PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 3, 1997)
[LOGO]
$170,000,000
TOLL CORP.
8 1/8% SENIOR SUBORDINATED NOTES DUE 2009
GUARANTEED ON A SENIOR SUBORDINATED BASIS BY
TOLL BROTHERS, INC.
------------------------
The Notes will be unsecured obligations of Toll Corp. (the "Issuer" or
"Toll"), a wholly-owned subsidiary of Toll Brothers, Inc. (the "Company"). The
Notes will be fully and unconditionally guaranteed on a senior subordinated
basis by the Company and will mature on February 1, 2009. Interest on the Notes
will be payable semi-annually on February 1 and August 1 beginning August 1,
1999. We do not intend to list the Notes on any national securities exchange or
on NASDAQ. Toll may redeem the Notes prior to their maturity at the redemption
prices described more fully in this prospectus supplement.
The Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness of Toll, as that term is defined in this prospectus
supplement. The Guarantee will be an unsecured obligation of the Company and
will be subordinated in right of payment to all existing and future Senior
Indebtedness of the Company, as that term is defined in this prospectus
supplement. The Notes and the Guarantee will be effectively subordinated to all
existing and future claims of creditors of the Company's other subsidiaries.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the related prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
------------------------
The underwriters have severally agreed to purchase the Notes offered hereby
from the Issuer at 99.158% of their principal amount or $168,568,600 in
aggregate proceeds to the Issuer.
The underwriters propose to offer the Notes offered hereby from time to
time for sale in one or more negotiated transactions, or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. For further information with respect to
the plan of distribution and any discounts, commissions or profits on resale
that may be deemed underwriting discounts or commissions, see "Underwriting"
herein.
The underwriters are offering the Notes subject to various conditions. The
underwriters expect to deliver the Notes to the purchasers on or about
January 27, 1999.
------------------------
SALOMON SMITH BARNEY WARBURG DILLON READ LLC
The date of this Prospectus Supplement is January 22, 1999.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Prospectus Supplement Summary............................................ S-4
Use of Proceeds.......................................................... S-8
Capitalization........................................................... S-8
Business................................................................. S-9
Description of Notes..................................................... S-17
Underwriting............................................................. S-26
Legal Matters............................................................ S-26
PROSPECTUS
Available Information.................................................... 2
Incorporation of Certain Information by Reference........................ 2
The Company.............................................................. 3
The Housing Industry..................................................... 3
Use of Proceeds.......................................................... 4
Ratio of Earnings To Fixed Charges....................................... 4
Description of Debt Securities and Guarantees............................ 4
Description of Capital Stock............................................. 12
Plan of Distribution..................................................... 16
Legal Matters............................................................ 17
Experts.................................................................. 17
------------------------------
This document is in two parts. The first part is the prospectus supplement,
which describes the specific terms of the notes we are offering and certain
other matters relating to us and our business. The second part, the base
prospectus, gives more information, some of which may not apply to the notes we
are offering. Generally, when we refer only to the prospectus, we are referring
to both parts combined. If the description of your notes varies between the
prospectus supplement and the accompanying prospectus, you should rely on the
information in the prospectus supplement.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the prospectus. We have not, and the
underwriters have not, authorized any other person to provide you with different
information. If anyone provides you with different information or inconsistent
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information appearing
in this prospectus supplement and the prospectus, as well as information we
previously filed with the Securities and Exchange Commission and incorporated by
reference is accurate as of the date on the front cover of this prospectus
supplement only.
S-2
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. These forward-looking
statements relate, among other things, to:
o Anticipated operating results;
o Financial resources;
o Increases in revenues;
o Increased profitability;
o Interest expense;
o Growth and expansion;
o Ability to acquire land;
o Year 2000 readiness; and
o The effect on the Company if the Company or significant third parties are
not Year 2000 compliant.
We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to risks, uncertainties, and assumptions about the Company, including,
among other things, those relating to:
o Local, regional and national economic conditions;
o The effects of governmental regulation;
o The competitive environment in which the Company operates;
o Fluctuations in interest rates;
o Changes in home prices;
o The availability and cost of land for future growth;
o The availability of capital;
o The availability and cost of labor and materials; and
o Weather conditions.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following is a summary of the more detailed information appearing
elsewhere, or incorporated by reference, in this prospectus. It does not contain
all of the information that may be important to you. You should read the entire
prospectus and the other information we refer to carefully before you decide to
invest in the Notes.
THE COMPANY
Toll Brothers, Inc. ("Toll Brothers" or the "Company") designs, builds,
markets and arranges financing for single family detached and attached homes in
middle and high income residential communities. Our homes cater to both move-up
and empty nester home buyers. Operations are currently conducted in 18 states
and six regions around the country. Our communities are generally located on
land we have developed or acquired fully approved or, in some cases, improved.
We market our homes primarily to middle-income and upper-income buyers. Our
marketing emphasizes high quality construction and customer satisfaction. We
also operate our own architectural, engineering, mortgage, title, security
monitoring, landscape, insurance brokerage, component assembly and manufacturing
operations.
As of October 31, 1998, we were offering homes for sale in 122 communities
with over 10,500 home sites which we owned or controlled through options. We
also owned or controlled approximately 19,800 home sites in proposed
communities. Our single family detached homes were being offered at prices,
excluding customized options, generally ranging from $132,000 to $832,000, with
an average base sales price of $396,000. Our attached homes, excluding
customized options, were being offered at prices generally ranging from $103,000
to $535,000, with an average base sales price of $229,000. In the five years
ended October 31, 1998, we have delivered more than 11,000 homes in 250
communities.
We have received numerous awards from national, state and local homebuilder
publications and associations. In fiscal 1996, the Company was selected
"America's Best Builder" by the National Association of Home Builders (the
"NAHB") and Builder magazine in recognition of its excellent financial
performance, unique custom-production system for building luxury homes in high
volume and the excellence of its designs. In 1995, the Company received the
National Housing Quality Award from the NAHB, which recognized our outstanding
commitment to total quality management and continuous improvement. In 1994, the
Company received one of the first place awards in the "Build America Beautiful"
Awards Program, sponsored by Better Homes and Gardens magazine, the NAHB and
Keep America Beautiful, Inc., in recognition of our programs to improve the
handling of solid waste on construction sites. In 1988, the Company was named
"The Builder of the Year" by Professional Builder magazine.
On October 31, 1998 and 1997, we had backlogs of $814,714,000 (1,892 homes)
and $627,220,000 (1,551 homes), respectively. We expect substantially all homes
in backlog at October 31, 1998 to be delivered by October 31, 1999.
RECENT DEVELOPMENT
In January 1999, the Company entered into an agreement to acquire the
Silverman Companies, a Detroit, Michigan homebuilder and developer of luxury
apartments for cash and the assumption of debt totaling approximately
$60,000,000. The Silverman Companies own or control approximately 2,400 home
sites and interests in land for approximately 1,600 apartments. The acquisition
is expected to be completed during the Company's second fiscal quarter ended
April 30, 1999 and is expected to be accretive to earnings in fiscal 1999. The
acquisition price is not material to the financial position of the Company.
S-4
<PAGE>
THE ISSUER
Toll Corp. is an indirect, wholly-owned, consolidated subsidiary of the
Company. Other than the financing of other Subsidiaries of the Company by
lending the proceeds of the Notes offered hereby and similar activities related
to previous offerings of debt securities, the Issuer has no independent
operations and generates no operating revenues.
THE OFFERING
Issuer........................... Toll Corp., a Delaware corporation.
The Notes........................ $170,000,000 aggregate principal amount of
8 1/8% Senior Subordinated Notes due 2009 (the
"Notes").
Guarantee........................ Payment of principal and interest on the Notes
will be fully and unconditionally guaranteed
on a senior subordinated basis by Toll
Brothers, Inc. (the "Guarantee").
Maturity......................... The Notes will mature on February 1, 2009.
Payment of Interest.............. Interest on the Notes at the rate of 8 1/8%
per annum will be payable semi-annually on
February 1 and August 1 of each year,
commencing August 1, 1999.
Redemption at the Option
of the Issuer.................. On or after February 1, 2004, the Issuer may,
upon at least 30 days notice, redeem the
Notes, in whole or in part, at the redemption
prices set forth herein, together with accrued
and unpaid interest thereon.
Subordination.................... The Notes will be unsecured obligations of the
Issuer and will be subordinated in right of
payment to all existing and future Senior
Indebtedness of Toll (as defined herein). The
Guarantee will be an unsecured obligation of
the Company and will be subordinated in right
of payment to all existing and future Senior
Indebtedness of the Company (as defined
herein). The Notes and the Guarantee will be
effectively subordinated to all existing and
future claims of creditors of the Company's
other Subsidiaries. As of October 31, 1998
after giving effect to the issuance of the
Notes and the application of the net proceeds
therefrom, the amount of liabilities of the
Company and its Subsidiaries effectively
ranking senior in right of payment to the
Notes (including Senior Indebtedness of Toll
and the Company and liabilities of the
Company's Subsidiaries other than the Issuer,
but excluding collateralized mortgage
financing) would have been $649,282,000.
Although the Indenture contains limitations on
the incurrence of additional Indebtedness, the
Company and its Subsidiaries currently could
incur significant additional Indebtedness,
including Senior Indebtedness. See
"Description of Notes -- Subordination of
Notes and Guarantee."
S-5
<PAGE>
Use of Proceeds.................. We estimate that the net proceeds from this
offering will be approximately $168.3 million.
We intend to use these proceeds:
o To repay $30 million of bank indebtedness
under the Company's revolving credit facility;
o To redeem all of the outstanding Toll 9 1/2%
Senior Subordinated Notes due 2003; and
o The balance for general corporate purposes,
which may include acquisition of residential
development property, and working capital
needs.
Pending these applications, the net proceeds
are expected to be invested in high-grade,
short-term, marketable, interest-bearing
securities.
Certain Covenants................ The Indenture pursuant to which the Notes will
be issued will contain covenants that, among
other things, limit the ability of the Company
and its Subsidiaries to (a) incur additional
indebtedness and (b) pay dividends or make
other distributions and certain investments.
See "Description of Notes -- Certain
Covenants."
S-6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT FOR RATIOS)
The following summary consolidated financial information for the five years
ended October 31, 1998 is derived from audited consolidated financial
statements.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................................ $504,064 $646,339 $760,707 $ 971,660 $1,210,816
-------- -------- -------- ---------- ----------
Costs and Expenses
Land and housing construction................... 380,240 485,009 580,990 748,323 933,853
Selling, general and administrative............. 48,789 59,684 69,735 86,301 106,729
Interest........................................ 18,195 22,207 24,189 29,390 35,941
-------- -------- -------- ---------- ----------
447,224 566,900 674,914 864,014 1,076,523
-------- -------- -------- ---------- ----------
Income before income taxes and extraordinary
item.......................................... $ 56,840 $ 79,439 $ 85,793 $ 107,646 $ 134,293
======== ======== ======== ========== ==========
Income before extraordinary item................ $ 36,177 $ 49,932 $ 53,744 $ 67,847 $ 85,819
Extraordinary loss from extinguishment of debt,
net of income taxes........................... (2,772) (1,115)
-------- -------- -------- ---------- ----------
Net Income...................................... $ 36,177 $ 49,932 $ 53,744 $ 65,075 $ 84,704
======== ======== ======== ========== ==========
OTHER FINANCIAL DATA:
Depreciation and amortization................... $ 2,687 $ 2,943 $ 3,306 $ 4,055 $ 5,611
Interest incurred............................... $ 21,701 $ 25,780 $ 27,695 $ 35,242 $ 38,331
Ratio of earnings to fixed charges, including
consolidated mortgage financing
partnerships(1)............................... 3.37 3.82 3.87 3.81 4.35
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets
Inventory....................................... $506,347 $623,830 $772,471 $ 921,595 $1,111,863
======== ======== ======== ========== ==========
Total assets.................................... $586,893 $692,457 $837,926 $1,118,626 $1,254,468
======== ======== ======== ========== ==========
Debt
Loans payable................................... $ 17,506 $ 59,057 $132,109 $ 189,579 $ 182,292
Subordinated debt............................... 227,969 221,226 208,415 319,924 269,296
Collateralized mortgage obligations............. 4,686 3,912 2,816 2,577 1,384
-------- -------- -------- ---------- ----------
Total debt...................................... $250,161 $284,195 $343,340 $ 512,080 $ 452,972
======== ======== ======== ========== ==========
Shareholders' equity............................ $204,176 $256,659 $314,677 $ 385,252 $ 525,756
======== ======== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY OPERATING DATA:
Number of homes closed.......................... 1,583 1,825 2,109 2,517 3,099
Number of homes contracted...................... 1,716 1,846 2,398 2,701 3,387
Sales value of homes contracted................. $586,941 $660,467 $884,677 $1,069,279 $1,383,093
Number of homes in backlog, end of period(2).... 1,025 1,078 1,367 1,551 1,892
Sales value of backlog, end of period(2)........ $370,560 $400,820 $526,194 $ 627,220 $ 814,714
</TABLE>
- ------------------
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes, extraordinary loss and change in
accounting plus interest expense and fixed charges except interest incurred.
Fixed charges consist of interest incurred (whether expensed or
capitalized), the portion of rent expense that is representative of the
interest factor (one-third of rent expense), and amortization of debt
discount and issuance costs.
(2) Backlog consists of homes which were under contract but not closed at the
end of the period.
S-7
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be approximately
$168.3 million. We intend to use these proceeds to repay $30 million of bank
indebtedness under the Company's revolving credit facility, to redeem all of the
outstanding Toll 9 1/2% Senior Subordinated Notes due 2003, and to use the
balance for general corporate purposes, which may include acquisition of
residential development property, and working capital needs. Pending these
applications, the net proceeds are expected to be invested in high-grade,
short-term, marketable, interest-bearing securities.
The Company has a $415,000,000 unsecured revolving credit facility with
fourteen banks which extends through February 2003. Interest is payable on
short-term borrowings under the facility at .575% above the Eurodollar rate or
at other specified variable rates as selected by the Company from time to time.
The Company is currently paying interest at rates ranging from 5.55% to 6.08%.
The indebtedness outstanding under the revolving credit facility was incurred to
acquire residential development property and to fund the Company's working
capital requirements.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at October 31, 1998 and as adjusted to give effect to the sale of the
Notes and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
OCTOBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Loans payable(1).......................................... $182,292 $ 152,292
9 1/2% Senior Subordinated Notes due 2003................. 69,960
8 3/4% Senior Subordinated Notes due 2006................. 100,000 100,000
7 3/4% Senior Subordinated Notes due 2007................. 100,000 100,000
8 1/8% Senior Subordinated Notes due 2009................. 170,000
Collateralized mortgage obligations payable............... 1,384 1,384
-------- ----------
Total debt............................................. 453,636 523,676
-------- ----------
Shareholders' equity(2):
Preferred stock, par value $.01 per share; none issued....
Common stock, par value $.01 per share; 37,011,000
issued................................................. 369 369
Additional paid-in capital................................ 106,099 106,099
Retained earnings......................................... 421,099 421,099
Treasury stock, 76,000 shares............................. (1,811) (1,811)
-------- ----------
Total shareholders' equity................................ 525,756 525,756
-------- ----------
Total debt and shareholders' equity....................... $979,392 $1,049,432
======== ==========
</TABLE>
- ------------------
(1) The Company has a $415 million unsecured revolving credit facility with
fourteen banks which extends through February 2003 (the "Revolving Credit
Agreement"). As of October 31, 1998, the Company had $50 million of loans
and approximately $23.4 million of letters of credit outstanding under the
facility. In addition, the Company had outstanding $106 million of term
loans from a number of banks and $26.3 million of purchase money mortgage
payables.
(2) The Company's authorized capital stock consists of 45,000,000 shares of
Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred
Stock, $.01 par value per share. The Company's Certificate of Incorporation,
as amended, authorizes the Board of Directors to increase the number of
authorized shares of Common Stock to 100,000,000 shares and the number of
shares of authorized Preferred Stock to 15,000,000 shares.
