<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13 (E) (1) OF THE SECURITIES AND EXCHANGE ACT OF 1934)
PETER KIEWIT SONS', INC.
(NAME OF ISSUER)
PETER KIEWIT SONS', INC.
(NAME OF PERSON(S) FILING STATEMENT)
CLASS B CONSTRUCTION & MINING GROUP NONVOTING
RESTRICTED REDEEMABLE CONVERTIBLE EXCHANGEABLE
COMMON STOCK, PAR VALUE $0.0625 PER SHARE,
CLASS C CONSTRUCTION & MINING GROUP
RESTRICTED REDEEMABLE CONVERTIBLE EXCHANGEABLE
COMMON STOCK, PAR VALUE $0.0625 PER SHARE,
1990 SERIES CONVERTIBLE DEBENTURES DUE OCTOBER 31, 2000,
1991 SERIES CONVERTIBLE DEBENTURES DUE OCTOBER 31, 2001
AND 1993 SERIES CLASS D CONVERTIBLE DEBENTURES DUE OCTOBER 31, 2003
(TITLE OF CLASS OF SECURITIES)
_________
(CUSIP NUMBER OF CLASS OF SECURITIES)
MATTHEW J. JOHNSON, ESQ.
PETER KIEWIT SONS', INC.
1000 KIEWIT PLAZA
OMAHA, NEBRASKA 68131
(402) 342-2052
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF
OF THE PERSON(S) FILING STATEMENT)
COPY TO:
JAMES D. DARROW, ESQ.
SUTHERLAND, ASBILL & BRENNAN
1275 PENNSYLVANIA AVE., N.W.
WASHINGTON, D.C. 20004
(202) 383-0100
AUGUST 30, 1995
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN
TO SECURITY HOLDERS)
---------------------------
CALCULATION OF FILING FEE
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TRANSACTION VALUATION: $216,350,000(1) AMOUNT OF FILING FEE: $43,270
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/X/ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
Amount Previously Paid: $44,311 Filing Party: Peter Kiewit Sons', Inc.
Form or Registration No.: Date Filed: July 11, 1995
Registration Statement on
Form S-4 of Peter Kiewit Sons', Inc. and MFS Communications, Inc.
(No. 33-60977)
- ------------------
(1) Estimated solely for purposes of calculating the filing fee and computed
pursuant to Rule 0-11(a)(4) of the Securities Exchange Act of 1934, as
amended. This amount assumes the acquisition by Peter Kiewit Sons', Inc.
of all of the Exchangeable Debentures, based on the face amount thereof,
and a maximum of 8,500,000 shares of Class B Common Stock and Class C
Common Stock, based on a book value of $25.10 per share.
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<PAGE>
ITEM 1. SECURITY AND ISSUER
(a) The Issuer of the securities to which this Issuer Tender Offer
Statement on Schedule 13E-4 (the "Statement") relates is Peter Kiewit Sons',
Inc., a Delaware Corporation ("PKS"), and the address of its principal
executive office is 1000 Kiewit Plaza, Omaha, Nebraska 68131.
(b) This Statement relates to an offer by PKS to exchange (i) .416598
of a share of PKS Class D Diversified Group Convertible Exchangeable Common
Stock, par value $0.0625 per share ("Class D Stock") for each share of PKS
Class B Construction & Mining Group Nonvoting Restricted Redeemable
Convertible Exchangeable Common Stock, par value $0.0625 per share ("Class B
Stock"), and each share of PKS Class C Construction & Mining Group Restricted
Redeemable Convertible Exchangeable Common Stock, par value $0.0625 per share
("Class C Stock"), including all shares of Class C Stock issued in exchange for
Debentures (as described below), up to a maximum of 8,500,000 shares of Class B
Stock and Class C Stock, in the aggregate, (ii) 24.75 shares of Class C Stock
and 24.75 shares of Class D Stock for each $1,000 in principal amount of each
outstanding 1990 Series Convertible Debenture of PKS due October 31, 2000 and
convertible into Class C Stock and Class D Stock, (iii) 22.98 shares of Class C
Stock and 22.98 shares of Class D Stock for each $1,000 in principal amount of
each outstanding 1991 Series Convertible Debenture of PKS due October 31, 2001
and convertible into Class C Stock and Class D Stock and (iv) 19.97 shares of
Class D Stock for each $1,000 in principal amount of each outstanding 1993
Series Convertible Debenture of PKS due October 31, 2002 and convertible into
shares of Class D Stock (all such Convertible Debentures are collectively
referred to as the "Exchangeable Debentures"), validly tendered and not properly
withdrawn, upon the terms and subject to the conditions set forth in the
Prospectus, dated August 30, 1995 (the "Prospectus"), the form of which is
attached hereto as Exhibit 99.1, and in the related Letter of Transmittal (the
"Letter of Transmittal"), the form of which is attached hereto as Exhibit 99.2
(which together constitute the "Exchange Offer"). For purposes of this
Statement, the Class B Stock and the Class C Stock are referred to collectively
as the Exchangeable Stock. The information set forth on the front cover page of
the Prospectus and in the sections thereof entitled "Prospectus Summary - The
Exchange Offer," "Overview - The Exchange Offer," "The Exchange Offer - Terms
of the Exchange Offer" and "Certain Transactions - Intentions of Certain
Significant Stockholders Regarding Participation in the Exchange Offer" is
incorporated herein by reference.
(c) There is no currently established trading market for the
Exchangeable Stock. The information set forth in the section of the Prospectus
entitled "Selected Historical and Pro Forma Financial Data of Kiewit
Construction & Mining Group" and "Description of Securities - PKS Stock -
Ownership and Transfer Restrictions" is incorporated herein by reference.
(d) This Statement is being filed by the Issuer.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
<PAGE>
(a) The consideration for the purchase of the maximum amount of
Exchangeable Stock for which the Exchange Offer is being made (including shares
of Class C Stock issued in exchange for Exchangeable Debentures) consists of
3,541,083 shares of Class D Stock. The information set forth in the sections
of the Prospectus entitled "Overview - The Exchange Offer" and "The Exchange
Offer - Terms of the Exchange Offer" is incorporated herein by reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER
OR AFFILIATE
(a)-(c) The information set forth in the sections of the
Prospectus entitled "Prospectus Summary - Purpose of the Exchange Offer,"
"Prospectus Summary - The Spin-off," "Overview - Background and Purpose of the
Spin-off; Purpose of the Exchange Offer; Board Proceedings," "The Exchange
Offer - Terms of the Exchange Offer," "The Spin-off" and "Certain Transactions
- - Certain Agreement Between PKS and MFS" is incorporated herein by reference.
(d)-(e) Not applicable.
(f) The information set forth in the sections of the Prospectus
entitled "Prospectus Summary - The Spin-off," "Overview - The Spin-off" and
"The Spin-off" is incorporated herein by reference.
(g)-(j) Not applicable.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER
On July 12, 1995 and July 19, 1995, PKS repurchased 700 shares of
Class C Stock, in the aggregate, pursuant to its repurchase obligations under
the PKS Certificate of Incorporation. The information set forth in the
section of the Prospectus entitled "Description of Securities - PKS Stock -
Repurchase Duties" is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO THE ISSUER'S SECURITIES
The information set forth in the section of the Prospectus entitled
"Certain Transactions - Intentions of Certain Significant Stockholders
Regarding Participation in the Exchange Offer" is incorporated herein by
reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The information set forth in the section of the Prospectus entitled
"Overview - Background and Purpose of the Spin-off; Purpose of the Exchange
Offer; Board Proceedings - Opinions of Financial Advisors" is incorporated
herein by reference.
ITEM 7. FINANCIAL INFORMATION
(a) The information set forth in the sections of the Prospectus
entitled "Summary Historical and Pro Forma Financial Data of Peter Kiewit
Sons', Inc.,"
<PAGE>
"Summary Historical and Pro Forma Financial Data of Kiewit Construction &
Mining Group," "Summary Historical and Pro Forma Financial Data of Kiewit
Diversified Group," and "Selected Historical and Pro Forma Financial Data of
Peter Kiewit Sons', Inc., Kiewit Construction & Mining Group and Kiewit
Diversified Group" is incorporated herein by reference.
(b) The information set forth in the section of the Prospectus
entitled "Pro Forma Financial Information" is incorporated herein by
reference.
ITEM 8. ADDITIONAL INFORMATION
(a) The information set forth in the sections of the Prospectus
entitled "Certain Transactions - Intentions of Certain Significant
Stockholders Regarding Participation in the Exchange Offer" and "Certain
Transactions - Certain Agreements Between PKS and MFS" is incorporated herein by
reference.
(b)-(c) Not applicable.
(d) There are no material pending legal proceedings relating to the
Exchange Offer.
(e) Reference is made hereby to the Prospectus and the related Letter
of Transmittal, copies of which are attached hereto as Exhibits 99.1 and 99.2,
respectively, and incorporated herein by reference in their entirety. PKS is
not aware of any jurisdiction in which the making of the Exchange Offer or the
acceptance thereof would not be in compliance with applicable law. However,
PKS reserves the right to exclude holders in any jurisdiction in which it is
asserted that the Exchange Offer cannot lawfully be made. So long as PKS
makes a good faith effort to comply with any state law deemed applicable to
the Exchange Offer, if it cannot do so, PKS believes that the exclusion of
holders residing in such state(s) is permitted under Rule 13e-4(f)(9)
promulgated under the Securities Exchange Act of 1934, as amended.
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)
Exhibit 99.1 Prospectus, dated August 30, 1995.
Exhibit 99.2 Form of Letter of Transmittal sent to holders of Class B Stock.
Exhibit 99.3 Form of Letter of Transmittal sent to holders of Class C Stock.
Exhibit 99.4 Form of Letter of Transmittal sent to holders of Exchangeable
Debentures.
(b) Not applicable.
(c)
Exhibit 99.5 Form of written understanding between certain securityholders
and PKS.
(d) Not applicable.
(e) Prospectus, dated August 30, 1995 (see Exhibit 99.1 above).
(f) Not applicable.
4
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated August 29, 1995
PETER KIEWIT SONS', INC.
By: /S/ Robert E. Julian
-------------------------
Robert E. Julian
Executive Vice President -
Chief Financial Officer
5
<PAGE>
JOINT PROSPECTUS
- ---------------------
PETER KIEWIT SONS', INC.
OFFER TO EXCHANGE
(i) CLASS D STOCK FOR OUTSTANDING CLASS B STOCK AND CLASS C STOCK,
(ii) CLASS C STOCK AND CLASS D STOCK FOR 1990 SERIES CONVERTIBLE DEBENTURES
DUE OCTOBER 31, 2000 AND 1991 SERIES CONVERTIBLE DEBENTURES DUE OCTOBER 31, 2001
AND
(iii) CLASS D STOCK FOR 1993 SERIES CLASS D CONVERTIBLE DEBENTURES DUE OCTOBER
31, 2003
DIVIDEND DISTRIBUTION BY PETER KIEWIT SONS', INC.
TO THE HOLDERS OF CLASS D STOCK
OF
40,091,644 SHARES OF COMMON STOCK
AND
15,000,000 SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
MFS COMMUNICATIONS COMPANY, INC.
The Exchange Offer described herein will expire at 5:00 p.m., Omaha,
Nebraska time, on September 29, 1995, unless extended.
Peter Kiewit Sons', Inc., a Delaware corporation ("PKS" or the "Company"),
hereby offers to exchange (i) shares of its Class D Diversified Group
Convertible Exchangeable Common Stock, par value $0.0625 per share ("Class D
Stock") for any and all outstanding shares of its Class B Construction & Mining
Group Nonvoting Restricted Redeemable Convertible Exchangeable Common Stock, par
value $0.0625 per share ("Class B Stock") and Class C Construction & Mining
Group Restricted Redeemable Convertible Exchangeable Common Stock, par value
$0.0625 per share ("Class C Stock"), (ii) shares of Class C Stock and Class D
Stock for any and all of PKS's outstanding 1990 Series Convertible Debentures
due October 31, 2000 and 1991 Series Convertible Debentures due October 31, 2001
(such shares of Class C Stock will then be exchangeable for Class D Stock
pursuant to the Exchange Offer) and (iii) shares of Class D Stock for any and
all of PKS's outstanding 1993 Series Class D Convertible Debentures due October
31, 2003, all on the terms and subject to the conditions set forth herein and in
the related Letter of Transmittal (which together constitute the "Exchange
Offer"). For a discussion of certain tax consequences of the Exchange Offer, see
"The Exchange Offer -- Certain United States Federal Income Tax Considerations
Relating to the Exchange Offer." The Class C Stock and the Class D Stock so
offered in the Exchange Offer are sometimes referred to collectively herein as
the "Offered Stock," PKS's convertible debentures described above are sometimes
referred to collectively herein as the "Exchangeable Debentures," the Class B
Stock and Class C Stock are sometimes collectively referred to herein as the
"Exchangeable Stock," and the Exchangeable Debentures and the Exchangeable Stock
are sometimes referred to collectively herein as the "Exchangeable Securities."
See "Certain Definitions" for definitions of certain other terms used herein.
This Joint Prospectus (the "Prospectus") also relates to a proposal by PKS
to make a dividend distribution to the holders of its Class D Stock, including
Class D Stock issued in the Exchange Offer, of all
------------------------------
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 THESE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 30, 1995.
(COVER CONTINUED ON FOLLOWING PAGE)
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
the shares of capital stock of MFS Communications Company, Inc., a Delaware
corporation and a majority-owned subsidiary of PKS ("MFS"), held by PKS
immediately before that distribution, all on the terms and subject to the
conditions set forth herein (the "Spin-off"). If the Spin-off occurs, the
capital stock of MFS distributed in the Spin-off will consist of (i) 40,091,644
shares of common stock, par value $.01 per share (the "MFS Common Stock") and
(ii) 15,000,000 shares of Series B convertible preferred stock, par value $.01
per share (the "MFS Preferred Stock"). Such 40,091,644 shares of MFS Common
Stock and 15,000,000 shares of MFS Preferred Stock are collectively referred to
herein as the "Spin-off Stock". No holder of Class D Stock will be required to
pay any cash or other consideration, to surrender or exchange shares of Class D
Stock or any other security, or to take any other action in order to receive the
Spin-off Stock pursuant to the Spin-off. PKS has received a ruling from the
Internal Revenue Service (the "IRS") confirming that the Spin-off will be
tax-free to the holders of Class D Stock for United States federal income tax
purposes (the "Ruling"). See "The Spin-off -- Certain United States Federal
Income Tax Considerations Relating to the Spin-off."
PKS RESERVES THE RIGHT TO ABANDON THE EXCHANGE OFFER OR BOTH THE EXCHANGE
OFFER AND THE SPIN-OFF, AND PKS WILL ABANDON THE EXCHANGE OFFER IF IT ABANDONS
THE SPIN-OFF, ALL AS DESCRIBED IN "THE EXCHANGE OFFER -- RIGHT OF PKS TO EXTEND,
ABANDON OR MODIFY THE EXCHANGE OFFER" AND "THE SPIN-OFF -- CONDITION TO THE
SPIN-OFF; RIGHT OF PKS TO ABANDON, DEFER OR MODIFY THE SPIN-OFF." THUS, THERE IS
NO ASSURANCE THAT EITHER THE EXCHANGE OFFER OR THE SPIN-OFF WILL BE CONSUMMATED,
BUT IF THE EXCHANGE OFFER IS CONSUMMATED, THE SPIN-OFF WILL BE CONSUMMATED
PROMPTLY THEREAFTER.
PKS ALSO RESERVES THE RIGHT TO EXTEND THE EXCHANGE OFFER OR TO MODIFY IN ANY
MANNER THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER OR THE SPIN-OFF OR TO
DEFER THE CONSUMMATION OF THE SPIN-OFF IF THE PKS BOARD OF DIRECTORS DETERMINES
AT ANY TIME THAT SUCH ACTION WOULD BE IN THE BEST INTEREST OF PKS AND ITS
STOCKHOLDERS. MODIFICATION OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER MAY
INCLUDE THE IMPOSITION BY PKS OF A LIMIT ON THE NUMBER OF SHARES OF EXCHANGEABLE
STOCK THAT WILL BE ACCEPTED BY PKS IN THE EXCHANGE OFFER. SEE "THE EXCHANGE
OFFER -- RIGHT OF PKS TO EXTEND, ABANDON OR MODIFY THE EXCHANGE OFFER" AND "THE
SPIN-OFF -- CONDITION TO THE SPIN-OFF; RIGHT OF PKS TO ABANDON, DEFER OR MODIFY
THE SPIN-OFF."
The Exchange Offer is not conditioned upon any minimum amount of
Exchangeable Securities being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., Omaha, Nebraska time, on September 29, 1995, unless
extended (such date, as it may be extended, being referred to herein as the
"Expiration Date"). Exchangeable Securities tendered pursuant to the Exchange
Offer may be withdrawn as described herein prior to the Expiration Date;
thereafter, such tenders are irrevocable by the tendering securityholders.
PARTICIPATION IN THE EXCHANGE OFFER IS VOLUNTARY. SEE "RISK FACTORS" FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE A HOLDER OF
EXCHANGEABLE SECURITIES DECIDES WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER.
THE PKS BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF EXCHANGEABLE DEBENTURES
TENDER SUCH EXCHANGEABLE DEBENTURES IN THE EXCHANGE OFFER.
THE PKS BOARD OF DIRECTORS MAKES NO RECOMMENDATION WITH RESPECT TO WHETHER
HOLDERS OF EXCHANGEABLE STOCK SHOULD TENDER SUCH EXCHANGEABLE STOCK IN THE
EXCHANGE OFFER.
Any holder of Exchangeable Securities desiring to participate in the
Exchange Offer should follow the procedures set forth in "The Exchange Offer --
Procedure for Tendering Exchangeable Securities; Exchange of Exchangeable
Securities; Delivery of Offered Stock." Except as described therein, any holder
of Exchangeable Securities who has pledged such Exchangeable Securities to a
lender and who desires to participate in the Exchange Offer must contact such
lender to arrange for the tender of such Exchangeable Securities.
All information contained in this Prospectus with respect to PKS has been
provided by PKS. All information contained in this Prospectus with respect to
MFS has been provided by MFS. Questions and requests for assistance or for
additional copies of this Prospectus and the Letter of Transmittal should be
directed to Michael A. Kelley, Stock Registrar, Peter Kiewit Sons', Inc., 1000
Kiewit Plaza, Omaha, Nebraska 68131, telephone (402) 271-2870, telecopy (402)
271-2965.
(END OF COVER PAGE)
<PAGE>
NEITHER PKS NOR MFS HAS ANY ARRANGEMENT WITH ANY BROKER, DEALER, SALESMAN OR
OTHER PERSON TO SOLICIT TENDERS OF EXCHANGEABLE SECURITIES. NO PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER, THE SPIN-OFF OR THE
OTHER MATTERS DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PKS OR
MFS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF PKS OR MFS SINCE THE RESPECTIVE DATES AS OF WHICH
INFORMATION IS GIVEN HEREIN OR IN DOCUMENTS INCORPORATED HEREIN. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO EXCHANGE, OR A SOLICITATION OF AN OFFER TO
EXCHANGE, THE SECURITIES OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION OR FROM
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
AVAILABLE INFORMATION
PKS and MFS are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed by
each of PKS and MFS can be inspected and copied at the Public Reference Room of
the Securities and Exchange Commission (the "Commission") at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the public reference
facilities maintained by the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, material relating to MFS can be inspected
at the offices of the Nasdaq National Market, 1735 K Street, N.W., Washington,
D.C. 20005-1506.
This Prospectus does not contain all the information set forth in (i) the
Registration Statement on Form S-4 and exhibits thereto, including amendments
(the "Registration Statement"), of which this Prospectus is a part, and which
PKS and MFS have filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act") or (ii) the Schedule 13E-4 Issuer Tender Offer
Statement and exhibits thereto (together with any amendments thereto, the
"Schedule 13E-4") which PKS has filed with the Commission under the Exchange Act
with respect to the Exchange Offer. Reference is made to such Registration
Statement and Schedule 13E-4 for further information with respect to PKS, MFS
and the Spin-off Stock and the Offered Stock offered hereby. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed on the dates indicated by PKS with
the Commission pursuant to the Exchange Act are hereby incorporated by reference
into this Prospectus:
1. Annual Report of PKS on Form 10-K for the year ended December 31, 1994
on March 31, 1995, as amended by Form 10-K/A Amendment No. 1 on April 27,
1995 and Form 10-K/A Amendment No. 2 on August 4, 1995;
2. Quarterly Report of PKS on Form 10-Q for the quarter ended March 31,
1995, as amended by Form 10-Q/A Amendment No. 1 on June 9, 1995;
3. Quarterly Report of PKS on Form 10-Q for the quarter ended June 30, 1995
on August 14, 1995; and
4. The Proxy Statement of PKS filed with the Commission on May 1, 1995.
ii
<PAGE>
The following documents previously filed on the dates indicated by MFS with
the Commission pursuant to the Exchange Act are hereby incorporated by reference
into this Prospectus:
1. Annual Report of MFS on Form 10-K for the year ended December 31, 1994,
as amended by Form 10-K/A Amendment No. 1 on April 10, 1995 and Form
10-K/A Amendment No. 2 on May 15, 1995;
2. (i) Current Report of MFS on Form 8-K dated May 18, 1994 (excluding the
pages of the Quarterly Report on Form 10-Q for the quarter ended March
31, 1994 of Centex Telemanagement, Inc. incorporated by reference therein
and attached thereto), as amended by Form 8-K/A Amendment No. 1 on June
29, 1994 and Form 8-K/A Amendment No. 2 on August 31, 1994, (ii) Current
Report on Form 8-K dated November 2, 1994, as amended by Form 8-K/A
Amendment No. 1 on December 13, 1994, (iii) Current Report on Form 8-K
dated April 14, 1995 and (iv) Current Report on Form 8-K, dated May 22,
1995;
3. Quarterly Report of MFS on Form 10-Q for the quarter ended March 31,
1995 filed with the Commission on May 12, 1995;
4. Quarterly Report of MFS on Form 10-Q for the quarter ended June 30, 1995
filed with the Commission on August 14, 1995;
5. The description of the MFS Common Stock contained in MFS's Registration
Statement on Form 8-A (File No. 0-21594) filed with the Commission
pursuant to Section 12(g) of the Exchange Act on April 21, 1993, as
amended by Amendment No. 1 filed with the Commission on a Form 8 on May
10, 1993; and
6. The definitive Proxy Statement of MFS filed with the Commission on
August 8, 1995.
In addition, all reports and other documents filed by PKS and MFS,
respectively, pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date hereof and prior to the date on which the Spin-off is
consummated shall be deemed to be incorporated by reference herein from the date
of filing of such reports or documents. Any statement contained in a report or
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE STOCK REGISTRAR, PETER KIEWIT SONS', INC., 1000 KIEWIT PLAZA, OMAHA,
NEBRASKA 68131 (TELEPHONE: (402) 271-2870; TELECOPY (402) 271-2965). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY SEPTEMBER
22, 1995. PKS undertakes to provide without charge to each person, including a
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the information
incorporated by reference in this Prospectus, other than exhibits to such
information (unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates).
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY.................................................................... 1
RISK FACTORS.......................................................................... 16
RISK FACTORS RELATING TO THE EXCHANGE OFFER, SPIN-OFF AND PKS SECURITIES............ 16
RISK FACTORS RELATING TO MFS........................................................ 23
OVERVIEW.............................................................................. 27
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA...................................... 44
THE EXCHANGE OFFER.................................................................... 51
THE SPIN-OFF.......................................................................... 58
CERTAIN TRANSACTIONS.................................................................. 65
RECENT DEVELOPMENTS................................................................... 68
DESCRIPTION OF SECURITIES............................................................. 71
LEGAL MATTERS......................................................................... 82
EXPERTS............................................................................... 82
CERTAIN DEFINITIONS................................................................... 83
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
ANNEX I -- OPINION OF CS FIRST BOSTON CORPORATION
ANNEX II -- OPINION OF LEHMAN BROTHERS INC.
</TABLE>
iv
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. AS THIS SUMMARY IS NECESSARILY
INCOMPLETE, REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY
BY, THE MORE DETAILED INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS SUMMARY HAVE THE
MEANINGS ASSIGNED TO THEM IN "CERTAIN DEFINITIONS" OR ELSEWHERE IN THIS
PROSPECTUS. SECURITYHOLDERS ARE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
PETER KIEWIT SONS', INC.
Peter Kiewit Sons', Inc. is a Delaware corporation. Its principal executive
offices are located at 1000 Kiewit Plaza, Omaha, Nebraska 68131. Its telephone
number is (402) 342-2052. PKS's business operations are organized into two
primary operating groups: the Construction & Mining Group and the Diversified
Group. The Construction & Mining Group engages in business as a general
contractor and as the owner and/or operator of mining operations. The
Diversified Group engages in a variety of diversified business activities,
including coal mining, telecommunications, and energy production.
The construction business of the Construction & Mining Group is conducted by
subsidiaries of Kiewit Construction Group Inc., a wholly-owned subsidiary of PKS
("KCG"). KCG and its joint ventures perform construction services for a broad
range of public and private customers primarily in North America. New contract
awards during 1994 were distributed among the following construction markets:
transportation, including highways, bridges, airports and railroads (48%), power
(18%), oil and gas (12%), commercial buildings (8%), sewer and waste disposal
(5%), and residential (4%), with smaller awards in the water supply systems,
dams and reservoirs, marine, and mining markets. As general contractors, KCG's
subsidiaries are responsible for the overall direction and management of
construction projects and for completion of each contract in accordance with
terms, plans, and specifications. KCG plans and schedules the projects, procures
materials, hires workers as needed, and awards subcontracts. The mining business
of the Construction & Mining Group is conducted through Kiewit Mining Group Inc.
("KMG"). KMG acts as the operator, on a fee basis, of three coal mines in which
Kiewit Coal Properties Inc. ("KCP"), a Diversified Group subsidiary, owns a 50%
interest. KMG also owns and operates two smaller coal mines and several
construction aggregate quarries.
The Diversified Group owns significant interests in three publicly traded
companies, MFS Communications Company, Inc. ("MFS"), C-TEC Corporation ("C-TEC")
and California Energy Company, Inc. ("CECI"). MFS's business is described below.
C-TEC currently has four operating groups. The Telephone Group consists of a
Pennsylvania public utility providing local telephone service to a 19-county,
5,067 square mile service territory in Pennsylvania. The Cable Group is a cable
television operator with cable television systems located in New York, New
Jersey, Michigan and Delaware. The Long Distance Group sells long distance
telephone services in the local service area of the Telephone Group and resells
services elsewhere in Pennsylvania. The Communications Group provides
telecommunications-related engineering and technical services in the
northeastern United States. CECI is engaged in the exploration for, and
development and operation of, environmentally responsible independent power
production facilities worldwide utilizing geothermal resources or other energy
sources, such as hydroelectric, natural gas, oil and coal. The Diversified
Group, through its wholly-owned subsidiary, KCP, also owns interests in three
coal mines operated by the Construction & Mining Group.
MFS COMMUNICATIONS COMPANY, INC.
MFS Communications Company, Inc., a Delaware corporation and a
majority-owned subsidiary of PKS, is organized as a holding company and operates
through its subsidiaries in two business segments: telecommunications services,
through MFS Telecom, Inc. ("MFS Telecom"), MFS Intelenet, Inc. ("MFS
Intelenet"), MFS Datanet, Inc. ("MFS Datanet") and MFS International, Inc.
1
<PAGE>
("MFS International"); and network systems integration, primarily though MFS
Network Technologies, Inc. ("MFS Network Technologies"). In addition, MFS
Development, a division of MFS, acts as an internal network development resource
for the planning and construction of MFS's own networks. MFS reported a net loss
of $13.1 million, $15.8 million and $151.2 million for the three years ended
December 31, 1992, 1993 and 1994, respectively, and $128.7 million for the six
months ended June 30, 1995.
MFS's strategy is to become a primary provider of telecommunications
services to business and government customers. MFS deploys its own networks and
facilities and leases network capacity from other service providers in order to
provide a broad array of high quality voice, data and other services
specifically designed to meet the requirements of the customer. MFS also serves
a growing number of long distance carriers, resellers, service aggregators,
shared tenant service providers, cellular providers and radio providers that
incorporate MFS's switched, special access and private line services into the
services that those firms offer to their customers.
TELECOMMUNICATIONS SERVICES
- MFS Telecom provides dedicated circuits for critical telecommunications
needs, and pursuant to MFS's authorization from the state of New York,
recently began offering switched services to its customers. These services
are provided over state-of-the-art digital fiber optic networks. Typical
customers for MFS Telecom are large business and government customers. In
addition, MFS is authorized by the appropriate regulatory authorities to
provide switched services in the states of Illinois, Maryland,
Massachusetts, Michigan and Washington, although currently MFS Telecom
does not offer switched services in those jurisdictions.
- MFS Intelenet provides a single source of integrated local and long
distance telecommunications services and facilities management, primarily
for medium and small businesses, utilizing MFS's own network and switching
platform as well as the facilities of other providers.
- MFS Datanet provides high-speed data communications over an Asynchronous
Transfer Mode ("ATM") network. Among the services offered by MFS Datanet
is the connection of Local Area Networks ("LANs") across town or across
the country at the same native speed and protocol as that at which the
LANs operate. MFS Datanet offers high-speed LAN interconnect services
including Frame Relay, Ethernet, Token Ring, and FDDI utilizing its ATM
network.
- MFS International currently offers communications services to businesses
between and within London, Paris and Frankfurt, and is currently
developing networks in Stockholm and Zurich. MFS International was created
to take advantage of international opportunities and to better serve MFS's
existing customer base of multinational companies. MFS International
currently plans to develop additional networks and services in primary
international business centers in Europe and Asia, and is in the process
of evaluating potential opportunities in these business centers.
NETWORK SYSTEMS INTEGRATION
- MFS Network Technologies provides network systems integration for MFS and
third parties who deploy sophisticated networks. Such projects and
applications include voice and data networks, interactive distance
learning networks, security systems, combined cable television-telephone
networks, and intelligent transportation systems.
MFS was incorporated in Delaware in 1987. Its principal executive offices
are located at 3555 Farnam Street, Suite 200, Omaha, Nebraska, 68131, and its
telephone number is (402) 977-5300.
MFS RECAPITALIZATION AND OTHER PRELIMINARY TRANSACTIONS
In order to satisfy certain requirements of applicable tax law relating to
the Spin-off that are addressed by the Ruling, PKS and Kiewit Diversified Group
Inc., a wholly owned first-tier subsidiary
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<PAGE>
of PKS ("KDG"), have agreed with MFS to effect the MFS Recapitalization pursuant
to which KDG would exchange 2,900,000 of the 42,962,658 shares of MFS Common
Stock currently held by KDG for 15,000,000 shares of MFS Preferred Stock. The
MFS Recapitalization will be consummated immediately prior to the Spin-off. As a
result of the MFS Recapitalization, the percentage interest of the common equity
of MFS owned by KDG (calculated taking into account outstanding options and
warrants to acquire MFS Common Stock, and securities convertible into MFS Common
Stock) will be reduced, and the percentage interest of such common equity of MFS
owned by non-PKS holders of MFS Common Stock will be correspondingly increased.
This percentage interest shift will result in a reduction of approximately $60
million in the value of the outstanding MFS Common Stock held by KDG (based on
the last reported sale price of MFS Common Stock on August 24, 1995). In
exchange for this reduction, KDG will receive 15 million shares of high-vote MFS
Preferred Stock in a face amount of $15 million. The terms of the MFS
Recapitalization were determined through arm's length negotiations between the
management of PKS and the management of MFS, and were approved by the MFS Board,
the PKS Board and independent special committees of the MFS Board and the PKS
Board. See "Overview -- Background and Purpose of the Spin-off; Purpose of the
Exchange Offer; Board Proceedings."
The MFS Recapitalization was approved by the holders of MFS Common Stock at
the MFS 1995 annual stockholders meeting held on August 24, 1995. In connection
with such approval, PKS voted all of the shares of MFS Common Stock owned or
controlled by it in the same manner as the majority of the non-PKS holders of
MFS Common Stock (and not the holders of any preferred stock of MFS which was
outstanding) present in person or by proxy at the meeting voted. Thus, the MFS
Recapitalization was supported by a majority of such non-PKS stockholders of
MFS. See "Overview -- The MFS Recapitalization." Subsequent to the consummation
of the MFS Recapitalization, KDG will distribute as a dividend to PKS the
40,062,658 shares of MFS Common Stock and 15,000,000 shares of MFS Preferred
Stock then held by it. Immediately after receiving such dividend and prior to
the Spin-off, PKS will purchase 28,986 additional shares of MFS Common Stock
from MFS for $1,000,000. Under the agreement between PKS and MFS governing the
MFS Recapitalization, neither the MFS Recapitalization nor such purchase of MFS
Common Stock would be consummated if PKS abandoned the Spin-off. If PKS were to
propose a material modification to the terms of the Spin-off (which PKS
considers to be highly unlikely), both PKS and MFS would review the terms of the
MFS Recapitalization in the context of the modified Spin-off to determine
whether to consummate the MFS Recapitalization on its existing terms or to
consider alternative terms. See "Overview -- The Spin-off."
THE EXCHANGE OFFER
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Terms............................. The Exchange Offer will be consummated on the terms and
subject to the conditions contained in this Prospectus
and the related Letter of Transmittal. PKS will offer,
pursuant to the Exchange Offer, to exchange (i) .416598
shares of Class D Stock for each outstanding share of
Class B Stock and Class C Stock (including all shares of
Class C Stock issued in exchange for Exchangeable
Debentures), (ii) 24.75 shares of Class C Stock and
24.75 shares of Class D Stock for each $1,000 in
principal amount of each outstanding 1990 Series Class C
and D Debenture; (each such share of Class C Stock will
then be exchangeable for .416598 shares of Class D Stock
pursuant to the Exchange Offer as described in clause
(i) above) (iii) 22.98 shares of Class C Stock and 22.98
shares of Class D Stock for each $1,000 in principal
amount of each outstanding 1991 Series Class C and D
Debenture; (each such share of Class C Stock will then
be exchangeable for .416598 shares of Class D Stock
pursuant to the Exchange
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Offer as described in clause (i) above) and (iv) 19.97
shares of Class D Stock for each $1,000 in principal
amount of each outstanding 1993 Series Class D
Debenture, that in each case is validly tendered and not
properly withdrawn prior to the Expiration Date.
The number of shares of Class D Stock issuable for each
share of Exchangeable Stock in the Exchange Offer is
based on the ratio applicable to January 1995
conversions of Class B Stock and Class C Stock into
Class D Stock (which ratio was in turn based on the
ratio of the Class B&C Per Share Price to the Class D
Per Share Price at January 1, 1995 in accordance with
the PKS Certificate of Incorporation), adjusted for the
dividends paid on the Class B Stock and the Class C
Stock in January and May 1995. The number of shares of
Class C Stock and Class D Stock issuable in exchange for
the Exchangeable Debentures represents that number of
shares that would have been issuable upon conversion of
such Exchangeable Debentures in accordance with their
terms. A holder of shares of Exchangeable Stock may
elect to exchange any or all of the shares of
Exchangeable Stock held by such holder in the Exchange
Offer. A debentureholder may only elect to exchange the
entire principal amount (no partial exchanges are
permitted) of an Exchangeable Debenture held by such
debentureholder in the Exchange Offer. See "The Exchange
Offer -- Terms of the Exchange Offer" and "-- Withdrawal
Rights" and "Description of Securities -- PKS Stock."
There are no dissenter's rights of appraisal in
connection with the Exchange Offer.
Expiration Date................... The Exchange Offer will be open until the Expiration
Date, which will be September 29, 1995 unless the
Exchange Offer is extended as described herein. See "The
Exchange Offer -- Terms of the Exchange Offer" and "--
Right of PKS to Extend, Abandon or Modify the Exchange
Offer."
Tender Procedure.................. To tender Exchangeable Securities pursuant to the
Exchange Offer, a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), any other
documents required by PKS and certificates for the
Exchangeable Securities to be tendered must be received
by PKS prior to 5:00 p.m., Omaha, Nebraska time, on the
Expiration Date. See "The Exchange Offer -- Procedure
for Tendering Exchangeable Securities; Exchange of
Exchangeable Securities; Delivery of Offered Stock."
Potential Proration............... PKS does not anticipate that it will be necessary to
impose a limit on the amount of Exchangeable Stock that
may be exchanged in the Exchange Offer; however, the PKS
Board of Directors may impose such a limit if it
determines that acceptance of all tendered Exchangeable
Stock would not be in the best interest of PKS and its
stockholders. If the PKS Board were to take such action,
it would impose such limit on the Exchangeable Stock
tendered (but not on the Exchangeable Debentures
tendered) on a pro rata basis and would follow
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
the procedures otherwise applicable to a modification of
the Exchange Offer. Without limiting the factors the PKS
Board might take into account in taking such action, the
PKS Board might consider imposing such a limit if it
concluded that acceptance of all shares of Exchangeable
Stock tendered could frustrate the employee
incentivization purposes of PKS's employee ownership
program for Class C Stock, given the aggregate amount of
and/or the concentration of ownership of the
Exchangeable Stock tendered. (Such stock ownership pro-
gram, under which Class C Stock is offered to selected
employees of the Construction & Mining Group each year,
is intended in part to incentivize such employees by
giving them a financial stake in the performance of the
sector of PKS's business in which they are employed).
See "The Exchange Offer -- Right of PKS to Extend,
Abandon or Modify the Exchange Offer."
Intentions of Certain Significant
Stockholders Regarding
Participation in the Exchange
Offer............................ With certain exceptions, including Messrs. Walter Scott,
Jr. and Robert Julian, the directors of PKS and of KCG
have advised PKS in writing that they will not tender in
the Exchange Offer any shares of Class C Stock held by
them. Messrs. Scott and Julian expect to tender, in the
aggregate, 785,892 shares of Class C Stock pursuant to
the Exchange Offer. See "Certain Transactions --
Intentions of Certain Significant Stockholders Regarding
Participation in Exchange Offer." PKS expects that all
Exchangeable Debentures, including those held by the
directors of PKS and KCG, will be tendered pursuant to
the Exchange Offer.
Withdrawal Rights................. Exchangeable Securities tendered pursuant to the
Exchange Offer may be withdrawn at any time prior to the
Expiration Date without penalty on the terms and
conditions contained herein. Once the Expiration Date
has occurred, a tender of Exchangeable Securities is
irrevocable by the tendering securityholder. See "The
Exchange Offer -- Withdrawal Rights."
Fractional Shares................. In lieu of issuing fractional shares, PKS will round the
number of shares of Offered Stock to be received by a
tendering securityholder to the nearest whole number of
shares without any additional consideration being
payable by or to such holder. See "The Exchange Offer --
Terms of the Exchange Offer."
Condition to the Exchange Offer... The Exchange Offer will not be consummated unless the
Ruling received by PKS, confirming that the Spin-off and
certain related transactions will be consummated on a
tax-free basis to the holders of Class D Stock for
United States federal income tax purposes, remains
substantially in effect as of the date of the
consummation of the Exchange Offer. See "The Exchange
Offer -- Condition to the Exchange Offer." There
</TABLE>
5
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<TABLE>
<S> <C>
are no federal or state regulatory requirements or
approvals that must be complied with or obtained as a
condition of the Exchange Offer.
Right to Abandon or Modify
Exchange Offer................... If the PKS Board determines that such action would be in
the best interest of PKS and its stockholders, PKS may
modify the Exchange Offer and, subject to the withdrawal
rights described herein, retain all tendered securities
until the expiration of the Exchange Offer as so
modified. Further, PKS may abandon the Exchange Offer
and promptly return all tendered securities to tendering
securityholders if the PKS Board of Directors reasonably
determines that there shall have occurred any material
change in the business, financial condition, results of
operations or prospects of MFS or of the Diversified
Group, in the market price of the MFS Common Stock, or
in any other circumstance, and that, as a result,
consummation of the Exchange Offer would no longer be in
the best interest of PKS and its stockholders. PKS will
abandon the Exchange Offer in the event it abandons the
Spin-off. See "The Exchange Offer -- Right of PKS to
Extend, Abandon or Modify the Exchange Offer."
Certain Tax Considerations........ Pursuant to the Ruling, for United States federal income
tax purposes neither PKS nor the holders of Exchangeable
Debentures will recognize any gain or loss on an
exchange of Offered Stock for Exchangeable Debentures.
In addition, pursuant to an opinion of counsel, although
the issue is not free from doubt, for United States
federal income tax purposes neither PKS nor the holders
of Exchangeable Stock should recognize any gain or loss
on an exchange of Offered Stock for Exchangeable Stock.
In those events, the holders' tax bases in the Offered
Stock will be the same as their bases in the Ex-
changeable Securities, and the holders' holding periods
for the Offered Stock generally will include their
holding periods for the Exchangeable Securities. See
"The Exchange Offer -- Certain United States Federal
Income Tax Considerations Relating to the Exchange
Offer."
</TABLE>
PARTICIPATION IN THE EXCHANGE OFFER IS VOLUNTARY. SEE "RISK FACTORS" FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE A HOLDER OF
EXCHANGEABLE SECURITIES DECIDES WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER.
THE PKS BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF EXCHANGEABLE DEBENTURES
TENDER SUCH EXCHANGEABLE DEBENTURES IN THE EXCHANGE OFFER.
THE PKS BOARD OF DIRECTORS MAKES NO RECOMMENDATION WITH RESPECT TO WHETHER
HOLDERS OF EXCHANGEABLE STOCK SHOULD TENDER SUCH EXCHANGEABLE STOCK IN THE
EXCHANGE OFFER.
THE SPIN-OFF
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<S> <C>
Manner of Distribution............ The Spin-off will be declared and be effected on the
Spin-off Date (as defined below) to holders of record of
Class D Stock (including Class D Stock issued in the
Exchange Offer) on such date in the event the condition
described under "The Spin-off -- Condition to the
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Spin-off; Right of PKS to Abandon, Defer or Modify the
Spin-off" is satisfied, unless the PKS Board of
Directors has exercised its right to abandon the
Spin-off if it determines for any reason that such
abandonment is in the best interest of PKS and its
stockholders. No holder of Class D Stock will be
required to pay any cash or other consideration, to
surrender or exchange shares of Class D Stock or any
other security or to take any other action in order to
receive the Spin-off Stock pursuant to the Spin-off.
There are no dissenter's rights of appraisal in
connection with the Spin-Off.
Spin-off Stock.................... The Spin-off Stock will consist of a total of 40,091,644
shares of MFS Common Stock, which will constitute the
major portion of the Spin-off Stock in terms of value,
and a total of 15,000,000 shares of MFS Preferred Stock,
which will constitute a minor portion of the Spin-off
Stock in terms of value. The number of shares of
Spin-off Stock to be distributed in respect of each
outstanding share of Class D Stock cannot be precisely
determined prior to the Expiration Date of the Exchange
Offer. The following table sets forth PKS's estimates of
the number of shares of MFS Common Stock and MFS
Preferred Stock to be distributed per share of Class D
Stock outstanding at the time of the Spin-Off, assuming
that (i) all of the Exchangeable Debentures are
exchanged for Offered Stock in the Exchange Offer and
(ii) the stated number of shares of Exchangeable Stock
are exchanged for Class D Stock in the Exchange Offer:
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED NUMBER OF ESTIMATED NUMBER OF
SHARES OF MFS SHARES OF MFS
COMMON STOCK PREFERRED STOCK
ASSUMED NUMBER OF DISTRIBUTED PER DISTRIBUTED PER
SHARES OF EXCHANGEABLE SHARE OF CLASS D SHARE OF CLASS D
STOCK EXCHANGED(1) STOCK(2) STOCK(2)
---------------------- -------------------- --------------------
<S> <C> <C>
3,000,000 1.77 0.66
5,000,000 1.71 0.64
------------------------------
(1) The 3,000,000 share assumption reflects PKS's estimate of the
number of shares of Exchangeable Stock likely to be tendered
in the Exchange Offer, based upon the tender indications that
PKS has received from members of the PKS Board of Directors
and members of the KCG Board of Directors, and PKS's
estimates of the likely number of additional tenders. The
5,000,000 share assumption is set forth solely to illustrate
the impact of the tender of substantially more shares than
anticipated by PKS. PKS does not believe that a tender of
5,000,000 shares is likely. The 3,000,000 figure represents
20.2%, and the 5,000,000 figure represents 33.7%, of the
total number of shares of Class B Stock and Class C Stock
outstanding at June 23, 1995.
(2) The estimate of the number of shares of MFS Common Stock and
MFS Preferred Stock distributed per share of Class D Stock
was determined by dividing the total number of each class of
shares to be distributed by the sum of (i) the number of
shares of Class D Stock currently outstanding, (ii) in each
case, the number of shares of Class D Stock that would be
issued upon tender of the assumed number of shares of
Exchangeable Stock, and (iii) the number of shares of Class D
Stock that would be issued upon exchange of all Exchangeable
Debentures.
