote of 70% of outstanding voting shares.
FAIR PRICE PROVISIONS. Provisions of the Restated and Amended Charter (the
"Fair Price Provisions") limit the ability of an Interested Shareholder to
effect certain transactions involving the Company. Unless the Fair Price
Provisions are satisfied, an Interested Shareholder (defined as the beneficial
owner of 20% of outstanding voting shares) may not engage in a business
combination, which includes a merger, consolidation, share exchange, or similar
transaction, involving the Company unless approved by 70% of the Company's
outstanding voting shares. In general, the Fair Price Provisions require that an
Interested Shareholder pay shareholders the same amount of cash or the same
amount and type of consideration paid by the Interested Shareholder when it
initially acquired the Company's shares.
The Fair Price Provisions are designed to discourage attempts to take over
Lowe's in non-negotiated transactions utilizing two-tier pricing tactics, which
typically involve the accumulation of a substantial block of the target
corporation's stock followed by a merger or other reorganization of the acquired
company on terms determined by the purchaser. Due to the difficulties of
complying with the requirements of the Fair Price Provisions, the Fair Price
Provisions generally may discourage attempts to obtain control of the Company.
NORTH CAROLINA LAW. The North Carolina Control Share Acquisition Act is
triggered upon the acquisition of shares of voting stock which, when added to
all other shares beneficially owned by the person, would result in that person
holding one-fifth, one-third or a majority of the voting power in the election
of directors. Under the Control Share Acquisition Act, the shares acquired which
result in the crossing of any of these thresholds ("control shares") have no
voting rights until conferred by the affirmative vote of the holders of a
majority of all outstanding voting shares. The effect of these provisions may be
to delay or prevent attempts by other corporations or groups to acquire control
of the Company without negotiation with the Board of Directors.
The North Carolina Shareholder Protection Act requires the affirmative vote
of 95% of a corporation's voting shares to approve a business combination with
any person that beneficially owns 25% of the voting shares of the corporation
unless the "fair price" provisions of the Act are satisfied. The statute's
intended effect is similar to the Fair Price Provisions of the Company's
Restated and Amended Charter.
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<PAGE>
PLAN OF DISTRIBUTION
The Offered Securities may be sold for public offering to underwriters or
dealers, which may be a group of underwriters represented by one or more
managing underwriters, or through such firms or other firms acting alone or
through dealers. The Offered Securities may also be sold directly by the Company
or through agents to investors. The names of any agents, dealers or managing
underwriters, and of any underwriters, involved in the sale of the Offered
Securities in respect of which this Prospectus is being delivered, the
applicable agent's commission, dealer's purchase price or underwriter's discount
and the net proceeds to the Company from such sale will also be set forth in the
Prospectus Supplement.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities and any discounts,
concessions or commissions allowed by underwriters to participating dealers will
be set forth in the Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts and
commissions received by them and any profit realized by them on resale of the
Offered Securities may be deemed to be underwriting discounts and commissions
under the Securities Act.
If an underwriter or underwriters are utilized in the sale of the Offered
Securities, the Company will execute an underwriting agreement with such
underwriter or underwriters at the time an agreement for such sale is reached.
The underwriting agreement will provide that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters with
respect to a sale of Offered Securities will be obligated to purchase all such
Offered Securities if any are purchased. In connection with the sale of Offered
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 Offered Securities for whom they may act
as agent. Underwriters may sell Offered 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 from the purchasers for
whom they may act as agent. Under such underwriting agreements, underwriters,
dealers and agents who participate in the distribution of the Offered
Securities, may be entitled to indemnification by the Company against certain
civil liabilities, including liabilities under the Securities Act or
contribution with respect to payments which the underwriters, dealers or agents
may be required to make in respect thereof. The underwriter or underwriters with
respect to an underwritten offering of Offered Securities will be set forth in
the Prospectus Supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of such Prospectus Supplement.
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 Offered Securities from 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 Offered Securities
sold 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 Offered Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Offered Securities are being sold to underwriters, the Company shall have
sold to such underwriters the total principal amount of the Offered 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.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with, and perform services for, the Company and its
subsidiaries and the Trustees in the ordinary course of business.
The Offered Securities may or may not be listed on a national securities
exchange or a foreign securities exchange. No assurances can be given that there
will be a market for the Offered Securities.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Hunton & Williams, Richmond, Virginia.
16
<PAGE>
EXPERTS
The consolidated financial statements and financial statement schedules of
the Company incorporated in this Prospectus by reference to the Company's Annual
Report on Form 10-K for the year ended January 31, 1993 have been so
incorporated in reliance upon the reports of Deloitte & Touche, independent
auditors, incorporated herein by reference given upon the authority of said firm
as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended April 30, 1993, July 31, 1993 and October 31, 1993 which is incorporated
herein by reference, Deloitte & Touche have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their reports included in the Company's Quarterly Reports
on Form 10-Q for the quarters ended April 30, 1993, July 31, 1993 and October
31, 1993 and incorporated by reference herein, they did not audit and they do
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
are not subject to the liability provisions of Section 11 of the Securities Act
of 1933 for their reports on the unaudited interim financial information because
those reports are not "reports" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Act.
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 UNDERWRITER, AGENT OR DEALER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Company................................... S-2
Use of Proceeds............................... S-3
Capitalization................................ S-3
Selected Consolidated Financial
Data........................................ S-4
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. S-5
Description of Notes.......................... S-8
Underwriting.................................. S-10
Legal Matters................................. S-10
Experts....................................... S-10
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information......................... 2
Incorporation of Certain Documents by
Reference................................... 2
The Company................................... 2
Use of Proceeds............................... 2
Ratio of Earnings to Fixed Charges............ 3
Description of Debt Securities................ 3
Description of Preferred Stock................ 11
Description of Common Stock................... 14
Plan of Distribution.......................... 16
Legal Matters................................. 16
Experts....................................... 17
</TABLE>
$100,000,000
[LOWE'S LOGO]
6 3/8% Senior Notes
due December 15, 2005
PROSPECTUS SUPPLEMENT
Merrill Lynch & Co.
Goldman, Sachs & Co.
Lehman Brothers
Montgomery Securities
December 13, 1995