(3) As adjusted to give effect to the sale of the Notes and the application of
the proceeds therefrom.
S-8
<PAGE>
BUSINESS
Toll Brothers, Inc. (the "Company"), a Delaware corporation formed in May
1986, commenced its business operations, through predecessor entities, in 1967.
The Company designs, builds, markets and arranges financing for single family
detached and attached homes in middle and high income residential communities
catering to both move-up and empty nester homebuyers in eighteen states and six
regions around the country. The communities are generally located on land that
the Company has either developed or acquired fully approved and, in some cases,
improved. Currently, the Company operates predominantly in major suburban
residential areas in southeastern Pennsylvania, central New Jersey, the Virginia
and Maryland suburbs of Washington, D.C., the Boston, Massachusetts metropolitan
area, southern Connecticut, Westchester County, New York, southern and northern
California, the suburbs of Raleigh and Charlotte, North Carolina, metro Phoenix,
Arizona, the suburbs of Dallas and Austin, Texas, in several markets on the east
and west coasts of Florida, in Las Vegas, Nevada, in Columbus, Ohio, in
Nashville, Tennessee and in the state of Delaware. The Company acquired property
in the suburbs of Detroit, Michigan and Chicago, Illinois in fiscal 1998 and
began offering homes for sale in those markets in December 1998. The Company
continues to explore additional geographic areas for expansion. The Company
markets its homes primarily to middle-income and upper-income buyers,
emphasizing high quality construction and customer satisfaction. The Company
also operates its own architectural, engineering, mortgage, title, security
monitoring, landscape, insurance brokerage, component assembly and manufacturing
operations.
In January 1999, the Company entered into an agreement to acquire the
Silverman Companies, a Detroit, Michigan homebuilder and developer of luxury
apartments for cash and the assumption of debt totaling approximately
$60,000,000. The Silverman Companies own or control approximately 2,400 home
sites and interests in land for approximately 1,600 apartments. The acquisition
is expected to be completed during the Company's second fiscal quarter ended
April 30, 1999 and is expected to be accretive to earnings in fiscal 1999. The
acquisition price is not material to the financial position of the Company.
As of October 31, 1998, the Company was offering homes for sale in 122
communities containing over 10,500 home sites which were owned or controlled
through options. The Company also owned or controlled approximately 19,800 home
sites in proposed communities.
Single family detached homes were being offered at prices, excluding
customized options, generally ranging from $132,000 to $832,000 with an average
base sales price of $396,000. Attached homes, excluding customized options, were
being offered at prices generally ranging from $103,000 to $535,000, with an
average base sales price of $229,000. In the five years ended October 31, 1998,
Toll Brothers delivered more than 11,000 homes in 250 communities.
In recognition of its achievements, the Company has received numerous
awards from national, state and local homebuilder publications and associations.
In fiscal 1996, the Company was selected "America's Best Builder" by the
National Association of Home Builders (the "NAHB") and Builder magazine in
recognition of its excellent financial performance, unique custom-production
system for building luxury homes in high volume and the excellence of its
designs. In 1995, the Company received the National Housing Quality Award from
the NAHB, which recognized the Company's outstanding commitment to total quality
management and continuous improvement. In 1994, the Company received one of the
first place awards in the "Build America Beautiful" Awards Program, sponsored by
Better Homes and Gardens magazine, the NAHB and Keep America Beautiful, Inc., in
recognition of the Company's programs to improve the handling of solid waste on
construction sites. In 1988, the Company was named "The Builder of the Year" by
Professional Builder magazine.
On October 31, 1998 and 1997, the Company had backlogs of $814,714,000
(1,892 homes) and $627,220,000 (1,551 homes), respectively. Substantially all
homes in backlog at October 31, 1998 are expected to be delivered by October 31,
1999.
The Company generally attempts to reduce certain risks homebuilders
encounter by controlling land for future development through options whenever
possible (which allows the Company to obtain the necessary governmental
approvals before acquiring title to the land), by generally beginning
construction of homes after an agreement of sale has been executed with a buyer
and by using
S-9
<PAGE>
subcontractors to perform home construction and land development work on a
fixed-price basis. In order to obtain better terms or prices or due to
competitive pressures, the Company has purchased several properties outright, or
acquired the underlying mortgage, prior to obtaining all of the necessary
governmental approvals needed to commence development.
In 1998, the Company formed a group of entities (collectively, the "Real
Estate Group") to take advantage of commercial real estate opportunities which
may present themselves from time to time. These opportunities may be the result
of commercial parcels, attached to larger properties that the Company has
acquired or may acquire for its homebuilding operations, or from the direct
acquisition of unrelated land or operating properties. At October 31, 1998 the
primary assets of the Real Estate Group consisted of $6,000,000 in cash
contributed by the Company.
In November 1998, Robert I. Toll, Bruce E. Toll, Zvi Barzilay, Joel
Rassman, all of whom are executive officers and directors of the Company, and
other Company officers (the "Partners") contributed their partnership interests
in an apartment complex under construction in exchange for a fifty percent
ownership interest in the Real Estate Group. Based upon independent valuations
obtained by the Company and reviewed by the Board of Directors, the Board of
Directors believes that the value of the assets received, net of liabilities
assumed was at least equal to the consideration given to the Partners. In
December 1998, an independent pension fund agreed to contribute a total of
$10,000,000 (a $6,000,000 initial cash contribution and $4,000,000 in future
contributions) to the Real Estate Group for a one-third interest in it. The
Company initially expects to realize development, finance and management fees
from these activities and, on an ongoing basis, a return on its investment in
the Real Estate Group.
THE COMMUNITIES
The Company's communities are generally located in suburban areas near
major highways with access to major cities. Through 1981, all communities were
located in southeastern Pennsylvania. The Company began selling homes in central
New Jersey in 1982, in northern Delaware and Massachusetts in 1987, in Maryland
in 1988, in Virginia and Connecticut in 1992, in New York in 1993, in southern
California and North Carolina in 1994, in the suburbs of Dallas, Texas and
Florida in 1995, in Austin, Texas in 1996, in Columbus, Ohio and Nashville,
Tennessee in 1997, and in northern California in 1998. The Company entered the
metro Phoenix, Arizona market in August 1995 and the Las Vegas, Nevada market in
November 1997 through the acquisition of assets of two privately owned
homebuilders. The Company acquired property in the suburbs of Detroit, Michigan
and Chicago, Illinois in fiscal 1998 and began offering homes for sale in those
markets in December 1998.
The Company emphasizes its high-quality, detached single family homes that
are marketed primarily to the "upscale" luxury market, generally those persons
who have previously owned a principal residence seeking to buy a larger home --
the so-called "move-up" market. The Company believes its reputation as a
developer of homes for this market enhances its competitive position with
respect to the sale of more moderately priced detached homes, as well as
attached homes. The Company also markets to the 50+ year-old "empty nester" and
believes that this market has strong growth potential. The Company has developed
a number of home designs that it believes will appeal to this category of home
buyer and integrated these designs into its communities along with its other
homes. The Company expects to open for sale its first age-restricted community
in 1999.
Each single family home community offers several home plans, with the
opportunity for home buyers to select various exterior styles. The communities
are designed to fit existing land characteristics, blending winding streets,
cul-de-sacs and underground utilities to establish a pleasant environment. The
Company strives to create a diversity of architectural styles within an overall
planned community. This diversity arises from variations among the models
offered and in exterior design options of homes of the same basic floor plan,
from the preservation of existing trees and foliage whenever practicable, and
from the curving street layout, which allows relatively few homes to be seen
from any vantage point. Normally, homes of the same type or color may not be
built next to each other. The communities have attractive entrances with
distinctive signage and landscaping. The Company believes this avoids a
"development" appearance and gives each community a diversified neighborhood
appearance that enhances home values.
S-10
<PAGE>
The Company's attached home communities generally offer one to three story
homes, provide for limited exterior options and often contain commonly owned
recreational acreage with swimming pools and tennis courts. These communities
have associations through which homeowners jointly act for their common
interest.
It is the Company's belief that the homes built by Toll Brothers in its
named communities provide homeowners with additional value upon resale.
THE HOMES
Most single family detached-home communities offer at least three different
home plans, each with several substantially different architectural styles. For
example, the same basic floor plan may be selected with a Colonial, Georgian,
Federal or Provincial design, and exteriors may be varied further by the use of
stone, stucco, brick or siding. Attached home communities generally offer two or
three different floor plans with two, three or four bedrooms.
In all of the Company's communities, certain options are available to the
purchaser for an additional charge. The options typically are more numerous and
significant on the more expensive homes. Major options include additional
garages, additional rooms, finished lofts and additional fireplaces. As a result
of the additional charges for such options, the average sales price was
approximately 19% higher than the base sales price during fiscal 1998.
The range of base sales prices for the Company's lines of homes as of
October 31, 1998, was as follows:
Single Family Detached Homes:
Move-up............................................... $132,000 - $413,000
Executive............................................. 256,000 - 654,000
Estate................................................ 279,000 - 832,000
Attached Homes:
Townhomes............................................. 103,000 - 283,000
Carriage Homes........................................ 207,000 - 535,000
Contracts for the sale of homes are at fixed prices. The prices at which
homes are offered have generally increased from time to time during the sellout
period for each community; however, there can be no assurance that sales prices
will increase in the future.
The Company uses some of the same basic home designs in similar
communities. However, the Company is continuously developing new designs to
replace or augment existing ones to assure that its homes reflect current
consumer preferences. For new designs, the Company has its own architectural
staff and also engages unaffiliated architectural firms. During the past year,
the Company has introduced approximately 39 new models.
The Company operates in six regions throughout the United States. The
following table summarizes by region the Company's closings and new contracts
signed for fiscal 1998 and the Company's backlog as of October 31, 1998:
<TABLE>
<CAPTION>
CLOSINGS NEW CONTRACTS BACKLOG
------------------ ------------------ ----------------
REGION UNITS $000 UNITS $000 UNITS $000
- ------ ----- ---------- ----- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Northeast (MA, NY, CT, NJ)..... 1,054 $ 417,200 1,005 $ 433,200 565 $264,600
Midatlantic (PA, DE, MD, VA)... 1,220 457,900 1,389 541,800 699 278,200
Southeast (NC, TN, FL)......... 176 72,800 224 103,800 132 65,800
Southwest (AZ, NV, TX)......... 462 141,000 611 207,700 412 153,900
Midwest (OH)................... 7 3,100 27 12,100 21 9,500
West (CA)...................... 180 114,300 131 84,700 63 42,700
----- ---------- ----- ---------- ----- --------
Total........................ 3,099 $1,206,300 3,387 $1,383,300 1,892 $814,700
===== ========== ===== ========== ===== ========
</TABLE>
S-11
<PAGE>
The following table summarizes certain information with respect to
residential communities of Toll Brothers under development as of October 31,
1998:
<TABLE>
<CAPTION>
HOMES
UNDER
NUMBER OF HOMES HOMES CONTRACT AND HOME SITES
STATE COMMUNITIES APPROVED CLOSED NOT CLOSED AVAILABLE
- ----- ----------- -------- ------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Arizona............................... 20 1,485 397 286 802
California............................ 8 889 295 63 531
Connecticut........................... 6 282 147 17 118
Delaware.............................. 1 150 0 17 133
Florida............................... 11 819 143 98 578
Illinois.............................. 2 102 0 0 102
Massachusetts......................... 5 362 95 63 204
Maryland.............................. 7 780 275 77 428
Michigan.............................. 1 28 0 0 28
Nevada................................ 5 600 113 51 436
New Jersey:
Central............................. 19 1,688 537 270 881
North central....................... 4 627 209 61 357
South central....................... 4 710 357 70 283
New York.............................. 8 522 106 84 332
North Carolina........................ 5 586 205 27 354
Ohio.................................. 3 192 7 21 164
Pennsylvania.......................... 30 3,411 1,542 420 1,449
Tennessee............................. 4 273 2 7 264
Texas................................. 8 920 146 75 699
Virginia.............................. 12 1,270 589 185 496
--- ------ ----- ----- -----
Total............................... 163(1) 15,696 5,165 1,892 8,639(2)
=== ====== ===== ===== =====
</TABLE>
- ------------------
(1) Of these 163 communities, 122 had homes being offered for sale, 17 had not
yet opened for sale and 24 had been sold out but not all closings had been
completed. Of the 122 communities in which homes were being offered for
sale, 115 were single family detached-home communities containing a total of
147 homes under construction but not under contract (exclusive of model
homes) and 7 were attached home communities containing a total of 7 homes
under construction but not under contract (exclusive of model homes).
(2) On October 31, 1998, significant site improvements had not commenced on
approximately 4,809 of the 8,639 available home sites. Of the 8,639
available home sites, 697 were not owned by the Company, but were controlled
through options.
LAND POLICY
Before entering into a contract to acquire land, the Company completes
extensive comparative studies and analyses on detailed Company-designed forms
that assist it in evaluating the acquisition. The Company generally attempts to
follow a policy of acquiring options to purchase land for future communities.
However, in order to obtain better terms or prices, or due to competitive
pressures, the Company has at times acquired property outright. In addition, the
Company has at times acquired the underlying mortgage on a property and
subsequently obtained title to that property.
The options or purchase agreements are generally on a non-recourse basis,
thereby limiting the Company's financial exposure to the amounts invested in
property and pre-development costs. The use of options or purchase agreements
may increase the price of land that the Company eventually acquires, but
significantly reduces risk. It also allows the Company to obtain necessary
development approvals before acquisition of the land, which generally enhances
the value of the options and the land eventually acquired. The Company's
purchase agreements are typically subject to numerous conditions including, but
not limited to, the Company's ability to obtain necessary governmental approvals
for the proposed community. Often, the down payment on the agreement will be
returned to the Company if all approvals are not obtained, although
pre-development costs may not be recoverable.
S-12
<PAGE>
The Company has the ability to extend many of these options for varying periods
of time, in some cases by the payment of an additional deposit and in some cases
without an additional payment. The Company has the right to cancel any of its
land agreements by forfeiture of the Company's down payment on the agreement. In
such instances, the Company generally is not able to recover any pre-
development costs.
During the early 1990's, due to the recession and the difficulties other
builders and land developers had in obtaining financing, the number of buyers
competing for land in the Company's market areas diminished, while the number of
sellers increased, resulting in more advantageous prices for land acquisitions
made by the Company. Further, many of the land parcels offered for sale were
fully approved, and often improved, subdivisions. Generally, such types of
subdivisions previously had not been available for acquisition in the Company's
market area. The Company purchased several such subdivisions outright and
acquired control of several others through option contracts.
Due to the improvement in the economy and the increased availability of
capital during the past several years, the Company has seen an increase in
competition for available land in its market areas. The continuation of the
Company's development activities over the long term will be dependent upon its
continued ability to locate, enter into contracts to acquire, obtain
governmental approvals for, consummate the acquisition of, and improve suitable
parcels of land.
While the Company believes that there is significant diversity in its
Northeast and Mid-Atlantic markets and that this diversity provides protection
from the vagaries of individual local economies, it believes that a greater
geographic diversification will provide additional protection and more
opportunities for growth. During the past five years, the Company has expanded
into Arizona, California, Florida, Nevada, North Carolina, Ohio, Tennessee and
Texas. The Company acquired property in Michigan and Illinois in fiscal 1998 and
began offering homes for sale in those markets in December 1998. The Company
continues to look for new markets.
The following is a summary of the parcels of land that the Company either
owns or controls through options at October 31, 1998 for proposed communities,
as distinguished from those currently under development:
NUMBER OF NUMBER OF NUMBER OF
STATE COMMUNITIES ACRES HOMES PLANNED
- ----- ----------- --------- -------------
Arizona............................. 4 160 378
California.......................... 11 896 911
Colorado............................ 2 164 235
Connecticut......................... 2 241 100
Delaware............................ 1 172 75
Florida............................. 12 1,850 2,233
Maryland............................ 4 236 542
Massachusetts....................... 2 265 256
Michigan............................ 11 1,400 1,093
New Jersey
Central........................... 19 1,973 2,624
North central..................... 9 1,350 789
South central..................... 3 545 717
New York............................ 2 49 67
North Carolina...................... 5 621 811
Ohio................................ 2 140 160
Pennsylvania........................ 27 2,421 3,119
Rhode Island........................ 2 50 134
Tennessee........................... 1 152 136
Texas............................... 4 146 358
Virginia............................ 26 2,768 5,112
--- ------ ------
Total............................. 149 15,599 19,850(1)
=== ====== ======
- ------------------
(1) Of the 19,850 planned home sites, 5,744 lots are owned.