</TABLE>
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<S> <C>
The MFS Preferred Stock is subject, by its terms, to
stringent restrictions on transfer. In addition, KDG has
agreed to grant to the Secretary and Assistant Secretary
of MFS an irrevocable proxy to vote all of the shares of
MFS Preferred Stock in proportion to the vote of the
holders of MFS Common Stock on all matters other than
the election of MFS directors and matters as to which
the holders of MFS Preferred Stock vote as a separate
class under Delaware corporation law. Holders of Class D
Stock will receive MFS Preferred Stock in the Spin- off
subject to such irrevocable proxy. In lieu of issuing
fractional shares of Spin-off Stock, PKS will round
fractional shares to whole shares without affecting the
total number of shares of Spin-off Stock. See "The
Spin-off -- Manner of Effecting the Distribution" and
"-- Listing and Trading of Spin-off Stock."
Spin-off Date..................... The date as of which the Spin-off dividend is declared
is referred to herein as the "Spin-off Date." The
Spin-off Date will also be the record date for
determining the holders of Class D Stock (including
Class D Stock issued in the Exchange Offer) entitled to
receive the Spin-off Stock. PKS currently anticipates
that the Spin-off Date will be the day after the Expira-
tion Date and that the Spin-off Stock will be
transferred on the books and records of MFS to holders
of Class D Stock on or promptly after the Spin-off Date.
Certificates representing Spin-off Stock however, will
not be mailed to holders of Class D Stock (or to lenders
to which such Class D Stock is pledged) until three to
four weeks after the Spin-off Date. See "The Spin-off --
Manner of Effecting the Distribution." Holders of Class
D Stock should not attempt to sell or transfer MFS
Common Stock received pursuant to the Spin-off until
they have received the certificates evidencing such
stock.
Trading of Spin-off Stock......... MFS Common Stock is currently traded on the Nasdaq Na-
tional Market under the symbol "MFST," and MFS expects
that it will continue to be traded on the Nasdaq
National Market or a national securities exchange. The
ability of a holder of MFS Common Stock to realize value
upon a sale of such stock will be entirely dependent on
the market for the MFS Common Stock. The directors of
MFS and PKS who will receive Spin-off Stock in the
Spin-off (other than one director of PKS who became a
director in 1995) have agreed to certain limitations on
the transferability of such stock. Notwithstanding these
agreements, a substantial number of shares of MFS Common
Stock will become available for future sale in the
public market as a result of the Spin-off. Sales of
substantial amounts of such shares in the public market
could adversely affect the market price of the MFS
Common Stock. On August 24, 1995 the last reported sale
price of the MFS Common Stock as reported by the Nasdaq
National Market was $45.50 per share. See "Risk Factors
-- Risk Factors Relating to the Exchange Offer, the
Spin-off and PKS Securities -- Effect of Spin-off on
Class D Per Share Price; Value of Spin-off Stock
Dependent on Market."
</TABLE>
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<S> <C>
The MFS Preferred Stock is non-transferable for a period
of six years from the date of its issuance with limited
exceptions, is convertible into MFS Common Stock at the
option of the holder beginning on the first anniversary
of the date of issuance thereof and is redeemable at the
option of MFS beginning at the end of such six-year
period. MFS does not intend to apply for listing of the
MFS Preferred Stock on any national securities exchange,
on the Nasdaq National Market or in the over-the-counter
market. See "The Spin-off -- Listing and Trading of
Spin-off Stock -- MFS Preferred Stock."
Effects of Spin-off on Class D Per
Share Price; Value of Spin-off
Stock............................ Although there are no transfer restrictions on the Class
D Stock, there is no established trading market for such
stock, and there has been only limited trading activity
in such stock. For the foreseeable future, there is no
assurance that a holder of Class D Stock will be able to
sell such stock otherwise than pursuant to PKS's
repurchase obligation under the PKS Certificate of
Incorporation, as described under "Description of
Securities -- PKS Stock -- Repurchase Duties." The price
at which PKS is obligated to repurchase such stock,
I.E., the Class D Per Share Price, is based on the Class
D Formula Value, which is determined at the beginning of
each fiscal year of PKS and is reduced by the amount of
any subsequently declared dividend. The Class D Per
Share Price will be significantly reduced as a result of
the Spin-off because the value currently attributable to
MFS will no longer be included in the calculation of
such price. The current Class D Per Share Price is
$60.25. The Class D Per Share Price after the Spin-off
will depend upon a number of factors, including the
number of shares of Class D Stock issued in the Exchange
Offer and PKS's determination of the portion of the
Class D Per Share Price attributable to MFS. The
following table sets forth PKS's estimates of (i) the
pro forma Class D Per Share Price after giving effect to
the Exchange Offer and the Spin-Off, (ii) the current
market value of the MFS Common Stock to be distributed
in the Spin-off per share of Class D Stock and (iii) the
redemption value of the MFS Preferred Stock to be
distributed in the Spin-off per share of Class D Stock,
assuming in each case that (x) all of the Exchangeable
Debentures are exchanged for Offered Stock in the
Exchange Offer and (y) the stated number of shares of
Exchangeable Stock are exchanged for Class D Stock in
the Exchange Offer:
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
VALUE
OF MFS COMMON ESTIMATED VALUE
ESTIMATED STOCK OF MFS PREFERRED
ASSUMED NUMBER PRO FORMA DISTRIBUTED STOCK DISTRIBUTED
OF SHARES OF CLASS D PER SHARE OF PER SHARE OF
EXCHANGEABLE STOCK PER SHARE CLASS D CLASS D
EXCHANGED(1) PRICE(2)(4) STOCK(3)(4) STOCK(3)(4)
------------------ --------- -------------- -----------------
<S> <C> <C> <C>
3,000,000 $41.00 $80.54 $0.66
5,000,000 $41.75 $77.81 $0.64
------------------------------
(1) The 3,000,000 share assumption reflects PKS's estimate of the
number of shares of Exchangeable Stock likely to be tendered
in the Exchange
</TABLE>
9
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<TABLE>
<S> <C> <C> <C>
Offer, based upon the tender indications that PKS has received
from members of the PKS Board of Directors and members of the
KCG Board of Directors, and PKS's estimates of the likely
number of additional tenders. The 5,000,000 share assumption
is set forth solely to illustrate the impact of the tender of
substantially more shares than anticipated by PKS. PKS does
not believe that a tender of 5,000,000 shares is likely. The
3,000,000 figure represents 20.2%, and the 5,000,000 figure
represents 33.7%, of the total number of shares of Class B
Stock and Class C Stock outstanding at June 23, 1995.
(2) Earnings of the Diversified Group for 1995, including earnings
attributable to the settlement of certain litigation described
at "Recent Developments -- Whitney Litigation," would not be
reflected in the Class D Per Share Price until 1996.
(3) For purposes of this table, each share of MFS Common Stock is
valued at $45.50, its last reported sale price on the Nasdaq
National Market as of August 24, 1995, and each share of MFS
Preferred Stock is valued at its redemption value of $1.00 per
share. There is no assurance as to the market price of the MFS
Common Stock at the Spin-off Date.
(4) As shown in the table, the greater the number of shares of
Exchangeable Stock exchanged in the Exchange Offer, the less
the reduction in the Class D Per Share Price resulting from
the Spin-off. This is attributable to the fact that the amount
of the reduction in the Class D Formula Value resulting from
the Spin-off will be a fixed amount equal to PKS's book
investment in the Spin-off Stock to be distributed, whereas
the amount of such reduction on a per share basis (I.E., the
amount of the reduction in the Class D Per Share Price) will
decrease as more shares of Class D Stock are issued in the
Exchange Offer. Also, as shown in the table on page 7, the
greater the number of shares of Exchangeable Stock exchanged
in the Exchange Offer, the fewer the number of shares of
Spin-off Stock (and hence the less the value of the Spin-off
Stock) distributed per share of Class D Stock in the Spin-off.
</TABLE>
<TABLE>
<S> <C>
See "Risk Factors -- Risk Factors Relating to the
Exchange Offer, the Spin-off and PKS Securities --
Effect of Spin-off on Class D Per Share Price; Value of
Spin-off Stock Dependent on Market." If and when the
Class D Stock becomes Publicly Traded, PKS's obligation
to repurchase such stock will cease. See "Risk Factors
-- Risk Factors Relating to the Exchange Offer, the
Spin-Off and PKS Securities -- Effect of Class D Stock
Becoming Publicly Traded."
Condition to the Spin-off; Right
to Abandon, Defer or Modify...... The Spin-off will not be consummated unless the Ruling
remains substantially in effect. There are no federal or
state regulatory requirements or approvals that must be
complied with or obtained as a condition of the
Spin-off. If the PKS Board determines for any reason
that such action would be in the best interest of PKS
and its stockholders, PKS may (i) abandon the Spin-off,
(ii) defer the consummation of the Spin-off or (iii)
modify the terms of the Spin-off. The Spin-off will not
necessarily be abandoned in the event the Exchange Offer
is abandoned. However, if the Exchange Offer is con-
summated, the Spin-off will be consummated promptly
thereafter. See "The Spin-off -- Condition to the
Spin-off; Right of PKS to Abandon, Defer or Modify the
Spin-off."
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Certain Tax Considerations........ Pursuant to the Ruling, for United States federal income
tax purposes the holders of the Class D Stock will not
recognize any gain or loss on the distribution of the
Spin-off Stock. In addition, the holders' tax bases in
their shares of Class D Stock prior to the Spin-off will
be apportioned in the Spin-off between such stock and
the Spin-off Stock, and the holders' holding periods for
the Spin-off Stock generally will include their holding
periods for the Class D Stock. See "The Spin-off --
Certain United States Federal Income Tax Considerations
Relating to the Spin-off."
</TABLE>
PURPOSE OF EXCHANGE OFFER
In connection with the PKS Board's approval of the Exchange Offer and its
preliminary approval of the Spin-off, the PKS Board determined that the Spin-off
would be in the best interest of the stockholders of PKS and would be
advantageous to MFS. The PKS Board authorized the Exchange Offer as an
appropriate means of affording the holders of Class B Stock and Class C Stock an
opportunity to exchange such stock for Class D Stock, and the holders of
Exchangeable Debentures an opportunity to exchange such debentures for Offered
Stock, prior to the proposed Spin-off. See "Overview -- Background and Purpose
of the Spin-off; Purpose of the Exchange Offer; Board Proceedings."
RISK FACTORS
Holders of Exchangeable Securities should carefully consider the factors
discussed under the section entitled "Risk Factors" in this Prospectus before
making a decision to participate in the Exchange Offer. Several of such factors
are also relevant to the assessment by holders of Class D Stock of the
consequences of the Spin-Off.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF
PETER KIEWIT SONS', INC.
<TABLE>
<CAPTION>
PRO FORMA (1)
HISTORICAL -----------------------------------------
------------------------------ SIX MONTHS
SIX MONTHS FISCAL YEAR ENDED ENDED JUNE 30,
FISCAL YEAR ENDED DECEMBER 31, 1994 1995
ENDED JUNE 30, ------------------- -------------------
-------------- -------------- SCENARIO SCENARIO SCENARIO SCENARIO
1993 1994 1994 1995 #1 (2) #2 (2) #1 (2) #2 (2)
------ ------ ------ ------ -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATION:
Revenue (3)(4).................................. $2,050 $2,704 $1,194 $1,260 $2,704 $2,704 1,260 $1,260
Net earnings (5)(6)............................. 261 110 45 71 177 177 154 154
FINANCIAL POSITION:
Total Assets (3)(4)............................. 3,634 4,504 3,585 3,138 3,138
Current portion of long-term debt (3)(4)........ 15 33 14 13 13
Long-term debt, less current portion (3)(4)..... 462 908 379 377 377
Stockholders' equity (7)........................ 1,671 1,736 1,842 1,479 1,479
<FN>
- ------------------------------
(1) The pro forma results of operations data are computed assuming that the MFS
Recapitalization, the Exchange Offer and the Spin-off were consummated on
December 26, 1993 and January 1, 1995 for the fiscal year ended December
31, 1994 and six months ended June 30, 1995, respectively. The pro forma
financial position data as of June 30, 1995 assumes that such transactions
were consummated as of such date. The pro forma financial data of PKS
should be read in conjunction with PKS' historical consolidated financial
statements and the notes thereto and the "Pro Forma Financial Information"
included elsewhere or incorporated by reference herein.
(2) The pro forma information assumes, in two separate scenarios, that
3,000,000 shares (Scenario 1) and 5,000,000 shares (Scenario 2) of
Exchangeable Stock and all the Exchangeable Debentures are exchanged in the
Exchange Offer. Scenario 1 reflects PKS's estimate of the number of shares
of Exchangeable Stock likely to be tendered in the Exchange Offer, based
upon the tender indications that PKS has received from members of the PKS
Board of Directors and members of the KCG Board of Directors, and PKS's
estimates of the likely number of additional tenders. Scenario 2 is set
forth solely to illustrate the impact of the tender of substantially more
shares than anticipated by PKS. PKS does not believe that a tender of
5,000,000 shares is likely.
(3) The PKS Board of Directors preliminarily approved a plan to make a tax-free
distribution of its entire ownership interest in MFS to the holders of
Class D Stock at a special meeting on June 9, 1995. The operating results
of MFS have been classified as a single line item on the statements of
earnings for all periods presented. PKS's proportionate share of the net
assets of MFS at June 30, 1995 of $447 million has been reported separately
on the consolidated balance sheet.
(4) In October 1993, PKS acquired 35% of the outstanding shares of C-TEC
Corporation that have 57% of the available voting rights. In December 1994,
PKS increased its ownership in C-TEC to 49% and 58% of the outstanding
shares and voting rights, respectively. In January 1994, MFS, a subsidiary
of PKS, issued $500 million of 9.375% Senior Discount Notes.
(5) In 1993, through two public offerings, PKS sold 29% of the common stock of
MFS, resulting in a $137 million after-tax gain. In 1994, additional MFS
stock transactions resulted in a $35 million after-tax gain to PKS and
reduced its ownership in MFS to 67%.
(6) On May 5, 1995, the U.S. government and a subsidiary of PKS entered into a
settlement agreement with respect to the Whitney Benefits litigation. In
settlement of all claims, PKS received $135 million on June 2, 1995 which
it recognized as income.
(7) The aggregate redemption value of common stock at June 30, 1995 was $1.7
billion.
</TABLE>
See "Selected Historical and Pro Forma Financial Data of Peter Kiewit Sons',
Inc." for further information.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF
KIEWIT CONSTRUCTION & MINING GROUP
<TABLE>
<CAPTION>
PRO FORMA (1)
HISTORICAL --------------------------------------------------
------------------------------------------
FISCAL YEAR ENDED SIX MONTHS ENDED
FISCAL YEAR SIX MONTHS DECEMBER 31, 1994 JUNE 30, 1995
ENDED ENDED JUNE 30, ------------------------ ------------------------
-------------------- -------------------- SCENARIO SCENARIO SCENARIO SCENARIO
1993 1994 1994 1995 #1 (2) #2 (2) #1 (2) #2 (2)
--------- --------- --------- --------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenue........................... $ 1,783 $ 2,175 $ 939 $ 988 $ 2,175 $ 2,175 $ 988 $ 988
Net earnings...................... 80 77 17 34 75 74 33 32
Per Common Share
Net earnings (3).................. 4.63 4.92 1.10 2.44 5.88 6.84 2.97 3.54
Dividends (4)..................... 0.70 0.90 0.45 0.45 -- -- -- --
Stock price (5)................... 22.35 25.55 21.90 25.10 28.20 28.70
Book value........................ 27.43 31.39 28.19 33.92 36.08 38.23
FINANCIAL POSITION:
Total assets...................... 889 967 967 892 841
Current portion of long-term
debt............................. 4 3 2 2 2
Long-term debt, less current
portion.......................... 10 9 7 6 6
Stockholders' equity (6).......... 480 505 503 429 378
Formula Value (5)................. 391 411
<FN>
- ------------------------------
(1) The pro forma results of operations data are computed assuming that the MFS
Recapitalization, the Exchange Offer and the Spin-off were consummated on
December 26, 1993 and January 1, 1995 for the fiscal year ended December
31, 1994 and six months ended June 30, 1995, respectively. The pro forma
financial position data as of June 30, 1995 assumes that such transactions
were consummated as of such date. The pro forma financial data of Kiewit
Construction & Mining Group should be read in conjunction with the Kiewit
Construction & Mining Group's historical financial statements and the notes
thereto and the "Pro Forma Financial Information" included elsewhere or
incorporated by reference herein.
(2) The pro forma information assumes, in two separate scenarios, that
3,000,000 shares (Scenario 1) and 5,000,000 shares (Scenario 2) of
Exchangeable Stock and all the Exchangeable Debentures are exchanged in the
Exchange Offer. Scenario 1 reflects PKS's estimate of the number of shares
of Exchangeable Stock likely to be tendered in the Exchange Offer, based
upon the tender indications that PKS has received from members of the PKS
Board of Directors and members of the KCG Board of Directors, and PKS's
estimates of the likely number of additional tenders. Scenario 2 is set
forth solely to illustrate the impact of the tender of substantially more
shares than anticipated by PKS. PKS does not believe that a tender of
5,000,000 shares is likely.
(3) Fully diluted earnings per share have not been presented because it is not
materially different from primary earnings per share.
(4) The 1994 and 1993 dividends include $.45 and $.40 for dividends declared in
1994 and 1993, respectively, but paid in January of the subsequent year.
(5) Pursuant to the Certificate of Incorporation, the stock price and formula
value calculations are computed annually at the end of the fiscal year,
except that adjustments to the stock price to reflect dividends are made at
the time such dividends are declared.
(6) Ownership of the Class B Stock and Class C Stock is restricted to certain
employees conditioned upon the execution of repurchase agreements which
restrict the employees from transferring the stock. PKS is generally
committed to purchase all Class B Stock and Class C Stock at the amount
computed, when put to PKS by a stockholder, pursuant to the Certificate of
Incorporation. The aggregate redemption value of the B&C Stock at June 30,
1995 was $372 million.
</TABLE>
See "Selected Historical and Pro Forma Financial Data of Kiewit Construction &
Mining Group" for further information.
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF
KIEWIT DIVERSIFIED GROUP
<TABLE>
<CAPTION>
PRO FORMA (1)
HISTORICAL -----------------------------------------
------------------------------
FISCAL YEAR ENDED SIX MONTHS ENDED
FISCAL YEAR SIX MONTHS DECEMBER 31, 1994 JUNE 30, 1995
ENDED ENDED JUNE 30 ------------------- -------------------
-------------- -------------- SCENARIO SCENARIO SCENARIO SCENARIO
1993 1994 1994 1995 #1 (2) #2 (2) #1 (2) #2 (2)
------ ------ ------ ------ -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenue (3)(4).................................. $ 267 $ 534 $ 255 $ 274 $ 534 $ 534 $ 274 $ 274
Net earnings (5)(6)............................. 181 33 28 37 102 103 121 122
Per Common Share
Net earnings (7)................................ 9.08 1.63 1.35 1.75 4.73 4.63 5.39 5.23
Dividends....................................... 0.50 -- -- -- -- -- -- --
Stock price (8)................................. 59.40 60.25 59.40 60.25 46.45 46.95
Book value...................................... 59.52 60.36 60.10 62.90 46.45 46.97
FINANCIAL POSITION:
Total assets (3)(4)............................. 2,759 3,549 2,633 2,261 2,312
Current portion of long-term debt (3)(4)........ 11 30 12 11 11
Long-term debt, less current portion (3)(4)..... 452 899 372 371 371
Stockholders' equity (9)........................ 1,191 1,231 1,339 1,050 1,101
Formula Value (8)............................... 1,191 1,231
<FN>
- ------------------------------
(1) The pro forma results of operations data are computed assuming that the MFS
Recapitalization, the Exchange Offer and the Spin-off were consummated on
December 26, 1993 and January 1, 1995 for the fiscal year ended December
31, 1994 and the six months ended June 30, 1995, respectively. The pro
forma financial position data as of June 30, 1995 assumes that such
transactions were consummated as of such date. The pro forma financial data
of Kiewit Diversified Group should be read in conjunction with the Kiewit
Diversified Group's historical financial statements and the notes thereto
and the "Pro Forma Financial Information" included elsewhere or
incorporated by reference herein.
(2) The pro forma information assumes, in two separate scenarios, that
3,000,000 shares (Scenario 1) and 5,000,000 shares (Scenario 2) of
Exchangeable Stock and all the Exchangeable Debentures are exchanged in the
Exchange Offer. Scenario 1 reflects PKS's estimate of the number of shares
of Exchangeable Stock likely to be tendered in the Exchange Offer, based
upon the tender indications that PKS has received from members of the PKS
Board of Directors and members of the KCG Board of Directors, and PKS's
estimates of the likely number of additional tenders. Scenario 2 is set
forth solely to illustrate the impact of the tender of substantially more
shares than anticipated by PKS. PKS does not believe that a tender of
5,000,000 shares is likely.
(3) The PKS Board of Directors preliminarily approved a plan to make a tax-free
distribution of its entire ownership interest in MFS to the holders of
Class D Stock at a special meeting on June 9, 1995. The operating results
of MFS have been classified as a single line item on the statements of
earnings for all periods presented. PKS' proportionate share of the net
assets of MFS at June 30, 1995 of $447 million has been reported separately
on the balance sheet.
(4) In October 1993, the Group acquired 35% of the outstanding shares of C-TEC
Corporation that have 57% of the available voting rights. In December 1994,
the Group increased its ownership in C-TEC to 49% and 58% of the
outstanding shares and voting rights, respectively. In January 1994, MFS
issued $500 million of 9.375% Senior Discount Notes.
(5) In 1993, through two public offerings, the Group sold 29% of the common
stock of MFS, resulting in a $137 million after-tax gain. In 1994,
additional MFS stock transactions resulted in a $35 million after-tax gain
to the Group and reduced its ownership in MFS to 67%.
(6) On May 5, 1995, the U.S. government and a subsidiary of the Group entered
into a settlement agreement with respect to the Whitney Benefits
litigation. In settlement of all claims, the Group received $135 million on
June 2, 1995 which it recognized as income.
(7) Fully diluted earnings per share have not been presented because it is not
materially different from primary earnings per share.
(8) Pursuant to the Certificate of Incorporation, the stock price and formula
value calculations are computed annually at the end of the fiscal year,
except that adjustments to the stock price to reflect dividends are made at
the time such dividends are declared.
(9) Unless Class D Stock becomes Publicly Traded, PKS is generally committed to
purchase all Class D Stock at the amount determined, in accordance with the
Certificate of Incorporation, when put to PKS by a stockholder. The
aggregate redemption value of the Class D Stock at June 30, 1995 was $1.3
billion.
</TABLE>
See "Selected Historical and Pro Forma Financial Data of Kiewit Diversified
Group" for further information.
14
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
OF MFS COMMUNICATIONS COMPANY, INC.
The development and acquisition by MFS of its networks and services during
the periods reflected below materially affect the comparability of that data
from one period to another. The following selected consolidated financial data
should be read in conjunction with the Consolidated Financial Statements of MFS
and the notes thereto, incorporated by reference herein. No cash dividends were
paid in any of the periods presented below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
------------------------------------- ENDED
1992 1993 1994 (1) JUNE 30, 1995
----------- ----------- ----------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Telecommunications services......................................... $ 47,585 $ 70,048 $ 228,707 $220,867
Network systems integration......................................... 61,122 71,063 58,040 37,478
----------- ----------- ----------- --------------
Total............................................................. 108,707 141,111 286,747 258,345
Costs and expenses:
Operating expenses.................................................. 76,667 102,905 273,431 259,017
Depreciation and amortization....................................... 20,544 34,670 73,869 60,721
General and administrative expenses................................. 23,267 34,989 75,576 53,724
----------- ----------- ----------- --------------
Total............................................................. 120,478 172,564 422,876 373,462
----------- ----------- ----------- --------------
Loss from operations.................................................. (11,771) (31,453) (136,129) (115,117)
Other income (expense) net............................................ (792) 8,464 (17,175) (13,419)
----------- ----------- ----------- --------------
Loss before income taxes.............................................. (12,563) (22,989) (153,304) (128,536)
Income tax benefit (expense).......................................... (566) 7,220 2,103 (200)
----------- ----------- ----------- --------------
Net loss............................................................ $(13,129) $(15,769) $(151,201) $(128,736)
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
Loss per share (2) ................................................... $(0.30) $(0.30) $(2.42) $(2.00)
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
Number of shares (2).................................................. 44,085,000 52,882,000 62,437,000 64,423,000
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
Ratio of earnings to combined fixed charges and preferred stock
dividends (3)........................................................ -- -- -- --
OTHER DATA:
EBITDA (4).......................................................... $ 8,773 $ 3,217 $ (62,260) $ (54,396)
Net cash provided by (used in) operating activities................. 28,741 32,946 (10,422) (66,833)
Capital expenditures, including acquisitions of businesses, net of
cash acquired...................................................... 110,171 128,651 576,711 264,293
STATISTICAL DATA (5):
Circuits in service (6)............................................. 589,130 947,391 1,713,430 2,241,601
Buildings connected................................................. 1,101 1,583 2,754 3,698
Route miles (7)..................................................... 858 1,298 2,405 2,702
Fiber miles (8)..................................................... 38,595 62,154 107,919 136,060
Switches............................................................ -- 1 12 12
BALANCE SHEET DATA:
Networks and equipment.............................................. $243,243 $370,334 $ 787,453 $1,055,581
Total assets........................................................ 363,299 906,937 1,584,546 1,826,833
Long-term debt, less current portion................................ 169 143 548,333 596,958
Stockholders' equity................................................ 298,516 811,105 770,103 963,466
<FN>
- ------------------------------
(1) Reflects the acquisition of Centex Telemanagement, Inc. as of May 18, 1994,
Cylix Communications Corporation as of November 1, 1994 and RealCom Office
Communications, Inc. as of November 14, 1994.
(2) See Note 2 to the Consolidated Financial Statements, which describes the
calculation of loss per share.
(3) For each of the three years ended December 31, 1994 and for the six months
ended June 30, 1995, earnings were insufficient to cover fixed charges
during the periods shown by the amount of loss before income taxes of
$12,563,000, $22,989,000, $153,304,000 and $128,536,000, respectively.
(4) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation and amortization. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA is not intended to represent
operating results or cash flows as determined by generally accepted
accounting principles. See Consolidated Statements of Cash Flows.
(5) Information presented as of the end of the period indicated and derived
from non-financial records prepared by MFS which are not audited.
(6) All circuits have been expressed as voice grade equivalent circuits.
(7) Route miles refers to the number of miles of the telecommunications path in
which the fiber optic cables are installed.
(8) Fiber miles refers to the number of route miles installed (excluding
pending installations) along a telecommunications path multiplied by the
number of fibers along that path.
</TABLE>
15
<PAGE>
RISK FACTORS
Participation in the Exchange Offer by a holder of Exchangeable Securities
is voluntary. Before tendering Exchangeable Securities for Offered Stock, a
holder of Exchangeable Securities should carefully consider the risks and
benefits of participation in the Exchange Offer, including consideration of the
consequences of a decision not to participate in the Exchange Offer, an
assessment of the investment characteristics of the Exchangeable Securities held
by such holder, on the one hand, and the Offered Stock and the Spin-off Stock,
on the other, and consideration of the other information contained or
incorporated by reference in this Prospectus. Several of such factors are also
relevant to the assessment by holders of Class D Stock of the consequences of
the Spin-off.
RISK FACTORS RELATING TO THE EXCHANGE OFFER,
THE SPIN-OFF AND PKS SECURITIES
CERTAIN CONSEQUENCES OF DECISION NOT TO EXCHANGE
If the Spin-off occurs, each holder of record of shares of Class D Stock as
of the Spin-off Date would retain such stock and would receive in addition MFS
Common Stock and MFS Preferred Stock. PKS expects that, at the time of the
Spin-off, the market price of the MFS Common Stock distributed in respect of
each share of Class D Stock will be substantially in excess of the value then
attributable to MFS in the determination of the Class D Per Share Price in
accordance with the PKS Certificate of Incorporation. For example, assuming in
two alternative scenarios that (i) 3,000,000 shares and (ii) 5,000,000 shares of
Exchangeable Stock, and in each case all of the Exchangeable Debentures, are
exchanged in the Exchange Offer, the market price of the estimated number of
shares of MFS Common Stock to be distributed per share of Class D Stock (based
on the last reported sale price of the MFS Common Stock on the Nasdaq National
Market as of August 24, 1995) would be $80.54 and $77.81, respectively, compared
to the respective estimated values of approximately $19.25 and $18.50 that would
be attributable to MFS under such scenarios for purposes of determining the
Class D Per Share Price. See the tables under "Overview -- The Spin-off."
Accordingly, although there is no assurance as to the market price of the MFS
Common Stock at the Spin-off Date, the sum of (i) the market value of the MFS
Common Stock distributed to a holder of Class D Stock plus (ii) the redemption
value of the MFS Preferred Stock distributed to a holder of Class D Stock plus
(iii) the aggregate Class D Per Share Price of such holder's shares of Class D
Stock after giving effect to the Spin-off is expected to be substantially in
excess of the aggregate Class D Per Share Price of such holder's shares of Class
D Stock before giving effect to the Spin-off. See "Overview -- The Spin-Off."
This represents a one-time benefit that holders of Exchangeable Stock who
participate in the Exchange Offer will receive in respect of the Class D Stock
issued to them in the Exchange Offer. Holders of Exchangeable Stock who do not
exchange such stock pursuant to the Exchange Offer will not receive this
anticipated benefit with respect to Exchangeable Stock held by them.
A holder of Exchangeable Debentures who participates in the Exchange Offer
would receive on the exchange of such Exchangeable Debentures the same number
and classes of PKS stock that the holder would later be entitled to receive upon
conversion of such Exchangeable Debentures in accordance with their stated
conversion terms. A holder of Exchangeable Debentures who does not participate
in the Exchange Offer would not have an opportunity to receive such PKS stock
until the scheduled conversion period provided for in the holder's Exchangeable
Debentures. Further, PKS will not retain any MFS Common Stock or MFS Preferred
Stock after the Spin-off, and therefore would not be able to distribute any MFS
Common Stock or MFS Preferred Stock upon a subsequent conversion of such
Exchangeable Debentures during their scheduled conversion period. The PKS Board
of Directors has not made any provision for any other adjustment to the
Exchangeable Debentures to reflect the Spin-off. In addition, the formula value
of the stock receivable in exchange for each Exchangeable Debenture will be
substantially greater than the face amount of the Exchangeable
16
<PAGE>
Debenture, which a holder would not otherwise receive until the tenth
anniversary of the date of the issuance of such Exchangeable Debenture.
Accordingly, tender of Exchangeable Debentures in the Exchange Offer will most
likely result in receipt of the greatest value by the debentureholder.
CERTAIN INVESTMENT CHARACTERISTICS OF EXCHANGEABLE STOCK AND CLASS D STOCK
EXCHANGEABLE STOCK. Among the investment characteristics of the Class B
Stock and the Class C Stock that should be considered are the holder's
assessment of (i) the potential for continued dividend income from such stock,
and the potential for continued growth and the risk of a decline in the Class
B&C Per Share Price of such stock, all of which are dependent on the business
prospects for the Construction & Mining Group and (ii) the terms of the Class B
Stock and Class C Stock described under "Description of Securities -- PKS
Stock."
CLASS D STOCK. Among the investment characteristics of the Class D Stock
that should be considered are (i) the limited history of dividends on such
stock, (ii) the potential for future dividends on the Class D Stock, which is
dependent on the business prospects for the Diversified Group, and the fact that
the PKS Board of Directors announced in August 1993 that, in light of heavy
capital commitments, PKS did not intend to pay dividends on the Class D Stock in
the foreseeable future, (iii) the potential for growth and the risk of decline
in the Class D Per Share Price of such stock, which are dependent on the
business prospects for the Diversified Group, (iv) the possibility that the
annual changes in the Class D Formula Value, on which the Class D Per Share
Price is based, may be less readily predictable than the annual changes in the
Class B&C Formula Value, on which the Class B&C Per Share Price is based, in
view of the diverse and generally less mature businesses that comprise the
Diversified Group as compared to the Construction & Mining Group and (v) the
terms of the Class D Stock described under "Description of Securities -- PKS
Stock." In addition, holders of Exchangeable Stock should consider the
anticipated risks and benefits of the Spin-off for the holders of the Class D
Stock in the context of all the other factors discussed in this "Risk Factors"
section, including all of the special considerations associated with ownership
of MFS securities discussed below under "Risk Factors Relating to MFS" and under
"Description of Securities -- MFS Common Stock" and "-- MFS Preferred Stock."
COMPANY POLICY ON FUTURE SALES OF CLASS C STOCK
PKS offers Class C Stock for sale to employees annually. The PKS Board and
management select the employees to whom Class C Stock is to be offered and
determine the number of shares to be offered to each such employee based on
consideration of a wide range of factors, including the employee's effort and
relative contribution to PKS's economic performance; the employee's level of
responsibility; the potential displayed by the employee; the employee's length
of service; and the amount of Class C Stock presently owned by the employee.
If an employee exercises his or her right under the PKS Certificate of
Incorporation to sell Class C Stock back to PKS or to convert Class C Stock into
Class D Stock during any year, the PKS Board and management generally consider
such stock sales and conversions, in addition to the factors described above, in
determining whether to offer Class C Stock to the employee in the following
year, and if Class C Stock is offered to such employee, the amount of Class C
Stock so offered. Although the sale or conversion of Class C Stock is not the
only factor taken into account in those cases, PKS generally has declined to
sell Class C Stock to an employee in the year following a year in which the
employee has sold Class C Stock or converted Class C Stock into Class D Stock.
The PKS Board and management expect to use similar criteria in determining
the employees to whom Class C Stock is offered, and the number of shares of
Class C Stock offered to each such employee, in 1996. Accordingly, PKS expects
that the PKS Board and management generally will not offer Class C Stock for
sale in 1996 to a holder of Class C Stock who has exchanged Class C Stock for
Class D Stock pursuant to the Exchange Offer.
17
<PAGE>
NO INTENTION TO REPLACE EXCHANGED CLASS B STOCK OR CLASS C STOCK THROUGH FUTURE
OFFERINGS
PKS will not change the criteria by which it offers Class C Stock under
PKS's stock ownership program for the purpose of enabling persons who tender
Exchangeable Stock in the Exchange Offer to restore the level of their holdings
of such stock through future purchases.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE EXCHANGE
OFFER
If the exchange of Offered Stock for Exchangeable Stock in the Exchange
Offer constitutes, for United States federal income tax purposes, a
"recapitalization" within the meaning of Section 368(a)(1)(E) of the Internal
Revenue Code of 1986, as amended (the "Code"), then, among other things, no gain
or loss will be recognized by a holder of Exchangeable Stock who elects to
participate in the Exchange Offer upon the exchange of Offered Stock for
Exchangeable Stock. PKS has been advised by Sutherland, Asbill & Brennan, its
regular outside tax counsel, that, although the issue is not free from doubt, in
the opinion of such counsel, the exchange of Offered Stock for Exchangeable
Stock in the Exchange Offer should constitute, for United States federal income
tax purposes, a recapitalization within the meaning of section 368(a)(1)(E) of
the Code. Accordingly, the exchange of Offered Stock for Exchangeable Stock
should be tax-free to participating holders from a United States federal income
tax perspective, although there is an element of uncertainty regarding the
federal income tax consequences of such exchange. In the event the Exchange
Offer is a taxable transaction for United States federal income tax purposes (an
outcome the management of PKS believes is unlikely), then participating holders
would recognize gain or loss on the exchange of Offered Stock for Exchangeable
Stock. See "The Exchange Offer -- Certain United States Federal Income Tax
Considerations Relating to the Exchange Offer."
TRANSFER FROM CONSTRUCTION & MINING GROUP
Whenever Class B Stock or Class C Stock is converted into Class D Stock, it
has been PKS's practice (although the terms of the PKS Certificate of
Incorporation do not require that it do so) to transfer funds from the
Construction & Mining Group to the Diversified Group, in an amount equal to the
aggregate Class B&C Per Share Price of the Class B Stock and Class C Stock so
converted, in order that the conversion will not have the effect of diluting the
Class D Formula Value. PKS will take the same action with respect to
Exchangeable Stock exchanged for Class D Stock in the Exchange Offer. Thus, the
more Exchangeable Stock that is exchanged, the greater the funds that will be
transferred from the Construction & Mining Group to the Diversified Group. For
example, if 3,000,000 shares of Class B Stock and Class C Stock were exchanged
for Class D Stock pursuant to the Exchange Offer, PKS would transfer $75,300,000
from the Construction & Mining Group to the Diversified Group; if 5,000,000
shares of Class B Stock and Class C Stock were exchanged for Class D Stock
pursuant to the Exchange Offer, PKS would transfer $125,500,000 from the
Construction & Mining Group to the Diversified Group. Such transfer may have a
negative impact on the liquidity of the Construction & Mining Group. PKS expects
that the Construction & Mining Group will have sufficient funds, either from
cash on hand or cash flow from operations, to make any such transfer. If,
however, more shares of Class B Stock and Class C Stock were tendered for Class
D Stock than currently anticipated, such funds might not to be sufficient to
fund all of such transfers, and the Diversified Group might defer receipt of
such transfer on a short-term, interest-bearing basis. However, the PKS Board
does not intend to cause the Diversified Group to provide any such deferral on a
long-term basis. If the Construction & Mining Group is unable to fund all such
transfers within a short period after the Spin-off, PKS intends to cause the
Construction & Mining Group to borrow from third parties the funds necessary to
make such transfers. PKS does not foresee any circumstance under which those
transfers would not ultimately be made. In any event, PKS has reserved the right
to impose a limit on the amount of Exchangeable Stock that may be exchanged in
the Exchange Offer, and the liquidity of the Construction & Mining Group is one
factor the PKS Board of Directors would consider in determining whether such a
limit were appropriate. See "The Exchange Offer -- Terms of the Exchange Offer."
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BUSINESSES OF CONSTRUCTION & MINING GROUP
The Exchange Offer and the Spin-off will not affect the businesses of the
Construction & Mining Group, except to the extent such businesses may be
affected by the funds transfer described above under "Transfer from Construction
& Mining Group." Moreover, as a result of the making of such transfer, the
Exchange Offer and the Spin-off will have no effect on the Class C Per Share
Price. Accordingly, holders of Exchangeable Securities (other than Class D
Debentures) who elect not to participate in the Exchange Offer will retain an
indirect interest in the Construction & Mining Group, and the prospects for
future appreciation, or the risk of a decline, in the Class C Per Share Price
will depend upon the success of the construction and mining businesses in which
the Construction & Mining Group currently engages and chooses to engage in the
future.
The risks associated with the businesses of the Construction & Mining Group
include all of the risks attendant to any construction business, including the
impact on the construction industry of changes in national and regional
economies, the cyclical nature of the construction business, the risk of
bankruptcy of, or non-payment by, owners, the risk of cost overruns and job
losses on particular projects, risks associated with increasing competition in
the construction business, the risks of foreign construction operations, and the
costs and restraints imposed upon operations by regulatory requirements.
EFFECT OF SPIN-OFF ON CLASS D PER SHARE PRICE; VALUE OF SPIN-OFF STOCK DEPENDENT
ON MARKET
Because approximately one-third of the current Class D Per Share Price of
$60.25 is attributable to MFS, the Class D Per Share Price will be significantly
reduced when the Spin-off is consummated. See "Overview -- The Spin-off." The
amount of such reduction will depend upon the number of Exchangeable Securities
exchanged in the Exchange Offer. For example, assuming in two alternative
scenarios that (i) 3,000,000 shares and (ii) 5,000,000 shares of Exchangeable
Stock, and in each case all of the Exchangeable Debentures, are exchanged in the
Exchange Offer, the estimated Class D Per Share Price after giving effect to the
Spin-off would be $41.00 and $41.75, respectively. Accordingly, as a result of
the Spin-off, the price at which holders of Class D Stock can thereafter sell
such stock to PKS will be significantly reduced. Although there are no transfer
restrictions on the Class D Stock, there is no established trading market for
such stock, and there has been only limited trading activity in such stock. For
the foreseeable future, there is no assurance that a holder of Class D Stock
will be able to sell such stock otherwise than pursuant to PKS's repurchase
obligation under the PKS Certificate of Incorporation. See "-- Effect of Class D
Stock Becoming Publicly Traded," below.
PKS will have no repurchase obligation with respect to the Spin-off Stock.
The ability of a holder of MFS Common Stock to realize value upon a sale of such
stock will be entirely dependent on the market for MFS Common Stock. The market
price of MFS Common Stock has fluctuated significantly since MFS Common Stock
began public trading in May 1993. Since the commencement of public trading, MFS
Common Stock has traded as high as $57.75 per share (in the third quarter of
1993) and as low as $20.50 per share (in the second quarter of 1994); during the
52 week period preceding August 24, 1995, the high and low trading prices per
share were $47.25 and $28.75, respectively. See "-- Risk Factors Relating to
MFS" below for a discussion of certain factors that may affect the market price
of MFS Common Stock. The MFS Preferred Stock is non-transferable for a period of
six years from its date of issuance with limited exceptions. See "Description of
Securities -- MFS Preferred Stock."
BUSINESSES OF DIVERSIFIED GROUP
After the Spin-off is consummated, MFS will be independent of PKS rather
than being part of the Diversified Group. Accordingly, the Class D Stock will no
longer represent an indirect interest in the business of MFS, and the prospects
for future appreciation in the Class D Per Share Price will depend on the
remaining businesses of the Diversified Group and any other businesses the
Diversified Group may choose to enter in the future, as well as on other factors
that affect, and will continue to affect, such prospects.
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The Diversified Group currently engages in three principal businesses other
than the businesses of MFS: coal mining, through KDG's wholly owned subsidiary
Kiewit Coal Properties Inc. ("KCP"); independent power production, both through
KDG's ownership of a significant minority interest in California Energy Company
Inc. ("CECI") and through the project development and ownership activities of
KDG's wholly owned subsidiary, Kiewit Energy Company ("KEC"); and the
telecommunications business, through KDG's ownership of a controlling interest
in C-TEC Corporation ("C-TEC"). See "Business" in the PKS Annual Report on Form
10-K for the year ended December 31, 1994 incorporated by reference in this
Prospectus for a discussion of the Diversified Group's principal businesses.
A holder of Exchangeable Securities should carefully consider the following
matters relating to the principal businesses of the Diversified Group before
deciding to tender Exchangeable Securities pursuant to the Exchange Offer. Such
matters are also relevant to the assessment by holders of Class D Stock of the
consequences of the Spin-off.
DIVERSIFIED GROUP CASH FLOWS. The Diversified Group derives most of its
operating cash flow from its coal mining business. During 1994, for example, the
Diversified Group received $71 million, or substantially all, of its after-tax
net operating cash flow from its coal mining operations. Although that business
currently produces substantial cash flow, those cash flows will decline
substantially over the next few years. For example, after-tax net operating cash
flow from coal sales under long-term purchase contracts, which was approximately
$55 million in 1994, is expected to decline to approximately $39 million by 1998
and to approximately $10 million by 2002, and will decline further thereafter.
These decreases are primarily due to a decrease in amounts of coal required to
be purchased under those contracts. Both CECI and C-TEC reinvest substantially
all of their operating cash flows, and neither CECI nor C-TEC is expected to pay
dividends to KDG in the foreseeable future. As a result, the ability of the
Diversified Group to fund future business opportunities will depend, in part,
upon its ability to invest its currently available cash and the remaining coal
mining cash flows in businesses that will be able to generate cash from
operations.
PROJECT DEVELOPMENT BUSINESSES. CECI and KEC, through its international
power project development joint venture with CECI, are actively engaged in the
business of developing, constructing, owning and operating new power projects.
These development activities can require substantial expenditures before a
project is determined to be feasible, economically attractive or capable of
being financed. The future growth of CECI's and KEC's businesses depends on the
success of such developmental endeavors, and there can be no assurance that
development efforts on any particular project, or in general, will be
successful.
CECI OPERATING REVENUES. After the Spin-off, KEC's investment in CECI will
represent approximately 19% of the Class D Formula Value. CECI currently depends
on a series of contracts with a single customer, Southern California Edison
("SCE"), for substantially all of its operating revenues. The contract prices
payable for energy supplied by CECI to SCE are fixed under those contracts for
set periods (which periods end from 1997 to 2000 for CECI's principal contract),
and are then based on SCE's published "avoided cost of energy." For example, for
September 1994 the time period-weighted average of SCE's avoided cost of energy
was 2.2 CENTS per kwh, compared to the time period-weighted average September
1994 selling prices for energy under CECI's contracts of approximately
10.9 CENTS per kwh. Thus, the revenues generated by each of CECI's facilities
operating under its current contracts are likely to decline significantly after
the expiration of the fixed-price period.
LEVERAGE. Although KDG does not have substantial indebtedness, CECI and, to
a lesser extent, C-TEC have higher levels of indebtedness. In particular, CECI
has incurred substantial indebtedness, both at the corporate level and to
finance development of power projects. In addition, KEC expects to use debt
financing for a significant portion of the costs of the international power
projects to be developed with CECI. Although debt financing may increase the
equity returns to CECI, C-TEC and KEC from their activities, it may also
increase the risk associated with those activities, and the abilities of those
companies to grow in the future.
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COMPETITION. Each of KCP, CECI and C-TEC is subject to substantial
competition in their separate areas of business. For example, KCP is subject to
substantial competition from other producers of coal, and the end of certain
long-term coal purchase arrangements will substantially increase the competitive
pressures to which KCP is subject. Although most of CECI's power sales are the
subject of long-term power purchase contracts, it is subject to substantial
competition in obtaining new contracts and power project development
opportunities, both in the U.S. and abroad. C-TEC is subject to increasing
levels of competition in the rapidly changing and evolving sectors of the
telecommunications industry in which it competes.
REGULATION. Each of KCP, CECI and C-TEC is subject to varying degrees of
federal, state, local and international regulation. KCP, for example, is subject
to strict environmental regulation in its coal mining operations. CECI is also
subject to environmental regulation in the operation of its power plants, as
well as various regulatory schemes or governmental contracts that can affect the
pricing and sales of electric power. C-TEC's businesses are subject to extensive
federal, state and local regulations that have changed significantly in recent
years and are likely to continue to change in the future. There can be no
assurances that the Diversified Group's businesses will not be adversely
impacted by the costs of complying with current regulations or by future
regulatory changes.
INTERNATIONAL OPERATIONS. Both CECI and C-TEC have significant
international operations. CECI's primary project development focus is on
projects located in the Philippines and Indonesia.
C-TEC recently acquired a 40% interest in Megacable, Mexico's second largest
cable television company. In addition, KEC's primary business focus is its joint
venture with CECI for the development of international power projects.
International operations and investments can be subject to factors that do not
affect domestic operations, including foreign political and economic
developments, currency exchange risks, currency repatriation risks, foreign tax
concerns, political instability, expropriation and uncertainty surrounding
domestic and foreign laws and policies affecting foreign investments. In
addition, the Diversified Group's international operations are concentrated in a
few countries (the Philippines, Indonesia and Mexico). Adverse economic and
political developments in these countries could disproportionately affect the
businesses of the Diversified Group.
MANAGEMENT. The Diversified Group has placed a substantial emphasis on the
abilities of key managers in making its investments in CECI and C-TEC. The loss
of one or more of the key managers of those businesses could have a significant
effect on those businesses and on the performance of the Diversified Group as a
whole.
CECI MINORITY INTEREST. KCP is the sole owner of, or the managing partner
of, its coal mining operations, and KDG holds a controlling interest in C-TEC.
KDG, however, holds only a minority share, albeit a significant one, in CECI,
and has the right to elect only three of the fourteen members of CECI's board of
directors. CECI is the managing partner of the independent power development
joint venture between KEC and CECI. As a result of these factors, KDG may have
less control over its independent power production businesses than it has over
its other Diversified Group businesses.
EFFECTS OF THE EXCHANGE OFFER AND THE SPIN-OFF ON LOANS SECURED BY PKS STOCK
The MFS Common Stock, unlike PKS stock, constitutes "margin stock" within
the meaning of various Federal Reserve regulations restricting the amount of
credit that a lender may extend in connection with the purchase or carrying of
margin stock where the loan is, or under such regulations is deemed to be,
secured directly or indirectly by margin stock. Such regulations also impose
certain procedural requirements in connection with such loans.
In addition, a lender that has extended credit secured by PKS stock, in
making decisions as to how much credit to extend against the collateral held by
such lender, may assign a different loan-to-value ratio to the Class D Stock as
compared to the Class B Stock and Class C Stock. A lender may also assign a
different loan-to-value ratio to the Class D Stock and the Spin-off Stock after
the Spin-off as compared to the loan-to-value ratio assigned to the Class D
Stock before the Spin-off. Further, the Class D Per Share Price may be less
readily predictable than the Class B&C Per Share Price has historically been,
and the market value of the MFS Common Stock is expected to be more volatile
than
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the Class D Per Share Price has historically been. A decline in the Class D Per
Share Price of Class D Stock pledged to a lender or a decline in the value of
MFS Common Stock pledged to a lender could result in the lender requiring that
the borrower pledge additional collateral.
If Exchangeable Securities being exchanged pursuant to the Exchange Offer
are pledged to a lender, Offered Stock received in exchange for such
Exchangeable Securities is probably also subject to the pledge under the terms
of the loan documentation between the securityholder and the lender. In
addition, if Class D Stock (including Class D Stock received in exchange for
Exchangeable Securities in the Exchange Offer) is pledged to a lender, some or
all of the Spin-off Stock received in the Spin-off is probably also subject to
the pledge. As a result, a securityholder may be required to deliver Offered
Stock received in exchange for Exchangeable Securities in the Exchange Offer and
Spin-off Stock received in the Spin-off to such securityholder's lender upon
receipt of that stock.
IN LIGHT OF THE FOREGOING, PERSONS WHO HAVE PLEDGED EXCHANGEABLE SECURITIES
TO A LENDER AND WHO ARE CONSIDERING PARTICIPATION IN THE EXCHANGE OFFER, OR WHO
HAVE PLEDGED CLASS D STOCK TO A LENDER, SHOULD CONSULT WITH THE LENDER AS TO THE
EFFECT OF THE EXCHANGE OFFER AND THE SPIN-OFF ON THEIR LOAN ARRANGEMENTS.
EFFECT OF CLASS D STOCK BECOMING PUBLICLY TRADED
Under the PKS Certificate of Incorporation, the right of the holders of
Class D Stock to require PKS to repurchase such stock terminates when the Class
D Stock becomes Publicly Traded. In that event, the ability of a holder of Class
D Stock to realize value upon a sale of such stock will be entirely dependent on
whatever market then exists for the Class D Stock. Moreover, the PKS Certificate
of Incorporation provides that, after the Class D Stock is Publicly Traded, any
subsequent conversion of Class C Stock into Class D Stock would be based upon
the market value of the Class D Stock, rather than the Class D Per Share Price.
Accordingly, holders making such conversions would not be able to derive any
actual or potential benefit from the excess, if any, of the market value of the
Class D Stock over the Class D Per Share Price, or any excess of the market
value of the businesses comprising the Diversified Group over the value assigned
to the assets of the Diversified Group under the PKS Certificate of
Incorporation for purposes of the determination of the Class D Per Share Price.
Further, as noted above, the right of a holder of Class D Stock to convert such
stock to Class C Stock in connection with an offering of Class C Stock would
terminate if the Class D Stock became Publicly Traded. Even if the Class D Stock
did become Publicly Traded, there is no assurance that an efficient trading
market for the Class D Stock would develop. Further, the market price of the
Class D Stock is expected to be more volatile than the Class D Per Share Price
has historically been.
The PKS Board of Directors has considered and will in the future again
consider the feasibility and desirability of listing the Class D Stock on a
national securities exchange, on the Nasdaq National Market or in the
over-the-counter market or taking other action to facilitate the Public Trading
of the Class D Stock. If the Class D Stock were to become Publicly Traded, the
current aggregation of businesses that constitute the Diversified Group and
certain characteristics of the capital structure of the Company might result in
a public market valuation of the Class D Stock that was lower than the intrinsic
value of the underlying Diversified Group businesses, even if such market
valuation were higher than the Class D Formula Value. Specifically, the fact
that the capital structure of the Company uses different classes of stock to
reflect the performance of the two Groups of the Company, and the fact that the
voting characteristics of the Class C Stock, which will continue to be owned
only by employees of the Company, give the Class C Stock a significant measure
of voting control over the Company, could cause an undervaluation of the Class D
Stock by the investing public. The PKS Board would take these factors into
account in making a decision regarding facilitation of Public Trading of the
Class D Stock. In addition, the PKS Board would take into account the
desirability of reducing the Company's repurchase obligations with respect to
its capital stock, the feasibility of raising capital by issuing Class D Stock
in public offerings or private placements, and any improvements of the earnings
of and the general level of maturation of the newer Diversified Group
businesses. Moreover, the ability to provide for the listing of the Class D
Stock on a securities exchange, the Nasdaq National Market or in the
over-the-counter market will be subject to the laws, regulations and listing
eligibility criteria in effect from time to time.
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RISK FACTORS RELATING TO MFS
OPERATING LOSSES
The development of MFS's businesses and the installation and expansion of
its networks require significant expenditures, a substantial portion of which is
incurred before the realization of revenues. These expenditures, together with
the associated early operating expenses, result in negative cash flow until an
adequate customer base is established. MFS reported loss from operations of
approximately $11.8 million, $31.5 million and $136.1 million for the three
years ended December 31, 1992, 1993 and 1994, respectively, and $115.1 million
for the six months ended June 30, 1995. Although its revenues have increased
substantially in each of the last three years, MFS has incurred significant
increases in expenses associated with the development and expansion of its fiber
optic networks, services and customer base. There can be no assurance that MFS
will achieve or sustain profitability in the future.
SIGNIFICANT CAPITAL REQUIREMENTS
Expansion of MFS's existing networks and services and the development of new
networks and services require significant capital expenditures. MFS expects to
fund additional capital requirements through existing resources, internally
generated funds and additional debt or equity financing as appropriate. There
can be no assurance, however, that MFS will be successful in producing
sufficient cash flow or raising sufficient debt or equity capital on terms that
it will consider acceptable. Sales of substantial numbers of shares of MFS
Common Stock in the public market in the future could impair MFS's ability to
raise additional capital through the sale of its equity securities. Failure to
generate sufficient funds may require MFS to delay or abandon some of its future
expansion or expenditures, which could have a material adverse effect on its
growth.
COMPETITION
DOMESTIC TELECOMMUNICATIONS SERVICES. In each of its markets, MFS faces
significant competition from the local exchange carriers (the "LECs"), which
currently dominate their local telecommunications markets. In addition, MFS
faces competition in the provision of certain of its services from other
competitive access providers ("CAPs"), long distance companies, cable TV
companies, equipment vendors and others. A continuing trend toward business
combinations and alliances in the telecommunications industry may create
significant new competitors to MFS.
INTERNATIONAL TELECOMMUNICATIONS SERVICES. MFS faces competition in the
provision of its international services from many service providers including,
among others, AT&T Corporation, MCI Communications Corporation, Sprint
Corporation, British Telecommunications PLC and government-owned telephone
companies that retain monopoly status for certain services in certain European
countries.
NETWORK SYSTEMS INTEGRATION. MFS Network Technologies' primary network
systems integration competitors are the Bell Operating Companies (the "BOCs"),
long distance carriers, equipment manufacturers and major independent telephone
companies. In certain circumstances, MFS Network Technologies may also compete
with regional and local systems integration and construction firms for
integration and installation projects. In the automatic vehicle identification
market, MFS Network Technologies competes with specific manufacturers and
several of the aerospace defense contractors that have indicated an intention to
shift to commercial markets.
UNPREDICTABLE COMPETITIVE ENVIRONMENT. Given the increasing incidence of
legal and regulatory initiatives, which affect future competition both in the
United States and internationally, MFS is unable to predict the nature of such
future competition with any precision. Changes to existing laws and regulation
could enhance the ability of certain service providers to compete with MFS, and
could create new competitors to MFS services. In addition, many of MFS's
existing and potential competitors have financial, personnel and other resources
significantly greater than those of MFS.
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REGULATION
MFS is subject to varying degrees of federal, state, local and international
regulation. MFS is not currently subject to price cap or rate of return
regulation, nor is it currently required to obtain U.S. Federal Communications
Commission (the "FCC") authorization for installation or operation of its
network facilities used for domestic services. FCC approval is required, however
for the installation and operation of its international facilities and services.
The FCC has determined that nondominant carriers, such as MFS, are required to
file interstate tariffs on an ongoing basis. Challenges to these tariffs by
third parties may cause MFS to incur substantial legal and administrative
expenses. MFS's subsidiaries that provide intrastate service are generally
subject to certification and tariff filing requirements by state regulators. In
addition, MFS is subject to varying degrees of regulation in the foreign
jurisdictions in which it conducts operations. Although the trend in federal,
state and international regulation appears to favor increased competition, no
assurance can be given that changes in current or future regulations adopted by
the FCC, state or foreign regulators or legislative initiatives in the United
States and abroad would not have a material adverse effect on MFS.
RISKS OF EXPANSION AND IMPLEMENTATION
MFS is engaged in the expansion and development of its networks and
services. MFS expects such expansion and development to accelerate in the near
future. The expansion and development of its networks will depend on, among
other things, its ability to assess markets, design fiber optic network backbone
routes, install facilities and obtain rights-of-way, building access and any
required government authorizations and/or permits and the outcome of certain
state and federal regulatory actions and legislative initiatives which affect
MFS's ability to offer economically viable services, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions. As a result, there
can be no assurance that MFS will be able to expand its existing networks or
install or acquire new networks. If MFS is not able to expand its networks or
install new networks, there will be a material adverse effect on its growth.
Foreign operations or investment may be adversely affected by local
political and economic developments, exchange controls, currency fluctuations,
royalty and tax increases, retroactive tax claims, expropriation, import and
export regulations and other foreign laws or policies as well as by laws and
policies of the United States affecting foreign trade, taxation and investment.
In addition, in the event of a dispute arising from foreign operations, MFS may
be subject to the exclusive jurisdiction of foreign courts or may not be
successful in subjecting foreign persons to the jurisdiction of courts in the
United States. MFS may also be hindered or prevented from enforcing its rights
with respect to a governmental instrumentality because of the doctrine of
sovereign immunity.
RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes
in technology. While MFS believes that, for the foreseeable future, these
changes will neither materially affect the continued use of fiber optic cable
nor materially hinder its ability to acquire necessary technologies, the effect
of technological changes, including changes relating to emerging wireline and
wireless transmission technologies, on the businesses of MFS cannot be
predicted.
DEPENDENCE ON KEY PERSONNEL
MFS's businesses are managed by a small number of key executive officers,
particularly Mr. James Q. Crowe, Chairman of the Board of Directors and Chief
Executive Officer of MFS, and Mr. Royce J. Holland, President, Chief Operating
Officer and a Director of MFS, the loss of certain of whom could have a material
adverse effect on MFS. MFS believes that its future success will depend in large
part on its continued ability to attract and retain highly skilled and qualified
personnel. MFS does not have any employment or non-competition agreements with
any of its key executive officers.
POTENTIAL EFFECT OF SPIN-OFF ON MARKET FOR MFS COMMON STOCK
In the event the Spin-off is consummated, PKS will distribute all of the
shares of MFS Common Stock and MFS Preferred Stock then owned by it to the
holders of Class D Stock. Such shares of MFS
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Common Stock are expected to constitute approximately 65% of the outstanding
shares of MFS Common Stock, after giving effect to the MFS Recapitalization. The
persons who are members of the boards of directors of PKS and MFS (other than
one director of PKS who became a director in June 1995), and who are holders of
Class D Stock, have entered into agreements with MFS restricting their right to
resell any shares of MFS Common Stock received by them as a result of the
Spin-off (including MFS Common Stock received upon conversion of MFS Preferred
Stock received by them) until May 24, 1997, with certain limited exceptions;
provided, however, that each such person may sell up to 50,000 of such shares on
or after May 24, 1996. Based upon the number of shares of PKS stock held by such
persons, an aggregate of approximately 9,200,000 shares of MFS Common Stock or,
approximately 15% of the total number of shares of MFS Common Stock expected to
be outstanding at the time of the Spin-off, will be subject to such agreements.
See "Certain Transactions -- Agreements Regarding Restrictions on Transfer of
Spin-off Stock." Nonetheless, after the Spin-off a substantial number of shares
of MFS Common Stock will become available for future sale in the public markets.
In addition, since MFS has issued, and may continue to issue, shares of MFS
Common Stock in connection with financing, employee benefit plans, acquisitions
or otherwise, it is possible that the number of outstanding shares of MFS Common
Stock available for sale in the future could increase significantly. Sales of
substantial numbers of such shares in the public market in the future could
adversely affect the market price of the MFS Common Stock and could impair MFS's
ability to raise additional capital through the sale of its equity securities.
VARIABILITY OF QUARTERLY OPERATING RESULTS; VOLATILITY
As a result of the significant expenses associated with the expansion and
development of its networks and services, MFS anticipates that its operating
results could vary significantly from period to period and such variability
could adversely affect MFS's results of operations. In addition, MFS's network
systems integration revenues are and generally will continue to be dependent
upon a small number of large projects. Accordingly, these revenues are likely to
vary significantly from period to period, and such variability could adversely
affect MFS's results of operations. In addition, the market prices of securities
of growth companies similar to MFS have historically been highly volatile.
Future announcements concerning MFS or its competitors, including quarterly
results, technological innovations, services or government legislation or
regulation, may have a significant effect on the market price of the MFS Common
Stock.
DIVIDEND PAYMENTS; LIQUIDATION
MFS has never paid a cash dividend on the MFS Common Stock and does not
presently intend to do so for the forseeable future. In January 1994, MFS issued
approximately $788 million aggregate principal amount of Senior Discount Notes
(the "Senior Discount Notes") pursuant to an Indenture between MFS and IBJ
Schroder Bank & Trust Company, as Trustee (the "Indenture"). In the event of a
liquidation of MFS, the holders of the Senior Discount Notes, together with all
other creditors of MFS, will be entitled to be paid in full before any payments
are made in respect of the MFS Preferred Stock. In addition, on May 23, 1995,
MFS issued, in an underwritten public offering, 9,500,000 Depositary Shares,
each representing a one one-hundredth interest in a share of Series A 8%
Cumulative Convertible Preferred Stock, par value $.01 per share (the "DECS").
The DECS rank PARI PASSU with the MFS Preferred Stock as to any payment in the
event of the liquidation of MFS, and the holders of the DECS are entitled to
receive an aggregate of at least $318,250,000 plus all accrued and unpaid
dividends on the DECS in the event of the liquidation of MFS. The Indenture and
other debt agreements to which MFS is a party restrict MFS's ability to pay cash
dividends. There is no assurance that other agreements similar to the Indenture
and these other debt agreements which MFS may enter into in the future will not
contain similar restrictions on payment of cash dividends. As a result, MFS does
not anticipate that it will be permitted to pay cash dividends in the near
future.
LIMITED TRANSFERABILITY OF MFS PREFERRED STOCK; IRREVOCABLE PROXY
The shares of MFS Preferred Stock to be received by the holders of Class D
Stock in the Spin-off cannot be sold or transferred without the consent of MFS
for six years from the date of issuance, except under certain limited
circumstances. See "Description of Securities -- MFS Preferred Stock."
25
<PAGE>
MFS does not intend to consent to any transfers that might have the effect of
transferring a significant percentage of voting power to a third party. The
holders of the MFS Preferred Stock and the holders of MFS Common Stock will vote
together as a single class except as otherwise required by law. Each share of
MFS Preferred Stock has five (5) votes on all matters presented to the
stockholders of MFS. KDG, however, has agreed to grant the Secretary and
Assistant Secretary of MFS an irrevocable proxy to vote all of the shares of MFS
Preferred Stock in proportion to the vote of the holders of MFS Common Stock on
all matters (including, but not limited to, business combinations) other than
the election of MFS directors and matters as to which the holders of MFS
Preferred Stock vote as a separate class under Delaware corporation law. The
irrevocable proxy will be binding on all recipients of MFS Preferred Stock in
the Spin-off and, as a result, will limit the ability of the holders of shares
of MFS Preferred Stock to influence MFS actions on all matters other than the
election of directors. See "Description of Securities -- MFS Preferred Stock."
POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
MFS has 905,000 shares of authorized and unissued preferred stock and in
excess of 100,000,000 shares of authorized and unissued MFS Common Stock that
could be issued to a third party selected by current management or used as the
basis for a shareholders' rights plan, which could have the effect of deterring
a potential acquirer. At a meeting on April 26, 1995 (the "April 26 MFS Board
Meeting"), the MFS Board of Directors approved, and resolved to submit to the
stockholders of MFS for approval at the MFS 1995 annual meeting of stockholders,
an amendment to the MFS certificate of incorporation to increase the authorized
number of shares of preferred stock of MFS from 1,000,000 to 25,000,000. The
approval by the stockholders of MFS at the MFS 1995 annual meeting of the
increase in the number of authorized shares of preferred stock was required in
connection with the Spin-off. PKS voted all shares of MFS Common Stock owned or
controlled by it for this proposal at the MFS 1995 annual meeting of
stockholders. Accordingly, by virtue of PKS's indirect ownership of
approximately 67% of the outstanding shares of MFS Common Stock at the time of
the MFS 1995 annual meeting of stockholders, this proposal was adopted without
the vote of any other stockholders of MFS.
In addition, at the April 26 MFS Board Meeting, the MFS Board of Directors
approved, and resolved to submit to the stockholders of MFS for approval at the
MFS 1995 annual meeting of stockholders, certain other amendments to the MFS
certificate of incorporation, which include proposals to: amend the MFS
certificate of incorporation to divide the MFS Board of Directors into three
classes, prohibit stockholders of MFS from taking action by written consent,
require that special meetings of stockholders be called only by the board of
directors or the chairman of the board of MFS and require the affirmative vote
of at least 66 2/3% of the votes entitled to be cast thereon to adopt, repeal,
alter, amend or rescind the by-laws of MFS. PKS agreed that, if the MFS
Recapitalization was approved by the non-PKS holders of MFS Common Stock as
described herein, PKS would vote all of the shares of MFS Common Stock owned or
controlled by it in favor of the proposed amendments, thus assuring their
adoption. The MFS Recapitalization was approved, PKS voted all of the shares of
MFS Common Stock owned or controlled by it in favor of the proposed amendments
and such proposed amendments were adopted at the MFS 1995 annual meeting of
stockholders held on August 24, 1995.
In addition, at the April 26 MFS Board Meeting, the MFS Board of Directors
approved certain amendments to the by-laws of MFS that prescribe specific
procedural requirements for the nomination of directors and the introduction of
business by a stockholder of record at an annual meeting of stockholders where
such business is not specified in the notice of meeting or brought by or at the
discretion of the MFS Board of Directors. The MFS Board of Directors also plans
to consider, in the near future, the adoption of a shareholder rights plan.
Notwithstanding the receipt of the requisite stockholder approval or further
approval of the MFS Board of Directors, each of the foregoing amendments to the
MFS certificate of incorporation and the by-laws of MFS, as well as any
shareholder rights plan adopted by the MFS Board, will be implemented only upon
consummation of the Spin-off.
The ability of the MFS Board of Directors to establish the terms and
provisions of different series of preferred stock, together with the other
features of the MFS certificate of incorporation and the by-laws of MFS
described above, could make more difficult or discourage the removal of MFS's
26
<PAGE>
management, which some or a majority of the MFS stockholders may believe to be
beneficial, and could discourage or make more difficult or expensive, among
other transactions, a merger involving MFS, or a tender offer, open market
purchase program or other purchases of the capital stock of MFS in circumstances
that would give MFS stockholders the opportunity to realize a premium on the
sale of their MFS capital stock over the then-prevailing market prices, which
some or a majority of such holders may deem to be in their best interests.
OVERVIEW
THE EXCHANGE OFFER
In the Exchange Offer, PKS is offering to exchange:
(i) .416598 of a share of Class D Stock for each share of Class B Stock and
each share of Class C Stock outstanding (including all shares of Class C
Stock issued in exchange for Exchangeable Debentures pursuant to the
Exchange Offer, as described herein);
(ii) 24.75 shares of Class C Stock and 24.75 shares of Class D Stock for
each $1,000 principal amount of the Company's outstanding 1990 Series
Convertible Debentures due October 31, 2000 (each such share of Class C
Stock will then be exchangeable for .416598 shares of Class D Stock
pursuant to the Exchange Offer as described in clause (i) above);
(iii) 22.98 shares of Class C Stock and 22.98 shares of Class D Stock for
each $1,000 principal amount of the Company's outstanding 1991 Series
Convertible Debentures due October 31, 2001 (each such share of Class
C Stock will then be exchangeable for .416598 shares of Class D Stock
pursuant to the Exchange Offer as described in clause (i) above); and
(iv) 19.97 shares of Class D Stock for each $1,000 principal amount of the
Company's 1993 Series Class D Convertible Debentures due October 31,
2003
(subject, in each case, to rounding conventions designed to eliminate fractional
shares, as described herein).
The Exchange Offer is being made on the terms and subject to the conditions
described herein under "The Exchange Offer" and in the Letter of Transmittal. If
the Exchange Offer is consummated, the Spin-off will be consummated promptly
thereafter.
THE SPIN-OFF
The Exchange Offer is being made in connection with a proposal by PKS to
effect the Spin-off by making a dividend distribution to the holders of Class D
Stock, including Class D Stock issuable in the Exchange Offer, of the Spin-off
Stock, consisting of all of the 40,091,644 shares of MFS Common Stock and all of
the 15,000,000 shares of MFS Preferred Stock to be held by PKS at the time of
the Spin-off. MFS Common Stock distributed in the Spin-off will constitute the
major portion of the Spin-off Stock in terms of value, while the MFS Preferred
Stock will constitute a minor portion of the Spin-off Stock in terms of value.
The MFS Common Stock is currently traded on the Nasdaq National Market under the
symbol "MFST." On August 24, 1995 the last reported sale price of the MFS Common
Stock as reported by the Nasdaq National Market was $45.50 per share. No holder
of Class D Stock will be required to pay any cash or other consideration, to
surrender or exchange shares of Class D Stock or any other security or to take
any other action in order to receive the Spin-off Stock pursuant to the
Spin-off.
The Spin-off Stock will include the 40,062,658 shares of MFS Common Stock
and the 15,000,000 shares of MFS Preferred Stock held by KDG after giving effect
to the MFS Recapitalization, which stock will be distributed as a dividend by
KDG to PKS immediately before the Spin-off. The Spin-off Stock will also include
28,986 shares of MFS Common Stock that PKS will purchase for $1,000,000
immediately after the dividend by KDG to PKS but prior to the Spin-off. The per
share purchase price of approximately $34.50 for such transaction was based on
the average trading price of the MFS Common Stock for the 30-day period
preceding the date such price was agreed upon by the parties.
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<PAGE>
Such purchase will provide MFS additional cash for payment of the legal and
other costs MFS has incurred or will incur in connection with the transactions
described herein. In addition, the purchase by PKS of such stock will cause the
Spin-off to constitute a "reorganization" for federal income tax purposes (and
not only a tax-free spin-off). Treatment of the Spin-off as a reorganization
will also qualify the receipt of, and transactions involving, the Spin-off Stock
for tax-free treatment in certain non-federal jurisdictions in which holders of
PKS stock reside.
The Company currently expects that the Spin-off dividend will be declared as
of, and paid to holders of Class D Stock of record as of, the day after the
Expiration Date. See "The Spin-off -- Manner of Effecting the Distribution."
The Company has received the Ruling from the IRS confirming that the
Spin-off will be tax-free to the holders of Class D Stock for United States
federal income tax purposes. See "The Spin-off -- Certain United States Federal
Income Tax Considerations Relating to the Spin-off". The Spin-off will not be
consummated unless the Ruling remains substantially in effect as of the Spin-off
Date. See "The Spin-off -- Conditions to Spin-off; Right of PKS to Abandon,
Defer or Modify the Spin-off."
After the Spin-off, holders of Class D Stock will hold the Class D Stock
held by them prior to the Spin-off, as well as the MFS Common Stock and MFS
Preferred Stock received in the Spin-off. The actual number of shares of MFS
Common Stock and MFS Preferred Stock distributed per share of Class D Stock will
depend on the number of shares of Class D Stock issued pursuant to the Exchange
Offer. Accordingly, PKS will not be able to determine precisely the number of
shares of MFS Common Stock or the number of shares of MFS Preferred Stock that
will be distributed per share of Class D Stock in connection with the Spin-off
until the Expiration Date. The following table sets forth PKS's estimates of the
number of shares of MFS Common Stock and MFS Preferred Stock to be distributed
per share of Class D Stock, assuming that (i) all of the Exchangeable Debentures
are exchanged for Offered Stock in the Exchange Offer and (ii) the stated number
of shares of Exchangeable Stock are exchanged for Class D Stock in the Exchange
Offer:
<TABLE>
<CAPTION>
ASSUMED NUMBER ESTIMATED NUMBER OF ESTIMATED NUMBER OF
OF SHARES OF SHARES OF MFS COMMON SHARES OF MFS PREFERRED
EXCHANGEABLE STOCK DISTRIBUTED PER STOCK DISTRIBUTED PER
STOCK EXCHANGED(1) SHARE OF CLASS D STOCK(2) SHARE OF CLASS D STOCK(2)
- ------------------ ------------------------- -------------------------
<S> <C> <C>
3,000,000 1.77 0.66
5,000,000 1.71 0.64
<FN>
- ------------------------
(1) The 3,000,000 share assumption reflects PKS's estimate of the number of
shares of Exchangeable Stock likely to be tendered in the Exchange Offer,
based upon the tender indications that PKS has received from members of the
PKS Board of Directors and members of the KCG Board of Directors, and PKS's
estimates of the likely number of additional tenders. The 5,000,000 share
assumption is set forth solely to illustrate the impact of the tender of
substantially more shares than anticipated by PKS. PKS does not believe
that a tender of 5,000,000 shares is likely. The 3,000,000 figure
represents 20.2%, and the 5,000,000 figure represents 33.7%, of the total
number of shares of Class B Stock and Class C Stock outstanding at June 23,
1995.
(2) The estimate of the number of shares of MFS Common Stock and MFS Preferred
Stock distributed per share of Class D Stock was determined by dividing the
total number of each class of shares to be distributed by the sum of (i)
the number of shares of Class D Stock currently outstanding, (ii) in each
case, the number of shares of Class D Stock that would be issued upon
tender of the assumed number of shares of Exchangeable Stock, and (iii) the
number of shares of Class D Stock that would be issued upon exchange of all
Exchangeable Debentures.
</TABLE>
The current Class D Per Share Price is $60.25. Because a significant portion
of the current Class D Per Share Price is attributable to MFS, the Class D Per
Share Price will be significantly reduced when and if the Spin-off is
consummated. The actual Class D Per Share Price after the Spin-off will depend
upon a number of factors, including the number of shares of Class D Stock issued
28
<PAGE>
in the Exchange Offer and the Company's determination of the portion of the
Class D Per Share Price attributable to MFS. The following table sets forth
PKS's estimates of (i) the pro forma Class D Per Share Price after giving effect
to the Exchange Offer and the Spin-off, (ii) the current market value of the MFS
Common Stock to be distributed in the Spin-off per share of Class D Stock, and
(iii) the redemption value of the MFS Preferred Stock to be distributed in the
Spin-off per share of Class D Stock, assuming in each case that (x) all of the
Exchangeable Debentures are exchanged for Offered Stock in the Exchange Offer
and (y) the stated number of shares of Exchangeable Stock are exchanged for
Class D Stock in the Exchange Offer.
<TABLE>
<CAPTION>
ASSUMED NUMBER ESTIMATED ESTIMATED VALUE ESTIMATED VALUE
OF SHARES OF PRO FORMA OF MFS COMMON OF MFS PREFERRED
EXCHANGEABLE CLASS D PER STOCK DISTRIBUTED STOCK DISTRIBUTED
STOCK SHARE PER SHARE OF PER SHARE OF
EXCHANGED(1) PRICE(2)(4) CLASS D STOCK(3)(4) CLASS D STOCK(3)(4)
- ---------------- ---------------- ------------------- -------------------
<S> <C> <C> <C>
3,000,000 $ 41.00 $ 80.54 $ 0.66
5,000,000 $ 41.75 $ 77.81 $ 0.64
<FN>
- ------------------------
(1) The 3,000,000 share assumption reflects PKS's estimate of the number of
shares of Exchangeable Stock likely to be tendered in the Exchange Offer,
based upon the tender indications that PKS has received from members of the
PKS Board of Directors and members of the KCG Board of Directors, and PKS's
estimates of the likely number of additional tenders. The 5,000,000 share
assumption is set forth solely to illustrate the impact of the tender of
substantially more shares than anticipated by PKS. PKS does not believe
that a tender of 5,000,000 shares is likely. The 3,000,000 figure
represents 20.2%, and the 5,000,000 figure represents 33.7%, of the total
number of shares of Class B Stock and Class C Stock outstanding at June 23,
1995.
(2) Earnings of the Diversified Group for 1995, including earnings attributable
to the settlement of certain litigation described at "Recent Developments
-- Whitney Litigation," would not be reflected in the Class D Per Share
Price until 1996.
(3) For purposes of this table, each share of MFS Common Stock is valued at
$45.50, its last reported sale price on the Nasdaq National Market as of
August 24, 1995, and each share of MFS Preferred Stock is valued at its
redemption value of $1.00 per share. There is no assurance as to the market
price of the MFS Common Stock at the Spin-off Date.
(4) As shown in the table, the greater the number of shares of Exchangeable
Stock exchanged in the Exchange Offer, the less the reduction in the Class
D Per Share Price resulting from the Spin-off. This is attributable to the
fact that the amount of the reduction in the Class D Formula Value
resulting from the Spin-off will be a fixed amount equal to PKS's book
investment in the Spin-off Stock to be distributed, whereas the amount of
such reduction on a per share basis (I.E., the amount of the reduction in
the Class D Per Share Price) will decrease as more shares of Class D Stock
are issued in the Exchange Offer. Also, as shown in the table on page 28,
the greater the number of shares of Exchangeable Stock exchanged in the
Exchange Offer, the fewer the number of shares of Spin-off Stock (and hence
the less the value of the Spin-off Stock) distributed per share of Class D
Stock in the Spin-off.
</TABLE>
THE MFS RECAPITALIZATION
One of the requirements of applicable tax law relating to the Spin-off that
are addressed by the Ruling is that, at the time of the Spin-off, PKS must own
stock possessing at least 80% of the voting power of the MFS capital stock. In
order to satisfy this requirement, PKS and KDG have agreed with MFS to effect
the MFS Recapitalization pursuant to which KDG will exchange 2,900,000 of the
42,962,658 shares of MFS Common Stock currently held by KDG for 15,000,000
shares of the MFS Preferred Stock, which is a new class of MFS convertible
preferred stock, $.01 par value. The MFS Recapitalization will be consummated
immediately prior to the Spin-off. As a result of the MFS Recapitalization, the
percentage interest of the common equity of MFS owned by KDG (calculated taking
into account outstanding options and warrants to acquire MFS Common Stock, and
securities
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<PAGE>
convertible into MFS Common Stock) will be reduced, and the percentage interest
of such common equity of MFS owned by non-PKS holders of MFS Common Stock will
be correspondingly increased. This percentage interest shift will result in a
reduction of approximately $60 million in the value of the outstanding MFS
Common Stock held by KDG (based on the last reported sale price of MFS Common
Stock on August 24, 1995). In exchange for this reduction, KDG will receive 15
million shares of high-vote MFS Preferred Stock in a face amount of $15 million.
The terms of the MFS Recapitalization were determined through arm's length
negotiations between the management of PKS and the management of MFS, and were
approved by the MFS Board, the PKS Board and independent special committees of
the MFS Board and the PKS Board. See "-- Background and Purpose of the Spin-off;
Purpose of the Exchange Offer; Board Proceedings." Each share of MFS Preferred
Stock will have five votes in the election of MFS directors and in all other
matters presented to stockholders, although KDG will grant to the Secretary and
the Assistant Secretary of MFS an irrevocable proxy to vote all of the shares of
MFS Preferred Stock in proportion to the vote of the holders of MFS Common Stock
on all matters other than the election of MFS directors and matters as to which
holders of the MFS Preferred Stock vote as a separate class under Delaware
corporation law. PKS will distribute, and the holders of Class D Stock will
receive, the MFS Preferred Stock in the Spin-off subject to the terms of the
irrevocable proxy. The MFS Preferred Stock will vote together with the MFS
Common Stock and the DECS as a single class, except on certain matters as to
which holders of the MFS Preferred Stock are entitled to a class vote under
Delaware corporation law. See "Certain Transactions -- Certain Agreements
Between PKS and MFS -- The Securities Purchase Agreement" and "Description of
Securities -- MFS Preferred Stock."
The MFS Recapitalization was approved by the holders of MFS Common Stock at
the MFS 1995 annual stockholders meeting held on August 24, 1995. In connection
with such approval, PKS voted all of the shares of MFS Common Stock owned or
controlled by it in the same manner as the majority of the non-PKS holders of
MFS Common Stock (and not the holders of any preferred stock of MFS which was
outstanding) present in person or by proxy at the meeting voted. Thus, the MFS
Recapitalization was supported by a majority of such non-PKS stockholders.
Under the agreement between PKS and MFS governing the MFS Recapitalization,
the MFS Recapitalization would not be consummated if PKS abandoned the Spin-off.
If PKS were to propose a material modification to the terms of the Spin-off
(which PKS considers to be highly unlikely), both PKS and MFS would review the
terms of the MFS Recapitalization in the context of the modified Spin-off to
determine whether to consummate the MFS Recapitalization on its existing terms
or to consider alternative terms.
BACKGROUND AND PURPOSE OF THE SPIN-OFF; PURPOSE OF THE EXCHANGE OFFER; BOARD
PROCEEDINGS
THE 1992 AMENDMENT. In January 1992, the PKS stockholders adopted an
amendment (the "Amendment") to the PKS Certificate of Incorporation pursuant to
which each share of the Company's then-existing Class C stock was automatically
exchanged for one share of "new" Class C Stock and one share of Class D Stock,
and each share of the Company's then-existing Class B stock was automatically
exchanged for one share of the Company's "new" Class B Stock and one share of
Class D Stock. The Amendment also provided holders of Class B Stock and Class C
Stock with the right to convert such stock into Class D Stock exercisable during
the period from and including October 15 through and including December 15 of
each year. Such conversions become effective upon, and are made on the basis of
the ratio of the Class B&C Per Share Price to the Class D Per Share Price in
effect on, January 1 of the following year. See "Description of Securities --
PKS Stock -- Conversion of Class B&C Stock into Class D Stock." Among other
things, the conversion provision provided holders of Class C Stock who are
leaving the employment of the Company, such as retirees, an opportunity to
convert Class B Stock and Class C Stock into Class D Stock as an alternative to
selling their Class B Stock or Class C Stock back to the Company.
30
<PAGE>
RULING REQUEST; PRELIMINARY NEGOTIATIONS. Before the initial public
offering of MFS Common Stock in May 1993, PKS provided MFS with substantially
all of the capital necessary for the development of MFS's business. Since the
initial public offering, MFS has obtained over $1 billion of capital in the
public capital markets, and has become increasingly dependent upon the public
capital markets for the funding necessary for its growth. In addition, MFS has
made increasing use of sophisticated acquisition techniques to grow. As a
result, PKS's and MFS's managements have considered changes in MFS's ownership
and capital structure that would provide MFS with the maximum flexibility
possible to raise capital in the public capital markets and to grow through
acquisitions. In addition, as MFS's businesses have grown, its growth and the
growth and development of the other Diversified Group businesses have resulted
in a substantial disparity between the fair market value of the Diversified
Group businesses, on the one hand, and, on the other hand, the Class D Formula
Value and the Class D Per Share Price (the price at which holders of Class D
Stock can sell their stock back to the Company pursuant to the PKS Certificate
of Incorporation), each of which is based upon the Diversified Group's book
investment in the Diversified Group businesses. This disparity is particularly
acute with respect to the difference between the fair market value of MFS, as
reflected in the price of the MFS Common Stock, and the Diversified Group's book
investment in MFS. Furthermore, that difference has been exacerbated during 1993
and 1994 as the portions of the Class D Formula Value and the Class D Per Share
Price attributable to MFS have been reduced by PKS's share of the substantial
book losses generated by the development-stage activities of MFS, and as the
fair market value of MFS has increased. Given the absence of an established
trading market for the Class D Stock, there is no assurance for the foreseeable
future that a holder of Class D Stock would be able to sell such stock at a
price that reflects the market value of the Diversified Group businesses, as
opposed to selling such stock back to the Company at the Class D Per Share
Price.
During 1994, PKS management examined a number of possible transactions to
determine whether a transaction could be structured that would address both
MFS's need for maximum flexibility in raising capital and the disparity between
market and book values in the Diversified Group without giving rise to adverse
tax consequences for PKS. During meetings held during the second half of 1994,
the PKS Board of Directors considered and discussed a number of those
transactions, principally including the possible spin-off of the Company's
equity in MFS to the holders of Class D Stock, the possible spin-off of KDG, the
primary Diversified Group holding company, to the holders of Class D Stock, and
the possible listing of the Class D Stock on a national securities exchange or
Nasdaq. Each of these transactions offered the prospect of being tax-free to PKS
and its stockholders for United States federal income tax purposes. After
reviewing these alternatives, the PKS Board concluded that neither the spin-off
of KDG nor the listing of the Class D Stock would efficiently address MFS's need
for maximum flexibility in raising capital. The PKS Board also concluded that a
spin-off of PKS's entire equity interest in MFS would reduce the disparity
between the Class D Formula Value and the market value of the Diversified Group
businesses as effectively as would either a spin-off of KDG or the listing of
the Class D Stock, while providing MFS with the greatest flexibility to raise
capital and to engage in a number of development transactions, as discussed at
"-- MFS Deliberations," below. During the second half of 1994, the PKS Board
also considered the possibility of an exchange offer for the purpose of
permitting the holders of Exchangeable Securities to exchange such securities
for Class D Stock prior to such a spin-off of PKS's equity interest in MFS.
In November 1994, the PKS Board authorized management of the Company to
prepare and file with the Internal Revenue Service a request for a ruling that a
spin-off of the Company's entire equity interest in MFS, in conjunction with a
transaction having substantially the same effects as the MFS Recapitalization,
would be tax-free to the holders of Class D Stock for United States federal
income tax purposes. The Company filed the ruling request in December 1994.
As noted above, the purpose of the MFS Recapitalization is to enable the
Spin-off to qualify for tax-free treatment. During the second half of 1994 and
the first half of 1995, management of MFS and management of PKS negotiated and
agreed in principle on the terms and conditions of the MFS Recapitalization,
including the condition that the MFS Recapitalization be subject to the approval
of a
31
<PAGE>
majority of the non-PKS holders of MFS Common Stock. Such agreement in principle
contemplated that the MFS Recapitalization would entail the surrender by KDG of
approximately 3.0 million shares of MFS Common Stock in exchange for
approximately 15.0 million to 25.0 million shares of MFS Preferred Stock.
MFS DELIBERATIONS. A special committee of the MFS Board of Directors (the
"MFS Special Committee"), comprised of Ronald W. Roskens and Michael B. Yanney,
each of whom is an independent director of MFS who does not have an interest in
either the MFS Recapitalization, the Exchange Offer or the Spin-off other than
as a stockholder of MFS, was formed to consider the agreement in principle as to
the terms of the proposed MFS Recapitalization, including the proposed terms of
the MFS Preferred Stock. The MFS Special Committee met on March 22, 1995 to
review and consider the terms of the proposed MFS Recapitalization. The MFS
Special Committee, with the assistance of Gleacher & Co., Inc., MFS's financial
advisor, and MFS's legal advisors, reviewed documentary and other information
provided by management of MFS and considered oral presentations made by Gleacher
& Co., Inc. Additional telephonic conversations were held between the MFS
Special Committee members and members of MFS management, Gleacher & Co., Inc.
and MFS's legal advisors. Subsequent to the meeting and the telephonic
conversations, the MFS Special Committee approved in principle the terms of the
MFS Recapitalization and recommended the approval of such terms of the MFS
Recapitalization to the MFS Board of Directors.
On March 29, 1995, the MFS Board of Directors met to consider the proposed
MFS Recapitalization and the proposed terms of the MFS Preferred Stock. At this
meeting, after consideration of the oral presentation by Gleacher & Co., Inc.
and the oral presentation by the MFS Special Committee on their recommendation
with respect to the MFS Recapitalization and the issuance of the MFS Preferred
Stock, the MFS Board of Directors unanimously (i) approved the proposed MFS
Recapitalization and the proposed terms of the MFS Preferred Stock, (ii)
authorized the submission of the MFS Recapitalization to the MFS stockholders
for approval and (iii) authorized management of MFS to negotiate the final terms
of the MFS Recapitalization and the MFS Preferred Stock. In addition, the MFS
Board of Directors appointed the Executive Committee of the MFS Board of
Directors to approve the specific terms of the MFS Preferred Stock, including
without limitation, dividend rate, conversion rate and certain other terms, and
to authorize the issuance of such stock to PKS to facilitate the Spin-off.
The MFS Board of Directors's deliberations with respect to the MFS
Recapitalization and the terms of the MFS Preferred Stock focused primarily upon
the benefits to be received by MFS and its stockholders from the Spin-off. In
this regard, the MFS Board of Directors concluded that the Spin-off would
benefit both MFS and its stockholders by transferring the shares of MFS Common
Stock currently concentrated in KDG's ownership to approximately 1,400 holders
of Class D Stock, thereby increasing the number of shares of MFS Common Stock
available for public trading and enhancing the liquidity of the MFS Common
Stock. In addition, the MFS Board of Directors considered that increased
liquidity of the MFS Common Stock could be expected over time to reduce the
volatility of the market price of the MFS Common Stock. The MFS Board of
Directors also concluded that the private placement of equity securities with an
acceptable strategic investor would be an attractive external financing option
for MFS, and that MFS's ability to take advantage of a strategic investment
would be enhanced by the distribution of KDG's concentrated ownership in MFS.