S-13
<PAGE>
The aggregate purchase price of land parcels under option at October 31,
1998 was approximately $435,966,000 of which $28,921,000 had been paid or
deposited.
The Company evaluates all of the land under control for proposed
communities on an ongoing basis with respect to economic and market feasibility.
During the year ended October 31, 1998, such feasibility analyses resulted in
approximately $1,685,000 of capitalized costs related to proposed communities
being charged to expense because they were no longer deemed to be recoverable.
There can be no assurance that the Company will be successful in securing
necessary development approvals for the land currently under its control or for
land which the Company may acquire control of in the future or, that upon
obtaining such development approvals, the Company will elect to complete its
purchases under such options. The Company has generally been successful in the
past in obtaining governmental approvals, has substantial land currently under
its control for which it is seeking such approvals (as set forth in the table
above), and devotes significant resources to locating suitable land for future
development and to obtaining the required approvals on land under its control.
Failure to locate sufficient suitable land or to obtain necessary governmental
approvals, however, may impair the ability of the Company over the long-term to
maintain current levels of development activities.
The Company generally has not purchased land for speculation or with the
contemplation of selling it for profit. The Company believes that it has an
adequate supply of land in its existing communities and in land held for future
development (assuming that all properties are developed) to maintain its
operations at its current levels for several years.
COMMUNITY DEVELOPMENT
The Company expends considerable effort in developing a concept for each
community, which includes determination of size, style and price range of the
homes, layout of the streets and individual lots, and overall community design.
After obtaining the necessary governmental subdivision and other approvals,
which can sometimes require several years, the Company improves the land by
grading and clearing it, installing roads, underground utility lines and pipes,
erecting distinctive entrance structures, and staking out individual home sites.
Each community is managed by a project manager who is located at the site.
Working with construction managers, marketing personnel and, when required,
other Company and outside professionals such as engineers, architects and legal
counsel, the project manager is responsible for supervising and coordinating the
various developmental steps from acquisition through the approval stage,
marketing, construction and customer service, including monitoring the progress
of work and controlling expenditures. Major decisions regarding each community
are made by senior members of the Company's management.
The Company recognizes revenue only at the point which title and possession
are transferred to the buyer, which generally occurs shortly after home
construction is substantially completed. The most significant variable affecting
the timing of the Company's revenue stream, other than housing demand, is
receipt of final regulatory approvals, which, in turn, permits the Company to
begin the process of obtaining executed contracts for sales of homes. Receipt of
such final approvals is not seasonal. Although the Company's sales and
construction activities vary somewhat with the seasons, affecting the timing of
closings, any such seasonal effect is relatively insignificant compared to the
effect of receipt of final governmental approvals.
Subcontractors perform all home construction and land development work,
generally under fixed-price contracts. The Company acts as a general contractor
and purchases some, but not all, of the building supplies it requires. While the
Company has experienced some shortages in the availability of subcontractors in
some markets, it does not anticipate any material effect from these shortages in
its homebuilding operations. The Company's construction managers and assistant
managers coordinate subcontracting activities and supervise all aspects of
construction work and quality control. One of the ways the Company seeks to
achieve home buyer satisfaction is by providing its construction managers
S-14
<PAGE>
with incentive compensation arrangements based on each home buyer's satisfaction
based on their responses on pre-closing and post-closing checklists.
The Company maintains insurance to protect against certain risks associated
with its activities. These insurance coverages include, among others, general
liability, "all-risk" property, workers' compensation, automobile, and employee
fidelity. The Company believes the amounts and extent of such insurance
coverages are adequate.
MARKETING
The Company believes that its marketing strategy, which emphasizes its more
expensive "Estate" and "Executive" lines of homes, has enhanced the Company's
reputation as a builder-developer of high-quality upscale housing. The Company
believes this reputation results in greater demand for all of the Company's
lines of homes. The Company generally includes attractive decorative moldings
such as chair rails, crown moldings, dentil moldings and other aesthetic
features, even in its less expensive homes, on the basis that this additional
construction expense is important to its marketing effort.
In addition to relying on management's extensive experience, the Company
determines the prices for its homes through a Company-designed value analysis
program that compares a Company home with homes offered by other builders in the
relevant marketing area. The Company accomplishes this by assigning a positive
or negative dollar value to differences in product features, such as amenities,
location and marketing.
Toll Brothers expends great effort in creating its model homes, which play
an important role in the Company's marketing. In its models, the Company creates
an attractive atmosphere, with bread baking in the oven, fires burning in
fireplaces, and music playing in the background. Interior decorations vary among
the models and are carefully selected based upon the lifestyles of the
prospective buyers. During the past several years, the Company has received a
number of awards from various homebuilder associations for its interior
merchandising.
The sales office located in each community is generally staffed by Company
sales personnel, who are compensated with salary and commission. In addition, a
significant portion of the Company's sales is derived from the introduction of
customers to its communities by local cooperating realtors.
The Company advertises extensively in newspapers, other local and regional
publications and on billboards. The Company also uses videotapes and attractive
color brochures to describe each community. The Company has established a web
site on the Internet (http://www.tollbrothers.com) to provide its customers with
additional information on the Company and its homes.
All of the Company's homes are sold under the Company's limited warranty as
to workmanship and mechanical equipment. Many homebuyers are also provided with
a limited ten-year warranty as to structural integrity.
CUSTOMER FINANCING
The Company makes arrangements with a variety of mortgage lenders to
provide home buyers a range of conventional mortgage financing programs. By
making available an array of attractive mortgage programs to qualified
purchasers, the Company is able to better coordinate and expedite the entire
sales transaction by ensuring that mortgage commitments are received and that
closings take place on a timely and efficient basis. During fiscal 1998,
approximately 50% of the Company's closings were financed through mortgage
programs offered by the Company. In addition, during the same period, the
Company's home buyers, on average, financed approximately 73% of the purchase
price of their homes.
The Company secures the availability of a variety of competitive market
rate mortgage products from both national and regional lenders. Such
availability is generally obtained at no cost to the Company and is committed
for varying lengths of time and amounts.
S-15
<PAGE>
COMPETITION
The homebuilding business is highly competitive and fragmented. The Company
competes with numerous homebuilders of varying size, ranging from local to
national in scope, some of which have greater sales and financial resources than
the Company. Resales of homes also provide competition. The Company competes
primarily on the basis of price, location, design, quality, service and
reputation; however, during the past several years, the Company's financial
stability, relative to others in its industry, has become an increasingly
favorable competitive factor. The Company believes that, due to the increased
availability of capital, competition has increased during the past several
years.
REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to various local, state and federal statutes,
ordinances, rules and regulations concerning zoning, building design,
construction and similar matters, including local regulations that impose
restrictive zoning and density requirements in order to limit the number of
homes that can eventually be built within the boundaries of a particular
locality. The Company has also seen an increase in state and local legislation
authorizing the acquisition of land, mainly by governmental, quasi-public and
non-profit entities, as dedicated open space. In addition, the Company is
subject to registration and filing requirements in connection with the
construction, advertisement and sale of homes in its communities in certain
states and localities in which it operates. These laws have not had a material
effect on the Company, except to the extent that application of such laws may
have caused the Company to conclude that development of a proposed community
would not be economically feasible, even if any or all necessary governmental
approvals were obtained (See "Business-Land Policy"). The Company may also be
subject to periodic delays or may be precluded entirely from developing
communities due to building moratoriums in the areas in which it operates.
Generally, such moratoriums relate to insufficient water or sewage facilities or
inadequate road capacity.
In order to secure certain approvals, the Company may have to provide
affordable housing at below-market rental or sales prices. The impact on the
Company will depend on how the various state and local governments in the areas
in which the Company engages, or intends to engage, in development, implement
their programs for affordable housing. To date, these restrictions have not had
a material impact on the Company. The Company is also subject to a variety of
local, state and federal statutes, ordinances, rules and regulations concerning
protection of health and the environment ("environmental laws"), as well as the
effects of environmental factors. The particular environmental laws that apply
to any given community vary greatly according to the community site, the site's
environmental conditions and the present and former uses of the site. These
environmental laws may result in delays, may cause the Company to incur
substantial compliance and other costs, and may prohibit or severely restrict
development in certain environmentally sensitive regions or areas.
The Company maintains a policy of engaging, prior to consummating the
purchase of land, independent environmental consultants to assess such land for
the potential of hazardous or toxic materials, wastes or substances. Because it
has generally obtained such assessments for the land it has purchased, the
Company has not been significantly affected to date by the presence of such
materials.
S-16
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes offered hereby constitute a single series of Debt Securities (as
defined in the Prospectus) and will be limited to $170,000,000 aggregate
principal amount. The Notes will be issued under an Indenture, among the Issuer,
the Company and NBD Bank, a Michigan banking corporation, as Trustee (the
"Trustee"), as supplemented by the Authorizing Resolution (as defined in such
Indenture) relating to the Notes (collectively, the "Indenture"). The Indenture
is more fully described in the Prospectus. The Notes will bear interest from the
date of original issuance, at the rate per annum shown on the front cover page
of this Prospectus Supplement, payable on February 1, and August 1 of each year,
commencing August 1, 1999 to holders of record at the close of business on
January 15 and July 15, as the case may be, immediately preceding such interest
payment date. The Notes will be due on February 1, 2009 and will be issued in
fully registered book-entry form. See "-- Book-Entry System" below.
The Notes are subordinated in right of payment to all Senior Indebtedness
of Toll pursuant to the provisions described under "Subordination of Notes and
Guarantee" below. The Company will unconditionally guarantee on a senior
subordinated basis the due and punctual payment of the principal of, premium, if
any, and interest on the Notes, when and as the same shall become due and
payable, whether at maturity, by declaration of acceleration, call for
redemption or otherwise. The Guarantee is subordinated in right of payment to
all Senior Indebtedness of the Company pursuant to the provisions described
under "Subordination of Notes and Guarantee" below. The Notes and the Guarantee
are not by their terms, nor are they otherwise currently, senior to any
indebtedness of Toll or the Company, respectively, and have been designated
"senior subordinated" primarily because the Notes and the Guarantee rank pari
passu in right of payment with Toll's 9 1/2% Senior Subordinated Notes due 2003,
8 3/4% Convertible Senior Subordinated Notes due 2006, 7 3/4% Senior
Subordinated Notes due 2007 and the Company's related guarantees.
The Issuer may pay principal and interest by wire transfer or by check and
may mail an interest check to the registered address of each holder of each
outstanding Note (each such holder being hereinafter referred to as a
"Noteholder" or "Holder" and collectively as the "Noteholders" or "Holders").
Noteholders must surrender Notes to a Paying Agent to collect principal
payments.
Initially, the Trustee will act as Paying Agent and Registrar with respect
to the Notes. The Issuer may change any Paying Agent and Registrar without
notice. The Trustee is an affiliate of a participant in the Revolving Credit
Agreement.
The terms of the Notes and the Guarantee include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes and the
Guarantee are subject to all such terms, and the Holders are referred to the
Indenture and the Trust Indenture Act for a statement of them.
REDEMPTION
Optional Redemption. The Notes may be redeemed at any time on or after
February 1, 2004 and prior to maturity at the option of the Issuer, in whole, or
in part from time to time, on not less than 30 nor more than 60 days prior
notice, mailed by first-class mail to each Holder of record at such Holder's
last address as it shall appear upon the registration books of the Registrar, at
the following redemption prices (expressed as percentages of the principal
amount), in each such case with accrued and unpaid interest thereon to the
redemption date, if redeemed during the 12-month period beginning February 1 of
the following years:
YEAR PERCENTAGE
---- ----------
2004................................................... 104.063%
2005................................................... 102.708%
2006................................................... 101.354%
2007 and thereafter.................................... 100.000%
S-17
<PAGE>
Selection for Redemption. If less than all the Notes are to be redeemed,
selection of Notes for redemption will be made by the Trustee, if the Notes are
listed on a national securities exchange, in accordance with the rules of such
exchange, or if the Notes are not so listed, on a pro rata basis or by lot or in
such other manner as the Trustee shall deem appropriate and fair in its
discretion in denominations of $1,000 and integral multiples thereof.
SUBORDINATION OF NOTES AND GUARANTEE
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, in the manner and to the extent set forth
in the Indenture, to the prior payment in full of all senior indebtedness of
Toll (herein, "Senior Indebtedness of Toll" and referred to in the Indenture as
"Senior Indebtedness of the Company," as further defined below) whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed or guaranteed. Upon (i) the maturity of any Senior Indebtedness of Toll
by lapse of time, acceleration (unless waived) or otherwise, or (ii) any
distribution of the assets of Toll upon any dissolution, winding up, liquidation
or reorganization of Toll, the holders of Senior Indebtedness of Toll will be
entitled to receive payment in full before the holders of the Notes will be
entitled to receive any payments on the Notes. If, in any of the situations
referred to in clause (i) or (ii) above, a payment is made to the Trustee or to
the Noteholders by Toll before all Senior Indebtedness of Toll has been paid in
full or provision has been made for such payment, the payment to the Trustee or
the Noteholders must be paid over to the holders of Senior Indebtedness of Toll.
Senior Indebtedness of Toll (referred to in the Indenture as "Senior
Indebtedness of the Company") is defined as (i) the principal of, premium, if
any, and interest on any indebtedness, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed by Toll, (a)
under the Revolving Credit Agreement, (b) for money borrowed from others
(including, for this purpose, all obligations incurred under capitalized leases
or purchase money mortgages or under letters of credit or similar commitments),
or (c) in connection with the acquisition by it of any other business, property
or entity and, in each case, all renewals, extensions and refundings thereof,
unless the terms of the instrument creating or evidencing such indebtedness
expressly provide that such indebtedness is not superior in right of payment to
the payment of the principal of, premium, if any, and interest on the Notes.
Senior Indebtedness of Toll shall not include (a) indebtedness or amounts owed
for compensation to employees, for goods or materials purchased in the ordinary
course of business, or for services, (b) indebtednesss of Toll to the Company or
any Subsidiary (as defined in the Indenture) for money borrowed or advances from
such entities, (c) Toll's 9 1/2% Senior Subordinated Notes due 2003 (which shall
rank pari passu in right of payment with the Notes), (d) Toll's 8 3/4% Senior
Subordinated Notes due 2006 (which shall rank pari passu in right of payment
with the Notes), (e) Toll's 7 3/4% Senior Subordinated Notes due 2007 (which
shall rank pari passu in right of payment with the Notes) and (f) the Notes.
The payment of the principal of, premium, if any, and interest on the Notes
pursuant to the Guarantee will be subordinated in right of payment, in the
manner and to the extent set forth in the Indenture, to the prior payment in
full of all senior indebtedness of the Company (herein, "Senior Indebtedness of
the Company" and referred to in the Indenture as "Senior Indebtedness of the
Guarantor", as further defined below), whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. Upon (i) the
maturity of any Senior Indebtedness of the Company by lapse of time,
acceleration (unless waived) or otherwise or (ii) any distribution of the assets
of the Company upon any dissolution, winding up, liquidation or reorganization
of the Company, the holders of Senior Indebtedness of the Company will be
entitled to receive payment in full before the holders of the Notes will be
entitled to receive any payments on the Notes pursuant to the Guarantee. If, in
any of the situations referred to in clause (i) or (ii) above, a payment is made
to the Trustee or to the Noteholders by the Company before all Senior
Indebtedness of the Company has been paid in full or provision has been made for
such payment, the payment to the Trustee or Noteholders must be paid over to the
holders of Senior Indebtedness of the Company.
S-18
<PAGE>
Senior Indebtedness of the Company is defined as the principal of, premium,
if any, and interest on any indebtedness, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed by the Company,
(a) under the Revolving Credit Agreement, or (b) for money borrowed from others
(including, for this purpose, all obligations incurred under capitalized leases
or purchase money mortgages or under letters of credit or similar commitments),
or (c) in connection with the acquisition by it of any other business, property
or entity, and, in each case, all renewals, extensions and refundings thereof,
unless the terms of the instrument creating or evidencing such indebtedness
expressly provide that such indebtedness is not superior in right of payment to
the payment of the Notes pursuant to the Guarantee. Senior Indebtedness of the
Company shall not include (a) the Guarantee, (b) indebtedness of the Company to
any Subsidiary for money borrowed or advances from such Subsidiary, (c) the
Company's guarantee of Toll's 9 1/2% Senior Subordinated Notes due 2003 (which
shall rank pari passu in right of payment with the Guarantee), (d) the Company's
guarantee of Toll's 8 3/4% Senior Subordinated Notes due 2006 (which shall rank
pari passu in right of payment with the Guarantee) and (e) the Company's
guarantee of Toll's 7 3/4% Senior Subordinated Notes due 2007 (which shall rank
pari passu in right of payment with the Guarantee).
The Company's assets consist principally of the stock of the Subsidiaries.
Therefore, its rights and the rights of its creditors, including the Holders of
the Notes under the Indenture, to participate in the assets of any Subsidiary
(other than the Issuer) upon liquidation, recapitalization or otherwise will be
subject to the prior claims of the Subsidiary's creditors (including the banks)
that have provided and are providing to any of the Subsidiaries a revolving
credit facility under the Revolving Credit Agreement pursuant to which the
Company and the other Subsidiaries (including the Issuer) have guaranteed or
will guarantee the obligations owing to such banks), except to the extent that
claims of the Company itself as a creditor of such Subsidiary may be recognized.
As of October 31, 1998, after giving effect to the issuance of the Notes
and the application of the net proceeds therefrom, the amount of outstanding
indebtedness of the Company and its Subsidiaries effectively ranking senior in
right of payment to the Notes (excluding collateralized mortgage financing)
would have been $649,282,000.
CERTAIN COVENANTS
Maintenance of Consolidated Net Worth. The Indenture provides that if the
Consolidated Net Worth of the Company and its Subsidiaries at the end of any two
consecutive fiscal quarters is less than $55,000,000, then the Company shall
cause the Issuer to offer to repurchase (the "Offer") on the last day of the
fiscal quarter next following such second fiscal quarter, or, if such second
fiscal quarter ends on the last day of the Company's fiscal year, 120 days
following the last day of such second fiscal quarter (the "Purchase Date"),
$7,500,000 aggregate principal amount of Notes (or such lesser amount as may be
outstanding at the time) at a purchase price equal to their principal amount
plus accrued and unpaid interest to the Purchase Date. The Issuer may credit
against its obligation to offer to repurchase Notes on a Purchase Date the
principal amount of (i) Notes acquired by the Issuer and surrendered for
cancellation otherwise than pursuant to an Offer, and (ii) Notes redeemed or
called for redemption, in each case at least 60 days before the Purchase Date.
In no event shall the failure to meet the minimum Consolidated Net Worth stated
above at the end of any fiscal quarter (a "Consolidated Net Worth shortfall") be
counted toward more than one Offer.
The following example illustrates the maximum number of days between the
occurrence of a Consolidated Net Worth shortfall and the required date of
repurchase of the Notes if a second consecutive Consolidated Net Worth shortfall
were to occur. If the Company's Consolidated Net Worth were to fall below
$55,000,000 on the last day of the third fiscal quarter of the Company's fiscal
year, Noteholders would not be entitled to have any portion of their Notes
repurchased as a result thereof unless the Company's Consolidated Net Worth also
were to remain below such amount on the last day of the fourth fiscal quarter of
such fiscal year. In such event, the Issuer would then be obligated to
repurchase the Notes pursuant to the related Offer on the day that is 120 days
after the last day of the fourth fiscal quarter; that is, 212 days after the
date on which the first Consolidated Net Worth shortfall occurred.
S-19
<PAGE>
Any Offer to acquire Notes as described above will be mailed not less than
30 days nor more than 60 days prior to the Purchase Date to each Noteholder at
its last registered address. The Company will comply with Rule 14e-1 promulgated
pursuant to the Securities Exchange Act of 1934, as amended, to the extent such
regulation is applicable, in connection with any Offer made pursuant to the
terms of the Indenture. If an Offer to acquire Notes is oversubscribed, the
Issuer shall acquire Notes on a pro rata basis (with such adjustment as may be
deemed appropriate by the Company so that only Notes in denominations of $1,000
or integral multiples of $1,000 shall be acquired).
Pursuant to the terms of the indentures governing the Issuer's 9 1/2%
Senior Subordinated Notes due 2003 (the "9 1/2% Notes"), the Issuer's 8 3/4%
Senior Subordinated Notes due 2006 (the "8 3/4% Notes"), and the Issuer's 7 3/4%
Senior Subordinated Notes due 2007 (the "7 3/4% Notes"), the Issuer is required
to repurchase $7,500,000 aggregate principal amount of each of the 9 1/2% Notes,
the 8 3/4% Notes and the 7 3/4% Notes (or such lesser amounts as may be
outstanding at the time) if, with respect to the 9 1/2% Notes, the 8 3/4% Notes
and the 7 3/4% Notes, the Company's consolidated net worth (as defined in such
indentures) at the end of any two consecutive fiscal quarters is less than
$55,000,000 (a "Net Worth shortfall").
There are no legal or contractual limitations on the Issuer's ability to
repurchase the Notes pursuant to an Offer or on the Issuer's ability to repay
any other outstanding indebtedness, other than as described under "--
Subordination of Notes and Guarantee". However, in the event the Issuer is
required to make one or more Offers to acquire the Notes, or one or more offers
to acquire the 9 1/2% Notes, the 8 3/4% Notes or the 7 3/4% Notes, or any or all
of them, in connection with a Consolidated Net Worth shortfall, or a Net Worth
shortfall, as applicable, there can be no assurance that the Issuer will have
sufficient funds available to repurchase the Notes, the 9 1/2% Notes, the 8 3/4%
Notes or the 7 3/4% Notes.
The Company's Consolidated Net Worth as of October 31, 1998 was
$525,756,000.
Limitation on Additional Indebtedness. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, incur, issue,
assume, guarantee or in any other manner become liable, contingently or
otherwise, with respect to any Indebtedness (or, with respect to Restricted
Subsidiaries only, any preferred stock) (whether in liquidation or otherwise)
other than Excluded Debt, unless, after giving effect thereto, either (A) the
Consolidated Fixed Charge Ratio of the Company exceeds 1.5:1 or (B) the ratio of
Indebtedness (and, if applicable, Restricted Subsidiary preferred stock) of such
Persons (excluding, for purposes of this calculation, purchase money mortgages
that are Non-Recourse Indebtedness, obligations incurred under letters of
credit, escrow agreements and surety bonds in the ordinary course of business,
Indebtedness of the Company's directly or indirectly majority-owned mortgage
finance Affiliates and Excluded Debt) to Consolidated Adjusted Net Worth of the
Company is less than 4.5:1. Notwithstanding the foregoing, the Company and its
Restricted Subsidiaries may incur, issue, assume, guarantee or otherwise become
liable with respect to (i) purchase money mortgages that are Non-Recourse
Indebtedness, (ii) obligations incurred under letters of credit, escrow
agreements and surety bonds in the ordinary course of business, (iii)
Indebtedness of the Company's directly or indirectly majority-owned mortgage
finance Affiliates and (iv) Indebtedness solely for the purpose of refinancing
or repaying any existing Indebtedness or Restricted Subsidiary preferred stock
so long as after giving effect to such refinancing or repayment, the sum of
total consolidated Indebtedness of the Company and its Restricted Subsidiaries
and the aggregate liquidation preference of Restricted Subsidiary preferred
stock is not increased (provided that for purposes of this subparagraph (iv),
application of the proceeds from the sale of assets of the Company or its
Restricted Subsidiaries in the ordinary course of business to reduce
Indebtedness or Restricted Subsidiary preferred stock and the subsequent
reborrowing to purchase assets in the ordinary course of business shall be
deemed to be a refinancing).
Currently, the Company and its Subsidiaries can incur significant
additional borrowings notwithstanding the limitations set forth above.
Limitation on Restricted Payments. The Indenture provides that the Company
may not declare or pay any dividend or make any distribution or payment on its
Capital Stock or to its shareholders, as
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shareholders (other than dividends or distributions payable in its capital
stock), or purchase, redeem or otherwise acquire or retire for value, or permit
any Restricted Subsidiary to purchase or otherwise acquire for value, any
Capital Stock of the Company (collectively, "Restricted Payments"), or make or
permit any Restricted Subsidiary to make (I) any loan, advance, capital
contribution or transfer other than for fair market value (as determined by a
majority of the disinterested members of the Board of Directors of the Company
or the relevant Restricted Subsidiary, which shall be evidenced by a written
resolution of such Board of Directors) in or to any Affiliate (which term does
not include joint ventures (whether in corporate, partnership or other form)
with an unaffiliated party or parties) other than a Restricted Subsidiary of the
Company or (II) any Unrestricted Subsidiary Investment (collectively,
"Restricted Investments"), if, at the time of such Restricted Payment or
Restricted Investment, or after giving effect thereto, (i) a Default or an Event
of Default shall have occurred and be continuing; or (ii) the sum of (x) the
aggregate amount expended for such Restricted Payments (the amount expended for
such purposes, if other than in cash, to be determined by the Board of Directors
of the Company, whose determination shall be conclusive and evidenced by a
resolution of such Board of Directors filed with the Trustee) subsequent to
October 31, 1991, and (y) the amount by which the aggregate book value of all
property (net of any previous write-downs or reserves in respect of such
property) subject to Non-Recourse Indebtedness, as hereinafter defined, which
has been accelerated or is in default, is in excess of such Non-Recourse
Indebtedness and (z) the aggregate amount of Restricted Investments then
outstanding, shall exceed the sum of (a) 50% of the aggregate Consolidated Net
Income (or, in case such aggregate Consolidated Net Income shall be a deficit,
minus 100% of such deficit) of the Company accrued on a cumulative basis
subsequent to October 31, 1991, and (b) the aggregate net proceeds, including
the fair market value of property other than cash (as determined by the Board of
Directors of the Company, whose determination shall be conclusive and evidenced
by a resolution of such Board of Directors filed with the Trustee), received by
the Company from the issue or sale after October 31, 1991 of Capital Stock of
the Company, including Capital Stock of the Company issued upon the conversion
of indebtedness of the Company, other than Capital Stock that is redeemable at
the option of the holder or is mandatorily redeemable and (c) $20,000,000; or
(iii) the Company would be unable to incur an additional $1.00 of Indebtedness
(other than Excluded Debt) pursuant to the covenant described under "--
Limitation on Additional Indebtedness" above; provided, however, that the
foregoing shall not prevent (A) the payment of any dividend within 60 days after
the date of declaration thereof, if at said date of declaration the making of
such payment would have complied with the provisions of this limitation on
dividends, or (B) the retirement of any shares of the Company's Capital Stock by
exchange for, or out of proceeds of the substantially concurrent sale of, other
shares of its Capital Stock (other than Capital Stock that is redeemable at the
option of the holder or is mandatorily redeemable), or (C) the payment or
advance of cash compensation or any compensation pursuant to or in connection
with any employee benefit plan of the Company and the Subsidiaries paid or
payable to any Person in his or her capacity as an employee, officer or
director, and neither such retirement nor the proceeds of any such sale or
exchange nor the payment or advance of any such compensation shall be included
in any computation made under clause (ii) above.
Limitation on Restrictions on Payment of Dividends by Subsidiaries to the
Company. The Company will not, and will not permit any Subsidiary to, enter
into any agreement or amendment of any existing agreement if such agreement or
amendment would restrict the payment of dividends or the making of other
distributions on any Subsidiary's capital stock, provided that a Subsidiary may
enter into such an agreement or amendment if, immediately prior thereto, either
(i) (A) the Consolidated Net Worth of the Company (excluding the Consolidated
Net Worth of such Subsidiary and any other Subsidiaries which have such
agreements) is at least $50,000,000 and (B) the Consolidated Net Worth of such
Subsidiary and any other Subsidiaries which have such agreements does not
account for more than 20% of the Consolidated Net Worth of the Company
(including such Subsidiary and any other Subsidiaries which have such
agreements) or (ii) the Consolidated Net Worth of the Company (excluding the
Consolidated Net Worth of such Subsidiary and any other Subsidiaries which have
such agreements) is at least $70,000,000.
Restricted and Unrestricted Subsidiaries. The Company will not permit any
Restricted Subsidiary to be designated as an Unrestricted Subsidiary unless the
Company and its Restricted
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Subsidiaries would thereafter be permitted to (i) incur at least $1.00 of
Indebtedness (other than Excluded Debt) pursuant to the covenant described under
"-- Limitation on Additional Indebtedness" above and (ii) make a Restricted
Payment or Restricted Investment of at least $1.00 pursuant to the covenant
described under "-- Limitation on Restricted Payments" above.
The Company will not permit any Unrestricted Subsidiary to be designated as
a Restricted Subsidiary unless such Subsidiary has outstanding no Indebtedness
except such Indebtedness as the Company could permit it to become liable for
immediately after becoming a Restricted Subsidiary under the provisions of the
covenant described under "-- Limitation on Additional Indebtedness" above.
The Company will not designate the Issuer an Unrestricted Subsidiary.
SUCCESSOR CORPORATION
The Indenture provides that each of the Company and the Issuer may not
consolidate with, merge into or transfer all or substantially all of its assets
to another Person unless (i) such Person is a corporation organized under the
laws of the United States or any state thereof or the District of Columbia and
assumes all the obligations of the Company or the Issuer under the Indenture and
either the Notes issued thereunder, or the Guarantee, as the case may be, (ii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing, (iii) the Consolidated Net Worth
of the obligor of the Notes immediately after such transaction is not less than
the Consolidated Net Worth of the Issuer or the Company, as applicable,
immediately prior to such transaction and (iv) the surviving corporation would
be able to incur at least an additional $1.00 of Indebtedness (other than
Excluded Debt) under the covenant described under "-- Limitation on Additional
Indebtedness" above.
CERTAIN OTHER PROVISIONS
See accompanying Prospectus.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Affiliate", as defined in the Indenture, has the meaning provided in Rule
405 promulgated under the Securities Act of 1933, as amended and in effect on
the date herein.
"Consolidated Adjusted Net Worth" of the Company means the Consolidated Net
Worth of the Company less the stockholders' equity of each of the Unrestricted
Subsidiaries, as determined in accordance with generally accepted accounting
principles.
"Consolidated Fixed Charge Ratio" of the Company means the ratio of (i) the
aggregate amount of Consolidated Net Income Available for Fixed Charges of such
Person for the four fiscal quarters for which financial information in respect
thereof is available immediately prior to the date of the transaction giving
rise to the need to calculate the Consolidated Fixed Charge Ratio (the
"Transaction Date") to (ii) the aggregate Consolidated Interest Expense of such
Person for the four fiscal quarters for which financial information in respect
thereof is available immediately prior to the Transaction Date.
"Consolidated Income Tax Expense" of the Company means, for any period for
which the determination thereof is to be made, the aggregate of the income tax
expense of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Interest Expense" of the Company means, for any period for
which the determination thereof is to be made, the Interest Expense of the
Company and its Restricted
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<PAGE>
Subsidiaries for such period, determined on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Net Adjusted Income" of the Company means, for any period for
which the determination thereof is to be made taken as one accounting period,
the aggregate Consolidated Net Income of the Company and its Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles, adjusted by excluding (to the extent not otherwise
excluded in calculating Consolidated Net Income) any net extraordinary gain or
any net extraordinary loss, as the case may be, during such period.