MFS's management has indicated to the MFS Board of Directors that it is not
desirable to use cash for all potential acquisitions, because many of MFS's
expansion opportunities will require significant amounts of cash. Instead, MFS's
management desires to be able to effect the acquisition of companies (as well as
assets and facilities) through the use of shares of MFS Common Stock whenever
that approach is more attractive. As long as MFS is a subsidiary of KDG,
however, management of MFS believes that the use of MFS's stock as an
acquisition "currency" is hindered due to target stockholders finding it
unattractive to hold shares in an entity that has a large controlling
stockholder and a relatively small public float. As a result, the MFS Board of
Directors determined that the Spin-off would make MFS's stock more desirable for
any potential target's stockholders.
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The MFS Board of Directors also considered that, following consummation of
the Spin-off, MFS and its stockholders would be better positioned to pursue a
potential combination or acquisition (if one were to be proposed in the future
on otherwise acceptable terms) which would allow for the issuance of the
acquiror's or resultant company's shares to the stockholders of MFS on a
tax-free basis to all parties. If the Spin-off were not consummated, many
acquisition or combination proposals would prove to be untenable because of
unacceptable tax consequences to PKS, whose consent would be needed for any such
transaction, or because of strategic difficulties associated with a single
stockholder owning a concentrated block of shares of the acquiror or resultant
company. A potential purchaser of MFS may conclude that these strategic
difficulties make MFS less attractive (or unattractive) as a possible
acquisition candidate, resulting in either the loss of an opportunity or a
reduced acquisition price. While in the view of the MFS Board of Directors the
primary purpose of the Spin-off is not to facilitate a sale of MFS (and MFS is
not presently pursuing any such transaction), the MFS Board of Directors
believed that the interests of the MFS's stockholders would be best served by
providing MFS and its stockholders with maximum flexibility concerning any
possible acquisition of MFS.
Finally, the MFS Board of Directors considered that the Spin-off will allow
MFS, beginning two years following consummation of the Spin-off, to be
classified as an "independent entity" for generally accepted accounting
principles, thus providing (i) MFS with the opportunity to use
pooling-of-interests accounting when undertaking business combinations and (ii)
any potential acquiror of MFS the opportunity to use pooling-of-interests
accounting in an acquisition of MFS. MFS currently does not qualify for use of
pooling-of-interests accounting because of the majority ownership by KDG. Thus,
either the combination of MFS with a company having a market value that exceeds
the value of its tangible assets or the acquisition of MFS (which has a market
value that exceeds the value of its tangible assets) would result in the
creation of significant intangible assets, including goodwill, which would have
to be amortized over time, reducing MFS's or the acquiror's, as the case may be,
future reported net earnings. MFS believes that its ability to effect business
combinations efficiently would be significantly aided if MFS were able to use
pooling accounting.
The MFS Board of Directors considered that after consummation of the
Spin-off, the holders of Class D Stock might immediately sell the shares of MFS
Common Stock received in the Spin-off, which could affect the market price of
the MFS Common Stock. In that regard, the MFS Board of Directors determined that
this risk could be lessened somewhat by the execution of agreements by certain
members of the PKS Board of Directors and MFS Board of Directors limiting their
ability to sell shares of MFS Common Stock received in the Spin-off. The MFS
Board of Directors also considered the possible effect of the Spin-off on MFS's
debt rating. Based upon conversations between management of MFS and the rating
agencies, the management of MFS advised the MFS Board of Directors that the
rating agencies would not have a negative view of the Spin-off transaction. The
MFS Board of Directors was also aware that as a result of the Spin-off, the
Noncompetition Agreement between MFS and PKS would terminate but believed that
this termination would be of no consequence to MFS. The MFS Board of Directors
determined that the advantages of the Spin-off to MFS discussed above outweighed
such potential negative effects.
In June 1995, the management of PKS and the management of MFS agreed upon
the final terms and provisions of the MFS Preferred Stock and the MFS
Recapitalization in which KDG will exchange 2.9 million shares of MFS Common
Stock held by KDG for 15,000,000 shares of MFS Preferred Stock. The MFS
Recapitalization was approved by the holders of MFS Common Stock at the MFS 1995
annual meeting of stockholders held on August 24, 1995. See "Description of
Securities -- MFS Preferred Stock."
SPECIAL COMMITTEE OF THE PKS BOARD. By resolutions adopted by written
consent as of April 1, 1995, the PKS Board asked a special committee of the PKS
Board (the "Special Committee"), comprised of Robert B. Daugherty, Charles M.
Harper and Peter Kiewit, Jr., the only members of the PKS Board who are not
employees of PKS or one of its subsidiaries, to review certain aspects of the
MFS Recapitalization and the Exchange Offer. The PKS Board appointed the Special
Committee to
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review the transactions because both the purchase of MFS Preferred Stock and the
Exchange Offer are transactions in which one or more members of the PKS Board of
Directors have an interest, either as a member of the MFS Board of Directors or
as a potential participant in the Exchange Offer. In the resolution appointing
the Special Committee, the PKS Board asked the Special Committee (i) to review
the proposed terms and conditions of the MFS Recapitalization and the Exchange
Offer for the Exchangeable Stock, and (ii) to report to the PKS Board as to
whether the terms and conditions of the MFS Recapitalization are fair to the
holders of the Class D Stock, and whether the Exchange Offer for the
Exchangeable Stock is in the best interest of the stockholders of PKS, in each
case exercising its business judgment and taking into account in each case such
facts and circumstances as it deemed appropriate.
The Special Committee met on April 7, April 17, April 28, May 19 and June 9,
1995. In connection with its review, the Special Committee, with the assistance
of its independent financial and legal advisors, reviewed documentary and other
information provided by management of the Company and met independently and with
members of management of the Company. At its May 19, 1995 meeting, the Special
Committee was given a presentation by its financial advisor, CS First Boston
Corporation ("CS First Boston"), with respect to the MFS Recapitalization, the
Exchange Offer and the Spin-off (the "Transactions") and the matters to be
addressed in CS First Boston's opinion to the PKS Board of Directors.
The PKS Board of Directors considered the Exchange Offer, the MFS
Recapitalization and the Spin-off at a special meeting on June 9, 1995 (the
"Special Meeting"). At the Special Meeting, the Special Committee reported to
the PKS Board that, based upon the documents and other information presented to
the PKS Board and the Special Committee, including (i) information relating to
the respective businesses and prospects of the Construction & Mining Group and
the Diversified Group, including historical financial information regarding the
Construction & Mining Group and the Diversified Group, pro forma financial
information reflecting the impact of the Exchange Offer and the Spin-off on the
Construction & Mining Group and the Diversified Group, 1995 financial forecasts
for the Construction & Mining Group and the Diversified Group, and information
with respect to the liabilities of and contingent exposures of the Construction
& Mining Group and the Diversified Group, (ii) the transfer of funds to the
Diversified Group with respect to the conversions of shares of Class C Stock,
(iii) the effect of conversions on the holders of Class C Stock and the holders
of Class D Stock, including the stated policy of PKS not to replace converted
shares with new grants, (iv) the opinion dated June 9, 1995 of CS First Boston
that, on the basis of and subject to the matters set forth therein, the
Transactions were fair, from a financial point of view, to the stockholders of
PKS, (v) the reasons for prompt action with respect to the proposed Spin-off (as
described at "PKS Board Approval," below), and (vi) the presentations made by
the management of the Company, the Special Committee concluded that as of the
date of its report it believed that in its business judgment: (a) the terms and
conditions of the MFS Recapitalization are fair to the holders of the Class D
Stock, and (b) the extension by PKS to holders of Class B Stock and holders of
Class C Stock of the Exchange Offer for the Exchangeable Stock, when made in
conjunction with the Spin-off, is in the best interest of the stockholders of
the Company. (Mr. Daugherty, the owner of 86,000 shares of MFS Common Stock,
abstained from voting on the MFS Recapitalization in the Special Committee
deliberations.)
In its review of the Transactions, the Special Committee considered each of
the factors considered by the PKS Board relative to the effect of the
Transactions on the holders of PKS stock and described at "-- PKS Board
Approval," below.
PKS BOARD APPROVAL. The PKS Board approved the Exchange Offer, the MFS
Recapitalization and certain related transactions, and preliminarily approved
the Spin-off at the Special Meeting.
In approving the amount of MFS Common Stock to be exchanged for MFS
Preferred Stock in the MFS Recapitalization, the PKS Board considered (i) that
the exchange was negotiated on an arm's length basis between the management of
PKS and the management of MFS, each of which had the assistance of outside
financial advisors, (ii) the value of the percentage interest decrease in the
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outstanding MFS Common Stock owned by KDG following the exchange, (iii) the face
value of the MFS Preferred Stock received in the exchange, (iv) the value of the
additional voting rights associated with the MFS Preferred Stock, (v) the
benefits to PKS stockholders (through MFS and otherwise) arising from the
Spin-off, which could not be accomplished on a tax-free basis as desired by the
PKS Board absent the exchange, and (vi) the perceived need to encourage non-PKS
holders of MFS Common Stock to vote to approve the MFS Recapitalization.
In connection with its approval of the Spin-off, the PKS Board considered
that the Spin-off would be advantageous to MFS, and indirectly to the PKS
stockholders who would become stockholders of MFS as a result of the Spin-off,
by enhancing MFS's ability to meet its capital funding requirements in a
cost-effective manner and to implement its business strategy. The PKS Board also
recognized that (as discussed above under "Ruling Request; Preliminary
Negotiations") the market value of the MFS Common Stock after the Spin-off was,
at the time of the meeting, and is expected to be at the time of the Spin-off,
significantly greater than the value attributed to MFS in the determination of
the Class D Per Share Price in accordance with the PKS Certificate of
Incorporation prior to the Spin-off. The PKS Board concluded, subject to final
PKS Board action shortly prior to the date the proposed Spin-off would be
effected, that the Spin-off was in the best interest of the stockholders of PKS
and should be authorized.
The PKS Board further determined that it was appropriate to provide an
opportunity to the holders of Class B Stock and Class C Stock to convert such
stock into, or exchange such stock for, Class D Stock prior to the Spin-off. The
PKS Board also concluded that consummation of the Spin-off as soon as
practicable following approval of the MFS Recapitalization by the holders of MFS
Common Stock would be in the best interest of the stockholders of PKS. Although
holders of Class B Stock and Class C Stock can next tender such stock for
conversion into Class D Stock under the PKS Certificate of Incorporation
beginning on October 15, 1995, actual conversions of such stock into Class D
Stock would not occur until January 1996, and the final calculations of the
amount of Class D Stock issuable in such conversions would not be completed
until March or April of 1996. As noted above, a primary purpose of the Spin-off
is to provide MFS with flexibility to raise substantial amounts of capital as
quickly and as efficiently as possible so that MFS can compete in its growing
and changing areas of business. The PKS Board concluded that delay of the
Spin-off until March or April of 1996 would unnecessarily restrict and encumber
MFS's capital-raising activities and would hamper MFS's ability to use MFS
Common Stock to make acquisitions during the next year. Furthermore, the PKS
Board concluded that a substantial delay of the Spin-off would present both PKS
and MFS with uncertainty of operation, administrative confusion and employee
distraction. Accordingly, the PKS Board authorized the Exchange Offer as an
appropriate means of providing holders of Class B Stock and Class C Stock with
the desired opportunity to exchange such stock for Class D Stock without
deferring the Spin-off until March or April of 1996.
Given that the PKS Board viewed the Exchange Offer as providing the holders
of Class B Stock and Class C Stock with a similar opportunity as is provided by
the annual period for conversions of Class B Stock and Class C Stock into Class
D Stock pursuant to the PKS Certificate of Incorporation, the PKS Board
concluded that the conversion ratio applicable to such annual conversions should
be applied in determining the exchange ratio for the Exchange Offer. The PKS
Board therefore determined that the conversion ratio applicable to January 1995
conversions of Class B Stock and Class C Stock into Class D Stock (I.E., $60.25
to $26.00 or 1:.431535) as adjusted for the dividends paid on the Class B Stock
and the Class C Stock in January 1995 of $.45 per share and in May 1995 of $.45
per share (yielding a ratio of $60.25 to $25.10 or 1:.416598) represented the
appropriate exchange ratio for the Exchange Offer. Accordingly, the PKS Board
authorized an exchange ratio of .416598 of a share of Class D Stock for each
share of Class B Stock or Class C Stock tendered pursuant to the Exchange Offer.
The Spin-off will result in the distribution to holders of Class D Stock of
a unique asset which represents a substantial portion of the value of the assets
comprising the Class D Formula Value. The
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PKS Board accordingly concluded that holders of Exchangeable Debentures (which
are convertible in whole or in part into Class D Stock) should be afforded an
opportunity to participate in the Spin-off, and determined that the Exchange
Offer for the Exchangeable Debentures was the most appropriate way to permit
holders of Exchangeable Debentures to so participate.
In connection with its approvals of the MFS Recapitalization, the Spin-off
and the Exchange Offer, the PKS Board considered the collective impact of those
Transactions on the holders of Class B Stock and Class C Stock, as a class, the
holders of Class D Stock, as a class, and on the holders of the respective
classes of PKS convertible debentures. In approving those Transactions, the PKS
Board concluded that the Transactions, taken as a whole, would result in
significant benefits to holders of Class D Stock. The PKS Board also concluded
that holders of Class B Stock and Class C Stock and the holders of Exchangeable
Debentures would have an adequate opportunity, through the Exchange Offer, to
participate in the benefits resulting from those Transactions, and that those
Transactions would not adversely affect the holders of Class C Stock who choose
not to participate in the Exchange Offer or the holders of PKS debentures that
are convertible solely into Class C Stock.
In reaching those conclusions, the PKS Board considered that the holders of
Class D Stock will receive, as a result of the Transactions, securities with a
slightly lower value than they would have received if the Spin-off were
consummated in 1995 without conducting the Exchange Offer. The PKS Board
concluded, however, that such reduction in value would be consistent with the
conversion rights provided in the PKS Certificate of Incorporation, would be
minimal in comparison to the substantial benefits to be received by holders of
Class D Stock from the Transactions, and would be minimized by use of the
exchange ratio applicable to January 1995 conversions, as adjusted for dividends
to date. The PKS Board also noted that holders of Class C Stock who elect not to
participate in the Exchange Offer will not receive any direct benefit as a
result of those Transactions, but determined that those holders of Class C Stock
could reasonably conclude that the potential long-term financial benefits and
risks of owning Class C Stock make such stock a more suitable investment for
such holders when weighed against the potential long-term financial benefits and
risks of converting Class C Stock into Class D Stock and participating in the
Spin-off.
OPINIONS OF FINANCIAL ADVISORS. In connection with the MFS
Recapitalization, the Exchange Offer and the Spin-off, the PKS Board has
received fairness opinions from CS First Boston and Lehman Brothers Inc.
("Lehman Brothers"), both of which are attached to this Prospectus as Annexes I
and II, respectively, and described below. PKS management retained Lehman
Brothers in February of 1995 to provide PKS management with advice, assistance
and analysis concerning the MFS Recapitalization, the Exchange Offer and the
Spin-off. Following the formation of the Special Committee in April of 1995, the
Special Committee retained CS First Boston to provide the Special Committee with
independent financial advice and analysis regarding the matters which were the
subject of the Special Committee's review. Prior to its consideration of the MFS
Recapitalization, the Exchange Offer and the Spin-off at the Special Meeting,
the PKS Board asked both firms to provide it with fairness opinions regarding
the transactions.
The PKS Board has received an opinion from CS First Boston dated June 9,
1995 that, as of that date and on the basis of and subject to the matters set
forth therein, the Transactions were fair from a financial point of view to the
stockholders of PKS. CS First Boston subsequently rendered an opinion dated July
21, 1995 to the PKS Board that, as of that date and on the basis of and subject
to the matters set forth therein, the Transactions were fair from a financial
point of view to the stockholders of PKS.
THE FULL TEXT OF THE OPINION OF CS FIRST BOSTON DATED JULY 21, 1995, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN BY CS FIRST BOSTON, IS ATTACHED AS ANNEX I TO THIS PROSPECTUS. THE
JUNE 9, 1995 OPINION IS SUBSTANTIALLY IDENTICAL TO THE OPINION ATTACHED HERETO.
THE SUMMARY OF THE CS FIRST BOSTON OPINION SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION, AND HOLDERS OF
EXCHANGEABLE SECURITIES AND HOLDERS OF CLASS D STOCK ARE URGED TO READ SUCH
OPINION IN ITS ENTIRETY.
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In arriving at its opinion, CS First Boston reviewed certain publicly
available business and financial information relating to PKS, KCG, KDG and MFS,
a draft dated July 11, 1995 of this Prospectus, a draft dated June 2, 1995 of
the Certificate of Designation for the MFS Preferred Stock and certain other
information, including financial forecasts and pro forma financial statements,
provided to it by PKS, KCG, KDG and MFS, and met with the managements of PKS,
KCG, KDG and MFS to discuss the businesses and prospects of PKS, KCG, KDG and
MFS, as well as the terms of the Transactions. CS First Boston also considered
certain financial and stock market data of MFS and compared that data with
similar data for other publicly held companies in businesses similar to those of
MFS. In addition, CS First Boston compared the financial terms of the MFS
Preferred Stock with the financial terms of other securities and considered such
other information, financial studies, analyses and investigations and financial,
economic and market criteria that it deemed relevant. CS First Boston also
analyzed the financial benefits that will be afforded the holders of Class D
Stock as a result of the Spin-off and considered the fact that the holders of
Class B Stock and Class C Stock will be given the opportunity, as a result of
the Exchange Offer, to exchange their shares of Class B Stock and Class C Stock
for shares of Class D Stock prior to consummation of the Spin-off and thereby to
participate in the financial benefits of the Spin-off. No limitations were
imposed by the Special Committee or the PKS Board upon CS First Boston with
respect to the investigations made or procedures followed by it in rendering its
opinion.
In connection with its review, CS First Boston did not assume any
responsibility for independent verification of any of the foregoing information
(including the information contained in the draft Prospectus) and relied on such
information being complete and accurate in all material respects. With respect
to the financial forecasts, CS First Boston assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of each of PKS, KCG, KDG and MFS as to the future
financial performance of each of PKS, KCG, KDG and MFS, respectively. In
addition, CS First Boston did not make an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of any of PKS, KCG, KDG or
MFS, nor was it furnished with any such evaluations or appraisals.
In arriving at its opinion, CS First Boston relied upon the advice of PKS
that the Spin-off will be consummated only if it can be effected on a tax-free
basis, that the Spin-off will qualify as a tax-free spin-off under Section 355
of the Internal Revenue Code of 1986, as amended, and that PKS has determined
that the MFS Recapitalization is the most feasible method of facilitating the
Spin-off on a tax-free basis. In addition, CS First Boston relied upon the
advice of PKS that PKS and MFS will take all action necessary to ensure that the
MFS Common Stock and the MFS Preferred Stock to be received by the holders of
Class D Stock in the Spin-off will not be "restricted securities" within the
meaning of Rule 144(a)(3) promulgated under the Securities Act and will not be
subject to restrictions on transfer under the Securities Act (other than
restrictions imposed as a result of the holder being an "affiliate" (within the
meaning of rule 144(a)(1) under the Securities Act) of MFS.
For purposes of its opinion, CS First Boston assumed that less than an
aggregate of 6,000,000 shares of Class B Stock and Class C Stock will be
exchanged for Class D Stock in the Exchange Offer. CS First Boston also assumed
that PKS will complete the Spin-off as described in the draft dated July 11,
1995 of this Prospectus and that the consummation of the Transactions will not
result in any default or similar event under any loan agreement, instrument of
indebtedness or other contract of PKS, KCG, KDG or MFS which will not be waived.
CS First Boston's opinion was necessarily based upon financial, economic, market
and other conditions as they existed and could be evaluated on the date of such
opinion.
The opinion of CS First Boston does not address or constitute a
recommendation regarding (i) the business decisions of PKS or MFS to effect the
MFS Recapitalization or the Spin-off or to make the Exchange Offer, (ii) the
determination by PKS of the exchange ratio of Exchangeable Stock to Offered
Stock or the other terms and conditions of the Exchange Offer, or (iii) the
business decisions of PKS to effect, or the financial impact on PKS or any of
its stockholders of, certain other transactions in connection with the MFS
Recapitalization, the Exchange Offer and the Spin-off. CS FIRST BOSTON'S
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OPINION IS DIRECTED ONLY TO THE FAIRNESS TO THE STOCKHOLDERS OF PKS OF THE
FINANCIAL TERMS OF THE TRANSACTIONS, AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY HOLDER OF EXCHANGEABLE SECURITIES AS TO WHETHER SUCH HOLDER SHOULD
PARTICIPATE IN THE EXCHANGE OFFER.
The CS First Boston opinion also expresses no opinion as to the market value
of the MFS Preferred Stock upon issuance or the prices at which the MFS Common
Stock or the MFS Preferred Stock will trade subsequent to the consummation of
the MFS Recapitalization or the Spin-off. The actual market value of the MFS
Common Stock and the MFS Preferred Stock may vary depending upon changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors which generally influence the price of securities.
CS First Boston did not participate in the determination by PKS and MFS of
the terms of the MFS Recapitalization, the Exchange Offer or the Spin-off or the
terms of the MFS Preferred Stock and has not been asked to consider alternative
means of effecting a distribution of the MFS Common Stock or the MFS Preferred
Stock to the holders of Class D Stock.
The following is a summary of certain financial analyses performed by CS
First Boston in connection with its opinion dated June 9, 1995, which it
discussed with the Special Committee and the PKS Board. In connection with its
opinion dated July 21, 1995, CS First Boston performed certain procedures,
including each of the financial analyses described below, to update its analyses
made in connection with its opinion dated June 9, 1995, and reviewed with the
managements of PKS, KCG, KDG and MFS the assumptions on which such analyses were
based and other factors, including current financial results of PKS, KCG, KDG
and MFS and their respective future prospects, and PKS's current assessment of
the likely timing of the consummation of the Transactions. The results of such
analyses were substantially the same as those arrived at in connection with the
CS First Boston opinion dated June 9, 1995. CS First Boston believes that its
analyses must be considered as a whole and that selecting portions of such
analyses or any of the factors considered, without considering all such analyses
and factors, could create an incomplete view of the process underlying its
analyses and opinion. The preparation of a fairness opinion is a complex process
and is not susceptible to partial analysis or summary description.
In connection with the delivery of its opinion, CS First Boston presented to
the Special Committee and the PKS Board (a) a comparison of the Class D Per
Share Price with the sum of (i) the estimated post-Spin-off Class D Per Share
Price and (ii) the implied market value of the MFS Common Stock and the MFS
Preferred Stock estimated to be received in the Spin-off for each share of Class
D Stock (based on the May 15, 1995 closing price of MFS Common Stock); (b) a
comparison of the Class B&C Per Share Price with the sum of (i) the estimated
post-Spin-off Class D Per Share Price multiplied by the number of shares of
Class D Stock to be received for each share of Class B Stock or Class C Stock
exchanged in the Exchange Offer and (ii) the implied market value of the MFS
Common Stock and the MFS Preferred Stock estimated to be received in the
Spin-off for each share of Class B Stock or Class C Stock exchanged for Class D
Stock in the Exchange Offer (based on the May 15, 1995 closing price of MFS
Common Stock); and (c) an analysis of the projected dilution of the Class D
Stock as a result of exchanges of Exchangeable Securities in the Exchange Offer.
CS First Boston performed such analyses (x) assuming exchange ratios for
exchanges of Class B Stock and Class C Stock for Class D Stock in the Exchange
Offer (I) equal to the exchange ratio used in the Exchange Offer and (II) based
on the ratio projected by PKS to be applicable to January 1996 conversions of
Class B Stock and Class C Stock into Class D Stock pursuant to PKS's Certificate
of Incorporation and (y) assuming scenarios in which no shares of Class B Stock
and Class C Stock are exchanged in the Exchange Offer, in which an aggregate of
3,000,000 such shares are exchanged, and in which an aggregate of 6,000,000 such
shares are exchanged.
CS First Boston performed the above analyses to determine the financial
effects, under the various sets of assumed facts described above and based on
the information available to CS First Boston on the date of its opinion, of the
Transactions on the holders of Class D Stock and on the holders of Class B Stock
and Class C Stock who elect to exchange such stock for Class D Stock in the
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Exchange Offer. CS First Boston also advised the Special Committee and the PKS
Board of its views regarding the potential for increases in the trading value of
MFS Common Stock after consummation of the Spin-off as a result of the increased
public float and greater liquidity of MFS Common Stock and increased access for
MFS to the public and private capital markets.
In addition, CS First Boston presented to the Special Committee and the PKS
Board (a) an analysis of the pro forma effects of the Transactions on the
balance sheets of KCG and KDG, based upon information provided by management of
PKS; (b) a calculation of certain financial benefits to the non-PKS holders of
MFS Common Stock in the MFS Recapitalization (based on the May 15, 1995 closing
price of MFS Common Stock and the face value of the MFS Preferred Stock); and
(c) a calculation of potential federal income tax consequences to PKS if the
Spin-off were structured as a transaction taxable to PKS for United States
federal income tax purposes (based on the estimated amount of the capital gains
tax that could potentially be payable by PKS if its holdings of securities of
MFS were distributed in a taxable transaction). CS First Boston performed such
analyses to determine the financial effects of various aspects of the
Transactions on KCG, KDG and PKS.
Based on the analyses described in the preceding three paragraphs, CS First
Boston concluded that the Transactions are expected to provide financial
benefits to the holders of Class D Stock and to the holders of Class B Stock and
Class C Stock who elect to exchange such stock for Class D Stock in the Exchange
Offer and that, as of the date of its opinion and subject to the matters set
forth therein, the Transactions were fair, from a financial point of view, to
such holders.
CS First Boston also presented to the Special Committee and the PKS Board an
analysis of the holding period required before the Class B&C Per Share Price
would equal the sum of (a) the estimated post-Spin-off Class D Per Share Price
multiplied by the number of shares of the Class D Stock to be received for each
share of Class B Stock or Class C Stock exchanged in the Exchange Offer and (b)
the implied market value of the MFS Common Stock and the MFS Preferred Stock
estimated to be received in the Spin-off for each share of Class B Stock or
Class C Stock exchanged for Class D Stock in the Exchange Offer (based upon
various assumed annual growth rates for the Class B&C Per Share Price and the
Class D Per Share Price and MFS Common Stock). CS First Boston performed the
above analyses to determine, under the assumed facts described above and based
on the information available to CS First Boston on the date of its opinion, the
financial effects of the Transactions on the holders of Class B Stock and Class
C Stock who do not exchange such stock for Class D Stock in the Exchange Offer.
Based on such analyses and the other analyses described above and considering
that the holders of Class B Stock and Class C Stock have the opportunity to
exchange such stock for Class D Stock in the Exchange Offer, CS First Boston
concluded that, as of the date of its opinion and subject to the matters set
forth therein, the Transactions were fair, from a financial point of view, to
the holders of Class B Stock and Class C Stock who elect not to exchange such
stock for Class D Stock in the Exchange Offer.
CS First Boston is a nationally recognized investment banking firm and is
actively engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. The
Special Committee selected CS First Boston as its financial advisor because it
is a nationally recognized investment banking firm and because of CS First
Boston's expertise and independence. CS First Boston has rendered from time to
time various investment banking services to PKS and received customary fees for
such services.
Pursuant to the terms of an engagement letter dated April 7, 1995, PKS has
paid CS First Boston a fee of $400,000 for providing an opinion to the PKS Board
of Directors, $100,000 of which became payable upon execution of the engagement
letter and the remainder of which became payable upon delivery of such opinion.
PKS has also agreed to reimburse CS First Boston for its reasonable out-of-
pocket expenses, including all reasonable fees and disbursements of counsel, and
to indemnify CS First Boston and certain related persons against certain
liabilities relating to or arising out of its
39
<PAGE>
engagement. In the ordinary course of its business, CS First Boston and its
affiliates may actively trade the debt and equity securities of MFS for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
In addition, the PKS Board has received an opinion from Lehman Brothers,
financial advisor to PKS, dated June 9, 1995 that, based upon and subject to the
assumptions and qualifications set forth in such opinion, the MFS
Recapitalization, the Exchange Offer for Exchangeable Stock and the Spin-off,
taken as a whole, are fair from a financial point of view to the stockholders of
PKS. Lehman Brothers subsequently rendered an opinion dated July 17, 1995 to the
PKS Board that, based upon and subject to the assumptions and qualifications set
forth in such opinion, the MFS Recapitalization, the Exchange Offer for
Exchangeable Stock and the Spin-off, taken as a whole, are fair from a financial
point of view to the stockholders of PKS. In arriving at its opinion, Lehman
Brothers concluded that the Transactions were fair from a financial point of
view to the holders of Class D Stock, as a class, and holders of Class B Stock
and Class C Stock who elect to participate in the Exchange Offer. In addition,
Lehman Brothers concluded that the Transactions were not likely to in fact
adversely affect holders of Class C Stock who elect not to participate in the
Exchange Offer.
THE FULL TEXT OF THE OPINION OF LEHMAN BROTHERS DATED JULY 17, 1995, WHICH
SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN BY LEHMAN BROTHERS, IS ATTACHED AS ANNEX II TO THIS PROSPECTUS. THE
JUNE 9, 1995 OPINION IS SUBSTANTIALLY IDENTICAL TO THE OPINION ATTACHED HERETO.
The summary of the Lehman Brothers opinion set forth herein is qualified in
its entirety by reference to the full text of such opinion, and holders of
Exchangeable Securities and holders of Class D Stock are urged to read such
opinion in its entirety. Lehman Brothers has not been asked to consider
alternative means of effecting a distribution of the MFS Common Stock or the MFS
Preferred Stock to the holders of Class D Stock. The Lehman Brothers opinion
does not address the fairness, from a financial point of view, of the exchange
ratio of Exchangeable Stock to Offered Stock in the Exchange Offer. The Lehman
Brothers opinion is directed only to the fairness to the stockholders of PKS of
the financial terms of the transactions covered by the opinion, and does not
constitute a recommendation to any holder of Exchangeable Securities as to
whether such holder should participate in the Exchange Offer.
In arriving at its opinion, Lehman Brothers reviewed and analyzed (i) a
draft of this Prospectus, (ii) such publicly available information concerning
MFS which it believed to be relevant to its inquiry, including MFS's Form 10-K
for the fiscal year ended December 31, 1994 and MFS's annual report for such
fiscal year, (iii) financial and operating information with respect to the
business, operations and prospects of MFS and PKS furnished to Lehman Brothers
by PKS, (iv) a comparison of the historical financial results and present
financial condition of MFS and PKS with those of other companies which it deemed
relevant, (v) a trading history of the MFS Common Stock from May 1993 to the
date of such opinion and a comparison of that trading history with those of
other companies which it deemed relevant, (vi) a comparison of the financial
terms of the MFS Preferred Stock with the terms of certain other transactions
and securities which it deemed relevant and (vii) KDG's tax bases of its equity
interests in MFS and, based upon the advice of PKS and its tax advisors, the
likely tax impact of various disposition strategies with respect to the equity
interests in MFS or its underlying assets and the proposed tax and financial
reporting treatment of the Spin-off. In addition, Lehman Brothers had
discussions with the managements of each of PKS and MFS concerning their
respective businesses, operations, assets, financial condition and prospects and
undertook such other studies, analyses and investigations as it deemed
appropriate. No limitations were imposed by the PKS Board upon Lehman Brothers
with respect to the investigations made or procedures followed by it in
rendering its opinion.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and has further relied upon the assurances of the managements of PKS
and MFS that they are not aware of any facts that would make such information
inaccurate or misleading. With respect to the financial forecasts of PKS and
MFS, Lehman Brothers
40
<PAGE>
has assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of PKS and MFS as
to the future financial performance of PKS and MFS, respectively. In addition,
Lehman Brothers has not made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of PKS or MFS, nor was it
furnished with any such evaluations or appraisals. Lehman Brothers has assumed
that the consummation of the Exchange Offer and the Spin-off will not result in
any default or similar event under any loan agreement, instrument of
indebtedness or other contract of PKS or MFS which will not be waived and that
no more than 6,000,000 shares of Exchangeable Stock will be exchanged for shares
of Class D Stock in the Exchange Offer. The opinion of Lehman Brothers is based
upon financial, market, economic and other conditions, and upon tax laws,
accounting standards and legal and regulatory requirements, as they existed on,
and could be evaluated as of, July 17, 1995 and, with the consent of PKS, Lehman
Brothers has not considered possible changes in such applicable tax laws,
accounting standards or regulatory and legal requirements.
In arriving at its opinion, Lehman Brothers has also relied upon the advice
of PKS and its tax advisors that the Exchange Offer and the Spin-off, and in
particular the MFS Recapitalization, are the most feasible methods of ensuring
that the Spin-off will qualify as a tax-free spin-off for United States federal
income tax purposes. In addition, Lehman Brothers has further relied upon the
advice of PKS and its legal advisors that the shares of MFS Common Stock to be
received by holders of Class D Stock in the Spin-off (other than shares received
by persons who are "affiliates" of MFS under the federal securities laws) will
be freely tradeable securities.
The following is a summary of certain factors reviewed and considered by
Lehman Brothers in connection with its opinion dated July 17, 1995. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant considerations and the application of the factors
reviewed and considered to the particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. Furthermore, in
arriving at its fairness opinion, Lehman Brothers did not attribute any
particular weight to any factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each factor. Accordingly,
Lehman Brothers believes that the factors and considerations supporting its
opinion must be taken as a whole and that considering any portion of such
factors, without considering all factors, could create a misleading or
incomplete view of the process underlying its opinion. In its review and
consideration, Lehman Brothers made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company.
In connection with its opinion, Lehman Brothers considered (a) a comparison
of the Class D Per Share Price with the sum of (i) the estimated post-Spin-off
Class D Per Share Price and (ii) the implied market value of the MFS Common
Stock and the MFS Preferred Stock estimated to be received in the Spin-off for
each share of Class D Stock (based on the market price of MFS Common Stock
prevailing at the time Lehman Brothers conducted its review); (b) a comparison
of the Class B&C Per Share Price with the sum of (i) the estimated post-Spin-off
Class D Per Share Price multiplied by the number of shares of Class D Stock to
be received for each share of Class B Stock or Class C Stock exchanged in the
Exchange Offer and (ii) the implied market value of the MFS Common Stock and the
MFS Preferred Stock estimated to be received in the Spin-off for each share of
Class B Stock or Class C Stock exchanged for Class D Stock in the Exchange Offer
(based on the market price of MFS Common Stock prevailing at the time Lehman
Brothers conducted its review); and (c) an analysis of the projected dilution of
the Class D Stock as a result of exchanges of Exchangeable Securities in the
Exchange Offer. Lehman Brothers performed such analyses assuming scenarios in
which an aggregate of 3,000,000 shares of Class B Stock and Class C Stock are
exchanged, and in which an aggregate of 6,000,000 shares of Class B Stock and
Class C Stock are exchanged.
In addition, Lehman Brothers considered (a) the benefits to the non-PKS
holders of MFS Common Stock in the MFS Recapitalization; (b) the federal income
tax consequences to PKS if the Spin-off were structured as a taxable transaction
for PKS for United States federal income tax purposes (based on the estimated
amount of the capital gains tax that could potentially be payable by PKS if its
41
<PAGE>
holdings of securities of MFS were distributed in a taxable transaction); and
(c) the pro forma effects of the MFS Recapitalization, the Exchange Offer for
Exchangeable Stock and the Spin-off, taken as a whole, on the balance sheet of
each of KCG and KDG, based upon information provided by management of PKS.
Lehman Brothers performed such procedures in order to compare the likely
consequences of the Transactions for holders of each class of PKS stock with the
likely consequences for holders of each class of PKS stock if the Transactions
were not consummated. Based on such comparison, Lehman Brothers concluded that
there were financial benefits to be derived from the Transactions by the holders
of each class of PKS stock.
The PKS Board retained Lehman Brothers based upon its expertise and
experience. Lehman Brothers is a nationally recognized investment banking and
advisory firm. Lehman Brothers, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. In the past, Lehman
Brothers has provided financial advisory and financing services to PKS and has
received customary fees for the rendering of such services.
Pursuant to the terms of an engagement letter dated April 21, 1995, PKS has
paid Lehman Brothers a fee of $400,000 for services rendered in connection with
its opinion to the PKS Board of Directors. PKS has also agreed to reimburse
Lehman Brothers for its reasonable expenses, including professional and legal
fees and disbursements of counsel, and to indemnify Lehman Brothers and certain
related persons against certain liabilities in connection with or arising out of
its engagement. In the ordinary course of its business, Lehman Brothers and its
affiliates may actively trade the debt and equity securities of MFS for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
Both the opinion of CS First Boston and the opinion of Lehman Brothers
assume that less than an aggregate of 6,000,000 shares of Class B Stock and
Class C Stock will be exchanged for Class D Stock in the Exchange Offer. This
assumption derives from an understanding between PKS and the primary bonding
company for the Construction & Mining Group. That understanding provides that
the bonding company is willing to provide bonds to support a construction
backlog of up to $3.3 billion if PKS will not permit the Construction & Mining
Group to pay dividends, redeem stock, make distributions or take other action
that would reduce the consolidated net worth of the Construction & Mining Group
below $315 million. If more than 6,000,000 shares of Class B Stock and Class C
Stock were tendered and accepted in the Exchange Offer, and if PKS were to
transfer the corresponding funds from the Construction & Mining Group to the
Diversified Group, as described at "Risk Factors -- Risk Factors Relating to the
Exchange Offer, the Spin-off and PKS Securities -- Transfer from Construction &
Mining Group," the consolidated net worth of KCG (which was $505 million at the
end of 1994) might begin to approach the $315 million floor. In that event, PKS
would consider (i) placing a limit on the number of shares of Class B Stock and
Class C Stock accepted for exchange, so that exchanges and funds transfers would
not reduce KCG's consolidated net worth below the $315 million floor, (ii)
performing an analysis to determine whether 1995 Construction & Mining Group
earnings would provide additional net worth sufficient to support current
backlog, and/or (iii) restructuring its arrangement with the bonding company.
PKS believes that a tender of 6,000,000 or more shares of Exchangeable Stock is
highly unlikely.
The PKS Board of Directors intends to request "bring-down" fairness opinions
from each of CS First Boston and Lehman Brothers confirming their prior opinions
as of the Spin-off Date, as well as a final report from the Special Committee as
of such date.
PARTICIPATION IN THE EXCHANGE OFFER. With certain exceptions, including
Messrs. Walter Scott, Jr., and Robert Julian, the directors of PKS and of KCG
have advised PKS in writing that they will not tender in the Exchange Offer any
shares of Class C Stock held by them. Messrs. Scott and Julian
42
<PAGE>
expect to tender, in the aggregate, 785,892 shares of Class C Stock pursuant to
the Exchange Offer. See "Certain Transactions -- Intentions of Certain
Significant Stockholders Regarding Participation in Exchange Offer."
PARTICIPATION IN THE EXCHANGE OFFER IS VOLUNTARY. SEE "RISK FACTORS" FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE A HOLDER OF
EXCHANGEABLE SECURITIES DECIDES WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER.
THE PKS BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF EXCHANGEABLE DEBENTURES
TENDER SUCH EXCHANGEABLE DEBENTURES IN THE EXCHANGE OFFER.
THE PKS BOARD OF DIRECTORS MAKES NO RECOMMENDATION WITH RESPECT TO WHETHER
HOLDERS OF EXCHANGEABLE STOCK SHOULD TENDER SUCH EXCHANGEABLE STOCK IN THE
EXCHANGE OFFER.
ABANDONMENT OR MODIFICATION OF TRANSACTIONS
PKS reserves the right to abandon or modify the terms of the Exchange Offer
or the Spin-off or both, and PKS will abandon the Exchange Offer if it abandons
the Spin-off. Thus, there is no assurance that either the Exchange Offer or the
Spin-off will be consummated or, if consummated, will be consummated on the
terms described herein. However, if the Exchange Offer is consummated, the
Spin-off will be consummated promptly thereafter. If the PKS Board were to
consider abandonment of the Exchange Offer without abandoning the Spin-off, it
would take into account the effect of such proposal on the interests of the
holders of each class of Exchangeable Securities and on the interests of the
holders of Class D Stock, and would also consider seeking new fairness opinions
from its financial advisors. See "The Exchange Offer -- Right of PKS to Extend,
Abandon or Modify the Exchange Offer" and "The Spin-off -- Condition to
Spin-off; Right of PKS to Abandon, Defer or Modify the Spin-off."
43
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
PETER KIEWIT SONS', INC., KIEWIT CONSTRUCTION & MINING GROUP AND
KIEWIT DIVERSIFIED GROUP
The following selected historical and pro forma financial data of PKS,
Kiewit Construction & Mining Group and Kiewit Diversified Group should be read
in conjunction with PKS's, Kiewit Construction & Mining Group's and Kiewit
Diversified Group's historical financial statements and the notes thereto and
the pro forma financial information and the notes thereto included elsewhere
herein or incorporated herein by reference.
The selected historical financial data for each of the years in the period
1990 to 1994 have been derived from audited historical financial statements. The
selected historical financial data for the six months ended June 30, 1994 and
1995, and as of June 30, 1995, have been derived from unaudited financial
statements. In the opinion of management, such unaudited financial statements
reflect all adjustments, consisting only of normal recurring accruals, necessary
to present fairly the financial position of PKS, Kiewit Construction & Mining
Group and Kiewit Diversified Group at June 30, 1995 and the results of
operations for the six months ended June 30, 1994 and 1995. The results of
operations for the six months ended June 30, 1995 are not necessarily indicative
of the results that may be expected for the entire 1995 fiscal year.
The pro forma results of operations data for the six months ended June 30,
1995 of PKS, Kiewit Construction & Mining Group and Kiewit Diversified Group,
respectively, assume that the MFS Recapitalization, the Exchange Offer and the
Spin-off were consummated on January 1, 1995. The pro forma results of
operations data for the year ended December 31, 1994 of PKS, Kiewit Construction
& Mining Group and Kiewit Diversified Group, respectively, assume that the MFS
Recapitalization, the Exchange Offer and the Spin-off were consummated on
December 26, 1993. The pro forma financial position data of PKS and each Group
as of June 30, 1995, assume that such transactions were consummated as of such
date. The pro forma information assumes, in two separate scenarios, that
3,000,000 shares (Scenario 1) and 5,000,000 shares (Scenario 2) of Exchangeable
Stock and all the Exchangeable Debentures are exchanged in the Exchange Offer.
Scenario 1 reflects PKS's estimate of the number of shares of Exchangeable Stock
likely to be tendered in the Exchange Offer, based upon the tender indications
that PKS has received from members of the PKS Board of Directors and members of
the KCG Board of Directors, and PKS's estimates of the likely number of
additional tenders. Scenario 2 is set forth solely to illustrate the impact of
the tender of substantially more shares than anticipated by PKS. PKS does not
believe that a tender of 5,000,000 shares is likely.
The pro forma financial information is not intended to reflect the results
of operations or the financial position of PKS, Kiewit Construction & Mining
Group or Kiewit Diversified Group which actually would have resulted had the MFS
Recapitalization, the Exchange Offer and the Spin-off been effective on the
dates indicated. Moreover, the pro forma information is not intended to be
indicative of future results of operations or financial position of PKS, Kiewit
Construction & Mining Group or Kiewit Diversified Group.
44
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
PETER KIEWIT SONS', INC.
<TABLE>
<CAPTION>
PRO FORMA (1)
-----------------------------------------
HISTORICAL
------------------------------------------------------ YEAR ENDED DECEMBER SIX MONTHS
SIX MONTHS ENDED JUNE 30,
ENDED 31, 1994 1995
FISCAL YEAR ENDED JUNE 30, ------------------- -------------------
-------------------------------------- -------------- SCENARIO SCENARIO SCENARIO SCENARIO
1990 1991 1992 1993 1994 1994 1995 #1 (2) #2 (2) #1 (2) #2 (2)
------ ------ ------ ------ ------ ------ ------ -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATION:
Revenue (3)(4).............. $1,906 $2,049 $1,918 $2,050 $2,704 $1,194 $1,260 $2,704 $2,704 $1,260 $1,260
Earnings from continuing
operations before
cumulative effect of change
in accounting principle
(5)(6)..................... 108 49 150 261 110 45 71 177 177 154 154
Net earnings (5)(6)......... 80 441 181 261 110 45 71 177 177 154 154
FINANCIAL POSITION:
Total Assets (3)(4)......... 2,966 2,632 2,549 3,634 4,504 3,585 3,138 3,138
Current portion of long-term
debt (3)(4)................ 31 15 3 15 33 14 13 13
Long-term debt, less current
portion (3)(4)............. 269 110 30 462 908 379 377 377
Stockholders' equity (7).... 1,185 1,396 1,458 1,671 1,736 1,842 1,479 1,479
<FN>
- ------------------------------
(1) The pro forma results of operations data are computed assuming that the MFS
Recapitalization, the Exchange Offer and the Spin-off were consummated on
December 26, 1993 and January 1, 1995 for the fiscal year ended December
31, 1994 and six months ended June 30, 1995, respectively. The pro forma
financial position data as of June 30, 1995 assumes that such transactions
were consummated as of such date. The pro forma financial data of PKS
should be read in conjunction with PKS' historical consolidated financial
statements and the notes thereto and the "Pro Forma Financial Information"
included elsewhere or incorporated by reference herein.