"Consolidated Net Income" for any period means the aggregate of the Net
Income of the Company and its consolidated subsidiaries for such period, on a
consolidated basis, determined in accordance with generally accepted accounting
principles, provided that (i) the Net Income of any person in which the Company
or any consolidated Subsidiary has a joint interest with a third party or which
is organized outside of the United States shall be included only to the extent
of the lesser of (A) the amount of dividends or distributions paid to the
Company or a consolidated subsidiary or (B) the Company's direct or indirect
proportionate interest in the Net Income of such Person, provided that, so long
as the Company or a consolidated subsidiary has an unqualified legal right to
require the payment of a dividend or distribution, Net Income shall be
determined solely pursuant to clause (B); (ii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, and (iii) the Net Income of any
Unrestricted Subsidiary shall be included only to the extent of the amount of
dividends or distributions (the fair value of which, if other than in cash, to
be determined by the Board of Directors, in good faith) by such Subsidiary to
the Company or to any of its consolidated Restricted Subsidiaries.
"Consolidated Net Income Available for Fixed Charges" means, for any period
for which the determination thereof is to be made, the sum of the amounts for
such period of (i) Consolidated Net Adjusted Income, (ii) Consolidated Interest
Expense (excluding capitalized interest) and (iii) Consolidated Income Tax
Expense, all as determined on a consolidated basis for the Company and its
Subsidiaries in conformity with generally accepted accounting principles.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, as determined in accordance with generally accepted
accounting principles.
"Designated Senior Debt of the Company" means any single issue of
Indebtedness of the Company constituting Senior Indebtedness of the Company
which at the time of determination has an aggregate principal amount outstanding
of at least $25,000,000 and is specifically designated in the instrument or
instruments creating, governing or evidencing such Senior Indebtedness of the
Company as "Designated Senior Debt of Toll Brothers, Inc." (it being understood
that the Company's guarantee of the Revolving Credit Agreement shall be
considered a single issue of Indebtedness of the Company for purposes of this
definition).
"Designated Senior Debt of the Issuer" means any single issue of
Indebtedness of the Issuer constituting Senior Indebtedness of the Issuer which
at the time of determination has an aggregate principal amount outstanding of at
least $25,000,000 and is specifically designated in the instrument or
instruments creating, governing or evidencing such Senior Indebtedness of the
Issuer as "Designated Senior Debt of Toll Corp." (it being understood that the
Issuer's guarantee of the Revolving Credit Agreement shall be considered a
single issue of Indebtedness of the Issuer for purposes of this definition).
"Excluded Debt" means any Indebtedness of the Company and any Indebtedness
or preferred stock of the Issuer, whether outstanding on the date of the
Indenture or thereafter created, which is (i) subordinated in right of payment
to the Notes or the Guarantee (upon liquidation or otherwise) and (ii) matures
after, and is not redeemable, mandatorily or at the option of the holder thereof
prior to the date of maturity of the Notes.
"Indebtedness," for the purpose of the covenants described under "--
Certain Covenants -- Limitation on Additional Indebtedness" and "-- Restricted
and Unrestricted Subsidiaries," and
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<PAGE>
certain definitions, means without duplication (i) any liability of any Person
(a) for borrowed money or evidenced by a bond, note, debenture or similar
instrument (including a purchase money obligation) given in connection with the
acquisition of any businesses, properties or assets of any kind (other than a
trade payable or current liability arising in the ordinary course of business)
to the extent it would appear as a liability upon a balance sheet of such Person
prepared on a consolidated basis in accordance with generally accepted
accounting principles, or (b) for the payment of money relating to a capitalized
lease obligation; (ii) any liability of any Person under any obligation incurred
under letters of credit; and (iii) any liability of others described in clause
(i) or (ii) with respect to which such Person has made a guarantee or similar
arrangement, directly or indirectly (to the extent of such guarantee or
arrangement).
"Interest Expense" of any Person means, for any period for which the
determination thereof is to be made, the sum of the aggregate amount of (i)
interest in respect of indebtedness (including all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing), (ii) all but the principal component of rentals in
respect of capitalized lease obligations, paid, accrued or scheduled to be paid
or accrued by such Person during such period and (iii) capitalized interest, all
as determined in accordance with generally accepted accounting principles, minus
(iv) interest expense attributable to such Person's directly or indirectly
majority-owned mortgage finance Affiliates.
"Net Income" of any Person means the net income (loss) of such Person,
determined in accordance with generally accepted accounting principles;
excluding, however, from the determination of Net Income all gain (to the extent
that it exceeds all losses) realized upon the sale or other disposition
(including, without limitation, dispositions pursuant to sale leaseback
transactions) of any real property or equipment of such Person, which is not
sold or otherwise disposed of in the ordinary course of business, or of any
capital stock of such Person or its subsidiaries owned by such Person.
"Non-Recourse Indebtedness" means Indebtedness or other obligations secured
by a lien on property to the extent that the liability for such Indebtedness or
other obligations is limited to the security of the property without liability
on the part of the Company or any Subsidiary (other than the Subsidiary which
holds the title to such property) for any deficiency.
"Restricted Subsidiary" means any Subsidiary that is not an Unrestricted
Subsidiary.
"Unrestricted Subsidiary" means (a) any Subsidiary which, in accordance
with the provisions of the Indenture, has been designated in a Board Resolution
of the Company as an Unrestricted Subsidiary, in each case unless and until such
Subsidiary shall, in accordance with the provisions of the Indenture, be
designated by Board Resolution as a Restricted Subsidiary; and (b) any
Subsidiary a majority of the voting stock of which shall at the time be owned
directly or indirectly by one or more Unrestricted Subsidiaries.
"Unrestricted Subsidiary Investment" means any loan, advance, capital
contribution or transfer (including by way of guarantee or other similar
arrangement) in or to any Unrestricted Subsidiary. For the purposes of the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments" above, (i) "Unrestricted Subsidiary Investment" shall include the fair
market value of the net assets of any Subsidiary at the time that such
Subsidiary is designated an Unrestricted Subsidiary and (ii) any property
transferred to an Unrestricted Subsidiary shall be valued at fair market value
at the time of such transfer, in each case as determined by the Board of
Directors of the Company in good faith. "Unrestricted Subsidiary Investment"
does not include the fair market value of the net assets of an Unrestricted
Subsidiary that is designated as a Restricted Subsidiary (as determined by the
Board of Directors of the Company in good faith), provided that such designation
is then permitted pursuant to the terms of the Indenture.
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<PAGE>
BOOK-ENTRY SYSTEM
The Notes will be represented by a Global Note that will be deposited with,
or on behalf of the "Depositary" and registered in the name of a nominee of the
Depositary.
The Depositary has advised the Issuer and the Underwriter as follows: the
Depositary is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. The Depositary was created to hold securities of its participating
organizations ("participants") and to facilitate the clearance and settlement of
securities transactions, such as transfers and pledges, among its participants
in such securities through electronic computerized book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. Participants include securities brokers and dealers
(including the Underwriter), banks, trust companies, clearing corporations and
certain other organizations, some of whom (and/or their representatives) own the
Depositary. Access to the Depositary'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. Persons who are not participants may beneficially own securities
held by the Depositary only through participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Note may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary.
The Notes represented by the Global Note will not be exchangeable for
certificated Notes, provided that if the Depositary is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is not
appointed by the Issuer within 90 days, the Issuer will issue individual Notes
in definitive form in exchange for the Global Note. In addition, the Issuer may
at any time and in its sole discretion determine not to have a Global Note and,
in such event, will issue individual Notes in definitive form in exchange for
the Global Note previously representing all such Notes. In either instance, an
owner of a beneficial interest in the Global Note will be entitled to physical
delivery of Notes in definitive form equal in principal amount to such
beneficial interest and to have such Notes registered in its name. Individual
Notes issued in definitive form will be issued in denominations of $1,000 and
any larger amount that is an integral multiple of $1,000 and will be issued in
registered form only, without coupons.
Payments of principal of and interest on the Notes will be made by the
Issuer through the Trustee to the Depositary or its nominee, as the case may be,
as the registered owner of the Global Note. Neither the Issuer nor the Trustee
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests of the Global
Note or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. The Issuer expects that the Depositary, upon
receipt of any payment of principal or interest in respect of the Global Note,
will credit the accounts of the related participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global Note as shown on the records of the Depositary. The
Issuer also expects that payments by participants to owners of beneficial
interests in the Global Note will be governed by standing customer instructions
and customary practices, as is now the case with securities held for the
accounts of customers in bearer form or registered in "street name," and will be
the responsibility of such participants.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
Basic Provisions and related Terms Agreement incorporated by reference therein
(together, the "Underwriting Agreement"), the Issuer has agreed to sell to
Salomon Smith Barney Inc. and Warburg Dillon Read LLC (the "Underwriters"), and
the Underwriters have agreed to purchase from the Issuer, the aggregate
principal amount of Notes set forth opposite their names below:
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
Salomon Smith Barney Inc.............................. $153,000,000
Warburg Dillon Read LLC............................... 17,000,000
------------
Total............................................ $170,000,000
============
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby, if any of the Notes are purchased.
The distribution of the Notes offered hereby by the Underwriters will be
effected from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of each sale. In connection with the sale of
any Notes offered hereby, the Underwriters may be deemed to have received
compensation from the Issuer equal to the difference between the amount received
by such Underwriter upon the sale of such Notes and the price at which such
Underwriter purchased such Notes from the Issuer. In addition, the Underwriters
may sell the Notes offered hereby to or through certain dealers, and dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriters and/or any purchasers of such Notes for whom
they may act as agents (which compensation may be in excess of customary
commissions). The Underwriters may also receive compensation from the purchasers
of such Notes for whom they may act as agents.
The Issuer has been advised by the Underwriters that the Underwriters
presently intend to make a market in the Notes offered hereby; however, the
Underwriters are not obligated to do so. Any market making may be discontinued
at any time, and there can be no assurance that an active public market for the
Notes will develop.
The Issuer and the Company each has agreed with the Underwriters that for a
period of 90 days from the date of this Prospectus Supplement they will not sell
or otherwise dispose of any debt securities to the public without the prior
written consent of the Underwriters.
The Company and the Issuer will indemnify the Underwriters against certain
liabilities and expenses, including liabilities under the Securities Act of
1933, as amended, or contribute to payments the Underwriters may be required to
make in respect thereof.
The expenses of this offering, payable by the Company, are estimated to be
$250,000.
LEGAL MATTERS
Certain matters with respect to the Notes offered hereby, are being passed
upon for the Company and the Issuer by Wolf, Block, Schorr and Solis-Cohen LLP,
Philadelphia, Pennsylvania. Certain legal matters with respect to the Notes
offered hereby are being passed upon for the Underwriters by Cahill Gordon &
Reindel (a partnership including a professional corporation), New York, New
York.
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<PAGE>
PROSPECTUS
[LOGO]
TOLL BROTHERS, INC.
COMMON STOCK
PREFERRED STOCK
GUARANTEES
TOLL CORP.
DEBT SECURITIES
Toll Brothers, Inc. (the "Company") may from time to time offer (i) shares
(the "Common Shares") of its Common Stock, $.01 par value per share (the "Common
Stock"), (ii) shares (the "Preferred Shares") of its Preferred Stock, $.01 par
value per share (the "Preferred Stock"), and (iii) unconditional and irrevocable
guarantees ("Guarantees") of debt securities issued by Toll Corp. ("Toll"), a
wholly-owned subsidiary of the Company. Toll may offer from time to time debt
securities (the "Debt Securities"), consisting of debentures, notes and/or other
unsecured evidences of indebtedness in one or more series, guaranteed by the
Company. The foregoing securities are collectively referred to as the
"Securities." Any Securities may be offered with other Securities or separately
(except for Guarantees, which may only be offered with Debt Securities).
Securities may be sold for U.S. dollars, foreign currency or currency units,
including the European Currency Unit; amounts payable with respect to any
Securities may likewise be payable in U.S. dollars, foreign currency or currency
units, including the European Currency Unit -- in each case, as the Company (or,
in the case of Debt Securities, Toll) specifically designates. The Securities
will be offered at an aggregate initial offering price not to exceed U.S.
$300,000,000, or the equivalent thereof (based on the applicable exchange rate
at the time of sale) if Debt Securities are issued in principal amounts
denominated in one or more foreign currencies or currency units as shall be
designated by Toll, at prices and on terms to be determined at the time of sale.
This Prospectus will be supplemented by one or more Prospectus Supplements,
which will set forth with regard to the particular Securities in respect of
which this Prospectus is being delivered (i) in the case of Common Shares, the
aggregate number of Common Shares offered, the public offering price and the
other terms of the offering thereof, (ii) in the case of Preferred Shares, the
aggregate number of Preferred Shares offered, the specific designation and
stated value, any dividend, liquidation preference, redemption, sinking fund,
voting or other rights, the terms for conversion into or exchange for other
Securities, if any, including the terms of any Securities into or for which they
are convertible or exchangeable, the initial public offering price and any
securities exchange listings, and (iii) in the case of Debt Securities, the
title, aggregate principal amount, currency or currencies of denomination,
initial offering price, maturity, interest rate or rates, if any (which may be
either variable or fixed), and/or the method of determination thereof, the time
of payment of any interest, any terms for redemption, extension or early
repayment, any provision for sinking fund payments, rank, any conversion or
exchange rights, whether such Debt Securities are issuable in individual
registered form with or without coupons, any listing on a securities exchange,
the net proceeds to the Company and any other specific terms, including any
covenants, relating to such series of Debt Securities. The Prospectus Supplement
will also contain information, as applicable, about certain United States
Federal income tax considerations relating to the Securities in respect of which
this Prospectus is being delivered.
The Company or Toll may sell the Securities to or through dealers or
underwriters, and also may sell the Securities directly to other purchasers or
through agents. See "Plan of Distribution." If an agent of the Company or Toll
or a dealer or an underwriter is involved in the sale of the Securities in
respect of which this Prospectus is being delivered, the agent's commission or
dealer's purchase price or underwriter's discount will be set forth in, or may
be calculated from, the Prospectus Supplement. Any underwriters, dealers or
agents participating in the offering of Securities may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended. See
"Plan of Distribution" for possible indemnification arrangements for any agents,
dealers or underwriters.
------------------------
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 December 3, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy and
information statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission, Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, DC 20549, and at the Regional Offices
of the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, at prescribed rates. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding registrants, such as the
Company, that file electronically with the Commission. The Common Stock is
listed on the New York Stock Exchange and the Pacific Exchange. Reports, proxy
and information statements and other information concerning the Company may be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005 and the Pacific Exchange, 301 Pine Street, San Francisco,
California 94104.
The Company and Toll have filed a Registration Statement on Form S-3
(herein, together with all amendments thereto, called the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Commission, with respect to the Securities covered by this Prospectus.
Toll does not expect that it will be required to file reports with the
Commission pursuant to Section 15(d) of the Exchange Act. In this regard, Toll
will not make available annual reports to security holders. For further
information with respect to Toll and the Company and the Securities offered
hereby, reference is hereby made to the Registration Statement and exhibits
thereto. Statements contained in this Prospectus concerning the provisions of
certain documents are not necessarily complete and, in each instance, reference
is made to the copy of such document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of all or any part of the Registration Statement, including
exhibits thereto, may be obtained, upon payment of the prescribed fees, at the
offices of the Commission as set forth above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates by reference (i) the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1996, (ii) the
Company's Quarterly Reports on Form 10-Q for the quarters ended January 31,
1997, April 30, 1997 and July 31, 1997, (iii) the Company's Current Reports on
Form 8-K dated June 20, 1997 and September 17, 1997, (iv) the description of the
Company's Common Stock contained in its Registration Statement on Form 8-A dated
June 19, 1986, and (v) the description of preferred stock purchase rights
contained in the Company's registration statement on Form 8-A dated June 20,
1997. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus from the date of filing such
documents except as to any portion of any future annual or quarterly report to
the Company's stockholders or proxy statement which is not deemed to be filed
under those provisions. Any statement contained in this Prospectus, or in a
document all or a portion of which is 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 also incorporated by reference herein) modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus, except as so modified or superseded.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
herein by reference, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into such documents). All such
requests should be addressed to: Joseph R. Sicree, Director of Investor
Relations, Toll Brothers, Inc., 3103 Philmont Avenue, Huntingdon Valley, PA
19006, (215) 938-8000.