(2) The pro forma information assumes, in two separate scenarios, that
3,000,000 shares (Scenario 1) and 5,000,000 shares (Scenario 2) of
Exchangeable Stock and all the Exchangeable Debentures are exchanged in the
Exchange Offer.
(3) The PKS Board of Directors preliminarily approved a plan to make a tax-free
distribution of its entire ownership interest in MFS to the holders of
Class D Stock at a special meeting on June 9, 1995. The operating results
of MFS have been classified as a single line item on the statements of
earnings for all periods presented. PKS's proportionate share of the net
assets of MFS at June 30, 1995 of $447 million has been reported separately
on the consolidated balance sheet.
(4) In October 1993, PKS acquired 35% of the outstanding shares of C-TEC
Corporation that have 57% of the available voting rights. In December 1994,
PKS increased its ownership in C-TEC to 49% and 58% of the outstanding
shares and voting rights, respectively. In January 1994, MFS, a subsidiary
of PKS, issued $500 million of 9.375% Senior Discount Notes.
(5) In 1993, through two public offerings, PKS sold 29% of the common stock of
MFS, resulting in a $137 million after-tax gain. In 1994, additional MFS
stock transactions resulted in a $35 million after-tax gain to PKS and
reduced its ownership in MFS to 67%.
(6) On May 5, 1995, the U.S. government and a subsidiary of PKS entered into a
settlement agreement with respect to the Whitney Benefits litigation. In
settlement of all claims, PKS received $135 million on June 2, 1995 which
it recognized as income.
(7) The aggregate redemption value of common stock at June 30, 1995 was $1.7
billion.
</TABLE>
45
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
KIEWIT CONSTRUCTION & MINING GROUP
<TABLE>
<CAPTION>
PRO FORMA (1)
-----------------------------------------
HISTORICAL FISCAL YEAR SIX MONTHS
------------------------------------------------------ ENDED ENDED
SIX MONTHS DECEMBER 31, JUNE 30,
ENDED 1994 1995
FISCAL YEAR ENDED JUNE 30, ------------------- -------------------
-------------------------------------- -------------- SCENARIO SCENARIO SCENARIO SCENARIO
1990 1991 1992 1993 1994 1994 1995 #1 (2) #2 (2) #1 (2) #2 (2)
------ ------ ------ ------ ------ ------ ------ -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenue..................... $1,671 $1,834 $1,675 $1,783 $2,175 $ 939 $ 988 $2,175 $2,175 $ 988 $ 988
Earnings before cumulative
effect of change in
accounting principle....... 57 23 69 80 77 17 34 75 74 33 32
Net earnings................ 57 23 82 80 77 17 34 75 74 33 32
Per Common Share (3):
Earnings before cumulative
effect of change in
accounting principle....... 2.47 1.12 3.79 4.63 4.92 1.10 2.44 5.88 6.84 2.97 3.54
Net earnings................ 2.47 1.12 4.48 4.63 4.92 1.10 2.44 5.88 6.84 2.97 3.54
Dividends (4)(5)............ 0.25 0.30 0.70 0.70 0.90 0.45 0.45 -- -- -- --
Stock price (6)............. 10.35 14.40 18.70 22.35 25.55 21.90 25.10 28.20 28.70
Book value.................. 14.99 19.25 23.31 27.43 31.39 28.19 33.92 36.08 38.23
Financial Position:
Total assets................ 762 849 862 889 967 967 892 841
Current portion of long-term
debt....................... 15 7 2 4 3 2 2 2
Long-term debt, less current
portion.................... 14 13 12 10 9 7 6 6
Stockholders' equity (7).... 350 400 437 480 505 503 429 378
Formula value (6)........... 249 299 351 391 411
<FN>
- ------------------------------
(1) The pro forma results of operations data are computed assuming that the MFS
Recapitalization, the Exchange Offer and the Spin-off were consummated on
December 26, 1993 and January 1, 1995 for the fiscal year ended December
31, 1994 and six months ended June 30, 1995, respectively. The pro forma
financial position data as of June 30, 1995 assumes that such transactions
were consummated as of such date. The pro forma financial data of Kiewit
Construction & Mining Group should be read in conjunction with the Kiewit
Construction & Mining Group's historical financial statements and the notes
thereto and the "Pro Forma Financial Information" included elsewhere or
incorporated by reference herein.
(2) The pro forma information assumes, in two separate scenarios, that
3,000,000 shares (Scenario 1) and 5,000,000 shares (Scenario 2) of
Exchangeable Stock and all the Exchangeable Debentures are exchanged in the
Exchange Offer.
(3) In connection with the January 8, 1992 reorganization, each share of the
previous Class B and Class C Stock was exchanged for one share of new Class
B Stock or Class C Stock and one share of new Class D Stock. Therefore, for
purposes of computing Class B and Class C Stock per share data, the number
of shares for years 1990 and 1991 are assumed to be the same as the
corresponding number of shares of previous Class B and Class C Stock. Fully
diluted earnings per share have not been presented because it is not
materially different from primary earnings per share.
(4) The 1994, 1993 and 1992 dividends include $.45, $.40 and $.30 for dividends
declared in 1994, 1993 and 1992, respectively, but paid in January of the
subsequent year. Years 1990 and 1991 reflect dividends paid by PKS on its
previous Class B and Class C Stock that have been attributed to Kiewit
Construction & Mining Group and Kiewit Diversified Group based upon the
relative formula values of each group which were determined at the end of
each preceding year. Accordingly, the dividends may bear no relationship to
the dividends that would have been declared by the Board in such years had
the new Class B and Class C Stock and the new Class D Stock been
outstanding.
(5) Pro forma dividends have not been presented as the amount of any dividends
that may have been declared if the transactions had occurred as of the
beginning of the respective periods cannot be determined.
(6) Pursuant to the Certificate of Incorporation, the stock price and formula
value calculations are computed annually at the end of the fiscal year,
except that adjustments to the stock price to reflect dividends are made at
the time such dividends are declared.
(7) Ownership of the Class B Stock and Class C Stock is restricted to certain
employees conditioned upon the execution of repurchase agreements which
restrict the employees from transferring the stock. PKS is generally
committed to purchase all Class B and Class C Stock at the price
determined, when put to PKS by a stockholder, pursuant to the Certificate
of Incorporation. The aggregate redemption value of the Class B and Class C
Stock at June 30, 1995 was $372 million.
</TABLE>
46
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
KIEWIT DIVERSIFIED GROUP
<TABLE>
<CAPTION>
PRO FORMA (1)
-----------------------------------------
HISTORICAL
------------------------------------------------------ YEAR ENDED SIX MONTHS
SIX MONTHS DECEMBER 31, ENDED JUNE 30,
ENDED 1994 1995
FISCAL YEAR ENDED JUNE 30, ------------------- -------------------
-------------------------------------- -------------- SCENARIO SCENARIO SCENARIO SCENARIO
1990 1991 1992 1993 1994 1994 1995 #1 (2) #2 (2) #1 (2) #2 (2)
------ ------ ------ ------ ------ ------ ------ -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenue (3)(4)................ $ 235 $ 215 $ 243 $ 267 $ 534 $ 255 $ 274 $ 534 $ 534 $ 274 $ 274
Earnings before cumulative
effect of change in
accounting principle
(5)(6)....................... 51 26 81 181 33 28 37 102 103 121 122
Net earnings (5)(6)........... 23 418 99 181 33 28 37 102 103 121 122
Per Common Share (7):
Earnings from continuing
operations before cumulative
effect of change in
accounting principle......... 2.20 1.26 4.00 9.08 1.63 1.35 1.75 4.73 4.63 5.39 5.23
Net earnings.................. 1.03 20.30 4.92 9.08 1.63 1.35 1.75 4.73 4.63 5.39 5.23
Dividends (8)(9).............. 0.70 0.70 1.95 0.50 -- -- -- -- -- -- --
Stock price (10).............. 35.00 47.85 50.65 59.40 60.25 59.40 60.25 46.45 46.95
Book value.................... 35.75 47.93 50.75 59.52 60.36 60.10 62.90 46.45 46.97
Financial Position:
Total assets (3)(4)........... 2,204 1,801 1,709 2,759 3.549 2,633 2,261 2,312
Current portion of long-term
debt (3)(4).................. 16 8 1 11 30 12 11 11
Long-term debt, less current
portion (3)(4)............... 255 97 18 452 899 372 371 371
Stockholders' equity (11)..... 835 996 1,021 1,191 1,231 1,339 1,050 1,101
Formula value (10)............ 835 996 1,021 1,191 1,231
<FN>
- ------------------------------
(1) The pro forma results of operations data are computed assuming that the MFS
Recapitalization, the Exchange Offer and the Spin-off were consummated on
December 26, 1993 and January 1,1995 for the fiscal year ended December 31,
1994 and the six months ended June 30, 1995, respectively. The pro forma
financial position data as of June 30, 1995 assumes that such transactions
were consummated as of such date. The pro forma financial data of Kiewit
Diversified Group should be read in conjunction with the Kiewit Diversified
Group's historical financial statements and the notes thereto and the "Pro
Forma Financial Information" included elsewhere or incorporated by
reference herein.
(2) The pro forma information assumes, in two separate scenarios, that
3,000,000 shares (Scenario 1) and 5,000,000 shares (Scenario 2) of
Exchangeable Stock and all the Exchangeable Debentures are exchanged in the
Exchange Offer.
(3) The PKS Board of Directors preliminarily approved a plan to make a tax-free
distribution of its entire ownership interest in MFS to the holders of
Class D Stock at a special meeting on June 9, 1995. The operating results
of MFS have been classified as a single line item on the statements of
earnings for all periods presented. PKS's proportionate share of the net
assets of MFS at June 30, 1995 of $447 million has been reported separately
on the balance sheet.
(4) In October 1993, the Group acquired 35% of the outstanding shares of C-TEC
Corporation that have 57% of the available voting rights. In December 1994,
the Group increased its ownership in C-TEC to 49% and 58% of the
outstanding shares and voting rights, respectively. In January 1994, MFS
issued $500 million of 9.375% Senior Discount Notes.
(5) In 1993, through two public offerings, the Group sold 29% of the common
stock of MFS, resulting in a $137 million after-tax gain. In 1994,
additional MFS stock transactions resulted in a $35 million after-tax gain
to the Group and reduced its ownership in MFS to 67%.
(6) On May 5, 1995, the U.S. government and a subsidiary of the Group entered
into a settlement agreement with respect to the Whitney Benefits
litigation. In settlement of all claims, the Group received $135 million on
June 2, 1995 which it recognized as income.
(7) In connection with the January 8, 1992 reorganization, each share of
previous Class B and Class C Stock was exchanged for one share of new Class
B Stock or Class C Stock and one share of new Class D Stock. Therefore, for
purposes of computing Class D Stock per share data, the number of shares
for years 1990 and 1991 are assumed to be the same as the corresponding
number of shares of the previous Class B and Class C Stock. Fully diluted
earnings per share have not been presented because it is not materially
different from primary earnings per share.
(8) The 1992 dividends include $.35 for dividends declared in 1992 but paid in
January, 1993. Years 1990 and 1991 reflect dividends paid by PKS on its
previous Class B and Class C Stock that have been attributed to Kiewit
Diversified Group and
</TABLE>
47
<PAGE>
<TABLE>
<S> <C>
Kiewit Construction & Mining Group based upon the relative formula values
of each group which were determined at the end of each preceding year.
Accordingly, the dividends may bear no relationship to the dividends that
would have been declared by the Board in such years had the new Class D
Stock and the Class B and Class C Stock been outstanding.
(9) Pro forma dividends have not been presented as the amount of any dividends
that may have been declared if the transactions had occurred as of the
beginning of the respective periods cannot be determined.
(10) Pursuant to the Certificate of Incorporation, the stock price and formula
value calculations are computed annually at the end of the fiscal year,
except that adjustments to the stock price to reflect dividends are made at
the time such dividends are declared.
(11) Unless Class D Stock becomes Publicly Traded, PKS is generally committed to
purchase all Class D Stock at the price determined, in accordance with the
Certificate of Incorporation, when put to PKS by a stockholder. The
aggregate redemption value of the Class D Stock at June 30, 1995 was $1.3
billion.
</TABLE>
48
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OF MFS COMMUNICATIONS COMPANY, INC.
The development and acquisition by MFS of its networks and services during
the periods reflected below materially affect the comparability of that data
from one period to another. The following selected consolidated financial data
should be read in conjunction with the Consolidated Financial Statements of MFS
and the notes thereto, incorporated by reference herein. No cash dividends were
paid in any of the periods presented below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
--------------------------------------------------------- ENDED
1990 (1) 1991 (2) 1992 1993 1994 (3) JUNE 30, 1995
-------- -------- ----------- ----------- ----------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Telecommunications services..................... $ 8,951 $ 23,158 $ 47,585 $ 70,048 $ 228,707 $220,867
Network systems integration..................... 1,721 14,065 61,122 71,063 58,040 37,478
-------- -------- ----------- ----------- ----------- --------------
Total......................................... 10,672 37,223 108,707 141,111 286,747 258,345
Costs and expenses:
Operating expenses.............................. 13,971 33,963 76,667 102,905 273,431 259,017
Depreciation and amortization................... 7,990 11,761 20,544 34,670 73,869 60,721
General and administrative expenses............. 11,590 18,429 23,267 34,989 75,576 53,724
-------- -------- ----------- ----------- ----------- --------------
Total......................................... 33,551 64,153 120,478 172,564 422,876 373,462
-------- -------- ----------- ----------- ----------- --------------
Loss from operations.............................. (22,879) (26,930) (11,771) (31,453) (136,129) (115,117)
Other income (expense) net (4).................... (8,052) (1,314) (792) 8,464 (17,175) (13,419)
-------- -------- ----------- ----------- ----------- --------------
Loss before income taxes.......................... (30,931) (28,244) (12,563) (22,989) (153,304) (128,536)
Income tax benefit (expense)...................... -- -- (566) 7,220 2,103 (200)
-------- -------- ----------- ----------- ----------- --------------
Net loss........................................ $(30,931) $(28,244) $(13,129) $(15,769) $(151,201) $(128,736)
-------- -------- ----------- ----------- ----------- --------------
-------- -------- ----------- ----------- ----------- --------------
Loss per share (5) ............................... $(0.30) $(0.30) $(2.42) $(2.00)
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
Number of shares (5).............................. 44,085,000 52,882,000 62,437,000 64,423,000
----------- ----------- ----------- --------------
----------- ----------- ----------- --------------
Ratio of earnings to combined fixed charges and
preferred stock dividends (6).................... -- -- -- -- -- --
OTHER DATA:
EBITDA (7)...................................... $(14,889) $(15,169) $ 8,773 $ 3,217 $ (62,260) $ (54,396)
Net cash provided by (used in) operating
activities..................................... (27,695) (21,965) 28,741 32,946 (10,442) (66,833)
Capital expenditures, including acquisitions of
businesses, net of cash acquired............... 39,140 92,411 110,171 128,651 576,711 264,293
STATISTICAL DATA (8):
Circuits in service (9)......................... 173,958 465,420 589,130 947,391 1,713,430 2,241,601
Buildings connected............................. 226 695 1,101 1,583 2,754 3,698
Route miles (10)................................ 127 373 858 1,298 2,405 2,702
Fiber miles (11)................................ 10,359 22,982 38,595 62,154 107,919 136,060
Switches........................................ -- -- -- 1 12 12
BALANCE SHEET DATA:
Networks and equipment.......................... $ 82,451 $159,751 $243,243 $370,334 $ 787,453 $1,055,581
Total assets.................................... 102,959 204,819 363,299 906,937 1,584,546 1,826,833
Long-term debt, less current portion............ 17,849 7,659 169 143 548,333 596,958
Stockholders' equity............................ (36,739) 162,538 298,516 811,105 770,103 963,466
<FN>
- ------------------------------
(1) Reflects the acquisition as of April 1, 1990 of 80% of the common stock of
MFS Chicago, which owns MFS's network in Chicago.
(2) Reflects the acquisition as of October 17, 1991 of 85% of the common stock
of MFS/ICC, which owns MFS's network in the Washington, D.C. metropolitan
area.
</TABLE>
49
<PAGE>
<TABLE>
<S> <C>
(3) Reflects the acquisition of Centex Telemanagement, Inc. as of May 18, 1994,
Cylix Communications Corporation as of November 1, 1994 and RealCom Office
Communications, Inc. as of November 14, 1994.
(4) Reflects the assumption of $23.6 million principal amount of debt in
connection with the acquisition of MFS Chicago in April 1990, in addition
to interest charged on advances from KDG through 1990. MFS recorded
interest expense in respect of such advances of $7.2 million in 1990.
(5) See Note 2 to the Consolidated Financial Statements, which describes the
calculation of loss per share.
(6) For each of the five years ended December 31, 1994 and the six months ended
June 30, 1995, earnings were insufficient to cover fixed charges during the
periods shown by the amount of loss before income taxes of $30,931,000,
$28,244,000, $12,563,000, $22,989,000, $153,304,000 and $128,536,000,
respectively.
(7) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation and amortization. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA is not intended to represent
operating results or cash flows as determined by generally accepted
accounting principles. See Consolidated Statements of Cash Flows.
(8) Information presented as of the end of the period indicated and derived
from non-financial records prepared by MFS which are not audited. Includes
statistical data for the Chicago network which MFS managed prior to its
acquisition by MFS as described in Note 1 above.
(9) All circuits have been expressed as voice grade equivalent circuits.
(10) Route miles refers to the number of miles of the telecommunications path in
which the fiber optic cables are installed.
(11) Fiber miles refers to the number of route miles installed (excluding
pending installations) along a telecommunications path multiplied by the
number of fibers along that path.
</TABLE>
50
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
TERMS; POTENTIAL PRORATION. Upon the terms and subject to the conditions
set forth herein and in the Letter of Transmittal (which together constitute the
"Exchange Offer"), PKS hereby offers to exchange and PKS will exchange
(i) .416598 of a share of Class D Stock for each outstanding share of Class
B Stock and Class C Stock (including all shares of Class C Stock issued in
exchange for Exchangeable Debentures),
(ii) 24.75 shares of Class C Stock and 24.75 shares of Class D Stock for
each $1,000 principal amount of each outstanding 1990 Series Convertible
Debenture due October 31, 2000 (each such share of Class C Stock will then
be exchangeable for .416598 shares of Class D Stock pursuant to the Exchange
Offer as described in clause (i) above),
(iii) 22.98 shares of Class C Stock and 22.98 shares of Class D Stock for
each $1,000 principal amount of each outstanding 1991 Series Convertible
Debenture due October 31, 2001 (each such share of Class C Stock will then
be exchangeable for .416598 shares of Class D Stock pursuant to the Exchange
Offer as described in clause (i) above), and
(iv) 19.97 shares of Class D Stock for each $1,000 principal amount of each
outstanding 1993 Series Convertible Debenture due October 31, 2003,
that is validly tendered and not properly withdrawn on or prior to 5:00 p.m.,
Omaha, Nebraska time on the Expiration Date. See " -- Withdrawal Rights," below.
All outstanding shares of Class C Stock (including shares of Class C Stock
issued to certain employees of PKS in connection with the Company's annual
offering of Class C Stock in 1995), as well as shares of Class C Stock received
by debentureholders in exchange for Class C and D Debentures in the Exchange
Offer, will be exchangeable for Class D Stock pursuant to the Exchange Offer.
The Exchange Offer will be open until 5:00 p.m., Omaha, Nebraska time on
September 29, 1995 unless extended as described herein. Shares of Class B Stock
and Class C Stock accepted for exchange pursuant to the Exchange Offer will be
held as treasury shares.
A holder of Exchangeable Stock may exchange any or all of the shares of
Exchangeable Stock held by such holder for Class D Stock pursuant to the
Exchange Offer. A decision by a holder of Exchangeable Stock to tender a portion
of such stock in the Exchange Offer will not be treated by PKS as a basis for
exercising PKS's right, under the PKS Certificate of Incorporation, to
repurchase the remaining Exchangeable Stock of such holder.
A holder of an Exchangeable Debenture may elect only to exchange the entire
principal amount of such Exchangeable Debenture for Offered Stock pursuant to
the Exchange Offer; partial exchange of an Exchangeable Debenture in the
Exchange Offer is not permitted.
The exchange ratio of shares of Class D Stock to be received by tendering
stockholders for the Exchangeable Stock was established by the PKS Board of
Directors on June 9, 1995. In determining the exchange ratio for the
Exchangeable Stock, the PKS Board of Directors employed the conversion ratio
that was applicable under the PKS Certificate of Incorporation to the January 1,
1995 conversion of Class B Stock and Class C Stock into Class D Stock (I.E., the
ratio of the Class D Per Share Price to the Class B&C Per Share Price at January
1, 1995 of $60.25 to $26.00, or 1:431535) adjusted for the dividends paid on
Class B Stock and Class C Stock in January 1995 of $.45 per share and in May
1995 of $.45 per share (yielding a ratio of $60.25 to $25.10, or 1:.416598). In
lieu of issuing fractional shares, PKS will round the number of shares of Class
D Stock received by a tendering holder of Exchangeable Stock to the nearest
whole number of shares without any additional consideration being payable by or
to such holder.
In the case of the Exchangeable Debentures, the PKS Board established an
exchange ratio whereby each Exchangeable Debenture may be exchanged for that
number of shares of Class D Stock
51
<PAGE>
(and, in the case of Class C and D Debentures, that number of shares of Class C
Stock) that would have been issuable upon conversion of such debenture in
accordance with its terms. In lieu of issuing fractional shares, PKS will round
the number of shares of Class D Stock (and Class C Stock in the case of Class C
and D Debentures) received by a tendering holder of an Exchangeable Debenture to
the nearest whole number of shares without any additional consideration being
payable by or to such holder. In addition, interest on the tendered Exchangeable
Debentures accrued to and including the date of the consummation of the Exchange
Offer will be paid to such holder. If such Exchangeable Debentures are pledged
to FirsTier Bank, N.A., PKS will pay such accrued interest to FirsTier to the
extent of interest accrued on the underlying loan by FirsTier to the holder of
the Exchangeable Debentures, and will pay only the remaining amount directly to
the debentureholder.
Although PKS does not anticipate that it will be necessary to impose a limit
on the amount of Exchangeable Stock that may be exchanged in the Exchange Offer,
PKS expressly reserves the right to do so if the PKS Board of Directors
determines that acceptance of all tendered Exchangeable Stock would not be in
the best interest of PKS and its stockholders. If the PKS Board were to take
such action, it would impose such limit on the tendered Exchangeable Stock (but
not on the tendered Exchangeable Debentures) on a pro rata basis and would
follow the procedures otherwise applicable to a modification of the Exchange
Offer. See "The Exchange Offer -- Right of PKS to Extend, Abandon or Modify the
Exchange Offer." The PKS Board might consider imposing such a limit if it
concluded that acceptance of all shares of Exchangeable Stock tendered could
frustrate the employee incentivization purposes of PKS's employee ownership
program for Class C Stock, given the aggregate amount of and/or the
concentration of ownership of the Exchangeable Stock tendered. Any such
conclusion would involve a subjective judgment by the PKS Board based upon the
facts and circumstances at the time of a decision to impose such a limit. (Such
stock ownership program, under which Class C Stock is offered to selected
employees of the Construction & Mining Group each year, is intended in part to
incentivize such employees by giving them a financial stake in the performance
of the sector of the Company's business in which they are employed).
The Exchange Offer is not conditioned upon any minimum amount of
Exchangeable Securities being tendered for exchange. However, the Exchange Offer
is subject to the Ruling remaining substantially in effect. See "The Exchange
Offer -- Condition to the Exchange Offer."
As of June 23, 1995, there were 884,400 shares of Class B Stock issued and
outstanding, held by four holders of record, 13,944,365 shares of Class C Stock
issued and outstanding, held by 1,255 holders of record, $805,000 principal
amount of 1990 Series Convertible Debentures outstanding, held by 41 holders of
record, $1,740,000 principal amount of 1991 Series Convertible Debentures
outstanding, held by 74 holders of record, and $455,000 principal amount of 1993
Series Convertible Debentures outstanding, held by 12 holders of record. As of
such date, directors of PKS held, in the aggregate, 4,332,452 shares of Class C
Stock, $160,000 principal amount of 1990 Series Convertible Debentures, $425,000
principal amount of 1991 Series Convertible Debentures and $200,000 principal
amount of 1993 Series Convertible Debentures. Such directors have indicated to
PKS that they do not intend to tender their Exchangeable Stock pursuant to the
Exchange Offer with the exception of Walter Scott, Jr., Chairman of the Board
and President of PKS, and Robert E. Julian, Executive Vice President and Chief
Financial Officer of PKS, who expect to tender, in the aggregate, 785,892 shares
of Class C Stock pursuant to the Exchange Offer. Mr. Scott's intention to tender
Class C Stock in the Exchange Offer reflects his assessment (based on his
assumptions as to the amount of Class C Stock to be offered for sale by PKS and
the amount of such stock to be repurchased by PKS or converted to Class D Stock)
of the number of shares of such stock he would otherwise be required to sell to
PKS, convert to Class B Stock or convert to Class D Stock within the next few
years pursuant to the PKS Certificate of Incorporation. The PKS Certificate of
Incorporation provides that, if for any reason a holder owns more than 10% of
the issued and outstanding shares of Class C Stock, on a fully-diluted basis, on
January 1st of any year, such holder must sell back to PKS or convert to Class D
Stock (or, in the case of Mr. Scott, Class B Stock or Class D Stock) that amount
of such Class C Stock which is in excess of such 10% limitation. Mr. Julian's
intention to tender Class C Stock reflects the fact that his
52
<PAGE>
responsibilities with PKS relate primarily to the Diversified Group. See
"Certain Transactions -- Intentions of Certain Significant Stockholders
Regarding Participation in Exchange Offer." The Company expects that all
Exchangeable Debentures, including those held by the directors of PKS, will be
tendered pursuant to the Exchange Offer. See "Risk Factors -- Risk Factors
Relating to the Exchange Offer, The Spin-off and PKS Securities -- Certain
Consequences of Decision Not to Exchange."
This Prospectus and the Letters of Transmittal are being sent to persons who
were holders of record of Class B Stock, Class C Stock, Class D Debentures and
Class C and D Debentures as of the close of business on July 31, 1995, including
those employees who purchased shares of Class C Stock in connection with PKS's
annual offering of Class C Stock in 1995.
Participation in the Exchange Offer is voluntary, and holders of
Exchangeable Securities should carefully consider whether or not to accept the
Exchange Offer. See "Risk Factors." Tender by a debentureholder of Exchangeable
Debentures held by such debentureholder in the Exchange Offer will most likely
result in receipt of the greatest value by the debentureholder based upon the
fact that (i) the respective formula values of the Offered Stock issuable in
exchange for each Exchangeable Debenture will be substantially greater than the
face amount of such Exchangeable Debenture and (ii) PKS will not retain any MFS
Common Stock or MFS Preferred Stock after the Spin-off, and therefore would not
be able to distribute any such stock upon a subsequent conversion of such
Exchangeable Debenture during its scheduled conversion period. Furthermore, the
PKS Board has not made any provision for any other adjustment to the
Exchangeable Debentures to reflect the Spin-off. Accordingly, the PKS Board of
Directors recommends that holders of Exchangeable Debentures tender such
Exchangeable Debentures in the Exchange Offer.
The PKS Board of Directors makes no recommendation with respect to whether
holders of Exchangeable Stock should tender such Exchangeable Stock in the
Exchange Offer.
There are no dissenter's rights of appraisal in connection with the Exchange
Offer.
PKS does not intend to terminate the registration of the Class C Stock under
the Exchange Act after the consummation of the Exchange Offer.
PROCEDURE FOR TENDERING EXCHANGEABLE SECURITIES; EXCHANGE OF EXCHANGEABLE
SECURITIES; DELIVERY OF OFFERED STOCK
PROCEDURE FOR TENDERING EXCHANGEABLE SECURITIES. To tender Exchangeable
Securities pursuant to the Exchange Offer, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), any other documents
required by PKS and certificates for the Exchangeable Securities to be tendered
must be received by PKS prior to 5:00 p.m., Omaha, Nebraska time, on the
Expiration Date. Separate Letters of Transmittal will be required for the tender
of (i) the Class B Stock, (ii) the Class C Stock and (iii) the Exchangeable
Debentures.
A holder of an Exchangeable Debenture may not tender less than the full
principal amount of such debenture in the Exchange Offer.
A tender of Exchangeable Securities made pursuant to the instructions
contained herein and in the Letter of Transmittal will constitute a binding
agreement, subject to withdrawal rights as described herein, between the
tendering securityholder and PKS upon the terms and subject to the conditions of
the Exchange Offer.
If Exchangeable Stock has been pledged to a lender, the registered holder of
such pledged Exchangeable Stock must make appropriate arrangements with such
lender for valid tender of the certificates representing the pledged
Exchangeable Stock. If, however, such lender is FirsTier Bank, N.A., PKS will
arrange directly with such bank for the delivery of such pledged certificates to
PKS. PKS will deliver the Offered Stock issued in exchange for Exchangeable
Stock directly to any lending institution to which such Exchangeable Stock was
pledged if so directed by the registered holder of such pledged stock in such
holder's Letter of Transmittal. If the Offered Stock received in exchange
53
<PAGE>
for the tendered Exchangeable Stock is to be delivered to a lender other than
FirsTier Bank, N.A., the Letter of Transmittal must state with specificity the
information necessary (including name, address and contact person of the lender)
to effect such delivery. If a holder of pledged Exchangeable Stock does not
designate the lending institution to which the Offered Stock received in
exchange for tendered Exchangeable Stock is to be delivered, PKS may deliver
such Offered Stock to the exchanging securityholder, but reserves the right to
deliver such Offered Stock directly to a lending institution if PKS believes in
good faith that such lending institution is entitled to receive the Offered
Stock under a borrowing arrangement with the exchanging securityholder.
If Exchangeable Debentures have been pledged to a lender, a holder of
Exchangeable Debentures must specify in the related Letter of Transmittal the
name of the lending institution to which such Exchangeable Debentures are
pledged. Execution and return of a Letter of Transmittal relating to such
pledged Exchangeable Debentures will constitute, upon receipt by PKS,
authorization by the exchanging debentureholder (i) to the lending institution
to deliver the pledged Exchangeable Debentures directly to PKS for exchange
pursuant to the Exchange Offer and (ii) to PKS to deliver the Offered Stock
issued in exchange for such tendered Exchangeable Debentures directly to the
lending institution which tendered such Exchangeable Debentures. Accordingly,
holders who wish to tender pledged Exchangeable Debentures in the Exchange Offer
will not be required to make any arrangements with the lending institution with
respect to such matters. If a holder of pledged Exchangeable Debentures does not
designate the lending institution to which the Offered Stock received in
exchange for tendered Exchangeable Debentures is to be delivered, PKS may
deliver such Offered Stock to the exchanging debentureholder, but reserves the
right to deliver such Offered Stock directly to a lending institution if PKS
believes in good faith that such lending institution is entitled to receive the
Offered Stock under a borrowing arrangement with the exchanging debentureholder.
If Exchangeable Debentures have been pledged to FirsTier Bank, N.A.,
execution and return of the Letter of Transmittal also will constitute, upon
receipt by PKS, authorization to pay to FirsTier Bank, N.A., any and all
interest accrued on loans from FirsTier Bank, N.A. secured by the Exchangeable
Debentures through the Exchange Date, from and to the extent of interest accrued
on the Exchangeable Debentures through the Exchange Date, and otherwise payable
to the holders of the Exchangeable Debentures. PKS will pay the remaining
portion of interest accrued on the Exchangeable Debentures to the holders
thereof as soon as practicable after the Exchange Date.
PERSONS WHO HAVE PLEDGED EXCHANGEABLE SECURITIES TO A LENDER AND WHO ARE
CONSIDERING PARTICIPATION IN THE EXCHANGE OFFER, OR WHO HAVE PLEDGED CLASS D
STOCK TO A LENDER, SHOULD CONSULT WITH THE LENDER AS TO THE EFFECT OF THE
EXCHANGE OFFER AND THE SPIN-OFF ON THEIR LOAN ARRANGEMENTS.
If any certificates representing Exchangeable Securities have been
destroyed, lost or stolen, the tendering securityholder must (a) furnish to PKS
evidence, satisfactory to it in its sole discretion, of the ownership of and the
destruction, loss or theft of such certificate, (b) furnish to PKS indemnity,
satisfactory to it in its sole discretion, and (c) comply with such other
reasonable requirements as PKS may prescribe.
The method of delivery of certificates representing the Exchangeable
Securities and all other required documents is at the option and risk of the
tendering securityholder. If certificates representing the Exchangeable
Securities are sent by mail, registered mail with return receipt requested,
properly insured, is recommended and sufficient time to ensure timely receipt
should be allowed.
EXCHANGE OF EXCHANGEABLE SECURITIES; DELIVERY OF OFFERED STOCK. Upon the
terms and subject to the conditions of the Exchange Offer (including, without
limitation, the right of PKS to impose a limit on the number of shares of
Exchangeable Stock accepted for exchange in the Exchange Offer), on the Exchange
Date (as defined below) PKS will accept for exchange, and will issue shares of
Offered Stock in exchange for, Exchangeable Securities that have been validly
tendered and not properly withdrawn on or prior to the Expiration Date, provided
that PKS has not otherwise notified tendering securityholders of its intent to
extend, abandon or modify the Exchange Offer. The Exchange Date will be the
Expiration Date. Exchange of the Exchangeable Securities accepted for exchange
pursuant to the
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<PAGE>
Exchange Offer will be made only after timely receipt by PKS of (i) certificates
for such Exchangeable Securities and (ii) a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), together with any other documents
required by PKS. Holders of Exchangeable Securities so accepted for exchange
will become holders of record of the Offered Stock on the Exchange Date.
PKS will deliver certificates representing shares of Offered Stock issued in
exchange for Exchangeable Securities accepted for exchange as soon as
practicable following such acceptance. If any tendered Exchangeable Securities
are not exchanged pursuant to the Exchange Offer for any reason, or if
certificates are submitted for more Exchangeable Stock than is (i) tendered for
exchange or (ii) accepted for exchange, certificates for such untendered or
unexchanged securities will be returned without expense as promptly as
practicable following the consummation or abandonment of the Exchange Offer.
Under no circumstances will interest (other than interest accrued on the
Exchangeable Debentures to and including the Exchange Date) be paid by PKS
pursuant to the Exchange Offer, regardless of any delay in making such exchange.
Tendering securityholders are responsible for payment of all stock transfer
taxes, if any, payable in connection with the Exchange Offer.
All questions as to the form of documents and the validity, form,
eligibility (including time of receipt), and acceptance for exchange of any
tender of securities and notices of withdrawal will be determined by PKS in its
sole discretion, which determination will be final and binding. PKS reserves the
absolute right to reject any or all tenders of Exchangeable Securities
determined by it not to be in proper form or any acceptance for exchange of
Exchangeable Securities which may, in the opinion of PKS's counsel, be unlawful.
PKS also reserves the absolute right to waive any defect or irregularity in any
tender of Exchangeable Securities. PKS will not be under any duty to give
notification of any defect or irregularity in tenders or notices of withdrawal
or incur any liability for failure to give any such notification.
WITHDRAWAL RIGHTS
Exchangeable Securities tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date without penalty on the terms
and conditions contained herein. However, once the Expiration Date occurs,
tenders of Exchangeable Securities are irrevocable by the tendering
securityholder. If PKS extends the Expiration Date, then, without prejudice to
PKS's other rights under the Exchange Offer, PKS may retain all Exchangeable
Securities tendered, subject only to the withdrawal rights of tendering
securityholders as described in this section.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by PKS at the address
set forth in the Letter of Transmittal. Any such notice of withdrawal must
specify the name of the person who tendered the Exchangeable Securities
precisely as it appears in the Letter of Transmittal and the amount of
securities to be withdrawn. If certificates have been delivered to PKS, the
serial numbers shown on the particular certificates evidencing the Exchangeable
Securities to be withdrawn and a signed notice of withdrawal must be submitted
prior to the physical release of the certificates for the Exchangeable
Securities to be withdrawn. Withdrawals may not be rescinded, and Exchangeable
Securities withdrawn will thereafter be deemed not validly tendered for purposes
of the Exchange Offer. However, withdrawn securities may be retendered by again
following the procedures described herein and in the Letter of Transmittal at
any time prior to the Expiration Date.
CONDITION TO THE EXCHANGE OFFER
PKS has received the Ruling from the IRS confirming, among other things,
that the Spin-off and certain related transactions could be consummated on a
tax-free basis to the holders of Class D Stock for United States federal income
tax purposes. The Exchange Offer will not be consummated unless the Ruling
remains substantially in effect as of the Exchange Date, as determined by the
PKS Board of Directors in its sole discretion. Any determination by PKS
concerning the Ruling will be final and binding upon all parties.
55
<PAGE>
There are no federal or state regulatory requirements or approvals that must
be complied with or obtained as a condition of the Exchange Offer.
RIGHT OF PKS TO EXTEND, ABANDON OR MODIFY THE EXCHANGE OFFER
PKS expressly reserves the right to abandon the Exchange Offer and not
accept for exchange any Exchangeable Securities if the PKS Board of Directors
reasonably determines that there shall have occurred any material change in the
business, financial condition, results of operations or prospects of MFS or of
the Diversified Group, in the market price of the MFS Common Stock, or in any
other circumstance, and that, as a result, consummation of the Exchange Offer
would no longer be in the best interest of PKS and its stockholders. If the PKS
Board were to consider abandonment of the Exchange Offer without abandoning the
Spin-off, it would take into account the effect of such proposal on the
interests of the holders of each class of Exchangeable Securities and on the
interests of the holders of Class D Stock, and would also consider seeking new
fairness opinions from its financial advisors. PKS will abandon the Exchange
Offer in the event it abandons the Spin-off. See "The Spin-off -- Condition to
the Spin-off; Right of PKS to Abandon, Defer or Modify the Spin-off."
PKS also reserves the right, at any time or from time to time, whether or
not the condition described under "The Exchange Offer -- Condition to the
Exchange Offer" shall have been satisfied, (i) to extend the Expiration Date or
(ii) if the PKS Board of Directors determines for any reason that such action
would be in the best interest of PKS and its stockholders, to modify the
Exchange Offer in any respect, by giving written notice of such extension or
modification to the holders of Exchangeable Securities.
Without limiting the factors the PKS Board might take into account in taking
action with respect to the Exchange Offer, the PKS Board might consider
abandonment or modification of the terms of the Exchange Offer if such
abandonment or modification were determined to be appropriate in light of a
change in applicable law or other unforeseen legal or regulatory considerations.
The PKS Board might also consider imposing a limit on the amount of Exchangeable
Stock that may be exchanged in the Exchange Offer if it determines that
acceptance of all tendered Exchangeable Stock would not be in the best interest
of PKS and its stockholders. For example, the PKS Board might consider imposing
such a limit if it concluded that acceptance of all shares of Exchangeable Stock
tendered could frustrate the employee incentivization purposes of PKS's employee
ownership program for Class C Stock, given the aggregate amount of and/or the
concentration of ownership of the Exchangeable Stock tendered. Any such
conclusion would involve a subjective judgment by the PKS Board based upon the
facts and circumstances at the time of a decision to impose such a limit. In the
event the PKS Board were to impose such a limit, it would impose the limit on
the tendered Exchangeable Stock (but not on the tendered Exchangeable
Debentures) on a pro rata basis. (In order to avoid having certain rules of the
Commission regarding "going private" transactions from becoming applicable to
the Exchange Offer, PKS will in any event impose a limit as described above to
the extent the consummation of the Exchange Offer in the absence of such a limit
would result in there being fewer than 300 holders of Class C Stock. Based on
such 300-shareholder minimum and the tender indications received from members of
the PKS Board of Directors and the members of the KCG board of directors, PKS
would not accept in any event tenders of more than 8,500,000 shares of
Exchangeable Stock. However, the PKS Board would in all likelihood determine to
impose such a limit well before such 300-shareholder minimum or such 8,500,000
maximum were reached, and, as discussed above, the PKS Board may also determine
to impose such a limit based on the concentration of ownership of the shares of
Exchangeable Stock tendered). The PKS Board of Directors does not presently
intend to impose a limit on the amount of Exchangeable Debentures that may be
exchanged in the Exchange Offer, even if a limit were imposed on the amount of
Exchangeable Stock that may be exchanged.
A total of 59,929 shares of Class C Stock and 69,010 shares of Class D Stock
would be issuable in the Exchange Offer upon the acceptance by PKS of a tender
of all Exchangeable Debentures. A total of 3,541,083 shares of Class D Stock
would be issuable in the Exchange Offer upon the acceptance by PKS of a tender
of the maximum level of 8,500,000 shares of Exchangeable Stock, but PKS does not
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expect tenders of Exchangeable Stock to reach such level, and the PKS Board
would in all likelihood determine to impose a limit on the number of shares of
Exchangeable Stock to be accepted in the Exchange Offer before tenders reached
such level.
If PKS modifies a material term of the Exchange Offer, it will extend the
period of time during which the Exchange Offer will remain open if necessary so
that the Expiration Date, as extended, is at least 10 business days after the
announcement of such modification and, to the extent required by applicable
securities laws, will file an appropriate post-effective amendment to the
Registration Statement of which this Prospectus forms a part with the
Commission. If PKS modifies the terms of the Exchange Offer or extends the
period of time during which the Exchange Offer is open, then, without prejudice
to PKS's other rights under the Exchange Offer, PKS may retain all Exchangeable
Securities tendered, subject only to the tendering securityholder's withdrawal
rights described above in "The Exchange Offer -- Withdrawal Rights."
If PKS abandons the Exchange Offer as described herein, then PKS will return
all tendered certificates representing Exchangeable Securities as indicated by
the applicable Letter of Transmittal as soon as practicable following the
announcement of such occurrence.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE EXCHANGE
OFFER
The following discussion sets forth the material United States federal
income tax consequences under existing law of the Exchange Offer.
PKS has received rulings from the IRS concerning the treatment of certain
exchanges effected under the Exchange Offer (the "Exchange Tax Rulings"). The
continuing validity of the Exchange Tax Rulings is subject to the validity of
certain representations and assumptions made in connection with obtaining such
rulings. PKS is not aware of any facts or circumstances that should cause such
representations or assumptions to be untrue.
The Exchange Tax Rulings provide, among other things, that for United States
federal income tax purposes:
(1) The exchange of Offered Stock for Exchangeable Debentures will
constitute a recapitalization within the meaning of section 368(a)(1)(E) of
the Internal Revenue Code of 1986, as amended (the "Code"), and PKS will be
"a party to a reorganization" within the meaning of section 368(b) of the
Code;
(2) No gain or loss will be recognized by a holder of Exchangeable
Debentures who elects to participate in the Exchange Offer upon the exchange
of Offered Stock for Exchangeable Debentures;
(3) No gain or loss will be recognized by PKS upon the exchange of
Offered Stock for Exchangeable Debentures:
(4) The basis of Offered Stock received pursuant to the Exchange Offer
will be the same as the basis of Exchangeable Debentures exchanged therefor;
and
(5) The holding period of Offered Stock received pursuant to the
Exchange Offer will include the holding period of Exchangeable Debentures
surrendered therefor, provided that such debentures are held as capital
assets on the date of the exchange.
No tax rulings have been sought from the IRS (and none will be requested)
with respect to any tax issues associated with the exchange of Offered Stock for
Exchangeable Stock. Nevertheless, in the opinion of Sutherland, Asbill &
Brennan, regular outside tax counsel to PKS, although the issue is not free from
doubt, such exchange should constitute for United States federal income tax
purposes a recapitalization within the meaning of section 368(a)(1)(E) of the
Code. In that event, the following United States federal income tax consequences
should follow with respect to such exchange:
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(1) PKS will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(2) No gain or loss will be recognized by a holder of Exchangeable Stock
who elects to participate in the Exchange Offer upon the exchange of Offered
Stock for Exchangeable Stock;
(3) No gain or loss will be recognized by PKS upon the exchange of
Offered Stock for Exchangeable Stock;
(4) The basis of Offered Stock received pursuant to the Exchange Offer
will be the same as the basis of Exchangeable Stock exchanged therefor; and
(5) The holding period of Offered Stock received pursuant to the
Exchange Offer will include the holding period of Exchangeable Stock
exchanged therefor, provided that such Exchangeable Stock is held as a
capital asset on the date of the exchange.