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THE COMPANY
The Company designs, builds, markets and arranges financing for
single-family detached and attached homes in middle and high income residential
communities catering to both move-up and empty nester home buyers in fifteen
states and six regions around the country. The Company operates predominantly in
major suburban residential areas in southeastern Pennsylvania, central New
Jersey, the Virginia and Maryland suburbs of Washington, D.C., the Boston,
Massachusetts metropolitan area, southern Connecticut, Westchester County, New
York, Orange County and Los Angeles County, California, the suburbs of Raleigh
and Charlotte, North Carolina and Scottsdale, Arizona. It is also developing
communities in Nassau County, New York, in northern Delaware, in McKinney,
Texas, a northern suburb of Dallas, in Austin, Texas, in several markets on the
west coast of and in southeast Florida, in Columbus, Ohio, and in Nashville,
Tennessee. The Company has also acquired property in the San Francisco Bay area
where it expects to begin offering homes for sale in 1998.
In recognition of the Company's achievements, it has received numerous
awards from national, state and local homebuilder publications and associations.
In fiscal 1996, the Company was selected "America's Best Builder" by the
National Association of Home Builders (the "NAHB") and Builder magazine in
recognition of its excellent financial performance, unique custom-production
system for building luxury homes in high volume and the excellence of its
designs. The Company also received the National Housing Quality Award from the
NAHB, which recognized the Company's outstanding commitment to total quality
management and continuous improvement. In 1994, the Company was named a first
place award winner in the "Build America Beautiful" Awards Program, sponsored by
Better Homes and Gardens magazine, the NAHB and Keep America Beautiful, Inc. in
recognition of the Company's programs to improve the handling of solid waste on
construction sites. In addition, the Company was named "The Builder of the Year"
in 1988 by Professional Builder magazine.
Co-founded by Robert I. Toll and Bruce E. Toll, the Company commenced its
business operations, through predecessor entities, in 1967. The Company is a
Delaware corporation that was formed in May 1986. Its principal executive
offices are located at 3103 Philmont Avenue, Huntingdon Valley, Pennsylvania
19006, and its telephone number is (215) 938-8000.
Toll Corp. ("Toll"), an indirect, wholly-owned subsidiary of the Company,
was incorporated in Delaware in July 1987. Other than the financing of other
subsidiaries of the Company by lending the proceeds of the offering of the Debt
Securities and similar activities related to previous offerings of debt
securities, Toll has no independent operations and generates no operating
revenues. There is no present intention to have Toll engage in other activities.
Toll's principal executive offices are located at 3103 Philmont Avenue,
Huntingdon Valley, Pennsylvania 19006, and its telephone number is
(215) 938-8000.
THE HOUSING INDUSTRY
Residential real estate developers, including the Company, are subject to
various risks, both on the national and regional levels, such as economic
recession, oversupply of homes, changes in governmental regulation, effects of
environmental factors, increases in real estate taxes and costs of materials and
labor, and the unavailability of construction funds or mortgage loans at rates
acceptable to builders and home buyers. The Company's business and earnings are
substantially dependent on its ability to obtain financing on acceptable terms
for its development activities. Increases in interest rates could reduce the
funds available to the Company for its future operations and would increase the
Company's expenses. In addition, increases in interest rates may have an adverse
effect upon the Company's sales and could affect the availability of home
financing to present and potential customers of the Company.
The housing industry has been subject to increasing environmental,
building, zoning and sales regulation by various federal, state and local
authorities. This regulation affects construction activities as well as sales
activities and other dealings with consumers. For its development activities,
the Company must obtain the approval of numerous governmental authorities, and
changes in local circumstances or applicable law may necessitate the application
for additional approvals or the modification of existing approvals. Expansion of
regulation has increased the time required to obtain
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the necessary approvals to begin construction and has prolonged the time between
the initial acquisition of land or land options and the commencement and
completion of construction.
USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes including acquisition of residential development
properties.
The specific use of proceeds of any Securities issued hereunder will be
more particularly set forth in the applicable Prospectus Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's historical ratio of earnings
to fixed charges for the five years ended October 31, 1996 and the nine months
ended July 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, NINE MONTHS
-------------------------------- ENDED
1992 1993 1994 1995 1996 JULY 31, 1997
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratio, including collateralized mortgage
financing(1).............................. 2.63 2.72 3.37 3.82 3.87 3.30
</TABLE>
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(1) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes, extraordinary gain (loss) and change
in accounting plus interest expense and fixed charges except interest
incurred. Fixed charges consist of interest incurred (whether expensed or
capitalized), the portion of rent expense that is representative of the
interest factor, and amortization of debt discount and issuance costs.
DESCRIPTION OF DEBT SECURITIES AND GUARANTEES
Debt Securities may be issued from time to time in one or more Series (as
hereinafter defined) by Toll. All Series of Debt Securities will be offered
together with unconditional Guarantees issued by the Company. The particular
terms of each Series of Debt Securities, and the particular terms of the
Guarantees offered in connection therewith, will be set forth in the Indenture
(as hereinafter defined) and the Authorizing Resolution (as hereinafter defined)
relating to such Series of Debt Securities and will be described in the
applicable Prospectus Supplement.
The Debt Securities will be issued pursuant to a resolution adopted by the
Board of Directors (or an Officer or committee of Officers authorized by the
Board of Directors) of both Toll and the Company (an "Authorizing Resolution")
under an indenture (the "Indenture") to be entered into by the Company, Toll and
one or more Trustees prior to the issuance of such Debt Securities. Information
regarding the Trustee or Trustees with respect to any Series of Debt Securities
issued under an Indenture will be included in the related Prospectus Supplement.
The following is a summary of certain provisions of the Indenture and does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all of the provisions of the Indenture, including the
definitions therein of certain capitalized terms used in this Prospectus.
Wherever particular Sections, Articles or defined terms of the Indenture are
referred to herein or in a Prospectus Supplement, such Sections, Articles or
defined terms are incorporated herein or therein by reference. The following
sets forth certain general terms and provisions of the Debt Securities to which
any Prospectus Supplement may relate. The particular terms of the Debt
Securities offered by any Prospectus Supplement and the extent, if any, to which
such general provisions may apply to the Debt Securities so offered, will be
described in the Prospectus Supplement relating to such Debt Securities. To the
extent reference is made herein or in a Prospectus Supplement to the terms of
any Debt Securities, such descriptions do not purport to be complete and are
subject to and are qualified in their entirety by reference to, the Indenture
pursuant to which such Debt Securities are issued and the applicable Authorizing
Resolution.
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GENERAL
The Debt Securities will represent general unsecured obligations of Toll.
The Company will unconditionally guarantee the due and punctual payment of the
principal of, premium, if any, and interest, if any, on the Debt Securities,
when and as the same shall become due and payable, whether at maturity, by
declaration of acceleration, call for redemption or otherwise (the "Guarantee").
See "Guarantee of Debt Securities". An Indenture will not limit the aggregate
principal amount of Debt Securities which may be issued thereunder. Debt
Securities may be issued thereunder from time to time in one or more Series.
Because Toll has no independent operations and generates no operating revenues,
funds required to pay the principal and interest on the Debt Securities will be
derived from the Company and its other Subsidiaries (as defined in the
Indenture). There are no legal or contractual restrictions on the Company's or
such other Subsidiaries' ability to provide such funds.
Unless otherwise provided in the applicable Authorizing Resolution and
Prospectus Supplement, the payment of principal, premium, if any, and interest
on the Debt Securities will be subordinated in right of payment, in the manner
and to the extent set forth in the Indenture pursuant to which such Debt
Securities are issued, to the prior payment in full of all senior indebtedness
of Toll (referred to in the Indenture pursuant to which such Debt Securities are
issued as "Senior Indebtedness of the Company", as further defined in the
applicable Authorizing Resolution and Prospectus Supplement), whether
outstanding on the date of such Indenture or thereafter created, incurred,
assumed or guaranteed.
Reference is made to the applicable Authorizing Resolution and Prospectus
Supplement relating to the particular series (a "Series") of Debt Securities
offered thereby for the following terms: (1) the title of the Series; (2) the
aggregate principal amount of the Series; (3) the interest rate or method of
calculation of the interest rate; (4) the date from which interest will accrue;
(5) the Record Dates for interest payable on Debt Securities of the Series; (6)
the dates when, places where and manner in which principal and interest are
payable; (7) the Registrar and Paying Agent; (8) the terms of any mandatory or
optional redemption by the issuer of such Series; (9) the terms of any
redemption at the option of holders of such Debt Securities; (10) the
denominations in which such Debt Securities are issuable; (11) whether such Debt
Securities will be issued in registered or bearer form and the terms of any such
forms of such Debt Securities; (12) whether any such Debt Securities will be
represented by a Global Security (as hereinafter defined) and, if applicable,
the terms of any Global Security (see "--Registered Global Securities"); (13)
the currencies (including any composite currency) in which principal or interest
or both may be paid; (14) if payments of principal or interest may be made in a
currency other than that in which such Debt Securities are denominated and the
manner for determining such payments; (15) any provisions for electronic
issuance of such Debt Securities or issuance of such Debt Securities in
uncertificated form; (16) any Events of Default or covenants in addition to or
in lieu of those set forth in this Prospectus; (17) whether and upon what terms
such Debt Securities may be defeased; (18) the form of such Debt Securities and
the Guarantees; (19) whether the Debt Securities of such Series will be
convertible into or exchangeable for Common Stock and the terms thereof
(including without limitation the conversion price, the conversion period and
any other provision in addition to or in lieu of those set forth in this
Prospectus); (20) whether the Debt Securities and Guarantees of such Series
shall be subordinated to any obligations of Toll or the Company, and the
obligations to which any such subordination will apply; (21) any terms that may
be required by or advisable under applicable law; and (22) any other terms of
such Series of Debt Securities.
In the event that any Debt Securities are to be issued at a discount, the
terms of such Debt Securities, certain special federal income tax and other
considerations applicable thereto will be described in the related Prospectus
Supplement.
GUARANTEE OF DEBT SECURITIES
The Guarantee will constitute the Company's unconditional guarantee of the
due and punctual payment of the principal, premium, if any, and interest, if
any, on the Debt Securities, when and as the same shall become due and payable,
whether at maturity, by declaration of acceleration, call for redemption or
otherwise.
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<PAGE>
Unless otherwise provided in the applicable Authorizing Resolution and
described in the related Prospectus Supplement, the payment of principal,
premium, if any, and interest on the Debt Securities pursuant to the Guarantee
will be subordinated in right of payment, in the manner and to the extent set
forth in the Indenture, to the prior payment in full of all senior indebtedness
of the Company (referred to in the Indenture as "Senior Indebtedness of the
Guarantor", as further defined in the applicable Authorizing Resolution and
Prospectus Supplement), whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed or guaranteed.
Upon (i) the maturity of any senior indebtedness of the Company by lapse of
time, acceleration (unless waived) or otherwise or (ii) any distribution of the
assets of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company, the holders of senior indebtedness of the Company
will be entitled to receive payment in full before the holders of any
outstanding Debt Securities will be entitled to receive any payment on such Debt
Securities pursuant to the Guarantee. If, in any of the situations referred to
in clause (i) or (ii) above, a payment is made to the Trustee or to holders of
the Debt Securities by the Company before all senior indebtedness of the Company
has been paid in full or provision has been made for such payment, the payment
to the Trustee or holders must be paid over to the holders of senior
indebtedness of the Company.
The Company's assets consist principally of the stock of its Subsidiaries.
Therefore, its rights and the rights of its creditors, including the holders of
Debt Securities under an Indenture, to participate in the assets of any
Subsidiary (other than Toll) upon liquidation, recapitalization or otherwise
will be subject to the prior claims of such Subsidiary's creditors (including
the banks that have provided and are providing to one of the Subsidiaries a
revolving credit facility under an agreement (the "Revolving Credit Agreement")
pursuant to which the Company and the other Subsidiaries (including Toll) have
guaranteed or will guarantee the obligations owing to such banks under the
Revolving Credit Agreement), except to the extent that claims of the Company
itself as a creditor of the Subsidiary may be recognized.
CONVERSION OF DEBT SECURITIES
If so indicated in the applicable Authorizing Resolution and Prospectus
Supplement with respect to a particular Series of Debt Securities, such Series
will be convertible into Common Stock of the Company or other securities
(including rights to receive payments in cash or securities based on the value,
rate or price of one or more specified commodities, currencies, currency units
or indices) on the terms and conditions set forth in such Authorizing Resolution
and Prospectus Supplement.
Unless otherwise provided in the applicable Authorizing Resolution and
described in the related Prospectus Supplement, holders of Debt Securities of
any Series that are convertible will be entitled to convert the principal amount
or a portion of such principal amount which is an integral multiple of $1,000 at
any time prior to the date specified in the Debt Securities of such Series
(subject, if applicable, to prior redemption at the option of Toll) into Common
Shares at the conversion price set forth in the applicable Authorizing
Resolution and Prospectus Supplement, subject to adjustment as described below.
In the case of any Debt Security or portion thereof called for redemption,
conversion rights expire at the close of business on the second business day
preceding the redemption date. (Section 10.02).
The Company will not be required to issue fractional shares of Common Stock
upon conversion of the Debt Securities of a convertible Series but will pay a
cash adjustment in lieu thereof. (Section 10.04). Except as otherwise provided
in the Indenture, interest accrued shall not be paid on Debt Securities that are
converted. (Section 10.03).
The conversion price of the Debt Securities of a convertible Series will be
subject to adjustment in certain events, including (i) the subdivision,
combination or reclassification of the outstanding Common Stock of the Company,
(ii) the issuance of Common Stock as a dividend or distribution on Common Stock,
(iii) the issuance of rights or warrants (expiring within 45 days after the
record date for such issuance) to all holders of Common Stock entitling them to
acquire shares of Common Stock (or securities convertible into or exchangeable
for Common Stock) at less than the then Current Market Price (as defined in the
Indenture) of the Common Stock, or (iv) the distribution to all holders of
Common Stock rights or warrants to subscribe for securities of the Company other
than as referred to
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in (iii), or evidences of the Company's indebtedness or assets (excluding
certain cash dividends and certain other dividends or distributions payable in
stock or rights or warrants to subscribe to securities of the Company). There
will be no upward adjustment in the conversion price except in the event of a
reverse stock split. The Company is not required to make any adjustment in the
conversion price of less than 1%, but the same will be carried forward and taken
into account in the computation of any subsequent adjustment. (Section 10.05).
Conversion price adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be taxable
as dividends under the Internal Revenue Code to holders of Debt Securities or to
holders of Common Stock.
In case of any consolidation or merger to which the Company is a party
(other than a merger or consolidation in which the Company is the continuing
corporation), or any sale or conveyance to another corporation of the property
of the Company as an entirety or substantially as an entirety, or any statutory
exchange of securities with another corporation, there will be no adjustments to
the conversion price of the Debt Securities of any convertible Series as set
forth above, but the holder of each such convertible Debt Security then
outstanding will have the right to convert such Debt Security into the kind and
amount of securities, cash or other property which such holder would have owned
or have been entitled to receive immediately after such transaction had such
Debt Security been converted immediately prior to the effective date of such
transaction. (Section 10.10).
FORM, EXCHANGE, REGISTRATION, CONVERSION, TRANSFER AND PAYMENT
Unless otherwise indicated in the applicable Authorizing Resolution and
Prospectus Supplement, each Series of Debt Securities will be issued in
registered form only, without coupons. Unless otherwise indicated in the
applicable Authorizing Resolution and Prospectus Supplement, payment of
principal, premium, if any, and interest, if any, on the Debt Securities will be
payable, and the exchange, conversion and transfer of Debt Securities will be
registerable, at the office or agency of Toll maintained for such purposes and
at any other office or agency maintained for such purposes. (Section 2.03).