If, contrary to the Exchange Tax Rulings, the exchange of Offered Stock for
Exchangeable Debentures were taxable, then, among other consequences, gain or
loss would be recognized by each holder of Exchangeable Debentures who elects to
participate in the Exchange Offer upon the exchange of Offered Stock for
Exchangeable Debentures. Similarly, if, contrary to the opinion of Sutherland,
Asbill & Brennan, the exchange of Offered Stock for Exchangeable Stock were
taxable, then, among other consequences, gain or loss would be recognized by
each holder of Exchangeable Stock who elects to participate in the Exchange
Offer upon the exchange of Offered Stock for Exchangeable Stock. The amount of
any gain recognized upon a taxable exchange of Offered Stock for Exchangeable
Debentures or for Exchangeable Stock would equal the excess of the fair market
value of the Offered Stock over the holder's adjusted basis in the Exchangeable
Debentures or the Exchangeable Stock, and the amount of any loss recognized
would equal the excess of the holder's adjusted basis in the Exchangeable
Debentures or the Exchangeable Stock over the fair market value of the Offered
Stock. For purposes of determining the fair market value of the Offered Stock,
each share of Class C Stock should be treated as having a fair market value
equal to the Class B&C Per Share Price, and each share of Class D Stock should
be treated as having a fair market value equal to the Class D Per Share Price,
in each case at the time of consummation of the Exchange Offer.
THE FOREGOING DISCUSSION IS ONLY A SUMMARY OF CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER UNDER CURRENT LAW AND IS INTENDED
FOR GENERAL INFORMATION ONLY. THE DISCUSSION MAY NOT ACCURATELY DESCRIBE THE
TREATMENT OF HOLDERS OF EXCHANGEABLE SECURITIES IF SUCH HOLDERS RECEIVED SUCH
EXCHANGEABLE SECURITIES AS COMPENSATION, ARE FOREIGN PERSONS, OR ARE OTHERWISE
SUBJECT TO SPECIAL TREATMENT UNDER THE CODE. ALL HOLDERS OF EXCHANGEABLE
SECURITIES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR
CONSEQUENCES OF THE EXCHANGE OFFER TO THEM, INCLUDING (i) THE APPLICATION OF
UNITED STATES FEDERAL, STATE, AND LOCAL TAX LAWS, AND OF FOREIGN TAX LAWS AND
(ii) THE EFFECT OF CHANGES IN LAW, INCLUDING CHANGES HAVING RETROACTIVE EFFECT.
THE SPIN-OFF
MANNER OF EFFECTING THE DISTRIBUTION
MANNER OF DISTRIBUTION; SPIN-OFF DATE. In the event that the condition
described under "The Spin-off -- Condition to the Spin-off; Right of PKS to
Abandon, Defer or Modify the Spin-off" is satisfied, and unless the PKS Board of
Directors has exercised its right to abandon the Spin-off if it determines such
action would be in the best interest of PKS and its stockholders, the Spin-off
will be declared and be effected on the Spin-off Date to holders of record of
Class D Stock (including Class D Stock issued in the Exchange Offer) on such
date. Such holders of Class D Stock will become holders of record of the
Spin-off Stock to which they are entitled on or promptly after the Spin-off
Date. PKS currently anticipates that the Spin-off Date will be the day after the
Expiration Date. PKS expressly reserves the right, in its sole discretion, to
defer the Spin-off Date if it determines that such action is in the best
interest of PKS and its stockholders, but if the Exchange Offer is consummated,
the Spin-off will be consummated promptly thereafter.
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The number of shares of Spin-off Stock to be distributed in respect of each
outstanding share of Class D Stock will be determined on the Spin-off Date. Such
determination will be based on the number of shares of Class D Stock outstanding
on the Spin-off Date and accordingly will depend on the number of shares of
Class D Stock issued pursuant to the Exchange Offer. See "The Exchange Offer,"
"Overview -- The Spin-off" and "Overview -- The MFS Recapitalization."
As an administrative and cost-saving convenience, no certificates or scrip
representing, or cash in lieu of, fractional shares of Spin-off Stock will be
issued to holders of Class D Stock as part of the Spin-off. To the extent
fractional shares of Spin-off Stock would otherwise be issued to holders of
Class D Stock in the Spin-off, PKS will apply a convention whereby such
fractional shares are rounded to whole shares without affecting the total number
of shares of Spin-off Stock. For this purpose, PKS will calculate the aggregate
number of shares of MFS Common Stock and MFS Preferred Stock, respectively, that
would otherwise be issuable as fractional shares. Of such number of shares, one
whole share will be distributed to each of those holders of Class D Stock who
would otherwise be entitled to receive fractional shares of such stock, in the
order of the magnitude of such fractions, until all of such shares have been
distributed. The remaining holders of Class D Stock will not be entitled to
receive any consideration in respect of the fractional shares otherwise issuable
to them.
The shares of Spin-off Stock will be fully paid and nonassessable, and the
holders thereof will not be entitled to preemptive rights. The MFS Preferred
Stock is subject, by its terms, to restrictions on the transfer of such stock
and is subject to the irrevocable proxy to be granted by KDG to the Secretary
and Assistant Secretary of MFS. See "Description of Securities -- MFS Common
Stock" and "-- MFS Preferred Stock."
Certificates representing Spin-off Stock will be mailed to holders of Class
D Stock as soon as practicable after the Spin-off Date. Because the Spin-off
will require issuance and mailing of a significant number of stock certificates,
a delay of approximately three to four weeks in delivery of the certificates
representing Spin-off Stock will occur. Holders of Class D Stock should not
attempt to sell or transfer MFS Common Stock received pursuant to the Spin-off
until they have received the certificates evidencing such stock.
PKS will mail the certificates representing the Spin-off Stock to each
holder of Class D Stock of record on the Spin-off Date unless PKS has received
written notification from such holder, at least five business days prior to the
date that the certificates representing the Spin-off Stock are to be mailed,
that some or all of the Spin-off Stock received in the Spin-off is to be
delivered to a lending institution pursuant to a borrowing arrangement between
the holder and such lending institution. However, even if no notice is received
by PKS to such effect, PKS reserves the right to deliver the Spin-off Stock
received by a holder of Class D Stock in the Spin-off to a lending institution
if PKS believes in good faith that such lending institution is entitled to
receive such Spin-off Stock pursuant to a borrowing arrangement with the holder
of Class D Stock.
No holder of Class D Stock will be required to pay any cash or other
consideration, or to surrender or exchange shares of Class D Stock or any other
security or to take any other action in order to receive the Spin-off Stock
pursuant to the Spin-off.
LISTING AND TRADING OF SPIN-OFF STOCK
MFS COMMON STOCK. MFS Common Stock is currently traded on the Nasdaq
National Market under the symbol "MFST." It is expected that the MFS Common
Stock will continue to be traded on the Nasdaq National Market after the
Spin-off. Because the obligation of PKS to repurchase the Class D Stock under
the circumstances and upon the terms and conditions set forth in PKS's
Certificate of Incorporation will not apply to the Spin-off Stock, the ability
of a holder of MFS Common Stock to realize value upon a sale of such stock will
be entirely dependent on the market for the MFS Common Stock. The prices at
which the MFS Common Stock will trade after the Spin-off will be determined by
the marketplace and may be influenced by many factors, including, among others,
the continuing depth and liquidity of the market for MFS Common Stock, investor
perception of MFS, the
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industries in which its businesses participate and general economic and market
conditions. On August 24, 1995 the last reported sale price of the MFS Common
Stock as reported by the Nasdaq National Market was $45.50. See "Market for
Registrant's Common Stock and Related Stockholder Matters" in the MFS Annual
Report on Form 10-K incorporated herein by reference for information regarding
historical ranges of trading prices on MFS Common Stock.
Shares of MFS Common Stock distributed in the Spin-off, after giving effect
to the MFS Recapitalization, will constitute approximately 65% of the MFS Common
Stock outstanding. Despite the agreements entered into with the directors of PKS
and MFS in connection with the Spin-off described at "Certain Transactions --
Agreements Regarding Restrictions on Transfer of Spin-off Stock" below, a
substantial number of shares of MFS Common Stock will become available for
future sale in the public market after the Spin-off. Sales of substantial
numbers of such shares in the public market in the future could adversely affect
the market price of the MFS Common Stock and could impair MFS's ability to raise
additional capital through the sale of its equity securities.
Shares of MFS Common Stock received by holders of Class D Stock in the
Spin-off will be freely transferable, except for shares of MFS Common Stock
received by directors of PKS and MFS as described below and shares of MFS Common
Stock received by persons who may be deemed to be "affiliates" of MFS within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
Persons who may be deemed to be affiliates of MFS after the Spin-off will
generally include individuals or entities that control, are controlled by, or
are under common control with MFS and include directors of MFS. Persons who are
affiliates of MFS will be permitted to sell their shares of MFS Common Stock
received in the Spin-off only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act. See "Certain Transactions -- Certain Agreements Between PKS
and MFS -- The Distribution Agreement" for a discussion of the proposed grant to
certain affiliates of MFS of registration rights with respect to the Spin-off
Stock.
In connection with the recent DECS offering by MFS, MFS has entered into
agreements with the directors of PKS (other than one director of PKS who was
elected after the closing of the DECS offering) and the directors of MFS who are
holders of Class D Stock regarding the MFS Common Stock to be received by such
directors as a result of the Spin-off. The agreements prohibit resales of such
MFS Common Stock for a period of two years from May 24, 1995, subject to certain
exceptions. See "Certain Transactions -- Agreements Regarding Restrictions on
Transfer of Spin-off Stock."
MFS PREFERRED STOCK. The terms of the MFS Preferred Stock provide that the
MFS Preferred Stock is non-transferable for a period of six years, with limited
exceptions, and is redeemable at the option of MFS beginning at the end of such
six-year period. Accordingly, the MFS Preferred Stock received in the Spin-off
will not have any realizable resale value until the earlier of (i) its
conversion into MFS Common Stock at the option of the holder beginning on the
first anniversary of the date of issuance thereof or (ii) the expiration of the
six-year transfer restriction. Even at the end of such six-year period there
will likely be no public trading market for the MFS Preferred Stock. See
"Description of Securities -- MFS Preferred Stock." MFS does not intend to apply
for listing of the MFS Preferred Stock on any national securities exchange, on
the Nasdaq National Market or in the over-the-counter market.
CERTAIN EFFECTS OF SPIN-OFF ON CLASS D STOCK
Because approximately one-third of the current Class D Per Share Price of
$60.25 is attributable to MFS, the Class D Per Share Price will be significantly
reduced when the Spin-off is consummated. For example, assuming in two
alternative scenarios that (i) 3,000,000 shares and (ii) 5,000,000 shares of
Exchangeable Stock, and in each case all of the Exchangeable Debentures, are
exchanged in the Exchange Offer, the estimated Class D Per Share Price after
giving effect to the Spin-off would be $41.00 and $41.75, respectively.
Accordingly, the price at which holders of Class D Stock can sell such stock to
PKS after the Spin-off pursuant to the Company's obligation to repurchase such
Class D
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Stock under the Company's Certificate of Incorporation will be significantly
reduced. See "Overview -- The Spin-off." As the foregoing alternative scenarios
indicate, the greater the number of shares of Exchangeable Stock exchanged in
the Exchange Offer, the less the reduction in the Class D Per Share Price
resulting from the Spin-off. This is attributable to the fact that the amount of
the reduction in the Class D Formula Value resulting from the Spin-off will be a
fixed amount equal to PKS's book investment in the Spin-off Stock, whereas the
amount of such reduction on a per share basis (I.E., the amount of the reduction
in the Class D Per Share Price) will decrease as more shares of Class D Stock
are issued in the Exchange Offer. As such alternative scenarios also indicate,
the greater the number of shares of Exchangeable Stock exchanged in the Exchange
Offer, the fewer the number of shares of Spin-off Stock (and hence the less the
value of the Spin-off Stock) distributed per share of Class D Stock in the
Spin-off.
If and when the Class D Stock becomes Publicly Traded, the Company's
obligation to repurchase such stock will cease. The Class D Stock is freely
transferable. However, there is no established trading market for the Class D
Stock, and there has only been limited trading activity in the past.
The PKS Board of Directors has considered and will in the future again
consider the feasibility and desirability of listing the Class D Stock on a
national securities exchange or on the Nasdaq National Market or in the
over-the-counter market or taking other action to facilitate the Public Trading
of the Class D Stock. The ability to provide for the listing of the Class D
Stock on a securities exchange or on Nasdaq will be subject to the laws,
regulations and listing eligibility criteria in effect from time to time. See
"Risk Factors -- Effect of Class D Stock Becoming Publicly Traded."
A lender that has extended credit secured by PKS stock, in making decisions
as to how much credit to extend against the collateral held by such lender, may
assign a different loan-to-value ratio to the Class D Stock and the Spin-off
Stock after the Spin-off as compared to the loan-to-value ratio assigned to the
Class D Stock before the Spin-off. Furthermore, the Class D Per Share Price may
be less readily predictable than the Class B&C Per Share Price has historically
been, and the market value of the MFS Common Stock is expected to be more
volatile than the Class D Per Share Price has historically been. A decline in
the Class D Per Share Price of Class D Stock pledged to a lender or a decline in
the value of MFS Common Stock pledged to a lender could result in the lender
requiring that the borrower pledge additional collateral. ACCORDINGLY, PERSONS
WHO HAVE PLEDGED EXCHANGEABLE SECURITIES TO A LENDER AND WHO ARE CONSIDERING
PARTICIPATION IN THE EXCHANGE OFFER, OR WHO HAVE PLEDGED CLASS D STOCK TO A
LENDER, SHOULD CONSULT WITH THEIR LENDER AS TO THE EFFECT OF THE SPIN-OFF ON
THEIR LOAN ARRANGEMENTS.
CONDITION TO THE SPIN-OFF; RIGHT OF PKS TO ABANDON, DEFER OR MODIFY THE SPIN-OFF
The Spin-off will not be consummated unless the Ruling shall be
substantially in effect with respect to the Spin-off as of the Spin-off Date.
There are no federal or state regulatory requirements or approvals that must be
complied with or obtained as a condition of the Spin-off.
PKS expressly reserves the right, whether or not the foregoing condition
shall have been satisfied, (i) to defer the Spin-off (to a date certain or
indefinitely) or (ii) to abandon the Spin-off if it determines for any reason
that such action is in the best interest of PKS and its stockholders. The
Spin-off will not necessarily be abandoned in the event the Exchange Offer is
abandoned. However, if the Exchange Offer is consummated, the Spin-off will be
consummated promptly thereafter.
PKS also reserves the right, at any time or from time to time, if the PKS
Board of Directors determines for any reason that such action would be in the
best interest of PKS and its stockholders and whether or not the foregoing
condition shall have been satisfied, to modify the terms of the Spin-off in any
respect by giving notice of such modification to the holders of Class D Stock
(and, prior to the Expiration Date of the Exchange Offer, to the holders of
Exchangeable Securities).
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Without limiting the factors the PKS Board might take into account in taking
action with respect to the Spin-off, the PKS Board might consider abandonment or
modification of the terms of the Spin-off if such abandonment or modification
were determined to be appropriate in light of a change in applicable law or
other unforeseen legal or regulatory considerations.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE SPIN-OFF
The following discussion sets forth the material United States federal
income tax consequences of the Spin-off and certain related transactions under
existing law.
SPIN-OFF CONSIDERATIONS. PKS has received rulings from the IRS (the
"Spin-off Tax Rulings") relating to the treatment for United States federal
income tax purposes of both the Spin-off and the preliminary spin-off by KDG to
PKS of the MFS Common Stock and MFS Preferred Stock held by KDG after the MFS
Recapitalization (the "Preliminary Spin-off"). The continuing validity of the
Spin-off Tax Rulings is subject to the validity of certain representations and
assumptions made in connection with obtaining such rulings, including
representations or assumptions regarding the conduct of an active trade or
business by PKS, KDG, and MFS and certain of their subsidiaries both before and
after the Preliminary Spin-off and the Spin-off; the ownership by KDG and PKS of
a controlling interest in MFS immediately before the Preliminary Spin-off and
the Spin-off, respectively; the distribution of all the Spin-off Stock held by
KDG and PKS immediately before the Preliminary Spin-off and the Spin-off,
respectively; the business purposes for the Preliminary Spin-off and the
Spin-off; the limited nature of continuing transactions between MFS and PKS or
KDG and the arm's-length nature of payments to be made in connection with those
transactions; the absence, with limited exceptions, of any plans to dispose of
the assets or stock of PKS, KDG or MFS; the treatment of the Spin-off Stock as
stock of MFS and the Class D Stock as stock of PKS; and the accuracy of PKS, KDG
and MFS financial information submitted to the IRS. PKS is not aware of any
facts or circumstances that should cause such representations and assumptions to
be untrue.
The Spin-off Tax Rulings provide, among other things, that both the Spin-off
and the Preliminary Spin-off will qualify as tax-free spin-offs under section
355 of the Code. The Spin-off Tax Rulings also provide that for United States
federal income tax purposes:
(1) No gain or loss will be recognized by the holders of the Class D
stock upon the distribution of the Spin-off Stock in the Spin-off;
(2) Except as provided under section 367(e) of the Code (relating to
distributions to non-United States shareholders), no gain or loss will be
recognized by PKS upon the distribution of the Spin-off Stock in the
Spin-off;
(3) No gain or loss will be recognized by either PKS or KDG upon the
distribution of the Spin-off Stock in the Preliminary Spin-off;
(4) Assuming a holder of Class D Stock holds such stock as a capital
asset, such holder's holding period for the Spin-off Stock will include the
period during which such Class D Stock was held; and
(5) The tax basis of the Class D Stock held by a PKS stockholder
immediately prior to the Spin-off will be apportioned (based upon relative
market values at the time of the Spin-off) among the Class D Stock held
immediately after the Spin-off and the MFS Common Stock and MFS Preferred
Stock received by such stockholder in the Spin-off. For this purpose, each
share of Class D Stock should be treated as having a fair market value equal
to the post-Spin-off Class D Per Share Price.
The allocation of tax basis described above should be calculated separately
for each block of shares of Class D Stock with respect to which MFS Common Stock
or MFS Preferred Stock is received; that is, separately for each block of shares
of Class D Stock that was acquired at a different time or at a
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different cost from any other block. As soon as practicable following the
Spin-off, PKS intends to make available to its stockholders information
regarding the allocation of basis between the Class D Stock and the Spin-off
Stock.
Treasury regulations governing section 355 of the Code require that all PKS
stockholders who receive Spin-off Stock attach statements to their federal
income tax returns for the taxable year in which they receive such stock, which
statements show the applicability of section 355 of the Code to the Spin-off.
PKS will provide each PKS stockholder with the information necessary to comply
with this requirement.
If, contrary to the Spin-off Tax Rulings, the Spin-off were taxable, then,
among other consequences, (i) corporate level income taxes would be payable by
the consolidated group of which PKS is the common parent, based upon the amount
by which the fair market value of the Spin-off Stock distributed in the Spin-off
exceeds PKS's basis therein and (ii) each holder of Class D Stock who receives
shares of Spin-off Stock would be treated as if such stockholder received a
taxable distribution, taxed first as a dividend to the extent of such
stockholder's pro rata share of PKS's available current and accumulated earnings
and profits, then as a tax-free recovery of such stockholder's tax basis in his
or her Class D Stock, and finally as a sale or exchange of property to the
extent of any excess amount.
POST-SPIN-OFF CONSIDERATIONS. Each share of MFS Preferred Stock received in
the Spin-off will be convertible and redeemable according to its terms, as
described below. In addition, each share of such stock will be entitled to
receive annual cumulative dividends, payable solely in cash. Any accrued but
unpaid dividends at the time of redemption or conversion of the MFS Preferred
Stock will be reflected in the redemption or conversion consideration for such
stock. See "Description of Securities -- MFS Preferred Stock."
No tax rulings have been sought from the IRS (and none will be requested)
with respect to any tax issues associated with either the possible redemption or
conversion of the MFS Preferred Stock subsequent to the Spin-off or the accrual
or payment of dividends on such stock subsequent to the Spin-off. In addition,
potential holders of MFS Preferred Stock should be aware that the United States
federal income tax treatment of any such redemption or conversion and of
dividends paid or accrued on the MFS Preferred Stock may be controlled or
affected by the particular facts or circumstances associated with a particular
holder or transaction, changes in those facts or circumstances, intervening
events, changes in, or reinterpretations of, law, and other factors. Subject to
both this qualification and the general qualification set forth below concerning
persons consulting their own tax advisors, in the opinion of Sutherland, Asbill
& Brennan, regular outside tax counsel to PKS, the following United States
federal income tax consequences should follow with respect to the MFS Preferred
Stock after the Spin-off:
(1) Except with respect to the possible receipt of cash in lieu of a
fractional share of MFS Common Stock and as described in paragraph (5)
below, no gain or loss should be recognized by a holder of MFS Preferred
Stock upon a conversion of such stock into MFS Common Stock or a redemption
of such stock for MFS Common Stock;
(2) Individual holders of MFS Preferred Stock should obtain sale or
exchange treatment on a redemption of such stock for cash if the redemption
meets one of the tests of section 302(b) of the Code (relating to
distributions in redemption of stock);
(3) Individual holders of MFS Preferred Stock should be considered to
have received a taxable distribution on such stock if a redemption of such
stock for cash does not meet one of the tests of section 302(b) of the Code;
in that event, the distribution will be subject to tax as a dividend to the
extent of MFS's available current and accumulated earnings and profits, then
as a tax-free recovery of the holder's tax basis in such stock, and then as
a sale or exchange of property to the extent of any excess ("Taxable
Distribution Treatment");
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(4) Current cash dividends paid on the MFS Preferred Stock should be
subject to Taxable Distribution Treatment; and
(5) In the event that MFS does not pay current cash dividends on the MFS
Preferred Stock, then the United States federal income tax treatment of the
accrued dividends on such stock is uncertain; in general, holders of MFS
Preferred Stock either should be treated as if they had received an annual
dividend of MFS Common Stock equal in amount to the amount of the accrued
but unpaid cash dividend ("Case I") or should have no United States federal
income tax consequences until the MFS Preferred Stock is converted or
redeemed or a subsequent cash dividend is paid on the stock ("Case II"),
although other treatments may be possible.
Under Case I, any stock dividend deemed paid on the MFS Preferred Stock
should be subject to Taxable Distribution Treatment. Under Case II, if a
subsequent cash dividend is paid, then the dividend should be subject on receipt
to Taxable Distribution Treatment; if a subsequent cash dividend is not paid,
but the holder of the MFS Preferred Stock receives additional cash or shares of
MFS Common Stock for the accrued but unpaid dividends at the time of redemption
or conversion of the MFS Preferred Stock, then the amount of cash or the value
of the shares of MFS Common Stock received by the holder in excess of the issue
price of the redeemed or converted MFS Preferred Stock should constitute a
distribution from MFS that will be subject on redemption or conversion to
Taxable Distribution Treatment. PKS understands that MFS has not made a decision
whether it will file information returns with the IRS with respect to accrued
but unpaid cash dividends under Case I, under Case II, or in some other manner.
Under proposed legislation, corporate and other non-individual holders of
MFS Preferred Stock may have a cash redemption of their shares of such stock
treated differently from a cash redemption of shares of MFS Preferred Stock held
by individuals. Potential non-individual holders of MFS Preferred Stock should
consult their own tax advisors regarding this issue.
THE FOREGOING DISCUSSION IS ONLY A SUMMARY OF CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE SPIN-OFF AND CERTAIN RELATED TRANSACTIONS UNDER
CURRENT LAW AND IS INTENDED FOR GENERAL INFORMATION ONLY. THE DISCUSSION MAY NOT
ACCURATELY DESCRIBE THE TREATMENT OF HOLDERS OF CLASS D STOCK AND POTENTIAL
HOLDERS OF SPIN-OFF STOCK IF SUCH HOLDERS RECEIVED SUCH STOCK AS COMPENSATION,
ARE FOREIGN PERSONS, OR ARE OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER THE
CODE. ALL HOLDERS OF CLASS D STOCK AND POTENTIAL HOLDERS OF SPIN-OFF STOCK
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR CONSEQUENCES TO THEM
OF BOTH THE SPIN-OFF AND ANY TRANSACTIONS INVOLVING THE SPIN-OFF STOCK,
INCLUDING (i) THE APPLICATION OF UNITED STATES FEDERAL, STATE, AND LOCAL TAX
LAWS, AND OF FOREIGN TAX LAWS AND (ii) THE EFFECT OF CHANGES IN LAW. PKS HAS
RECEIVED CERTAIN WRITTEN ADVICE FROM THE NEBRASKA DEPARTMENT OF REVENUE
REGARDING CERTAIN NEBRASKA STATE TAX CONSEQUENCES OF BOTH THE SPIN-OFF AND
POST-SPIN-OFF TRANSACTIONS INVOLVING THE STOCK OF PKS AND MFS. FOLLOWING THE
SPIN-OFF, PKS WILL PROVIDE CERTAIN INFORMATION REGARDING THE WRITTEN ADVICE TO
HOLDERS OF CLASS D STOCK WHO RECEIVE SPIN-OFF STOCK AND EITHER ARE RESIDENTS OF
NEBRASKA OR REQUEST SUCH INFORMATION.
PKS has been advised that the Spin-off will not be a tax-free distribution
for Canadian income tax purposes, and that a holder of Class D Stock will be
required to include in income for such purposes the fair market value of the MFS
Common Stock and MFS Preferred Stock received. PKS has requested a remission
order from the Department of Finance in Canada that would remit the tax
otherwise payable by the Canadian-resident holders of the Class D Stock in
respect of this income inclusion. PKS does not know whether the requested order
will be issued, but PKS has been advised that there is a significant possibility
that it will not be issued.
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CERTAIN TRANSACTIONS
INTENTIONS OF CERTAIN SIGNIFICANT STOCKHOLDERS REGARDING PARTICIPATION IN
EXCHANGE OFFER
Each of Messrs. Richard Colf, Richard Geary, Bruce Grewcock, William
Grewcock, Richard Jaros, Tait Johnson, Lee Kearney, Kenneth Stinson, and George
Toll, Jr. (I.E., the members of the PKS Board of Directors who are holders of
Class C Stock other than Messrs. Walter Scott, Jr. and Robert Julian) has
advised PKS in writing that he will not tender in the Exchange Offer any shares
of Class C Stock held by him.
Furthermore, each of Messrs. Roy Cline, Allan Kirkwood, Ronald Minarcini,
and Thomas Stortz (I.E., the members of the KCG board of directors who are
holders of Class C Stock and who are not also directors of PKS), other than one
of such KCG directors who is anticipating retirement, has advised PKS in writing
that he will not tender in the Exchange Offer any shares of Class C Stock held
by him.
Walter Scott, Jr., the Chairman of the Board and President of PKS and a
member of the board of directors of each of KCG and MFS, has advised PKS of his
present intention to tender in the Exchange Offer 471,000 shares of the total of
1,471,000 shares of Class C Stock held by him, reflecting his assessment (based
on his assumptions as to the amount of Class C Stock to be offered for sale by
PKS and the amount of such stock to be repurchased by PKS or converted to Class
D Stock) of the number of shares of such stock he would otherwise be required to
sell to PKS, convert to Class B Stock or convert to Class D Stock within the
next few years by virtue of the percentage limitations on ownership of Class C
Stock contained in the PKS Certificate of Incorporation. The PKS Certificate of
Incorporation provides that, if for any reason a holder owns more than 10% of
the issued and outstanding shares of Class C Stock, on a fully-diluted basis, on
January 1st of any year, he must sell back to PKS or convert to Class D Stock
(or, in the case of Mr. Scott, Class B Stock or Class D Stock) that amount of
such Class C Stock which is in excess of such 10% limitation. In addition,
FirsTier Bank, N.A., the trustee under four irrevocable trusts created by Mr.
Scott for the benefit of members of his family, has preliminarily advised PKS
that it is likely, subject to its review of this Prospectus, to tender in the
Exchange Offer the 884,400 shares of Class B Stock held in the aggregate by such
trusts.
Robert Julian, who is a member of the board of directors of each of PKS and
MFS but not of KCG, has advised PKS of his current intention to tender in the
Exchange Offer all of the Class C Stock held by him, reflecting the fact that
his responsibilities with PKS relate primarily to the Diversified Group. In
addition, FirsTier Bank, N.A., the trustee under two irrevocable trusts created
by Mr. Julian for the benefit of members of his family, has preliminarily
advised PKS that it is likely, subject to its review of this Prospectus, to
tender in the Exchange Offer the 55,200 shares of Class C Stock held in the
aggregate by such trusts.
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Based on the foregoing indications of intent regarding participation in the
Exchange Offer, the following table shows the expected holdings of Class C Stock
and Class D Stock after giving effect to the consummation of the Exchange Offer
of (i) each member of the PKS Board of Directors, (ii) the PKS Directors as a
group and (iii) each person who is a director of KCG but not of PKS, as a group.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NUMBER OF SHARES OF NUMBER OF SHARES OF
SHARES OF CLASS C STOCK (1) SHARES OF CLASS D STOCK (1)
NAME CLASS C STOCK SCENARIO 1 SCENARIO 2 CLASS D STOCK SCENARIO 1 SCENARIO 2
- --------------------------------------------- ------------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Walter Scott, Jr............................. 1,000,000 8.4 10.1 2,804,851(2) 12.4 11.9
Kenneth E. Stinson........................... 626,412 5.3 6.3 36,412(3) * *
Richard Geary................................ 528,768 4.5 5.3 161,020(4) * *
George B. Toll, Jr........................... 371,883 3.1 3.8 87,711 * *
Richard W. Colf.............................. 363,217 3.1 3.7 72,282 * *
Leonard W. Kearney........................... 264,009 2.2 2.7 172,282(5) * *
Tait P. Johnson.............................. 173,433 1.5 1.8 43,433 * *
Bruce E. Grewcock............................ 159,775 1.3 1.6 52,775 * *
Richard R. Jaros............................. 51,544 * * 101,639 * *
William L. Grewcock.......................... 22,048 * * 1,164,323 5.1 5.0
Robert E. Julian............................. -- -- -- 381,075(6) 1.7 1.6
James Q. Crowe............................... -- -- -- 134,281 * *
Robert B. Daugherty.......................... -- -- -- 9,000 * *
Charles M. Harper............................ -- -- -- 9,000 * *
Peter Kiewit, Jr............................. -- -- -- 2,000 * *
PKS Directors as a group..................... 3,559,089 30.0 36.0 5,232,084 23.2 22.3
Other KCG Directors as a group............... 388,680 3.3 3.9 159,428 * *
<FN>
- ------------------------
(1) Calculated assuming, in two separate scenarios, that 3,000,000 shares
(Scenario 1) and 5,000,000 shares (Scenario 2) of Exchangeable Stock and
all the Exchangeable Debentures are exchanged in the Exchange Offer.
(2) Does not include 1,950,691 shares of Class D Stock held in irrevocable
trusts for family members of Mr. Scott under which the trustee is required
to vote with the Company.
(3) Does not include 20,000 shares of Class D Stock held in trusts by Mr.
Stinson's children.
(4) Does not include 40,000 shares of Class D Stock held by Mrs. Geary.
(5) Does not include 25,231 shares of Class D Stock held by Mrs. Kearney.
(6) Does not include 78,196 shares of Class D Stock held in irrevocable trusts
for family members of Mr. Julian under which the trustee is required to
vote with the Company.
* Less than 1% of the class.
</TABLE>
OPTION AGREEMENT AMONG CERTAIN MEMBERS OF THE PKS BOARD REGARDING SPIN-OFF STOCK
Pursuant to an agreement among Richard Geary, William Grewcock and Walter
Scott, Jr., in the event the Spin-off is consummated, Mr. Geary would have the
option to sell to Messrs. Grewcock and Scott all of the shares of MFS Common
Stock and MFS Preferred Stock received by Mr. Geary in connection with the
Spin-off. Each of Messrs. Geary, Grewcock and Scott is a member of the PKS Board
of Directors and a holder of Class D Stock. Mr. Scott is also a member of the
MFS Board of Directors, and Mr. Grewcock was elected to the MFS Board of
Directors at the MFS 1995 annual meeting of stockholders. The option is
exercisable at any time within six months after the Spin-off is consummated. The
purchase price per share of such stock would be, in the case of the MFS Common
Stock, the lowest of (i) the closing price of such stock on the date the
Spin-off is consummated, (ii) the closing price of such stock on the date on
which notice of exercise of the option is delivered and (iii) $35.00, and, in
the case of the MFS Preferred Stock, $1.00 per share. Unless Messrs. Grewcock
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and Scott otherwise agree, in the event the option is exercised, they would each
pay one-half of the total purchase price and receive one-half of the stock
subject to the option. Any such shares purchased by Messrs. Grewcock and Scott
would continue to be subject to the agreements described below.
AGREEMENTS REGARDING RESTRICTIONS ON TRANSFER OF SPIN-OFF STOCK
In connection with MFS's DECS offering, each director of PKS (other than Mr.
Johnson, who was elected to the PKS Board of Directors after the closing of the
DECS offering) and each director of MFS has entered into an agreement with MFS
under which such director is committed not to sell or otherwise transfer any
shares of MFS Common Stock received by him as a result of the Spin-off
(including MFS Common Stock received upon conversion of MFS Preferred Stock
received in the Spin-off) for a period of two years after the closing of the
DECS offering (I.E., until May 24, 1997), subject to the following exceptions:
(1) After the first year, each such director and any person to whom such
director transfers shares pursuant to clauses (2) and (5) below may sell
an aggregate of 50,000 shares of such MFS Common Stock.
(2) Such MFS Common Stock may be transferred to family members or trusts for
their benefit or in connection with estate planning.
(3) Such MFS Common Stock may be pledged to third party lenders, which would
be permitted to resell such stock in the event of a default, provided
that any shares so sold by pledgees will count against the 50,000 share
limit described in clause (1) above.
(4) Such MFS Common Stock may be tendered in offers made to MFS stockholders
generally.
(5) Such MFS Common Stock may be sold to other directors of PKS or MFS.
The foregoing restrictions will not apply to MFS Common Stock distributed
with respect to shares of Class D Stock which were held as of March 31, 1995 by
(i) a trust or other entity not controlled by the director in question, or (ii)
family members of the director. Further, MFS Common Stock distributed with
respect to shares of Class D Stock pledged by the director as of such date to
third party lenders may be delivered to the pledgees and will not be subject to
the foregoing restrictions.
The restrictions imposed by the agreements are subject to waiver by MFS with
the consent of the representatives of the underwriters of the DECS offering,
which consent may not be withheld unreasonably.
CERTAIN AGREEMENTS BETWEEN PKS AND MFS
PKS and MFS have entered into certain agreements with respect to the MFS
Recapitalization, the Spin-off and the relationships between the two companies
following the Spin-off. These agreements are described below.
THE SECURITIES PURCHASE AGREEMENT. MFS and KDG have entered into a
Securities Purchase Agreement with respect to the acquisition by PKS from MFS of
the MFS Preferred Stock. Under the Securities Purchase Agreement, MFS has agreed
to effect the MFS Recapitalization by issuing to KDG, immediately before the
Spin-off, 15,000,000 shares of MFS Preferred Stock in exchange for the transfer
by KDG to MFS of 2,900,000 shares of MFS Common Stock held by KDG.
Under the Securities Purchase Agreement, KDG has agreed to grant to the
Secretary and Assistant Secretary of MFS an irrevocable proxy to vote all of the
shares of MFS Preferred Stock in proportion to the vote of the holders of MFS
Common Stock on all matters other than the election of directors and matters as
to which the holders of MFS Preferred Stock vote as a separate class under
Delaware corporation law. Holders of Class D Stock who receive MFS Preferred
Stock in the Spin-off will receive such MFS Preferred Stock subject to such
irrevocable proxy. Accordingly, holders of MFS Preferred Stock will have voting
rights only with respect to the election of directors of MFS and those other
matters.
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THE DISTRIBUTION AGREEMENT. PKS and MFS have entered into a Distribution
Agreement. The Distribution Agreement provides, among other things, for the
principal corporate transactions necessary to consummate the Spin-off, including
the MFS Recapitalization and certain corporate reorganizations by MFS necessary
to receive the Ruling. In addition, the Distribution Agreement provides that MFS
will sell to PKS 28,986 shares of MFS Common Stock immediately prior to the
Spin-off, at a price of $1,000,000 in cash (or approximately $34.50 per share).
See "Overview -- The Spin-off."
PKS and MFS entered into a Noncompetition Agreement in connection with the
May 1993 initial public offering of Common Stock by MFS (the "MFS IPO"). The
Noncompetition Agreement will terminate as a result of the Spin-off. Under the
Distribution Agreement, however, PKS has represented to MFS in writing that PKS
has no present intent to engage, directly or indirectly, in the provision of
telecommunications services to business or government users, except for those
activities that are currently permitted under the Noncompetition Agreement.
Although this written assurance from PKS is contained in a written agreement,
this representation is a statement of PKS's intention at the time of the
execution of the Distribution Agreement, and there can be no assurance that PKS
will not compete directly with MFS in the provision of telecommunications
services to businesses or government users in the future.
Under the Distribution Agreement and subject to the terms of the agreements
described under " -- Agreements Regarding Restrictions on Transfer of Spin-off
Stock" above, MFS has agreed to grant to Walter Scott, Jr. and William Grewcock
certain registration rights with respect to all the MFS Common Stock held by
them after the Spin-off, exercisable at their expense, similar to those granted
to KDG by MFS pursuant to a registration rights agreement entered into between
KDG and MFS in connection with the MFS IPO. See "The Spin-off -- Listing and
Trading of Spin-off Stock -- MFS Common Stock."
The Distribution Agreement provides that each of PKS and MFS will be granted
access to certain records and information in the possession of the other
company, and requires that each of PKS and MFS retain all such information in
its possession for a period of five years following the Spin-off. Under the
Distribution Agreement, each company is required to give the other company prior
notice of any intention to dispose of any such information.
The Distribution Agreement provides that, except for the expenses of
registration of the Offered Stock and Spin-Off Stock under the Securities Act,
which will be paid by PKS, and except as otherwise set forth in the Distribution
Agreement or in any related agreement, all costs and expenses in connection with
the Spin-off will be paid by the party incurring such expenses. Any expenses
that cannot be allocated on such basis will be split equally between PKS and
MFS.
The Distribution Agreement provides that PKS has no obligation to consummate
the MFS Recapitalization or to consummate the Spin-off.
(PKS repurchased 700 shares of Class C Stock on July 12, 1995 and July 19,
1995 in the aggregate, pursuant to such repurchase obligation.)
RECENT DEVELOPMENTS
WHITNEY LITIGATION
In 1974, a subsidiary of PKS ("Kiewit"), entered into a lease with Whitney
Benefits, Inc., a Wyoming charitable corporation ("Whitney"). Whitney is the
owner, and Kiewit is the lessee, of a coal deposit underlying a 1,300 acre tract
in Sheridan County, Wyoming. The coal was rendered unmineable by the Surface
Mining Control and Reclamation Act of 1977 ("SMCRA"), which prohibited surface
mining of coal in certain alluvial valley floors significant to farming. In
1983, Kiewit and Whitney filed an action in the U.S. Court of Federal Claims
("Claims Court"), alleging that the enactment of SMCRA constituted a taking of
their coal without just compensation. In 1989, the Claims Court ruled that a
taking had occurred and awarded plaintiffs the 1977 fair market value of the
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property ($60 million) plus interest. In 1991, the U.S. Supreme Court denied
certiorari. The government filed two post-trial motions in the Claims Court
during 1992. The government requested a new trial to redetermine the 1977 value
of the property. The government also filed a motion to reopen and set aside the
1989 judgment as void and to dismiss plaintiffs' complaint for lack of
jurisdiction. In May 1994, the Claims Court entered an order denying both
motions. In February 1994, the Claims Court issued an opinion which provided
that the $60 million judgment would bear interest compounded annually from 1977
until payment. The government appealed the February 1994 and May 1994 orders. A
hearing on the appeals was held in February 1995.
On May 5, 1995, the government and the plaintiffs entered into a settlement
agreement. In settlement of all claims the government will pay plaintiffs $200
million and plaintiffs will deed the coal underlying the real property to the
government. Kiewit and Whitney agreed in 1992 that Kiewit would receive 67.5
percent of any award and Whitney would receive the remainder. In accordance with
this agreement, Peter Kiewit Sons' Co., a subsidiary of KDG, received a cash
payment of approximately $135 million on June 2, 1995. The after-tax effect of
such payment will be to increase the Class D Per Share Price, effective
beginning on January 1, 1996, by approximately $3.50 over the Class D Per Share
Price that otherwise would have been in effect for 1996. The settlement will not
affect the Class D Per Share Price in effect for the remainder of 1995.
DECS OFFERING
Pursuant to the DECS offering, MFS issued 9,500,000 Depositary Shares, each
representing an interest in the DECS. The Depositary Shares were sold at an
issue price of $33.50 per share. Each such Depositary Share is automatically
convertible on June 15, 1999, if not previously redeemed by MFS or converted at
the option of the holder (as described below), into one share of MFS Common
Stock; provided, however, that if the Spin-off is not consummated prior to
January 1, 1997, each outstanding Depositary Share is automatically convertible
into 1.05 shares of MFS Common Stock subject, in each case, to adjustment upon
the occurrence of certain events. The DECS (and the related Depositary Shares)
are redeemable, in whole or in part, at the option of MFS on or after June 15,
1998 but before June 15, 1999 at the call price in effect on the date of
redemption divided by the then-current market price of MFS Common Stock, payable
in shares of MFS Common Stock. The DECS (and thereby the Depositary Shares) are
convertible, in whole or in part, at the option of the holder of the Depositary
Shares at any time prior to June 15, 1999 (unless previously redeemed) into .820
shares of MFS Common Stock per Depositary Share (reflecting an initial
conversion premium of 22% to the market price of the MFS Common Stock), subject
to adjustment upon the occurrence of certain events. However, if the holder
converts on or after January 1, 1997 and the Spin-off is not consummated prior
to such date, the holder will receive .855 shares of MFS Common Stock per
Depositary Share (reflecting a decreased premium of 17% to the market price of
the MFS Common Stock at the date of issuance of the DECS), subject to adjustment
upon the occurrence of certain events.
Dividends on the Depositary Shares are cumulative and are payable in either
cash or shares of MFS Common Stock at the option of MFS. The DECS rank prior to
the MFS Common Stock and the MFS Preferred Stock with respect to payment of
dividends and on a parity with the MFS Preferred Stock upon liquidation. The
Depositary Shares have qualified for inclusion in the Nasdaq National Market.
AUTHORIZATION OF PREFERRED STOCK OF MFS
Under the terms of the MFS certificate of incorporation, the MFS Board of
Directors is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue shares of preferred stock in one or more series.
Each such series of preferred stock shall have such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation privileges, as shall be
determined by the MFS Board of Directors. At a meeting of the MFS Board of
Directors on April 26, 1995, the MFS Board approved, and
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resolved to submit to the MFS stockholders for approval at the 1995 MFS annual
stockholders meeting, which was held on August 24, 1995, a proposal to increase
the number of authorized shares of preferred stock from 1,000,000 to 25,000,000.
The purpose of authorizing the MFS Board of Directors to issue preferred
stock and to determine its rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could make more difficult or
discourage the removal of MFS's management or could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of MFS. Upon
consummation of the MFS Recapitalization, which was approved by a majority of
the common stockholders of MFS present in person or by proxy and voting at the
1995 MFS annual stockholders meeting, 15,000,000 shares of MFS Preferred Stock
will be issued to KDG and distributed to holders of Class D Stock in the
Spin-off.
CORPORATE GOVERNANCE OF MFS
At a meeting of the MFS Board of Directors on April 26, 1995, the MFS Board
approved, and resolved to submit to the stockholders of MFS for approval at the
1995 annual meeting of MFS stockholders, certain amendments to the MFS
certificate of incorporation, which include proposals to: amend the MFS
certificate of incorporation to divide the MFS Board of Directors into three
classes, prohibit stockholders of MFS from taking action by written consent;
require that special meetings of stockholders be called only by the MFS Board or
the chairman of the MFS Board; and require the affirmative vote of at least
66 2/3% of the outstanding shares of stock of MFS entitled to vote thereon to
adopt, repeal, alter, amend or rescind the by-laws of MFS. PKS agreed that, if
the MFS Recapitalization was approved by the non-PKS holders of MFS Common Stock
as described herein, PKS would vote all of the shares of MFS Common Stock owned
or controlled by it in favor of the proposed amendments, thus assuring their
adoption. The proposed amendments to the MFS certificate of incorporation were
adopted at the MFS 1995 annual meeting of stockholders.
In addition, at its April 26, 1995 meeting, the MFS Board of Directors
adopted certain amendments to the by-laws of MFS that prescribe specific
procedural requirements for the nomination of directors and the introduction of
business by a stockholder of record at an annual meeting of stockholders where
such business is not specified in the notice of meeting or brought by or at the
direction of the board of directors. The MFS Board of Directors also plans to
consider in the near future the adoption of a shareholder rights plan.
Notwithstanding the receipt of the requisite stockholder approval or further
approval of the MFS Board, each of the proposed amendments to the MFS
certificate of incorporation and the MFS by-laws, as well as any shareholder
rights plan adopted by the MFS Board, would be implemented only upon
consummation of the Spin-off.
Each of the foregoing amendments, as well as the adoption of a shareholder
rights plan, could make more difficult or discourage the removal of MFS's
management or could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, a majority of
the outstanding voting stock of MFS for the purpose of a hostile takeover. The
intent of the measures adopted by the MFS Board of Directors, however, is not to
prevent an acquisition. If an offer were to be made, these measures are
designated to require potential acquirers to make financially attractive
non-coercive offers that treat all stockholders fairly, to guard against share
accumulations in which control of MFS could pass to one or a group of
stockholders without paying a control premium to the others, and to provide the
MFS Board of Directors with sufficient time to consider any and all alternatives
for maximizing stockholder value.
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CALIFORNIA ANNOUNCEMENT
On July 27, 1995, MFS announced that it had applied to the California Public
Utilities Commission for a certificate authorizing MFS Intelenet to provide the
full range of competitive local telephone exchange services. At this time, it is
not possible to assess the full effect of the determination by the State of
California's Public Utilities Commission to open the State's local telephone
service market to "full" competition, because, based upon recent regulatory
announcements in California, MFS will be able to compete only if it receives a
certificate from the California Public Utilities Commission and only after
January 1, 1996. "Full" competition is not scheduled to begin until January 1,
1997.
VENDOR FINANCING
On July 19, 1995, MFS announced the establishment of two secured credit
facilities aggregating $120 million for the purchase of certain switching
equipment. The facilities are secured by the equipment and are partially
guaranteed by the Swedish Export Credits Guarantee Board.
DESCRIPTION OF SECURITIES
PKS STOCK
The PKS Certificate of Incorporation authorizes the Company to issue
183,250,000 shares of capital stock: 8,000,000 shares of Class B Stock;
125,000,000 shares of Class C Stock; 50,000,000 shares of Class D Stock; and
250,000 shares of no par value preferred stock.
The primary features of the Class B Stock, the Class C Stock, and the Class
D Stock are described below. The Class B Stock has the attributes of the Class C
Stock, with two exceptions: (a) the Class B Stock does not have voting power,
unless required by law, and (b) the PKS Board may redeem all of the Class B
Stock at any time with payment at a price equal to the Class B&C Per Share
Price. For purposes of discussing their common attributes, the Class B Stock and
the Class C Stock are referred to herein collectively as the "Class B&C Stock."
VOTING. The PKS Certificate of Incorporation provides that holders of Class
C Stock and Class D Stock have one vote per share on all matters submitted to
stockholders, except that, with respect to the election of directors, holders of
Class C Stock have cumulative voting rights. Cumulative voting means that a
stockholder may (i) give one nominee as many votes as the number of directors to
be elected multiplied by the number of such stockholder's shares or (ii) may
distribute such stockholder's votes among some or all of the director nominees.
Class D directors are elected separately by the holders of Class D Stock by the
plurality voting method. In plurality voting, a stockholder may vote the full
number of such stockholder's shares for as many nominees as there are directors
to be elected. Under both methods, after the voting is closed, the nominees are
ranked in order of the number of votes received by each nominee. The highest
ranking nominees are elected until the number of open directorships is filled.
The PKS Certificate of Incorporation provides that certain corporate actions
must be approved by the holders of at least 80% of the outstanding shares of
Class C Stock and at least a majority of all the outstanding shares having the
power to vote (I.E., the Class C Stock and the Class D Stock). Such actions are:
(1) the sale of all or substantially all of the Company's assets; (2) the merger
with other corporations, other than majority-owned subsidiaries of the Company;
(3) the dissolution of the Company; (4) the creation of new classes of stock of
the Company; (5) an increase or decrease in the number of authorized shares of
any class of stock of the Company; (6) a change in the rights, preferences and
limitations of any class of stock of the Company; (7) a change in the method of
determination of the Class B&C Formula Value or the Class B&C Per Share Price;
and (8) the sale of Class B Stock and Class C Stock to non-employees, including,
but not limited to, in the case of a public offering. With respect to item (5)
above, Delaware law requires that the holders of at least a majority of the
outstanding shares of Class D Stock approve separately an increase or decrease
in the number of authorized shares of Class D Stock. The Certificate of
Incorporation, however, specifically provides that an increase in the number of
authorized shares of Class C Stock does not require the separate approval of the
holders of Class D Stock. In addition, with respect to item (6) above, the
separate
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approval of at least a majority of the outstanding shares of Class D Stock
entitled to vote thereon would be required under Delaware law to change the
rights, preferences and limitations of the Class D Stock in a manner that would
adversely affect the Class D Stock. Any changes in the method of determination
of the Class D Formula Value or the Class D Per Share Price require approval by
at least 80% of the outstanding shares of Class C Stock and Class D Stock
entitled to vote thereon, voting separately.
Amendments to the PKS Certificate of Incorporation, as well as amendments to
the by-laws of the Company, require the approval of 66 2/3% of the holders of
Class C Stock voting as a separate class, as well as the approval of a majority
of the combined voting classes except as otherwise described above and except
with respect to any provisions containing a supermajority voting requirement,
which may be amended only upon the approval of a matching supermajority vote.
Therefore, if the PKS Certificate of Incorporation provides that a corporate
action must be approved by 80% of the holders of Class C Stock and a majority of
the holders of Class C Stock and Class D Stock, such provision can be amended
only by the approval of 80% of the holders of Class C Stock and a majority of
the holders of Class C Stock and Class D Stock.
The holders of Class C Stock and the holders of Class D Stock shall vote
together as a combined class on all other matters to be voted on by the holders
of common stock, with each share of Class C Stock having one vote and each share
of Class D Stock having one vote.
THE PKS BOARD OF DIRECTORS. The PKS Certificate of Incorporation contains
provisions relating to the number of, the nomination procedures regarding, and
the qualifications of the directors of the Company and provides for a
"classified" board of directors.
The members of the PKS Board are "classified" as Class C directors or Class
D directors. The Class C directors are elected separately by the holders of
Class C Stock, and the Class D directors are elected separately by the holders
of Class D Stock. The sitting PKS Board may fix, from time to time by its own
resolution, the number of directors required to serve on the PKS Board of
Directors. The PKS Certificate of Incorporation provides that at any time, the
PKS Board must consist of at least 9, but not more than 15, directors. The
holders of Class C Stock elect that number of directors that equals two-thirds
of the total number of directors comprising the PKS Board at any time. The
remaining directors are elected by the holders of Class D Stock. Prior to each
annual meeting of PKS stockholders, the incumbent Class C directors nominate a
successor slate of Class C directors, and the incumbent Class D directors
separately nominate a successor slate of Class D directors.
The PKS Certificate of Incorporation also provides that at least 80% of the
Class C directors must be "inside" directors. To be eligible to be elected as an
"inside" Class C director, a person must: (a) be a Class C stockholder; (b) be
an officer of the Company or one of its majority-owned subsidiaries which is
engaged in the construction or mining business; and (c) have been employed by
the Company or such subsidiary for a full eight years prior to being nominated
as a Class C director. If such an "inside" director later ceases to meet all the
requisite qualifications, thereby causing the "inside" Class C directors to be
less than 80% of the entire Class C directors, the other Class C directors may
retain such director under certain specified circumstances. Any vacancies in
Class C or Class D directorships for any reason, including but not limited to
removal by the holders of Class C Stock or Class D Stock as the case may be,
will be filled by the remaining Class C or Class D directors, respectively.
The PKS Certificate of Incorporation provides that most PKS Board actions
require the approval of a majority of the members of the entire PKS Board,
except for certain matters which require the approval of two-thirds of the
members of the PKS Board of Directors.
DIVIDENDS. Holders of the several classes of PKS common stock are entitled
to dividends when, as and if declared by the PKS Board, but only after provision
is made for any dividends declared on any PKS preferred stock. Dividends on the
Class D Stock will be payable only out of the Available Class D Dividend Amount;
dividends on the Class B&C Stock will be payable only out of the amount legally
available therefor, less the Available Class D Dividend Amount.
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Subject to the limitations set forth above, the PKS Board may at any time,
in its sole discretion, declare and pay dividends on the Class B Stock and the
Class C Stock only, on the Class D Stock only, or on the Class B Stock, the
Class C Stock and the Class D Stock in equal or unequal amounts. However, any
dividends per share declared and paid on the Class B Stock and the Class C Stock
must be in equal amounts. See "-- Equalizing Stock Dividends," below.
LIQUIDATION. Upon the liquidation or dissolution of the Company, whether
voluntary or involuntary, the PKS Certificate of Incorporation provides that any
funds remaining for distribution to the holders of common stock shall be
distributed as described below. The PKS Board of Directors shall determine the
value of the remaining assets and shall allocate such value to a "D Liquidation
Account" and a "B&C Liquidation Account." Allocation to the D Liquidation
Account shall be in an amount equal to the value of the Diversified Group assets
plus an amount equal to 50% of the aggregate stockholders' equity (whether
positive or negative) of PKS and any non-operating subsidiaries of PKS.
Allocation to the B&C Liquidation Account shall be in an amount equal to the
value of the remaining assets. The PKS Board shall then make distributions as
follows:
(a) First, each holder of Class B&C Stock shall be paid a liquidation
preference in an amount equal to $1.00 per share. The aggregate amount of
such payments shall be deducted from the B&C Liquidation Account. To the
extent that the initial B&C Liquidation Account is not sufficient to
distribute $1.00 per share, the amount required to reach the Class B&C
liquidation preference of $1.00 per share shall be deducted from the D
Liquidation Account.
(b) Second, each holder of Class D Stock shall be paid a liquidation
preference in an amount equal to $2.00 per share. The aggregate amount of
such distribution shall be deducted from the D Liquidation Account remaining
after any deductions described in paragraph (a) above. To the extent that
the D Liquidation Account is not sufficient to satisfy the aggregate amount
of the Class D liquidation preference payments, an amount necessary to reach
such liquidation preference may be deducted from any remaining balance in
the B&C Liquidation Account.
(c) If, after satisfying the liquidation preferences specified in
paragraphs (a) and (b) above, a balance remains in the D Liquidation
Account, an amount equal to that balance shall be distributed pro rata to
the holders of Class D Stock. Similarly, if a balance remains in the B&C
Liquidation Account, an amount equal to that balance shall be distributed
pro rata to the holders of Class B&C Stock.
Any determination by the PKS Board of Directors of asset values for
liquidation purposes shall be final and may be based on the books and records of
the Company. The PKS Certificate of Incorporation does not require the PKS Board
to obtain appraisals or independent audits in connection with such
determination.
OWNERSHIP AND TRANSFER RESTRICTIONS. The PKS Certificate of Incorporation
contains no ownership or transfer restrictions with respect to the Class D
Stock. Furthermore, purchasers of Class D Stock are not required to execute
repurchase agreements as a condition to such purchase.
Class B&C Stock may be owned only by employees of the Company and, with
prior PKS Board approval, by certain authorized transferees of such employees
(I.E., fiduciaries for the benefit of members of the immediate families of
employees, corporations wholly owned by employees or employees and their spouses
and/or children, fiduciaries for the benefit of such corporations, charities,
and fiduciaries for charities designated by any such persons). Under the PKS
Certificate of Incorporation, an employee of a subsidiary of which the Company
owns at least a 20 percent equity interest (or any joint venture in which the
Company and/or such subsidiary owns at least a 20 percent equity interest), is
deemed to be an employee for purposes of Class B Stock and Class C Stock
ownership and the attendant transfer restrictions. A director who is a former
employee may continue to own Class B Stock and Class C Stock. No more than ten
percent of the total Class C Stock may be owned by any one
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employee and certain transferees at any time. Walter Scott, Jr., Chairman of the
Board and Chief Executive Officer of PKS, and his authorized transferees may
hold no more than 15% of the combined Class B Stock and Class C Stock
outstanding at any time.
REPURCHASE AGREEMENT. Each holder of Class C Stock is required to execute a
repurchase agreement which provides that a stockholder may offer to sell all or
part of the Class C Stock owned by such stockholder to the Company at any time
at the Class B&C Per Share Price and that the Company must accept any such
offer, with payment to be made within 60 days after the receipt of notice of the
offer and of the stock certificates offered by the stockholder. Upon the tender
of a part of such stockholder's shares of Class C Stock, the Company may, at its
option, require the stockholder to sell all of the Class C Stock held by such
stockholder back to the Company. Under the repurchase agreement, the employee
may not transfer the shares of Class C Stock held by such employee except in a
sale to the Company or a transfer to an authorized transferee (I.E., a charity,
etc.). Upon the death, termination or retirement of such employee, all Class C
Stock held by the employee and by such employee's authorized transferees must be
sold back to the Company.
Under the repurchase agreement, an attempted prohibited transfer, whether
voluntary or involuntary, is deemed to constitute an offer by the employee-owner
which triggers the Company's duty to repurchase. The attempted transferor or
attempted transferee then receives cash payment at the Class B&C Per Share Price
and is deemed to have tendered the stock, which is treated as cancelled. An
attempted prohibited transfer during a suspension of repurchase duties would be
treated as an involuntary transfer. The sale and purchase event would be deemed
complete, but payment would be deferred. See additional discussion under "--
Repurchase Duties," below.
REPURCHASE OF EXCESSIVE STOCK. Upon a determination by the PKS Board of
Directors that the amount of Class C Stock held by an employee and/or the
employee's authorized transferee is excessive in view of the Company's policy
that the level of an employee's Class C Stock ownership should reflect certain
factors, including but not limited to (a) the relative contribution of that
employee to the economic performance of the Company, (b) the effort being put
forth by such employee, and/or (c) the level of responsibility of such employee,
the Company has the option to repurchase from the employee or the employee's
authorized transferee an amount of stock that the PKS Board of Directors, in its
discretion, believes is appropriate.
VOTING LIMITATION. If at any time a stockholder who owns ten percent or
more of the outstanding Class C Stock also owns 50 percent or more of the
outstanding Class D Stock, the stockholder will lose the voting power related to
such Class C Stock. Voting power will be restored when the stockholder's
holdings of Class D Stock are reduced below the 50 percent level or when the
stockholder's holdings of Class C Stock are reduced below the ten percent level.
CLASS D FORMULA VALUE. The Class D Formula Value is an amount equal to (a)
the aggregate stockholders' equity of the entities comprising the Diversified
Group (as shown on the consolidated balance sheet contained in the audited
consolidated financial statements of the Diversified Group) as of the end of the
preceding fiscal year, plus (b) 50% of the aggregate stockholders' equity
(whether positive or negative) of PKS (and any non-operating subsidiaries).
CLASS D PER SHARE PRICE. The Class D Per Share Price is determined by
increasing the Class D Formula Value by the portion of the face amount of any
outstanding debentures convertible into Class D Stock on the date of
determination. The resulting amount is then divided by the sum of (x) the total
number of shares of Class D Stock issued and outstanding at the end of the
fiscal year and (y) the total number of shares reserved for the conversion of
convertible debentures attributable to the Diversified Group outstanding at the
end of the fiscal year. This quotient is rounded to the nearest $0.05 and then
reduced by the amount of dividends declared on each share of Class D Stock since
the end of the prior fiscal year.
CLASS B&C FORMULA VALUE. The Class B&C Formula Value is an amount equal to
(a) the total stockholders' equity of the Company (as shown on the consolidated
balance sheet, and any redeemable
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stock not reflected in stockholders' equity, contained in the audited
consolidated financial statements of the Company and its consolidated
subsidiaries) as of the end of the preceding fiscal year, LESS (b) the sum of
(i) the book value of the property, plant and equipment that are utilized or
associated with the Company's ordinary and regular course construction
activities, (ii) the book value of any preferred stock and related dividends,
and (iii) the Class D Formula Value.
CLASS B&C PER SHARE PRICE. The Class B&C Per Share Price is determined by
increasing the Class B&C Formula Value by the portion of the face amount of any
outstanding debentures convertible into Class C Stock, determined as of the
prior fiscal year end. The resulting amount is then divided by the sum of (x)
the number of shares of Class B Stock and Class C Stock issued and outstanding
as of the prior fiscal year end and (y) the number of shares of Class C Stock
reserved for the conversion of outstanding debentures into Class C Stock as of
the prior fiscal year end. This quotient is rounded to the nearest $.05 and then
reduced by the amount of dividends declared on each share of Class D Stock since
the prior fiscal year.
REPURCHASE DUTIES. Holders of Class B&C Stock may, at any time on or before
the fifteenth day of any calendar month, offer to sell part or all of their
Class B&C Stock to the Company at the Class B&C Per Share Price by delivering
the certificate(s) representing such stock to the Company, along with a written
notice offering such stock to the Company. Such offer must be accepted by the
Company, and payment made for such stock (without interest), within 60 days
after the receipt of such certificate(s) and such written notice by the Company.
Similarly, prior to the time the Class D Stock becomes Publicly Traded, holders
of Class D Stock may, at any time on or before the fifteenth day of any calendar
month, offer to sell all or part of their Class D Stock to the Company at the
Class D Per Share Price by delivering the certificate(s) representing such stock
to the Company, along with written notice offering such stock to the Company.
Such offer must be accepted by the Company, and payment made for such stock
(without interest), within 60 days after receipt of such certificate(s) and such
written notice by the Company. (PKS repurchased 700 shares of Class C Stock on
July 12, 1995 and July 19, 1995, in the aggregate, pursuant to such repurchase
obligation.)
The PKS Board of Directors may suspend the Company's duty to repurchase
Class B&C Stock upon its determination that the Class B&C Formula Value to be
determined at the end of the current fiscal year is likely to be less than an
amount equal to the Class B&C Formula Value determined at the end of the prior
fiscal year less the aggregate amount of dividends declared on the Class B&C
Stock during the current year. The suspension period shall not last more than
one year from the date of the PKS Board's declaration of suspension. During the
suspension period, PKS shall not accept any offer to repurchase Class B&C Stock,
if such offer is made voluntarily by a stockholder. During such suspension
period, the Company must continue to repurchase the Class B&C Stock from
stockholders upon termination of employment, death, or in the event of other
involuntary transfers, but (a) payment for such repurchases shall not be
required until after the end of the suspension period, (b) such payment shall be
made without interest, and (c) the repurchase price shall be the Class B&C Per
Share Price determined as of (i) the end of the prior fiscal year, in the case
of a suspension period that ends before July 1 of the fiscal year (provided that
such computation of the Class B&C Per Share Price shall be reduced by the amount
of dividends per share declared on the Class B&C Stock since the end of the
prior fiscal year), or (ii) in the case of a suspension period that ends after
June 30 of a fiscal year, the end of the fiscal year during which the suspension
period ends.
The PKS Certificate of Incorporation contains a similar provision applicable
to the Class D Stock, which is triggered upon a PKS Board determination of a
probable decline in the Class D Formula Value. The suspension provision
applicable to the Class D Stock differs from the provision applicable to the
Class B&C Stock because terminating employees holding Class D Stock are not
required to sell such shares back to the Company, nor is the Company under a
duty to repurchase such shares upon such termination. The PKS Board may suspend
the repurchase duties as to Class D Stock only, Class B&C Stock only, or as to
both classes. The PKS Board may also differentiate between Class B&C Stock and
Class D Stock as to the duration of the suspension periods.
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LIMITATION ON CASH REPURCHASE DUTIES -- CLASS D STOCK. For various reasons,
the PKS Board may determine that it is in the best interest of the Company to
limit the amount of cash the Company expends in a given year to satisfy its duty
to repurchase Class D Stock. Accordingly, the PKS Certificate of Incorporation
contains provisions under which the obligation of the Company to repurchase
Class D Stock for cash may be limited after the Company has in any fiscal year
purchased shares of Class D Stock tendered to the Company in an amount equal to
ten percent of the number of shares of Class D Stock outstanding at the end of
the prior fiscal year (the "Ten Percent Threshold"). During a given fiscal year,
until the Ten Percent Threshold is reached and subject to the suspension
provisions described under "Suspension of Repurchase Duties," the Company must
repurchase all shares of Class D Stock tendered to the Company. After the Ten
Percent Threshold is reached, the PKS Board may declare that further cash
repurchases will be limited. To enforce this limitation, the following rules are
embodied in the Certificate of Incorporation. First, shares of Class D Stock may
be tendered to the Company for repurchase only during the first 15 days of each
calendar month. Second, if the number of shares tendered exceeds the Ten Percent
Threshold and the PKS Board declares before the end of the month that further
cash payments are not in the best interest of the Company, then the PKS Board
shall also declare that as to the shares already tendered, a certain portion of
the shares tendered by each stockholder shall be purchased, with payment in
cash, and the remainder of such shares shall be purchased, but with payment by
promissory note. In setting the proportion of shares to be purchased for cash,
the PKS Board may set the proportion so that the cumulative shares sold during
the fiscal year is equal to the Ten Percent Threshold or the PKS Board may set
some higher proportion. The promissory notes shall have a maturity date not
later than 24 months after the date of tender. The PKS Board shall determine the
interest rate and other terms of the notes (including the Company's prepayment
rights). The PKS Board may establish different terms for notes applicable to
later tender dates. Each stockholder who would otherwise receive a note in
payment for the purchase of certain shares may instead elect to withdraw the
tender of those shares. The stockholder may not withdraw the tender for those
shares which the Company will purchase for cash. In the remaining months of the
fiscal year after the date of the PKS Board's declaration invoking the
repurchase limitations, the Company will continue to purchase all shares
tendered (subject to the suspension provisions described above), but payment for
such shares will be in the form of promissory notes, with such terms as the PKS
Board may set, from time to time. The Company must make full payment within 60
days of the date of purchase at the applicable Class D Per Share Price, without
interest (except for interest accrued and payable under the terms of any
promissory note issued to a stockholder). The Company's repurchase duties with
respect to Class D Stock will terminate when and if the Class D Stock becomes
Publicly Traded.
CONVERSION OF CLASS B&C STOCK INTO CLASS D STOCK. Any stockholder may
convert some or all of such stockholder's shares of Class B Stock and Class C
Stock into shares of Class D Stock by providing to the Company a written notice
(a "Conversion Notice"), together with the certificate or certificates
representing the shares tendered for conversion. The Company will accept
Conversion Notices only during the period from and including October 15 through
and including December 15 of each year. Except as provided below, the conversion
shall be effective on January 1 (the "Conversion Date") following the Company's
receipt of the Conversion Notice. As of the Conversion Date, the converting
stockholder shall be entitled to receive certificates representing the number of
shares of Class D Stock that bears the same ratio (the "Conversion Ratio") to
the number of shares surrendered for conversion as the Class B&C Per Share Price
at the Conversion Date bears to the Class D Conversion Price at such date. The
"Class D Conversion Price" means, (x) in the case of a Conversion Date before
the Class D Stock becomes Publicly Traded, the Class D Per Share Price as of the
Conversion Date, or (y) in the case of a Conversion Date after the Class D Stock
becomes Publicly Traded, the average trading price of the Class D Stock during
the 20 trading days prior to the Conversion Date. The Company shall issue
certificates of Class D Stock to converting stockholders promptly after the date
(the "Ratio Date") the PKS Board of Directors determines the applicable
conversion ratio. The PKS Board of Directors shall determine such conversion
ratio for the Class B&C Per Share Price and the Class D Conversion Price
promptly after the Company's consolidated financial statements for the
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fiscal year ended immediately before the Conversion Date have been certified by
the Company's independent public accountants. On the Conversion Date, a
converting holder shall cease to be a holder of the converted Class B&C Stock,
and shall instead become a holder of that number of shares of Class D Stock as
such holder would have received had such conversion been based upon the
Conversion Ratio in effect as of the Ratio Date in the prior year. On the Ratio
Date, such number of shares of Class D Stock shall be adjusted automatically to
the number of shares determined on the basis of the Conversion Ratio at the
Conversion Date. The Company may, but is not required to, make additional
payments to converting holders to reflect dividends that would have been paid on
any additional shares of Class D Stock that the Company expects to issue to such
holder when the Conversion Ratio is finally determined. When such ratio is
finally determined, the Company will pay to such holder (or the holder will be
required to reimburse to the Company) any amounts necessary so that the total
payments to the holder (after taking into account any payments to the holder as
described in the preceding sentence) reflect the amount of dividends such holder
would have received if the final Conversion Ratio had been known at the
Conversion Date.
As an alternative to the conversion described above, the Company may elect
to repurchase any shares of Class B&C Stock tendered for such conversion at the
Class B&C Per Share Price at the Conversion Date by providing written notice to
the tendering stockholder of such election not later than the Conversion Date.
The stockholder (but only if the stockholder is then an employee of the Company
or a subsidiary of which the Company owns a 20% or greater equity interest) may
withdraw the shares tendered for conversion at any time before, or within 10
days after, the Company provides written notice that it has elected to
repurchase the shares. Partial payment for such tendered shares shall be made
within 60 days after the Conversion Date, and the balance shall be paid after
the Company's financial statements are certified.
Conversion of Class B&C Stock into Class D Stock is not permitted during any
period in which the Company has suspended its repurchase obligations with
respect to Class B&C Stock or Class D Stock.
CONVERSION OF CLASS D STOCK INTO CLASS C STOCK. Until such time as the
Class D Stock becomes Publicly Traded, in connection with an annual offering of
Class C Stock to the Company's employees, an offeree, in lieu of purchasing some
or all of the offered shares, may convert, at the ratio described below, some or
all the offeree's shares of Class D Stock into not more than the number of
shares of Class C Stock offered. To exercise this right, the offeree must
provide to the Company a written notice (a "Conversion Notice"), together with
the certificate(s) representing the shares of Class D Stock tendered for
conversion. The Company will accept Conversion Notices only within 20 days after
an offer of Class C Stock is made. Upon receipt of such a Conversion Notice, the
Company shall issue to such offeree a certificate representing the number of
shares of Class C Stock that bears the same ratio to the number of shares
surrendered for conversion as the Class D Per Share Price at the date the
Company receives the Conversion Notice bears to the Class B&C Per Share Price at
such date.
EQUALIZING STOCK DIVIDENDS. The PKS Board, by a majority vote, may declare
and pay stock dividends to holders of Class C Stock in such amounts as the PKS
Board determines in its discretion to be appropriate in order that the number of
issued and outstanding shares of Class C Stock and the number of issued and
outstanding shares of Class D Stock will be approximately equal. A commensurate
stock dividend shall be paid on the Class B Stock at the same time that any
stock dividend is paid on the Class C Stock.
MANDATORY EXCHANGES. The PKS Certificate of Incorporation provides that the
PKS Board has the option to require certain exchanges of Class B&C Stock or
Class D Stock. However, neither such class may be exchanged in its entirety if
the other class has been, or is at that time being, exchanged in its entirety.
If assets and liabilities of the Construction & Mining Group are held
directly or indirectly by a wholly owned subsidiary of the Company (the
"Construction & Mining Group Subsidiary"), the PKS Board may, in its sole
discretion and by a two-thirds vote of the directors then in office, exchange
all of the outstanding shares of Class B&C Stock for all of the outstanding
shares of common stock of the
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Construction & Mining Group Subsidiary, on a pro rata basis, each of which
shares shall, upon such issuance, be fully paid and non-assessable. The PKS
Board may not require such an exchange unless the Construction & Mining Group
Subsidiary has adopted a certificate of incorporation containing provisions
substantially similar to the PKS Certificate of Incorporation, but eliminating
provisions applicable to the Class D Stock.
Similarly, if the assets and liabilities of the Diversified Group are held
directly or indirectly by a wholly owned subsidiary of the Company (the
"Diversified Group Subsidiary"), the PKS Board may, in its sole discretion and
by a two-thirds vote of the directors then in office, exchange all of the
outstanding shares of Class D Stock for all of the outstanding shares of common
stock of the Diversified Group Subsidiary, on a pro rata basis, each of which
shares shall, upon such issuance, be fully paid and non-assessable.
In a second form of exchange, unless and until the Class D Stock has become
Publicly Traded, the PKS Board may, by a two-thirds vote, require at any time an
exchange of the outstanding shares of Class D Stock for shares of Class C Stock.
The number of shares of Class C Stock to be issued in such exchange shall be
determined by the ratio of the Class D Per Share Price to the Class B&C Per
Share Price. If the holder of Class D Stock is not eligible to own Class C
Stock, such holder will be paid cash, without interest, for the shares of Class
D Stock owned by such holder within 60 days after the effective date of the
exchange, at the Class D Per Share Price.
NO PREEMPTIVE RIGHTS. Neither the holders of Class B&C Stock nor the
holders of Class D Stock have any preemptive or anti-dilution rights.
POTENTIAL CONFLICTS; FIDUCIARY DUTIES OF THE PKS BOARD. Under Delaware law,
the management of the business of the Company and, indirectly, the business of
its subsidiaries, is under the direction of the PKS Board of Directors.
Accordingly, the PKS Board has the right to allocate and transfer assets and
liabilities between the Groups, to establish fees and allocate expenses in
connection with inter-company transactions between the Groups and with the
Company itself and to establish and declare dividends paid to the Company by its
direct subsidiaries. Such actions could affect the future earnings of the
respective Groups, as well as the amounts available for the payment of dividends
on and the repurchase price and liquidation value of the respective classes of
stock. Accordingly, such actions may constitute conflicts between the interests
of the holders of Class B Stock and Class C Stock and the holders of Class D
Stock. Depending on the magnitude of such actions, and whether or not any
compensation for such actions is provided for by the PKS Board, such actions
could result in a substantial reduction in the stockholders' equity attributable
to the Group adversely affected by such actions and a corresponding reduction in
the value of the related class of PKS stock.
The PKS Board will not be constrained by specific standards in making the
foregoing determinations, but rather such actions will be taken in the sole
discretion of the PKS Board, subject only to the PKS Board's fiduciary duty to
act with due care and in the best interest of PKS and its stockholders.
The PKS Board presently contemplates significant transfers of assets between
the Groups only under two circumstances. First, the PKS Board intends to
continue its practice of transferring funds from one Group to the other to
reflect the change in the respective ownership interests of the classes of stock
in the event of conversions of stock from one class to another (and in the case
of the Exchange Offer, to reflect the exchange of Class B Stock and Class C
Stock for Class D Stock) so as to preclude the dilution of stockholders'
interests that would otherwise result from the issuance of shares upon
conversion (or exchange). Such adjustments are intended to maintain, rather than
to alter, the respective per share values of the classes of stock as determined
under the formulas provided for in the PKS Certificate of Incorporation. Second,
in the event that one of the Groups should incur substantial losses or
liabilities, the PKS Board might consider making a transfer of assets to the
affected Group from the other Group if the PKS Board determined that such
transfer was in the overall best interest of PKS and its stockholders. In such
event, the PKS Board intends to provide for compensation to the Group making the
transfer. The nature, amount and timing of such compensation would be determined
in light of the circumstances prevailing at the time. See "Risk Factors -- Risk
Factors Relating
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<PAGE>
to the Exchange Offer, the Spin-off and PKS Securities -- Transfers from
Construction & Mining Group," for a discussion of a possible interest-bearing
deferral of receipt of funds owed to the Diversified Group by the Construction &
Mining Group in connection with the Exchange Offer.
PKS CONVERTIBLE DEBENTURES
In the past, the Company has offered a new series of convertible debentures
for sale each year to certain employees who the PKS Board and management
determine have contributed significantly to the growth and performance of the
Company. Each series of debentures is issued in fully registered form under an
Indenture dated July 1, 1986, between the Company and FirsTier Bank N.A. (the
"Indenture"). The Indenture is qualified pursuant to the Trust Indenture Act of
1939. The Indenture does not limit the aggregate principal amount of debentures
which may be issued and provides that debentures may be issued from time to time
in one or more series. The Company currently has outstanding convertible
debentures of the 1990 through 1994 series in the aggregate principal amount of
$7,720,000. A 1995 series of debentures providing for the issuance of a maximum
of $3,000,000 of debentures convertible into Class C Stock has been authorized
and registered with the Commission, although no debentures will be issued until
November 1, 1995. The 1990 and 1991 Series Debentures are convertible into both
Class C Stock and Class D Stock. The 1993 Series Class D Debentures are
convertible solely into Class D Stock. The 1992 and 1994 Series Debentures and
the 1993 Series Class C Debentures are convertible solely into Class C Stock.
Because the 1992 and 1994 Series Debentures and the 1993 Series Class C
Debentures are not convertible into Class D Stock, they are not being included
in the Exchange Offer.
The terms of the debentures include those stated in the Indenture and those
made a part of the Indenture by reference to the Trust Indenture Act of 1939 as
in effect on the date of the Indenture. The following is a summary of such terms
and the terms of the repurchase agreement required to be executed by the
purchaser of a debenture.
BASIC FEATURES. Each series of debentures is issued on November 1. Interest
is payable annually on November 1 of each year thereafter, and on the maturity
date, which is ten years after the date of issuance. If the debentures are
converted into the Company's common stock (see "Conversion Rights" below),
interest ceases to accrue on June 30 before the fifth year after issuance. The
debentures are unsecured obligations of the Company, and the holders thereof
rank equally with other unsecured creditors of the Company in bankruptcy. The
debentures are issued only in registered form, without coupons, in denominations
of $1,000 or any integral multiple thereof. Purchasers are required to pay a
premium of $25 for each $1,000 in principal amount of debentures purchased.
CONVERSION RIGHTS. Holders may convert the debentures into a specified
class of the Company's common stock during the month of October in the fifth
year after issuance. No other conversion period is provided for, and if the
holder does not convert such debenture to common stock during this period, the
conversion right is lost. The entire principal amount (no partial conversions
are permitted) of a debenture is convertible into whole shares of common stock
at a conversion price, which is the formula price of the underlying common stock
on the date of issuance of the debentures. A cash payment by the holder is
required upon conversion where necessary to avoid the issuance of fractional
shares. The conversion right is conditioned upon the execution by a
debentureholder of a repurchase agreement pertaining to the common stock
acquired by means of the conversion. The conversion rights will be adjusted to
reflect stock splits, stock dividends, stock reclassifications or certain
corporate reorganizations between the date of purchase of the debentures and the
date of conversion.
Each 1990 Series Class C and D Debenture is convertible into pairs of shares
of Class C Stock and Class D Stock at a conversion price of $40.45 per pair, the
formula price of common stock as of November 1, 1990, the date of issuance of
the 1990 Series Class C and D Debentures. Each pair consists of one share of
Class C Stock and one share of Class D Stock. The 1991 Series Class C and D
Debentures is also convertible into pairs of shares of Class C Stock and Class D
Stock. The 1992 and 1994 Series debentures are convertible only into shares of
Class C Stock. In 1993, there were separate
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<PAGE>
series of debentures issued, one convertible into shares of Class C Stock and
one convertible into shares of Class D Stock. The Exchange Offer applies only to
the 1990 Series Class C and D Debentures, the 1991 Series Class C and D
Debentures and the 1993 Series Class D Debentures.
OWNERSHIP AND TRANSFER RESTRICTIONS. Sales of the debentures are
conditioned upon the execution of a repurchase agreement by the purchaser under
which the purchaser agrees not to transfer the debentures except in a sale to
the Company. The Company must purchase any debentures offered to it by
debentureholders. The repurchase agreement also provides that the debentures
must be sold back to the Company upon the death or retirement of the purchaser
of the debenture or the termination of the debentureholder's employment with the
Company. In any of the above-described circumstances, the Company will buy back
the debentures at a price equal to the principal amount thereof, together with
accrued interest from the last interest payment date to the date of such
purchase at the stated rate. No payment is made by the Company with respect to
the original bond premium. In the event the Company is offered some, but not
all, of a debentureholder's debentures, the Company may purchase all of such
holder's debentures.
REDEMPTION. Upon not less than ten days' written notice, the Company may,
at its option, redeem all (but not less than all) of the debentures of any given
series at the principal amount thereof, together with accrued interest from the
last interest payment date to the date fixed for redemption at the stated rate.
No payment is made by the Company with respect to the original bond premium. The
Company may not redeem debentures of any series during the one-month conversion
period applicable to that series.
MODIFICATION OF INDENTURE. The Indenture permits modification or amendment
thereof with the consent of the holders of not less than two-thirds in principal
amount of each series of debentures, but no modification of the terms of
payment, conversion rights, or the percentage required for modification will be
effective against any debentureholder without such holder's consent.
EVENTS OF DEFAULT AND WITHHOLDING OF NOTICE THEREOF TO
DEBENTUREHOLDERS. The Indenture provides for the following events of default
with respect to each series of the debentures: (i) failure to pay interest upon
any of the debentures of such series when due, continued for a period of 60 days
and (ii) failure to pay principal of the debentures of such series when due,
continued for a period of 60 days.
The trustee under the Indenture, within 90 days after the occurrence of a
default with respect to a particular series of debentures, is to give the
holders of debentures of such series notice of all defaults known to the
trustee, unless cured prior to the giving of such notice, provided that, except
in the case of default in the payment of principal or interest on any of the
debentures of such series, the trustee may withhold such notice if and so long
as it in good faith determines that the withholding of such notice is in the
interest of the holders of debentures of such series.
Upon the happening and during the continuance of a default with respect to a
particular series of debentures, the trustee may declare the principal of all
the debentures of such series and the interest accrued thereon due and payable,
but if the default is cured, the holders of a majority of such debentures may
waive all defaults and rescind such declaration. Subject to the provisions of
the Indenture relating to the duties of the trustee in case any such default
shall have occurred and be continuing, the trustee will be under no obligation
to exercise any of its rights or powers at the request, order or direction of
any of the debentureholders unless they shall have offered to the trustee
reasonable security or indemnity. A majority of the holders of outstanding
debentures of such series will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
trustee with respect to the debentures of such series.
THE TRUSTEE. The Company maintains a demand deposit account and conducts
routine banking business with the trustee. The Indenture contains limitations on
the right of the trustee, as a creditor of the Company under other instruments,
to obtain payment of claims in specified cases, or to realize on certain
property received in respect of any such claim as security or otherwise.
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<PAGE>
AUTHENTICATION AND DELIVERY. The debentures may be authenticated and
delivered upon the written order of the Company without any further corporate
action.
SATISFACTION AND DISCHARGE OF INDENTURE. The Indenture may be discharged
upon payment or redemption of all of the debentures or upon deposit with the
trustee of funds sufficient therefor.
MFS COMMON STOCK
The authorized number of shares of MFS Common Stock is 200,000,000. Holders
of MFS Common Stock are entitled to one vote for each share held on all matters
submitted to a vote of stockholders and do not have cumulative voting rights.
Holders of MFS Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the MFS Board of Directors out of funds legally
available therefor, subject to any preferential dividend rights of any
outstanding preferred stock issued by MFS. Upon the liquidation, dissolution or
winding up of MFS, the holders of MFS Common Stock are entitled to receive
ratably the net assets of MFS available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock
issued by MFS. Holders of MFS Common Stock have no preemptive, subscription,
redemption or conversion rights. All the outstanding shares of MFS Common Stock
are fully paid and non-assessable. The rights, preferences and privileges of
holders of MFS Common Stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred stock issued by
MFS. The MFS Board of Directors is authorized, subject to any limitations
prescribed by law, without stockholder approval, to issue preferred stock in one
or more series. Each such series of preferred stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation privileges, as
shall be determined by the MFS Board of Directors.
MFS PREFERRED STOCK
Pursuant to the terms of the Certificate of Designation with respect to the
MFS Preferred Stock (the "Certificate of Designation"), each share of MFS
Preferred Stock has the right to five votes on all matters presented to the MFS
stockholders. KDG has granted to MFS an irrevocable proxy to vote all of the
shares of MFS Preferred Stock in proportion to the vote of the holders of MFS
Common Stock on all matters other than the election of MFS directors and matters
as to which holders of the MFS Preferred Stock vote as a separate class under
Delaware corporation law. The shares of MFS Preferred Stock distributed in the
Spin-off will be subject to this irrevocable proxy. The MFS Preferred Stock will
be convertible into shares of MFS Common Stock at any time after the first
anniversary of the date of issuance at a conversion price of $43.125.
Accordingly, a holder of MFS Preferred Stock would need to surrender 43.125
shares of MFS Preferred Stock in order to receive one share of MFS Common Stock.
Each share of MFS Preferred Stock is convertible into 0.0231884 shares of MFS
Common Stock, which is determined by dividing $1.00 for each share of MFS
Preferred Stock (the face value of each share of MFS Preferred Stock) by $43.125
(the conversion price). Dividends on the MFS Preferred Stock will accrue at the
rate of 7 3/4% per annum and will be payable in cash. Dividends will be paid
only when, as and if declared by the MFS Board of Directors. As a result of
certain restrictions on MFS's ability to pay cash dividends that are contained
in MFS's existing debt agreements, it is currently anticipated that, in the near
future, the dividends on the MFS Preferred Stock will not be declared, but will
continue to accrue. Upon conversion, holders will be entitled to receive an
amount, payable at MFS's election in cash or shares of MFS Common Stock, equal
to all accrued but unpaid dividends in respect of the shares surrendered for
conversion. If MFS elects to pay all unpaid dividends in respect of the shares
of MFS Preferred Stock tendered for conversion in shares of MFS Common Stock,
the number of shares of MFS Common Stock to be issued in respect of these unpaid
dividends will be determined by a formula where the total amount of unpaid
dividends to be paid on each share of MFS Preferred Stock is divided by the
"Fair Market Value" of a share of MFS Common Stock. "Fair Market Value" is
defined, in general, as (i) if the MFS Common Stock is listed on any national
securities exchange or the Nasdaq National Market, the average of the last sales
price of the MFS Common Stock for each day in the 30 trading day period prior to
the date of conversion, (ii) if the MFS Common Stock is not so listed, on the
basis of the average of the mean between the closing bid
81
<PAGE>
and asked prices for the MFS Common Stock for each day in the 30 trading day
period prior to the date of conversion and (iii) if the MFS Common Stock is not
so listed and if there are no such closing bid and asked prices, on the basis of
the fair market value per share as determined by the MFS Board. The shares of
MFS Preferred Stock will be redeemable at the option of MFS at any time after
the sixth anniversary of the date of issuance at a redemption price of $1.00 per
share, plus accrued and unpaid dividends. The redemption price will be payable,
at MFS's election, in cash or shares of MFS Common Stock.
The MFS Preferred Stock cannot be sold or transferred by the recipient
thereof in the Spin-off without the consent of MFS until six years after
issuance, except (i) upon the death of the holder to such person's executors,
administrators, testamentary trustees, heirs, legatees or beneficiaries, but not
any subsequent sale or transfer by such, except in accordance with the terms of
the Certificate of Designation, (ii) to a holder's family members or a trust
created by the holder solely for the benefit of the holder's spouse, children or
other family members, but not any subsequent sale or transfer by such, except in
accordance with the terms of the Certificate of Designation; provided, such
family member or trust acknowledges in writing prior to such sale or transfer
the existence and enforceability of the irrevocable proxy described above, and
(iii) the pledge or hypothecation by a holder of the shares of MFS Preferred
Stock to secure a BONA FIDE loan to such holder from any bank, broker, insurance
company or other institution engaged in lending activities in the ordinary
course of its business; provided, however, that such lender may be required to
convert such MFS Preferred Stock into MFS Common Stock in the event of a
foreclosure action.
LEGAL MATTERS
The legality of the stock of PKS being offered in the Exchange Offer is
being passed upon for PKS by Sutherland, Asbill & Brennan. In addition, certain
U.S. tax matters are being passed upon for PKS by Sutherland, Asbill & Brennan.
The legality of the stock of MFS to be distributed by PKS in the Spin-off is
being passed upon for MFS by Willkie Farr & Gallagher, New York, New York.
EXPERTS
The consolidated financial statements of Peter Kiewit Sons', Inc., the
financial statements of the Construction & Mining Group and the financial
statements of the Diversified Group as of December 31, 1994, and December 25,
1993, and for each of the three years in the period ended December 31, 1994,
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
of Peter Kiewit Sons', Inc., for the year ended December 31, 1994, have been so
incorporated in reliance on the reports of Coopers & Lybrand, L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated financial statements of MFS Communications Company, Inc. as
of December 31, 1994 and 1993 and for each of the three years in the period
ended December 31, 1994, incorporated in this Prospectus by reference to the
Annual Report on Form 10-K of MFS Communications
Company, Inc. for the year ended December 31, 1994, have been so incorporated in
reliance on the report of Coopers & Lybrand, L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Centex Telemanagement, Inc. as of
December 31, 1993 and 1992 and for the years ended December 31, 1993, 1992 and
1991, incorporated in this Prospectus by reference have been so incorporated in
reliance upon the report of KPMG Peat Marwick, LLP, independent certified public
accountants, on authority of that firm as experts in auditing and accounting.