Subject to certain exceptions set forth in the Indenture, Toll may charge a
reasonable fee for any registration of transfer or exchange of such Debt
Securities (including payment of a sum sufficient to cover any tax or other
governmental charge imposed or expenses incurred in connection therewith).
(Section 2.06).
All monies paid by Toll to the Trustee and Paying Agent for the payment of
principal of, premium, if any, or interest on any Debt Security which remain
unclaimed for two years after such principal, premium or interest has become due
and payable may be repaid to Toll and thereafter the holder of such Debt
Security may look only to Toll or, if applicable, the Company, for payment
thereof. (Section 11.03).
REGISTERED GLOBAL SECURITIES
Unless otherwise indicated in the applicable Authorizing Resolution and
Prospectus Supplement, the registered Debt Securities of a Series may be issued
in the form of one or more registered global Debt Securities (the "Global
Securities") that will be deposited with and registered in the name of a
depositary (each, a "Depositary") or its nominee identified in the applicable
Prospectus Supplement. In such case, one or more registered Global Securities
will be issued, each in a denomination equal to the portion of the aggregate
principal amount of outstanding registered Debt Securities of the series to be
represented by such registered Global Security. Unless and until it is exchanged
in whole or in part for Debt Securities in definitive registered form, a
registered Global Security may not be transferred except as a whole by the
Depositary for such registered Global Security to a nominee of such Depositary,
or by such a nominee to such Depositary or to another nominee of such
Depositary, or by such Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a registered Global
Security will be described in the applicable Prospectus Supplement. The Company
anticipates that the following provisions will apply to all depositary
arrangements.
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Ownership of beneficial interests in a registered Global Security will be
limited to persons that have accounts with the Depositary for such registered
Global Security (collectively, the "participants") or persons holding interests
through participants. Upon the issuance of a registered Global Security, the
Depositary for such registered Global Security will credit, on its book-entry
registration and transfer system, the participants' accounts with the respective
principal amounts of the Debt Securities represented by such registered Global
Security beneficially owned by such participants. The accounts to be credited
shall be designated by any dealers, underwriters or agents participating in the
distribution of such Debt Securities. Ownership of beneficial interests in such
registered Global Security will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by the Depositary
for such registered Global Security (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of certain states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and such laws may impair the ability to own, transfer or
pledge beneficial interests in registered Global Securities.
So long as the Depositary for a registered Global Security, or its nominee,
is the registered owner of such registered 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 registered Global Security for all
purposes under the Indenture applicable thereto. Except as set forth below,
owners of beneficial interests in a registered Global Security will not be
entitled to have the Debt Securities represented by such registered Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of such Debt Securities in definitive form and will not be
considered the owners or holders thereof under the Indenture applicable thereto.
Accordingly, each person owning a beneficial interest in a registered Global
Security must rely on the procedures of the Depositary for such registered
Global Security and, if such person is not a participant, on the procedures of
the participant through which such person owns its interests, to exercise any
rights of a holder under the Indenture applicable to such registered Global
Security. The Company understands that under existing industry practices, if the
Company requests any action of holders, or if an owner of a beneficial interest
in a registered Global Security desires to give or take any action which a
holder is entitled to give or take under the applicable Indenture, the
Depositary for such registered Global Security would authorize the participants
holding the relevant beneficial interests to give or take such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
beneficial owners holding through them.
Principal, premium, if any, and interest payments on Debt Securities
represented by a registered 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 registered Global Security.
None of Toll, the Company, the Trustee under the applicable Indenture or any
other agent of Toll or the Company or agent of such Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in such registered
Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Company expects that the Depositary for any Debt Securities represented
by a registered Global Security, upon receipt of any payment of principal,
premium or interest in respect of such registered Global Security, will
immediately credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in such registered 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 registered Global
Security held through such participants will be governed by standing customer
instructions and customary practices, as is now the case with the securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participants.
If the Depositary for any Debt Securities represented by a registered
Global Security is at any time unwilling or unable to continue as Depositary or
ceases to be a clearing agency registered under the Exchange Act, and a
successor Depositary registered as a clearing agency under the Exchange Act is
not appointed by the Company within 90 days, the Company will issue such Debt
Securities in
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definitive form in exchange for such registered Global Security. In addition,
the Company may at any time and in its sole discretion determine not to have any
of the Debt Securities of a series represented by one or more registered Global
Securities and, in such event, will issue Debt Securities of such series in
definitive form in exchange for each registered Global Security representing
such Debt Securities. Any Debt Securities issued in definitive form in exchange
for a registered Global Security will be registered in such name or names as the
Depositary shall instruct the Trustee. It is expected that such instructions
will be based upon directions received by the Depositary from participants with
respect to ownership of beneficial interests in such registered Global Security.
EVENTS OF DEFAULT AND NOTICE THEREOF
Unless otherwise indicated in the applicable Prospectus Supplement, the
term "Event of Default" when used in the Indenture means any one of the
following: failure by the Company or Toll to pay (whether or not prohibited by
any subordination provisions) interest for 30 days or principal or premium, if
any, when due on such Debt Securities; failure by the Company or Toll to perform
any other covenant under the Indenture, the Guarantee or the Debt Securities for
60 days after receipt of notice by the Trustee or the holders of at least 25% in
principal of the Debt Securities of the Series affected; default in the payment
of indebtedness of the Company or Toll or any Subsidiary under the terms of the
instrument evidencing or securing such indebtedness permitting the holder
thereof to accelerate the payment of in excess of an aggregate of $2,000,000 in
principal amount of such indebtedness (after the lapse of applicable grace
periods) or, in the case of non-payment defaults, acceleration of any such
indebtedness if such acceleration is not rescinded or annulled within ten days
after such acceleration, provided that, subject to certain limitations as set
forth in the Indenture, the term "indebtedness" shall not include an
acceleration of or default on certain Non-Recourse Indebtedness (as hereinafter
defined); entry of a final judgment for the payment of money in an amount in
excess of $2,000,000 against Toll, the Company or any Subsidiary which remains
undischarged, or unstayed for a period of 60 days after the date on which the
right to appeal has expired, provided that the term "final judgment" shall not
include a Non-Recourse Judgment (as hereinafter defined) unless the book value
of all property (net of any previous write downs or reserves in respect of such
property) subject to such Non-Recourse Judgment exceeds the amount of such
Non-Recourse Judgment by more than $5,000,000; certain events of bankruptcy,
insolvency or reorganization with respect to the Company or Toll; or, the
Guarantee ceasing (other than pursuant to its terms) to be in full force and
effect. (Section 8.01).
"Non-Recourse Indebtedness" means, as to the Indenture, indebtedness or
other obligations secured by a lien on property to the extent that the liability
for such indebtedness or other obligations is limited to the security of the
property without liability on the part of the Company or any Subsidiary (other
than the Subsidiary which holds title to such, property) for any deficiency.
"Non-Recourse Judgment" means, as to the Indenture, a judgment in respect
of indebtedness or other obligations secured by a lien on property to the extent
that the liability for (i) such indebtedness or other obligations and (ii) such
judgment is limited to such property without liability on the part of the
Company or any Subsidiary (other than the Subsidiary which holds title to such
property) for any deficiency.
The Indenture will provide that if a default on a Series of Debt Securities
occurs and is continuing and is known to the Trustee for such Series, the
Trustee will, within 90 days after the occurrence of such Default, mail to the
Holders of Debt Securities issued thereunder notice of the Default (the term
"Default" to include the events specified above without grace or notice);
provided that, except in the case of Default in the payment of principal of, or
premium, if any, or interest on any of the Debt Securities, the Trustee shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the Holders of such Debt
Securities. (Section 9.05).
If an Event of Default with respect to Debt Securities of any Series at the
time outstanding (other than an Event of Default resulting from certain events
of bankruptcy, insolvency or reorganization with respect to the Company or Toll)
occurs and is continuing, either the Trustee or the holders of at least 25% in
aggregate principal amount of the outstanding Debt Securities of that Series may
by notice to Toll (the "Acceleration Notice") declare the principal amount of
and accrued and unpaid interest on
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all the Debt Securities of that Series to be due and payable if, with respect to
Debt Securities of such Series: (i)(a) no designated senior debt of the Company
or Toll (referred to in the Indenture as "Designated Senior Debt of the
Guarantor" and "Designated Senior Debt of the Company", respectively, as such
term is further defined in the applicable Authorizing Resolution and Prospectus
Supplement) is outstanding or (b) if the Debt Securities of such Series are not
subordinated to other indebtedness of Toll, immediately; or (ii) if Designated
Senior Debt of the Company or Toll is outstanding and the Debt Securities of
such Series are subordinated to other indebtedness of Toll, upon the earlier of
(A) ten days after such Acceleration Notice is received by Toll or (B) the
acceleration of any Senior Indebtedness of the Guarantor or Toll. If an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization with respect to the Company or Toll occurs with respect to a
Series of Debt Securities, the unpaid principal amount of and accrued and unpaid
interest on the Debt Securities of such Series shall become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any holder of Debt Securities. 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 holders
of a majority in aggregate principal amount of outstanding Debt Securities of
that Series may rescind such acceleration, provided that, among other things,
all Events of Default with respect to such Series, other than payment defaults
caused by such acceleration, have been cured or waived as provided in the
Indenture. (Section 8.02).
Defaults with respect to a Series of Debt Securities (except a default in
payment of principal of, or premium, if any, or interest on such Debt
Securities, as the case may be) may be waived on behalf of all holders by the
holders of a majority in outstanding principal amount of the Debt Securities of
that Series issued under the Indenture, upon the terms and subject to the
conditions provided in the Indenture. (Section 8.04).
The Indenture includes a covenant that Toll and the Company will file
annually with the Trustee a signed statement regarding compliance by the Company
and Toll with the terms thereof and specifying any default of which the signers
have knowledge. (Section 4.03).
ADDITIONAL PROVISIONS
The Indenture provides that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under no
obligation to perform any duty or to exercise any of its rights or powers under
the Indenture, unless the Trustee shall have received indemnity satisfactory to
it against any loss, liability or expense. (Section 9.01). Subject to such
provisions for the indemnification of the Trustee and certain other conditions,
the holders of a majority in aggregate principal amount of the outstanding Debt
Securities of any Series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the Debt
Securities of that Series. (Section 8.05).
No holder of any Debt Security of any Series will have any right to pursue
any remedy with respect to the Indenture or the Debt Securities of that Series,
unless: (i) such holder shall have previously given to the Trustee written
notice of a continuing Event of Default; (ii) the holders of not less than 25%
in aggregate principal amount of the outstanding Debt Securities of such Series
make a written request to the Trustee to pursue the remedy; (iii) such holders
shall have offered the Trustee indemnity satisfactory to it against any loss,
liability or expense; (iv) the Trustee shall have failed to comply with such
holders' request within 60 days after receipt of such written request and offer
of indemnity; and (v) the Trustee shall not have received from the holders of a
majority in principal amount of the outstanding Debt Securities of that Series a
direction inconsistent with such request. (Section 8.06). However, the holder of
any Debt Security will have an absolute right to receive payment of the
principal of and interest on such Debt Security on or after the respective due
dates expressed in such Debt Security and to bring suit for the enforcement of
any such payment. (Section 8.07).
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MERGER OR CONSOLIDATION
Neither the Company nor Toll shall consolidate with or merge into, or
transfer all or substantially all of its assets to, any other Person unless (i)
such other Person is a corporation organized and existing under the laws of the
United States or a state thereof or the District of Columbia and expressly
assumes by supplemental indenture all the obligations of the Company or Toll, as
the case may be, under the Indenture and either the Guarantee or the Debt
Securities, as the case may be; (ii) immediately after giving effect to such
transaction no Default or Event of Default (as defined in the Indenture) shall
have occurred and be continuing, and (iii) the Consolidated Net Worth of the
surviving corporation is equal to or greater than the Consolidated Net Worth of
the Company or Toll, as the case may be. Thereafter, all such obligations of a
predecessor corporation shall terminate. (Section 5.01).
MODIFICATION OF AN INDENTURE
The obligations of the Company and Toll and the rights of the holders of
the Debt Securities may be modified under the Indenture with the consent of the
holders of a majority in outstanding principal amount of any Series of Debt
Securities affected by such modification; provided that no extension of the
maturity of any Debt Securities, no reduction in the rate or extension of time
of payment of interest thereon, no reduction of the principal amount thereof or
premium thereon, no change in the redemption provisions, no change that
adversely affects the right to convert or the conversion price for any Series of
Debt Securities, no reduction of the percentage required for any such
modification, no waiver of a default in the payment of the principal, premium,
if any, or interest on any Series of Debt Securities, no modification of the
subordination or guarantee provisions in a manner adverse to holders of any
Series of Debt Securities, no change in the medium of payment other than stated
in the Debt Securities and no change in the provisions regarding amendments to
the Indenture or waiver of Defaults or Events of Default will be effective
against any holders of any Series of Debt Securities without such holder's
consent. (Section 12.02).
GOVERNING LAW
The Indenture, the Debt Securities and the Guarantee shall be governed by
the laws of the State of New York. (Section 13.09).
SATISFACTION AND DISCHARGE OF INDENTURE
Unless otherwise provided in the applicable Authorizing Resolution and
Prospectus Supplement, the Indenture will be discharged upon payment of all the
Series of Debt Securities issued thereunder or upon deposit with the Trustee,
within one year of the date of maturity or redemption of all of the Series of
Debt Securities issued thereunder, of funds sufficient for such payment or
redemption.
REPORTS TO HOLDERS OF DEBT SECURITIES
The Company and Toll will file with the Trustee copies of their annual
reports and other information, documents and reports as filed with the
Commission. So long as the Company's obligations to file such reports or
information with the Commission are suspended or terminated, the Company will
file with the Trustee audited annual financial statements prepared in accordance
with generally accepted accounting principles and unaudited condensed quarterly
financial statements. Such financial statements shall be accompanied by
management's discussion and analysis of the results of operations and financial
condition of the Company for the period reported upon in substantially the form
required under the rules and regulations of the Commission currently in effect.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred Stock,
$.01 par value per share; however, subject to the limitations and procedures
described below, the Company's shareholders have authorized increases up to
60,000,000 shares of Common Stock and 15,000,000 shares of Preferred Stock. In
March 1993, to reduce applicable state taxes on authorized shares of capital
stock, the Company's shareholders approved a series of amendments to the
Company's Certificate of Incorporation pursuant to which: (i) the authorized
Common Stock was reduced from 60,000,000 shares to 40,000,000 shares and the
authorized Preferred Stock was reduced from 15,000,000 shares to 1,000,000
shares; and (ii) the authorized Common Stock and Preferred Stock could
subsequently be increased in five intermediate steps, over a five year period
ending March 11, 1998 up to the original levels, upon the filing of the
appropriate amendments by the Company's Board of Directors. If all such
amendments are filed before March 11, 1998, the Company's authorized Common
Stock and Preferred Stock will be restored to 60,000,000 shares and 15,000,000
shares, respectively.
COMMON STOCK
Subject to the rights and preferences of any holders of Preferred Stock (no
shares of which currently are outstanding), the holders of the Company's Common
Stock are entitled to one vote per share, to receive such dividends as legally
may be declared by the Board of Directors and to receive pro rata the net assets
of the Company upon liquidation. There are no cumulative voting, preemptive,
conversion or redemption rights applicable to the Common Stock. Persons casting
a majority of the votes in the election of directors will be entitled to elect
all of the directors.
On June 12, 1997, the Board of Directors of the Company adopted a
Stockholder Rights Plan providing that one right (a "Right") shall be attached
to each share of the Company's common stock. Each Right entitles the registered
holder to purchase from the Company a unit consisting of one one-thousandth of a
share of Series A Junior Participating Preferred Stock of the Company at a
purchase price of $100 per unit. Initially the Rights will be attached to all
Common Stock certificates and no separate Rights Certificates will be
distributed. The Rights will separate from the Common Stock and a distribution
date will occur upon the earlier of ten days following a public announcement
that a person or group of affiliated persons has acquired beneficial ownership
of 15% or more of the outstanding shares of Common Stock or ten business days
following the commencement of a tender offer that would result in a person or
group beneficially owning 15% or more of such outstanding shares of Common
Stock. The Rights are not exercisable until the distribution date and will
expire at the close of business on July 11, 2007. In the event any person or
group (other than certain exempted persons) acquires 15% or more of the then
outstanding shares of Common Stock (unless such acquisition is made pursuant to
a tender offer for all outstanding shares, at a price determined by a majority
of the independent directors of the Company who are Continuing Directors (as
defined in the Plan)), each holder of a Right will thereafter have the right to
receive, upon exercise, Common Stock having a value equal to two times the
exercise price of the Right. At any time until ten days following such stock
acquisition date, the Company may redeem the Rights at a price of $.001 per
Right. A copy of the Rights Agreement was filed with the Securities and Exchange
Commission as an Exhibit to a Registration Statement on Form 8-A. This summary
of the Rights does not purport to be complete and is qualified in its entirety
by reference to the Rights Agreement, which is incorporated herein by reference.
The Common Stock is listed on the New York Stock Exchange and the Pacific
Stock Exchange. The registrar and transfer agent for the Common Stock is Chase
Mellon Shareholder Services, L.L.C.
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PREFERRED STOCK
General. The Company may issue, from time to time, shares of one or more
series of Preferred Stock.
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. The particular terms of any series of
Preferred Stock offered by any Prospectus Supplement and the extent, if any, to
which such general provisions may apply to the series of Preferred Stock so
offered will be described in a Prospectus Supplement relating to such Preferred
Stock. The following summary of certain provisions of the Preferred Stock does
not purport to be complete and is subject to, and is qualified in its entirety
by express reference to, the provisions of the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), and each
Certificate of Designation relating to a specific series of the Preferred Stock
(each, a "Certificate of Designation"), which will be in the form filed as an
exhibit to, or incorporated by reference in, the Registration Statement at or
prior to the time of issuance of such series of Preferred Stock.
The Board of Directors of the Company is authorized to issue shares of
Preferred Stock, in one or more series, and to fix for each such series voting
powers and such preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions, as are
permitted by the Delaware General Corporation Law.
The Board of Directors of the Company is authorized to determine for each
series of Preferred Stock, and the Prospectus Supplement shall set forth with
respect to such series, the following: (i) the designation of such series and
the number of shares that constitute such series; (ii) the dividend rate (or the
method of calculation thereof), if applicable, on the shares of such series and
the priority as to payment of dividends with respect to other classes or series
of capital stock of the Company; (iii) the dividend periods (or the method of
calculation thereof), if applicable; (iv) the voting rights, if any, of the
shares; (v) the liquidation preference and the priority as to payment of such
liquidation preference with respect to other classes or series of capital stock
of the Company and any other rights of the shares of such series upon any
liquidation or winding-up of the Company; (vi) whether or not and on what terms
the shares of such series will be subject to redemption or repurchase at the
option of the Company; (vii) whether and on what terms the shares of such series
will be convertible into or exchangeable for other debt or equity securities;
(viii) whether the shares of such series of Preferred Stock will be listed on a
securities exchange; and (ix) the other rights and privileges and any
qualifications, limitations or restrictions of such rights or privileges of such
series.
Dividends. Holders of shares of Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors of the Company out of
funds of the Company legally available therefor, cash dividends payable on such
dates and at such rates, if any, per share set forth in the applicable
Prospectus Supplement.
Unless otherwise set forth in the applicable Prospectus Supplement, each
series of Preferred Stock will rank junior as to dividends to any series of
Preferred Stock that may be issued in the future that is expressly senior as to
dividends to such earlier series of the Preferred Stock. If at any time the
Company has failed to pay accrued dividends on any such senior series at the
time dividends are payable on a junior series, the Company may not pay any
dividend on such junior series of Preferred Stock or redeem or otherwise
repurchase shares of such junior series of Preferred Stock until such
accumulated but unpaid dividends on the senior series have been paid or set
aside for payment in full by the Company.
Unless otherwise set forth in the applicable Prospectus Supplement, no
dividends (other than in Common Stock or other capital stock ranking junior to
the Preferred Stock of any series as to dividends and upon liquidation) shall be
declared or paid or set aside for payment, nor shall any other distribution be
declared or made upon the Common Stock, or any other capital stock of the
Company ranking junior to or on a parity with the Preferred Stock of such series
as to dividends, nor shall any Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the Preferred
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Stock of such series as to dividends be redeemed, purchased or otherwise
acquired for any consideration (or any monies be paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by the Company
(except by conversion into or exchange for other capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends) unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period; provided, however,
that any monies theretofore deposited in any sinking fund with respect to any
Preferred Stock of the Company in compliance with the provisions of such sinking
fund may thereafter be applied to the purchase or redemption of such Preferred
Stock in accordance with the terms of such sinking fund, regardless of whether
at the time of such application full cumulative dividends upon shares of the
Preferred Stock outstanding on the last dividend payment date shall have been
paid or declared and set apart for payment; and provided, further, that any such
junior or parity Preferred Stock of the Company or Common Stock of the Company
may be converted into or exchanged for stock of the Company ranking junior to
the series of Preferred Stock then senior to such junior or parity Preferred
Stock as to dividends.
The amount of dividends payable for the initial dividend period or any
period shorter than a full dividend period shall be computed on the basis of a
360-day year of twelve 30-day months. Accrued but unpaid dividends will not bear
interest.
Convertibility. No series of Preferred Stock will be convertible into, or
exchangeable for, other securities or property except as set forth in the
applicable Prospectus Supplement.
Redemption and Sinking Fund. No series of Preferred Stock will be
redeemable or receive the benefit of a sinking fund except as set forth in the
applicable Prospectus Supplement.
Liquidation Rights. Unless otherwise set forth in the applicable
Prospectus Supplement, in the event of any liquidation, dissolution or
winding-up of the Company, the holders of shares of each series of Preferred
Stock are entitled to receive out of assets of the Company available for
distribution to stockholders, before any distribution of assets is made to
holders of: (i) any other shares of Preferred Stock of the Company ranking
junior to such series of Preferred Stock as to rights upon liquidation,
dissolution or winding-up; or (ii) shares of Common Stock, liquidating
distributions per share in the amount of the liquidation preference specified in
the applicable Prospectus Supplement for such series of Preferred Stock plus any
dividends accrued and accumulated but unpaid to the date of final distribution,
but, in either case, the holders of each series of Preferred Stock will not be
entitled to receive the liquidating distribution of, plus such dividends on,
such shares until the liquidation preference of any shares of the Company's
capital stock ranking senior to such series of the Preferred Stock as to the
rights upon liquidation, dissolution or winding-up shall have been paid (or a
sum set aside therefor sufficient to provide for payment) in full. If upon any
liquidation, dissolution or winding-up of the Company, funds available for such
purpose are insufficient to pay in full the amounts payable with respect to any
series of the Preferred Stock, and any other Preferred Stock ranking as to any
such distribution on a parity with such series of the Preferred Stock, the
holders of such series of the Preferred Stock of the Company and such other
parity Preferred Stock will share ratably in any such distribution of assets in
proportion to the full respective preferential amounts to which they are
entitled. Unless otherwise specified in a Prospectus Supplement for a series of
Preferred Stock, after payment of the full amount of the liquidating
distribution to which they are entitled, the holders of shares of Preferred
Stock will not be entitled to any further participation in any distribution of
assets by the Company. Neither a consolidation or merger of the Company with
another corporation nor a sale of securities shall be considered a liquidation,
dissolution or winding-up of the Company.
Voting Rights. Holders of Preferred Stock will not have any voting rights
except as set forth in the applicable Prospectus Supplement or as otherwise from
time to time required by law.
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Miscellaneous. The holders of Preferred Stock will have no preemptive
rights. The Preferred Stock, upon issuance against full payment of the purchase
price therefor, will be fully paid and nonassessable. Shares of Preferred Stock
redeemed or otherwise reacquired by the Company shall resume the status of
authorized and unissued shares of Preferred Stock undesignated as to series, and
shall be available for subsequent issuance. There are no restrictions on
repurchase or redemption of the Preferred Stock on account of any arrearage on
sinking fund installments except as may be set forth in an applicable Prospectus
Supplement. Payment of dividends on any series of Preferred Stock may be
restricted by loan agreements, indentures or other agreements entered into by
the Company. The accompanying Prospectus Supplement will describe any material
contractual restrictions on dividend payments. Such Prospectus Supplement will
also describe any material United States federal income tax considerations
applicable to the Preferred Stock.
No Other Rights. The shares of a series of Preferred Stock will not have
any preferences, voting powers or relative, participating, optional or other
special rights except as set forth above or in the applicable Prospectus
Supplement, the Certificate of Incorporation or the applicable Certificate of
Designation, or as otherwise required by law.
Transfer Agent and Registrar. The transfer agent and registrar for each
series of Preferred Stock will be designated in the applicable Prospectus
Supplement.
CLASSIFIED BOARD OF DIRECTORS AND RESTRICTIONS ON REMOVAL
Under the Company's Certificate of Incorporation, as amended, the Company's
Board of Directors is divided into three classes of directors serving staggered
terms of three years each. Each class is to be as nearly equal in number as
possible, with one class being elected each year. The Certificate of
Incorporation also provides that directors may be removed from office only for
cause and only with the affirmative vote of 66 2/3% of the voting power of the
voting stock; that any vacancy on the Board of Directors or any newly created
directorship shall be filled by the remaining Directors then in office, though
less than a quorum; and that advance notice of shareholder nominations for the
elections of Directors shall be given in the manner provided by the By-Laws of
the Company. The required 66 2/3% shareholder vote necessary to alter, amend or
repeal these provisions of the Certificate of Incorporation, the related
amendments to the By-Laws and all other provisions of the By-Laws, or to adopt
any provisions relating to the classification of the Board of Directors and the
other matters described above may make it more difficult to change the
composition of the Company's Board of Directors and may discourage or make
difficult any attempt by a person or group to obtain control of the Company.
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PLAN OF DISTRIBUTION
The Company may sell the Common Shares and the Preferred Shares offered
hereby: (i) directly to purchasers; (ii) through agents; (iii) through
underwriters; (iv) through dealers; or (v) through a combination of any such
methods of sale. Toll may sell the Debt Securities, together with Guarantees
issued by the Company, being offered hereby: (i) directly to purchasers; (ii)
through agents; (iii) through underwriters; (iv) through dealers; or (v) through
a combination of any such methods of sale.
The distribution of the Securities may be effected from time to time in one
or more transactions: (a) at a fixed price or prices, which may be changed; (b)
at market prices prevailing at the time of sale; (c) at prices related to such
prevailing market prices; or (d) at negotiated prices. Offers to purchase
Securities may be solicited directly by the Company or Toll, as the case may be,
or by agents designated by the Company or Toll, as the case may be, from time to
time. Any such agent, which may be deemed to be an underwriter as that term is
defined in the Securities Act of 1933, involved in the offer or sale of the
Securities in respect of which this Prospectus is delivered will be named, and
any commissions payable by the Company or Toll, as the case may be, to such
agent will be set forth, in the applicable Prospectus Supplement.
If underwriters are utilized in the offer and sale of Securities in respect
of which this Prospectus and an accompanying Prospectus Supplement are
delivered, the name of each managing underwriter, if any, and any other
underwriters and terms of the transaction, including any underwriting discounts
and other items constituting compensation of the underwriters and dealers, if
any, will be set forth in the applicable Prospectus Supplement relating to such
offering and the Securities will be acquired by the underwriters for their own
accounts and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. Any initial public offering price
and any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time. Underwriters, dealers and agents may be entitled,
under agreements which may be entered into with the Company, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act, and to reimbursement by the Company of certain
expenses.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company and/or Toll will sell such Securities
to the dealer, as principal. The dealer may then resell such Securities to the
public at varying prices to be determined by such dealer at the time of resale.
The name of the dealer and the terms of the transaction will be set forth in the
applicable Prospectus Supplement relating thereto.
Offers to purchase the Securities may be solicited, and sales thereof may
be made, by the Company and/or Toll directly to institutional investors or
others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resales thereof. The terms of any such offer
will be set forth in the applicable Prospectus Supplement relating thereto.
If so indicated in the applicable Prospectus Supplement, the Company and/or
Toll will authorize underwriters or other agents of the Company to solicit
offers by certain institutional investors to purchase Securities from the
Company and/or Toll pursuant to contracts providing for payment and delivery at
a future date. Institutional investors with which such contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and others, but in
all cases such purchasers must be approved by the Company and/or Toll. The
obligations of any purchaser under any such contract will not be subject to any
conditions except that (i) the purchase of the Securities shall not at the time
of delivery be prohibited under the laws of any jurisdiction to which such
purchaser is subject and (ii) if the Securities are also being sold to
underwriters, the Company shall have sold to such underwriters the Securities
not subject to delayed delivery. Underwriters and other agents will not have any
responsibility in respect of the validity or performance of such contracts.
In addition, the Securities may be offered and sold by the holders thereof
in one or more of the transactions described above, which transactions may be
effected at any time and from time to time. Upon any such sale of Securities,
the respective holders thereof and any broker, dealer or underwriter
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participating therewith may be deemed to be underwriters within the meaning of
Section 2(11) of the Securities Act, and any commissions, discounts or
concessions upon such sale, or any profit on the resale of such Securities,
received thereby in connection with such sale may be deemed to be underwriting
commissions or discounts under the Securities Act. The compensation, including
commissions, discounts, concessions and other profits, received by any broker,
dealer or underwriter in connection with the sale of any of such Securities may
be less than or in excess of customary commissions.
Certain of the underwriters, dealers or agents utilized by the Company
and/or Toll in any offering hereby may be customers of, including borrowers
from, engage in transactions with, and perform services for, the Company and/or
Toll or one or more of their respective affiliates in the ordinary course of
business. Underwriters, dealers, agents and other persons may be entitled, under
agreements which may be entered into with the Company or Toll, as the case may
be, to indemnification against certain civil liabilities, including liabilities
under the Securities Act of 1933.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members, if any, to bid for and purchase the Securities. As an exception to
these rules, the representatives of the underwriters, if any, are permitted to
engage in certain transactions that stabilize the price of the Securities. Such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Securities.
If underwriters create a short position in the Securities in connection
with the offering thereof (i.e., if they sell more Securities than are set forth
on the cover page of the applicable Prospectus Supplement), the representatives
of such underwriters may reduce that short position by purchasing Securities in
the open market. Any such representatives also may elect to reduce any short
position by exercising all or part of the over-allotment option, if any,
described in the applicable Prospectus Supplement.
Any such representatives also may impose a penalty bid on certain
underwriters and selling group members. This means that if the representatives
purchase Securities in the open market to reduce the underwriters' short
position or to stabilize the price of the Securities, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those Securities as part of the offering thereof.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
Neither the Company, Toll nor any of the underwriters, if any, makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities. In
addition, neither the Company, Toll nor any of the underwriters, if any, makes
any representation that the representatives of the underwriters, if any, will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
LEGAL MATTERS
Certain legal matters relating to the validity of the Securities will be
passed upon by Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia,
Pennsylvania.
EXPERTS
The consolidated financial statements and schedule of the Company included
in the Company's Annual Report (Form 10-K) for the year ended October 31, 1996,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
17
<PAGE>
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$170,000,000
TOLL CORP.
8 1/8% SENIOR SUBORDINATED
NOTES DUE 2009
GUARANTEED ON A SENIOR
SUBORDINATED BASIS BY
TOLL BROTHERS, INC.
[LOGO]
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PROSPECTUS SUPPLEMENT
JANUARY 22, 1999
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SALOMON SMITH BARNEY
WARBURG DILLON READ LLC
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