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<PAGE>
The balance sheets of Cylix Communications Corporation as of December 31,
1993 and 1992, and the related statements of operations, stockholder's equity
and cash flows for each of the years in the two-year period ended December 31,
1993 incorporated in this Prospectus by reference to the Current Report on Form
8-K of MFS Communications Company, Inc., dated November 2, 1994, as amended by
Form 8-K/A Amendment No. 1 on December 13, 1994, have been so incorporated in
reliance on the report of Leon Constantin & Co., independent accountants, given
on the authority of that firm as experts in accounting and auditing.
CERTAIN DEFINITIONS
AVAILABLE CLASS D DIVIDEND AMOUNT -- that amount which is the lesser of (a)
the amount legally available for dividends on PKS stock and (b) an amount equal
to (i) the Class D Formula Value minus (ii) dividends on Class D Stock declared
during the current year.
CLASS B STOCK -- the Class B Construction & Mining Group Nonvoting
Restricted Redeemable Convertible Exchangeable Common Stock of PKS, par value
$0.0625 per share.
CLASS B&C FORMULA VALUE -- the formula value, determined on an annual basis
in accordance with the Certificate of Incorporation, of the Construction &
Mining Group used as a basis for determining the Class B&C Per Share Price, as
more fully described under "Description of Securities -- PKS Stock" herein.
CLASS B&C PER SHARE PRICE -- the per share price of the Class B Stock and
Class C Stock, based on the Class B&C Formula Value, which is in accordance with
the Certificate of Incorporation applicable to PKS's purchases of Class B Stock
and Class C Stock and to the determination of the conversion ratios used in
converting Class B Stock and Class C Stock to Class D Stock and Class D Stock to
Class C Stock, as more fully described under "Description of Securities -- PKS
Stock" herein.
CLASS C STOCK -- the Class C Construction & Mining Group Restricted
Redeemable Convertible Exchangeable Common Stock of PKS, par value $0.0625 per
share.
CLASS C AND D DEBENTURES -- collectively, PKS's 1990 Series Convertible
Debentures due October 31, 2000 convertible into Class C and Class D Stock and
PKS's 1991 Series Convertible Debentures due October 31, 2001 convertible into
Class C and Class D Stock.
CLASS D DEBENTURES -- PKS's 1993 Series Class D Convertible Debentures due
October 31, 2003 convertible into Class D Stock.
CLASS D FORMULA VALUE -- the formula value, determined on an annual basis in
accordance with the Certificate of Incorporation, of the Diversified Group used
as a basis for determining the Class D Per Share Price, as more fully described
under "Description of Securities -- PKS Stock" herein.
CLASS D PER SHARE PRICE -- the per share price of the Class D Stock, based
on the Class D Formula Value, which is in accordance with the Certificate of
Incorporation applicable (prior to the time the Class D Stock becomes Publicly
Traded) to PKS's purchases of Class D Stock and to the determination of the
conversion ratios used in converting Class B Stock and Class C Stock to Class D
Stock and Class D Stock to Class C Stock, as more fully described under
"Description of Securities -- PKS Stock" herein.
CLASS D STOCK -- the Class D Diversified Group Convertible Exchangeable
Common Stock of PKS, par value $0.0625 per share.
CONSTRUCTION & MINING GROUP -- the Company's construction and certain mining
businesses.
DIVERSIFIED GROUP -- the Company's businesses other than its construction
and certain of its mining businesses.
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<PAGE>
EXCHANGE OFFER -- the offer by PKS to exchange (i) Class D Stock for
outstanding Class B Stock and Class C Stock, (ii) Class C Stock and Class D
Stock for outstanding Class C and D Debentures, and (iii) Class D Stock for
outstanding Class D Debentures, all upon the terms and conditions contained in
this Prospectus and the Letter of Transmittal.
EXCHANGEABLE DEBENTURES -- collectively, the Class D Debentures and the
Class C and D Debentures.
EXCHANGEABLE SECURITIES -- collectively, the Exchangeable Debentures and the
Exchangeable Stock.
EXCHANGEABLE STOCK -- collectively, the shares of Class B Stock and Class C
Stock exchangeable for Class D Stock pursuant to the Exchange Offer.
GROUPS -- collectively, the Construction & Mining Group and the Diversified
Group.
KCG -- Kiewit Construction Group Inc., a Delaware corporation and a wholly
owned first-tier subsidiary of PKS.
KDG -- Kiewit Diversified Group Inc., a Delaware corporation and a wholly
owned first-tier subsidiary of PKS.
LETTER OF TRANSMITTAL -- a letter sent to all holders of Exchangeable
Securities which sets forth certain terms and conditions of the Exchange Offer
and which must be signed by a holder of Exchangeable Securities and returned to
PKS by the Expiration Date in order to validly tender Exchangeable Securities.
Separate forms of such letters will be sent to (i) holders of Class B Stock,
(ii) holders of Class C Stock and (iii) holders of Exchangeable Debentures.
MFS -- MFS Communications Company, Inc., a Delaware corporation.
MFS BOARD OR MFS BOARD OF DIRECTORS -- the board of directors of MFS as
constituted from time to time.
MFS COMMON STOCK -- the common stock of MFS, par value $.01 per share.
MFS PREFERRED STOCK -- the Series B convertible preferred stock of MFS, par
value $.01 per share, issuable in connection with the MFS Recapitalization.
MFS RECAPITALIZATION -- the transfer by KDG of 2,900,000 shares of MFS
Common Stock to MFS in exchange for 15,000,000 shares of MFS Preferred Stock,
all as described in this Prospectus.
OFFERED STOCK -- shares of Class C Stock and Class D Stock issuable in
exchange for Exchangeable Securities pursuant to the Exchange Offer.
PKS OR THE COMPANY -- Peter Kiewit Sons', Inc., a Delaware corporation.
PKS BOARD OR PKS BOARD OF DIRECTORS -- the board of directors of PKS as
constituted from time to time.
PKS CERTIFICATE OF INCORPORATION -- the Restated Certificate of
Incorporation of PKS as in effect on the date of this Prospectus.
PUBLICLY TRADED -- the Class D Stock shall be "Publicly Traded" from and
after that point in time at which the Class D Stock is listed or quoted on any
national securities exchange or Nasdaq or the PKS Board of Directors has
determined that the Class D Stock is otherwise publicly traded.
SPIN-OFF -- the dividend distribution by PKS of all of the shares of MFS
Common Stock and MFS Preferred Stock held by PKS to holders of Class D Stock as
of the Spin-off Date, all as described in this Prospectus.
SPIN-OFF STOCK -- shares of MFS Common Stock and MFS Preferred Stock
received by holders of Class D Stock in the Spin-off.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants for Peter Kiewit Sons', Inc. and Subsidiaries............................................. F-3
Peter Kiewit Sons', Inc. and Subsidiaries Pro Forma Consolidated Condensed Statements of Earnings........................... F-4
Peter Kiewit Sons', Inc. Pro Forma Consolidated Condensed Balance Sheet..................................................... F-6
Report of Independent Accountants for Kiewit Construction & Mining Group.................................................... F-10
Peter Kiewit Construction and Mining Group Pro Forma Condensed Statements of Earnings....................................... F-11
Peter Kiewit Construction and Mining Group Pro Forma Condensed Balance Sheet................................................ F-13
Report of Independent Accountants for Kiewit Diversified Group.............................................................. F-17
Peter Kiewit Diversified Group Pro Forma Condensed Statements of Earnings................................................... F-18
Peter Kiewit Diversified Group Pro Forma Condensed Balance Sheet............................................................ F-20
</TABLE>
F-1
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The pro forma financial information of PKS, Kiewit Construction & Mining
Group and Kiewit Diversified Group, respectively, has been prepared to give
effect, as further described below, to the MFS Recapitalization, the Exchange
Offer and the Spin-off (together, the "Transactions"). The pro forma financial
information assumes, in two separate scenarios, that 3 million (Scenario 1) and
5 million (Scenario 2) shares of Exchangeable Stock and all the Exchangeable
Debentures are exchanged in the Exchange Offer as described herein for 1,249,793
and 2,082,988 shares of Class D Stock respectively, and that an additional
69,010 shares of Class D Stock and 59,929 shares of Class C Stock are issued in
exchange for all outstanding Exchangeable Debentures. Scenario 1 reflects PKS's
estimate of the number of shares of Exchangeable Stock likely to be tendered in
the Exchange Offer, based upon the tender indications that PKS has received from
members of the PKS Board of Directors and members of the KCG Board of Directors,
and PKS's estimates of the likely number of additional tenders. Scenario 2 is
set forth solely to illustrate the impact of the tender of substantially more
shares than anticipated by PKS. PKS does not believe that a tender of 5,000,000
shares is likely.
The pro forma condensed statements of earnings for the six months ended June
30, 1995 and for the year ended December 31, 1994, of PKS, Kiewit Construction &
Mining Group and Kiewit Diversified Group assume that the Transactions were
consummated on January 1, 1995 and December 26, 1993, respectively. The
condensed balance sheets of PKS and the respective Groups as of June 30, 1995
assume that the Transactions were consummated as of such date.
The pro forma financial information is not intended to reflect results of
operations or the financial position of PKS, Kiewit Construction & Mining Group
or Kiewit Diversified Group, which actually would have resulted had the
Transactions been effected on the dates indicated. Moreover, the pro forma
information is not intended to be indicative of future results of operations or
financial position of PKS, Kiewit Construction & Mining Group or Kiewit
Diversified Group.
The pro forma financial information should be read in conjunction with PKS',
Kiewit Construction & Mining Group's and Kiewit Diversified Group's historical
financial statements, and the notes thereto, contained in PKS' Annual Report on
Form 10-K for the year ended December 31, 1994 and selected exhibits thereto and
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and selected
exhibits thereto, all of which are incorporated herein by reference.
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have examined the pro forma adjustments reflecting the transactions
described in the accompanying notes and the application of those adjustments to
the historical amounts in the accompanying pro forma consolidated condensed
statement of earnings of Peter Kiewit Sons', Inc. and Subsidiaries for the year
ended December 31, 1994. The pro forma consolidated condensed statement of
earnings is derived from the historical financial statements of Peter Kiewit
Sons', Inc. and Subsidiaries, which were audited by us, incorporated by
reference herein. Such pro forma adjustments are based upon management's
assumptions described in the accompanying notes. Our examination was made in
accordance with standards established by the American Institute of Certified
Public Accountants and, accordingly, included such procedures as we considered
necessary in the circumstances.
In addition, we have reviewed the related pro forma adjustments and the
application of those adjustments to the historical amounts in the accompanying
pro forma consolidated condensed balance sheet of Peter Kiewit Sons', Inc. and
Subsidiaries as of June 30, 1995 and the pro forma consolidated condensed
statement of earnings for the six months then ended. The pro forma consolidated
condensed financial statements are derived from the historical financial
statements of Peter Kiewit Sons', Inc. and Subsidiaries, which were reviewed by
us, incorporated herein by reference. Such pro forma adjustments are based upon
management's assumptions described in the accompanying notes. Our review was
made in accordance with standards established by the American Institute of
Certified Public Accountants.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transactions occurred at an earlier date. However, the pro forma consolidated
condensed financial statements are not necessarily indicative of the results of
operations or related effects on financial position that would have been
attained had the above-mentioned transactions actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transactions described in the accompanying notes, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro forma
column reflects the proper application of those adjustments to the historical
financial statement amounts in the pro forma consolidated condensed statement of
earnings for the year ended December 31, 1994.
A review is substantially less in scope than an audit, the objective of
which is the expression of an opinion on management's assumptions, the pro forma
adjustments and the application of those adjustments to historical financial
information. Accordingly, we do not express such an opinion on the pro forma
adjustments or the application of such adjustments to the pro forma consolidated
condensed balance sheet as of June 30, 1995, and the pro forma consolidated
condensed statement of earnings for the six months then ended. Based on our
review, however, nothing came to our attention that caused us to believe that
management's assumptions do not provide a reasonable basis for presenting the
significant effects directly attributable to the above-mentioned transactions
described in the accompanying notes, that the related pro forma adjustments do
not give appropriate effect to those assumptions, or that the pro forma column
does not reflect the proper application of those adjustments to the historical
financial statement amounts in the pro forma consolidated condensed balance
sheet as of June 30, 1995, and the pro forma consolidated condensed statement of
earnings for the six months then ended.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
August 17, 1995
F-3
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
AND SIX MONTHS ENDED JUNE 30, 1995
(SCENARIO 1 ASSUMING 3 MILLION SHARES OF EXCHANGEABLE STOCK EXCHANGED FOR CLASS
D STOCK)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994 SIX MONTHS ENDED JUNE 30, 1995
----------------------------------------- -----------------------------------------
OTHER OTHER
ADJUSTMENTS ADJUSTMENTS
HISTORICAL (NOTE 2) PKS PRO FORMA HISTORICAL (NOTE 2) PKS PRO FORMA
----------- ----------- -------------- ----------- ----------- --------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue.................................. $ 2,704 $-- $ 2,704 $ 1,260 $-- $ 1,260
Cost of Revenue.......................... 2,308 -- (2,308) (1,079) -- (1,079)
----------- --- -------------- ----------- --- --------------
396 -- 396 181 -- 181
General and Administrative Expenses...... (230) -- (230) (108) -- (108)
----------- --- -------------- ----------- --- --------------
Operating Income......................... 166 -- 166 73 -- 73
Other Income (Expense):
Gain on Subsidiary's Stock
Transactions, net..................... 54 (54)(a) -- 3 (3)(a) --
Investment Income, net................. 43 -- 43 30 -- 30
Interest Expense, net.................. (38) -- (b) (38) (24) -- (b) (24)
Other, net............................. 15 -- 15 171 -- 171
----------- --- -------------- ----------- --- --------------
74 (54) 20 180 (3) 177
Equity in Loss of MFS.................... (102) 102(c) -- (85) 85(c) --
----------- --- -------------- ----------- --- --------------
Earnings before Income Taxes and Minority
Interest in Net Losses (Income) of
Subsidiaries............................ 138 48 186 168 (82) 250
Provision for Income Taxes............... (29) 19(d) (10) (89) 1(d) (88)
Minority Interest in Net Losses (Income)
of Subsidiaries......................... 1 -- 1 (8) -- (8)
----------- --- -------------- ----------- --- --------------
Net Earnings............................. $ 110 $ 67 $ 177 $ 71 $ 83 $ 154
----------- --- -------------- ----------- --- --------------
----------- --- -------------- ----------- --- --------------
Earnings Attributable to
Class B & C Stock...................... $ 77 $ 75 $ 34 $ 33
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
Class D Stock.......................... $ 33 $ 102 $ 37 $ 121
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
Earnings Per Common and Common Equivalent
Share:
Class B & C............................ $ 4.92 $ 5.88 $ 2.44 $ 2.97
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
Class D................................ $ 1.63 $ 4.73 $ 1.75 $ 5.39
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
Weighted Average Shares Outstanding:
Class B & C............................ 15,697,724 12,757,653(e) 13,954,135 11,014,064(e)
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
Class D................................ 20,438,806 21,636,604(e) 21,261,632 22,580,435(e)
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-4
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
AND SIX MONTHS ENDED JUNE 30, 1995
(SCENARIO 2 ASSUMING 5 MILLION SHARES OF EXCHANGEABLE STOCK EXCHANGED FOR CLASS
D STOCK)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994 SIX MONTHS ENDED JUNE 30, 1995
----------------------------------------- -----------------------------------------
OTHER OTHER
ADJUSTMENTS ADJUSTMENTS
HISTORICAL (NOTE 2) PKS PRO FORMA HISTORICAL (NOTE 2) PKS PRO FORMA
----------- ----------- -------------- ----------- ----------- --------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue.................................. $ 2,704 $-- $ 2,704 $ 1,260 $-- $ 1,260
Cost of Revenue.......................... 2,308 -- (2,308) (1,079) -- (1,079)
----------- --- -------------- ----------- --- --------------
396 -- 396 181 -- 181
General and Administrative Expenses...... (230) -- (230) (108) -- (108)
----------- --- -------------- ----------- --- --------------
Operating Income......................... 166 -- 166 73 -- 73
Other Income (Expenses):
Gain on Subsidiary's Stock
Transactions, net..................... 54 (54)(a) -- 3 (3)(a) --
Investment Income, net................. 43 -- 43 30 -- 30
Interest Expense, net.................. (38) -- (b) (38) (24) -- (b) (24)
Other, net............................. 15 -- 15 171 -- 171
----------- --- -------------- ----------- --- --------------
74 (54) 20 180 (3) 177
Equity in Loss of MFS.................... (102) 102(c) -- (85) 85(c) --
----------- --- -------------- ----------- --- --------------
Earnings before Income Taxes and Minority
Interest in Net Losses (Income) of
Subsidiaries............................ 138 48 186 168 82 250
Provision for Income Taxes............... (29) 19(d) (10) (89) 1(d) (88)
Minority Interest in Net Losses (Income)
of Subsidiaries......................... 1 -- 1 (8) -- (8)
----------- --- -------------- ----------- --- --------------
Net Earnings............................. $ 110 $ 67 $ 177 $ 71 $ 83 $ 154
----------- --- -------------- ----------- --- --------------
----------- --- -------------- ----------- --- --------------
Earnings Attributable to:
Class B & C Stock...................... $ 77 $ 74 $ 34 $ 32
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
Class D................................ $ 33 $ 103 $ 37 $ 122
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
Earnings Per Common and Common Equivalent
Share:
Class B & C............................ $ 4.92 $ 6.84 $ 2.44 $ 3.54
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
Class D................................ $ 1.63 $ 4.63 $ 1.75 $ 5.23
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
Weighted Average Shares Outstanding:
Class B & C............................ 15,697,724 10,757,653(e) 13,954,135 9,014,064(e)
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
Class D................................ 20,438,806 22,389,129(e) 21,261,632 23,413,630(e)
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-5
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1995
(SCENARIO 1 ASSUMING 3 MILLION SHARES OF EXCHANGEABLE STOCK EXCHANGED FOR CLASS
D STOCK)
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS PKS
HISTORICAL (NOTE 3) PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 434 $-- $ 434
Marketable securities......................................................... 528 -- 528
Receivables, net.............................................................. 311 -- 311
Costs and earnings in excess of billings on uncompleted contracts............. 130 -- 130
Investment in construction joint ventures..................................... 62 -- 62
Deferred income taxes......................................................... 65 -- 65
Other......................................................................... 55 -- 55
---------- ----------- ---------
Total Current Assets...................................................... 1,585 -- 1,585
Property, Plant and Equipment, net.............................................. 630 -- 630
Investments..................................................................... 450 -- 450
Intangible Assets, net.......................................................... 401 -- 401
Net Assets of MFS............................................................... 447 (447)(a) --
Other Assets.................................................................... 72 -- 72
---------- ----------- ---------
$3,585 $ (447) $3,138
---------- ----------- ---------
---------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 211 $-- $ 211
Current portion of long-term debt:
Telecommunications.......................................................... 9 -- 9
Other....................................................................... 5 (1)(b) 4
Accrued costs and billings in excess of revenue on uncompleted contracts...... 133 -- 133
Accrued insurance costs....................................................... 74 -- 74
Other......................................................................... 151 12(c) 163
---------- ----------- ---------
Total Current Liabilities................................................. 583 11 594
Long-term Debt, less current portion:
Telecommunications.......................................................... 290 -- 290
Other....................................................................... 89 (2)(b) 87
Deferred Income Taxes........................................................... 314 (93)(d) 221
Retirement Benefits............................................................. 48 -- 48
Accrued Reclamation Costs....................................................... 103 -- 103
Other Liabilities............................................................... 123 -- 123
Minority Interest............................................................... 193 -- 193
Stockholders' Equity:
Preferred stock............................................................... -- -- --
Common stock..................................................................
Class B shares outstanding: historical -- 884,400,
pro forma -- 0............................................................. -- -- --
Class C shares outstanding: historical -- 13,944,365,
pro forma -- 11,888,694.................................................... 1 -- 1
Class D shares outstanding: historical -- 21,288,468,
pro forma -- 22,607,271.................................................... 1 -- 1
Additional paid-in capital.................................................... 207 3(b) 210
Foreign currency adjustment................................................... (4) -- (4)
Net unrealized holding gains (losses)......................................... 8 -- 8
Retained earnings............................................................. 1,629 (447)(c)
(12)(c)
93(d) 1,263
---------- ----------- ---------
Total Stockholders' Equity................................................ 1,842 (363) 1,479
---------- ----------- ---------
$3,585 $ (447) $3,138
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-6
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1995
(SCENARIO 2 ASSUMING 5 MILLION SHARES OF EXCHANGEABLE STOCK EXCHANGED FOR CLASS
D STOCK)
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS PKS
HISTORICAL (NOTE 3) PRO FORMA
---------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents..................................................... $ 434 $-- $ 434
Marketable securities......................................................... 528 -- 528
Receivables, net.............................................................. 311 -- 311
Cost and earnings in excess of billings and uncompleted contracts............. 130 -- 130
Investment in construction joint ventures..................................... 62 -- 62
Deferred income taxes......................................................... 65 -- 65
Other......................................................................... 55 -- 55
---------- ----------- ---------
Total Current Assets............................................................ 1,585 -- 1,585
Property, Plant and Equipment, net.............................................. 630 -- 630
Investments..................................................................... 450 -- 450
Intangible Assets, net.......................................................... 401 -- 401
Net Assets of MFS............................................................... 447 (447)(a) --
Other Assets.................................................................... 72 -- 72
---------- ----------- ---------
$3,585 $ (497) $3,138
---------- ----------- ---------
---------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 211 $-- $ 211
Current portion of long-term debt:
Telecommunications.......................................................... 9 -- 9
Other....................................................................... 5 (1)(b) 4
Accrued costs and billings in excess of revenue on uncompleted contracts...... 133 -- 133
Accrued insurance costs....................................................... 74 -- 74
Other......................................................................... 151 12(c) 163
---------- ----------- ---------
Total Current Liabilities....................................................... 583 11 594
Long-term Debt, less current portion:
Telecommunications............................................................ 290 -- 290
Other......................................................................... 89 (2)(b) 87
Deferred Income Taxes........................................................... 314 (93)(d) 221
Retirement Benefits............................................................. 48 -- 48
Accrued Reclamation Costs....................................................... 103 -- 103
Other Liabilities............................................................... 123 -- 123
Minority Interest............................................................... 193 -- 193
Stockholders' Equity:
Preferred stock............................................................... -- -- --
Common Stock
Class B shares outstanding: historical -- 884,400,
pro forma -- 0............................................................. -- -- --
Class C shares outstanding: historical -- 13,944,365,
pro forma -- 9,888,694..................................................... 1 -- 1
Class D shares outstanding: historical -- 21,288,468,
pro forma -- 23,440,466.................................................... 1 -- 1
Additional paid-in capital.................................................... 207 3(b) 210
Foreign currency adjustment................................................... (4) -- (4)
Net unrealized holding gains (losses)......................................... 8 -- 8
Retained earnings............................................................. 1,629 (447)(a)
(12)(c)
93(d) 1,263
---------- ----------- ---------
Total Stockholders' Equity...................................................... 1,842 (363) 1,479
---------- ----------- ---------
$3,585 $ (447) $3,138
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-7
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF REPORTING
The accompanying pro forma consolidated condensed financial statements of
PKS are presented based upon the historical consolidated financial statements
and the notes thereto of PKS, as adjusted to remove the earnings statement and
balance sheet accounts of MFS and to give effect to certain other elements of
the MFS Recapitalization, the Exchange Offer and the Spin-off, (together, the
"Transactions"). The pro forma information assumes, in two separate scenarios,
that 3 million (Scenario 1) and 5 million (Scenario 2), shares of the
Exchangeable Stock and all the Exchangeable Debentures are exchanged in the
Exchange Offer. Such pro forma financial statements should be read in
conjunction with the separate historical consolidated financial statements and
the notes thereto of PKS, incorporated herein by reference. Such pro forma
financial statements are not necessarily indicative of the future results of
operations or financial position.
The PKS Board of Directors preliminarily approved a plan to make a tax-free
distribution of its entire ownership interest in MFS to the Class D Stockholders
at a special meeting on June 9, 1995. The operating results of MFS have been
classified as a single line item on the consolidated statements of earnings.
PKS' proportionate share of the net assets of MFS at June 30, 1995 of $447
million have been reported separately on the consolidated balance sheet.
Completion of the Transactions has been assumed to be as of June 30, 1995 in
the pro forma consolidated condensed balance sheet and as of December 26, 1993
and January 1, 1995, in the pro forma consolidated condensed statements of
earnings for the year ended December 31, 1994 and the six months ended June 30,
1995, respectively.
The significant accounting policies followed by PKS, described in the notes
to its historical consolidated financial statements incorporated herein by
reference, have been used in preparing the accompanying pro forma consolidated
condensed financial statements.
2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS
As described in Note 1, the historical consolidated statements of earnings
for PKS have been adjusted to remove the earnings statement accounts of MFS and
to give effect to certain other elements of the Transactions. The other
adjustments made in preparation of the PKS Pro Forma Statements of Earnings are
described below:
(a) Adjustment made to reverse the gain recognized from MFS stock
transactions that would not have been recorded if the Transactions were
completed at the beginning of the periods.
(b) No adjustment has been made for the decrease in interest expense due to
the assumed exchange of the Exchangeable Debentures as the adjustment is
less than $1 million.
(c) Adjustment made to remove the earnings statement account of MFS.
(d) Adjustment made to reflect the tax effect of the above adjustments.
(e) Scenario 1 assumes 3,000,000 shares of Exchangeable Stock are exchanged
for Class D Stock and Scenario 2 assumes that 5,000,000 shares of
Exchangeable Stock are exchanged for Class D Stock at the prior year-end
conversion ratio, adjusted for dividends declared during the periods.
The pro forma weighted average shares also include an additional 59,929
Class C shares and 69,010 Class D shares attributable to the exchange of
the Exchangeable Debentures.
F-8
<PAGE>
PETER KIEWIT SONS', INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3. BALANCE SHEET PRO FORMA ADJUSTMENTS
As described in Note 1, the historical consolidated balance sheet of PKS has
been adjusted to remove the balance sheet account of MFS and to give effect to
certain other elements of the Transactions. The other adjustments made in
preparation of the PKS Pro Forma Consolidated Condensed Balance Sheet are
described below:
(a) Adjustment to remove PKS' investment in MFS.
(b) Adjustment made to reflect the exchange of the Exchangeable Debentures
for Class C and Class D Stock.
(c) Adjustment made to record the accrual of certain estimated corporate
United States Federal income taxes attributable to the corporate
built-in gain on the stock of MFS being distributed to certain
non-United States Class D stockholders.
(d) Adjustment made to reverse certain deferred tax liabilities recognized
on gains from MFS stock transactions that are no longer payable.
4. EARNINGS PER SHARE
Primary earnings per share of common stock have been computed using the
weighted average number of shares outstanding during each period. Fully diluted
earnings per share have not been presented because they are not materially
different from primary earnings per share.
F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons, Inc.
We have examined the pro forma adjustments reflecting the transactions
described in the accompanying notes and the application of those adjustments to
the historical amounts in the accompanying pro forma condensed statement of
earnings of Kiewit Construction & Mining Group, a business group of Peter Kiewit
Sons', Inc., for the year ended December 31, 1994. The pro forma condensed
statement of earnings is derived from the historical financial statements of
Kiewit Construction & Mining Group, which were audited by us, incorporated
herein by reference. Such pro forma adjustments are based upon management's
assumptions described in the accompanying notes. Our examination was made in
accordance with standards established by the American Institute of Certified
Public Accountants and, accordingly, included such procedures as we considered
necessary in the circumstances.
In addition, we have reviewed the related pro forma adjustments and the
application of those adjustments to the historical amounts in the accompanying
pro forma condensed balance sheet of Kiewit Construction & Mining Group as of
June 30, 1995 and the pro forma condensed statement of earnings for the six
months then ended. The pro forma condensed financial statements are derived from
the historical financial statements of Kiewit Construction & Mining Group, which
were reviewed by us, incorporated herein by reference. Such pro forma
adjustments are based upon management's assumptions described in the
accompanying notes. Our review was made in accordance with standards established
by the American Institute of Certified Public Accountants.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transactions occurred at an earlier date. However, the pro forma condensed
financial statements are not necessarily indicative of the results of operations
or related effects on financial position that would have been attained had the
above-mentioned transactions actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transactions described in the accompanying notes, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro forma
column reflects the proper application of those adjustments to the historical
financial statement amounts in the pro forma condensed statement of earnings for
the year ended December 31, 1994.
A review is substantially less in scope than an audit, the objective of
which is the expression of an opinion on management's assumptions, the pro forma
adjustments and the application of those adjustments to historical financial
information. Accordingly, we do not express such an opinion on the pro forma
adjustments or the application of such adjustments to the pro forma condensed
balance sheet as of June 30, 1995, and the pro forma condensed statement of
earnings for the six months then ended. Based on our review, however, nothing
came to our attention that caused us to believe that management's assumptions do
not provide a reasonable basis for presenting the significant effects directly
attributable to the above-mentioned transactions described in the accompanying
notes, that the related pro forma adjustments do not give appropriate effect to
those assumptions, or that the pro forma column does not reflect the proper
application of those adjustments to the historical financial statement amounts
in the pro forma condensed balance sheet as of June 30, 1995, and the pro forma
condensed statement of earnings for the six months then ended.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
August 17, 1995
F-10
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
PRO FORMA CONDENSED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
AND SIX MONTHS ENDED JUNE 30, 1995
(SCENARIO 1 ASSUMING 3 MILLION SHARES OF EXCHANGEABLE STOCK EXCHANGED FOR CLASS
D STOCK)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994 SIX MONTHS ENDED JUNE 30, 1995
------------------------------------------ ---------------------------------------
ADJUSTMENTS ADJUSTMENTS
HISTORICAL (NOTE 2) PRO FORMA HISTORICAL (NOTE 2) PRO FORMA
---------- ----------- ---------------- ----------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................. $ 2,175 $-- $ 2,175 $ 988 $-- $ 988
Cost of Revenue..................... (1,995) -- (1,995) (925) -- (925)
---------- ----------- ---------------- ----------- ----------- ------------
180 -- 180 63 -- 63
General and Administrative
Expenses........................... (121) -- (121) (61) -- (61)
---------- ----------- ---------------- ----------- ----------- ------------
Operating Earnings.................. 59 -- 59 2 -- 2
Other Income (Expense):
Investment Income, net............ 13 (3)(a) 10 6 (2)(a) 4
Interest Expense.................. (2) --(b) )(2 (1) --(b) (1)
Other, net........................ 46 -- 46 46 -- 46
---------- ----------- ---------------- ----------- ----------- ------------
57 (3) 54 51 (2) 49
---------- ----------- ---------------- ----------- ----------- ------------
Earnings before Income Taxes........ 116 (3) 113 53 (2) 51
(Provision) Benefit for Income
Taxes.............................. (39) 1(c) (38) (19) 1(c) (18)
---------- ----------- ---------------- ----------- ----------- ------------
Net Earnings........................ $ 77 $ (2) $ 75 $ 34 $ (1) $ 33
---------- ----------- ---------------- ----------- ----------- ------------
---------- ----------- ---------------- ----------- ----------- ------------
Net Earnings Per Common and Common
Equivalent Share................... $ 4.92 $ 5.88 $ 2.44 $ 2.97
---------- ---------------- ----------- ------------
---------- ---------------- ----------- ------------
Weighted Average Shares
Outstanding........................ 15,697,724 12,757,653(d) 13,954,135 11,014,064(d)
---------- ---------------- ----------- ------------
---------- ---------------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-11
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
PRO FORMA CONDENSED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
AND SIX MONTHS ENDED JUNE 30, 1995
(SCENARIO 2 ASSUMING 5 MILLION SHARES OF EXCHANGEABLE STOCK EXCHANGED FOR CLASS
D STOCK)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994 SIX MONTHS ENDED JUNE 30, 1995
------------------------------------------ ---------------------------------------
ADJUSTMENTS ADJUSTMENTS
HISTORICAL (NOTE 2) PRO FORMA HISTORICAL (NOTE 2) PRO FORMA
---------- ----------- ---------------- ----------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue................................... $ 2,175 $-- $ 2,175 $ 988 $-- $ 988
Cost of Revenue........................... (1,995) -- (1,995) (925) -- (925)
---------- ----------- ---------------- ----------- ----------- ------------
180 -- 180 63 -- 63
General and Administrative Expenses....... (121) -- (121) (61) -- (61)
---------- ----------- ---------------- ----------- ----------- ------------
Operating Earnings........................ 59 -- 59 2 -- 2
Other Income (Expense):
Investment Income, net.................. 13 (5)(a) 8 6 (3)(a) 3
Interest Expense........................ (2) --(b) )(2 (1) --(b) (1)
Other, net.............................. 46 -- 46 46 -- 46
---------- ----------- ---------------- ----------- ----------- ------------
57 (5) 52 51 (3) 48
---------- ----------- ---------------- ----------- ----------- ------------
Earnings before Income Taxes.............. 116 (5) 111 53 (3) 50
(Provision) Benefit for Income Taxes...... (39) 2(c) (37) (19) 1(c) (18)
---------- ----------- ---------------- ----------- ----------- ------------
Net Earnings.............................. $ 77 $ (3) $ 74 $ 34 $ (2) $ 32
---------- ----------- ---------------- ----------- ----------- ------------
---------- ----------- ---------------- ----------- ----------- ------------
Net Earnings Per Common and Common
Equivalent Share......................... $ 4.92 $ 6.84 $ 2.44 $ 3.54
---------- ---------------- ----------- ------------
---------- ---------------- ----------- ------------
Weighted Average Shares Outstanding....... 15,697,724 10,757,653(d) 13,954,135 9,014,064(d)
---------- ---------------- ----------- ------------
---------- ---------------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-12
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1995
(SCENARIO 1 ASSUMING 3 MILLION SHARES OF EXCHANGEABLE STOCK EXCHANGED FOR CLASS
D STOCK)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL (NOTE 3) PRO FORMA
---------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................ $ 84 $(75)(a) $ 9
Marketable securities.................................................... 100 -- 100
Receivables, net......................................................... 244 -- 244
Costs and earnings in excess of billings on uncompleted contracts........ 130 -- 130
Investment in construction joint ventures................................ 62 -- 62
Deferred income taxes.................................................... 54 -- 54
Other.................................................................... 21 -- 21
----- ----- ---------
Total Current Assets................................................... 695 (75) 620
Property, Plant and Equipment, net......................................... 161 -- 161
Other Assets............................................................... 111 -- 111
----- ----- ---------
$967 $(75) $892
----- ----- ---------
----- ----- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................................... $169 -$- $169
Current portion of long-term debt........................................ 2 -- 2
Accrued construction costs and billings in excess of revenue on
uncompleted contracts................................................... 119 -- 119
Accrued insurance costs.................................................. 74 -- 74
Other.................................................................... 41 -- 41
----- ----- ---------
Total Current Liabilities.............................................. 405 -- 405
Long-term Debt, less current portion....................................... 7 (1)(b) 6
Deferred Income Taxes...................................................... 5 -- 5
Other Liabilities.......................................................... 47 -- 47
Stockholders Equity:
Common equity............................................................ 508 (75)(a)
1(b) 434
Foreign currency adjustment.............................................. (5) -- (5)
Unrealized holding gain (loss)........................................... -- -- --
----- ----- ---------
Total Stockholders' Equity............................................. 503 (74) 429
----- ----- ---------
$967 $(75) $892
----- ----- ---------
----- ----- ---------
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-13
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1995
(SCENARIO 2 ASSUMING 5 MILLION SHARES OF
EXCHANGEABLE STOCK EXCHANGED FOR CLASS D STOCK)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL (NOTE 3) PRO FORMA
---------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................ $ 84 $ (84)(a) $--
Marketable securities.................................................... 100 (42)(a) 58
Receivables, net......................................................... 244 -- 244
Costs and earnings in excess of billings on uncompleted contracts........ 130 -- 130
Investment in construction joint ventures................................ 62 -- 62
Deferred Income Taxes.................................................... 54 -- 54
Other.................................................................... 21 -- 21
----- ----------- ---------
Total Current Assets................................................... 695 (126) 569
Property, Plant and Equipment, net......................................... 161 -- 161
Other Assets............................................................... 111 -- 111
----- ----------- ---------
$967 $(126) $841
----- ----------- ---------
----- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................................... $169 $-- $169
Current portion of long-term debt........................................ 2 -- 2
Accrued construction costs and billings in excess of revenue on
uncompleted contracts................................................... 119 -- 119
Accrued insurance costs.................................................. 74 -- 74
Other.................................................................... 41 -- 41
----- ----------- ---------
Total Current Liabilities.............................................. 405 -- 405
Long-term Debt, less current portion....................................... 7 (1)(b) 6
Deferred Income Taxes...................................................... 5 -- 5
Other Liabilities.......................................................... 47 -- 47
Stockholders' Equity:
Common equity............................................................ 508 (126)(a)
1(b) 383
Foreign currency adjustment.............................................. (5) -- (5)
Unrealized holding gain (loss)........................................... -- -- --
----- ----------- ---------
Total Stockholders' Equity............................................. 503 (125) 378
----- ----------- ---------
$967 $(126) $841
----- ----------- ---------
----- ----------- ---------
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-14
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. BASIS OF REPORTING
The accompanying pro forma condensed financial statements of the Kiewit
Construction & Mining Group ("the Group") are presented based upon the
historical financial statements and the notes thereto of the Group, as adjusted
to give effect to certain elements of the MFS Recapitalization, the Exchange
Offer and the Spin-off, (together the "Transactions"). The pro forma information
assumes, in two separate scenarios, that 3 million (Scenario 1) and 5 million
(Scenario 2), shares of the Exchangeable Stock and all the Exchangeable
Debentures are exchanged in the Exchange Offer. Such pro forma financial
statements should be read in conjunction with the separate historical financial
statements and the notes thereto of the Group, incorporated herein by reference.
Such pro forma financial statements are not necessarily indicative of the future
results of operations or financial position.
Completion of the Transactions has been assumed to be as of June 30, 1995 in
the pro forma condensed balance sheet and as of December 26, 1993 and January 1,
1995, in the pro forma condensed statements of earnings for the year ended
December 31, 1994 and the six months ended June 30, 1995, respectively.
The significant accounting policies followed by the Group, described in the
notes to its historical financial statements incorporated herein by reference,
have been used in preparing the accompanying pro forma condensed financial
statements.
Although the pro forma financial statements of PKS' Construction & Mining
Group and Diversified Group separately report the assets, liabilities and
stockholders' equity of PKS attributed to each such group, legal title to such
assets and responsibility for such liabilities will not be affected by such
attribution. Holders of Class B Stock, Class C Stock and Class D Stock are
stockholders of PKS. Accordingly, the PKS pro forma consolidated financial
statements and related notes should be read in conjunction with these pro forma
financial statements.
2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS
As described in Note 1, the historical statements of earnings for the Group
have been adjusted to give effect to certain elements of the Transactions. The
other adjustments made in preparation of the Group's Pro Forma Statements of
Earnings are described below:
(a) Adjustment made to reflect the reduction in interest income from the use
of cash paid to Kiewit Diversified Group upon exchange of 3 million
shares of Exchangeable Stock to Class D Stock in Scenario 1 and 5
million shares of Exchangeable Stock to Class D Stock in Scenario 2. The
interest rate used to calculate the reduction in interest income
approximates the average rate earned by the Group during the periods.
(b) No adjustment has been made for the decrease in interest expense due to
the assumed exchange of the Exchangeable Debentures as the adjustment is
less than $1 million.
(c) Adjustment made to reflect tax effect of the above adjustments.
(d) Scenario 1 assumes 3,000,000 shares of Exchangeable Stock are exchanged
for Class D Stock and Scenario 2 assumes 5,000,000 shares of
Exchangeable Stock are exchanged for Class D Stock at the prior year end
conversion ratio, adjusted for dividends declared during the periods.
The pro forma weighted average shares also include an additional 59,929
Class C shares attributable to the exchange of the Exchangeable
Debentures.
F-15
<PAGE>
KIEWIT CONSTRUCTION & MINING GROUP
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET PRO FORMA ADJUSTMENTS
As described in Note 1, the historical balance sheet of the Group has been
adjusted to give effect to certain elements of the Transactions. The other
adjustments made in preparation of the Group's Pro Forma Condensed Balance Sheet
are described below:
(a) Adjustment made to reflect the decrease in cash, cash equivalents and
marketable securities as the result of the exchange of 3 million shares
(Scenario 1) and 5 million shares (Scenario 2) of Exchangeable Stock at
the prior year end stock prices and conversion ratios, adjusted for
dividends declared during the periods.
(b) Adjustment made to reflect the exchange of the Exchangeable Debentures
for Class C Stock.
4. EARNINGS PER SHARE
Primary earnings per share of common stock have been computed using the
weighted average number of shares outstanding during each period. Fully diluted
earnings per share have not been presented because they are not materially
different from primary earnings per share.
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Peter Kiewit Sons', Inc.
We have examined the pro forma adjustments reflecting the transactions
described in the accompanying notes and the application of those adjustments to
the historical amounts in the accompanying pro forma condensed statement of
earnings of Kiewit Diversified Group, a business group of Peter Kiewit Sons',
Inc., for the year ended December 31, 1994. The pro forma condensed statement of
earnings is derived from the historical financial statements of Kiewit
Diversified Group, which were audited by us, incorporated herein by reference.
Such pro forma adjustments are based upon management's assumptions described in
the accompanying notes. Our examination was made in accordance with standards
established by the American Institute of Certified Public Accountants and,
accordingly, included such procedures as we considered necessary in the
circumstances.
In addition, we have reviewed the related pro forma adjustments and the
application of those adjustments to the historical amounts in the accompanying
pro forma condensed balance sheet of Kiewit Diversified Group as of June 30,
1995 and the pro forma condensed statement of earnings for the six months then
ended. The pro forma condensed financial statements are derived from the
historical financial statements of Kiewit Diversified Group, which were reviewed
by us, incorporated herein by reference. Such pro forma adjustments are based
upon management's assumptions described in the accompanying notes. Our review
was made in accordance with standards established by the American Institute of
Certified Public Accountants.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transactions occurred at an earlier date. However, the pro forma condensed
financial statements are not necessarily indicative of the results of operations
or related effects on financial position that would have been attained had the
above-mentioned transactions actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transactions described in the accompanying notes, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro forma
column reflects the proper application of those adjustments to the historical
financial statement amounts in the pro forma condensed statement of earnings for
the year ended December 31, 1994.
A review is substantially less in scope than an audit, the objective of
which is the expression of an opinion on management's assumptions, the pro forma
adjustments and the application of those adjustments to historical financial
information. Accordingly, we do not express such an opinion on the pro forma
adjustments or the application of such adjustments to the pro forma condensed
balance sheet as of June 30, 1995, and the pro forma condensed statement of
earnings for the six months then ended. Based on our review, however, nothing
came to our attention that caused us to believe that management's assumptions do
not provide a reasonable basis for presenting the significant effects directly
attributable to the above-mentioned transactions described in the accompanying
notes, that the related pro forma adjustments do not give appropriate effect to
those assumptions, or that the pro forma column does not reflect the proper
application of those adjustments to the historical financial statement amounts
in the pro forma condensed balance sheet as of June 30, 1995, and the pro forma
condensed statement of earnings for the six months then ended.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
August 17, 1995
F-17
<PAGE>
KIEWIT DIVERSIFIED GROUP
PRO FORMA CONDENSED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
AND SIX MONTHS ENDED JUNE 30, 1995
(SCENARIO 1 ASSUMING 3 MILLION SHARES OF EXCHANGEABLE STOCK EXCHANGED FOR CLASS
D STOCK)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994 SIX MONTHS ENDED JUNE 30, 1995
------------------------------------------ ---------------------------------------
OTHER AD- OTHER AD-
JUSTMENTS JUSTMENTS
HISTORICAL (NOTE 2) PRO FORMA HISTORICAL (NOTE 2) PRO FORMA
---------- ----------- ---------------- ----------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue................................... $ 534 $-- $ 534 $ 274 $-- $ 274
Cost of Revenue........................... (318) -- (318) (156) -- (156)
---------- ----------- ---------------- ----------- ----------- ------------
216 -- 216 118 -- 118
General and Administrative
Expenses................................. (138) -- (138) (62) -- (62)
---------- ----------- ---------------- ----------- ----------- ------------
Operating Income.......................... 78 -- 78 56 -- 56
Other Income (Expenses):
Gain on Subsidiary's Stock Transactions,
net..................................... 54 (54)(a) -- 3 (3)(a) --
Investment Income, net.................. 30 3(b) 33 24 2(b) 26
Interest Expense, net................... (36) --(c) (36) (23) --(c) (23)
Other, net.............................. (2) -- )(2 140 -- 140
---------- ----------- ---------------- ----------- ----------- ------------
46 (51) )(5 144 (1) 143
Equity in Loss of MFS..................... (102) 102(d) -- (85) 85(d) --
---------- ----------- ---------------- ----------- ----------- ------------
Earnings before Income Taxes and Minority
Interest in Net Losses (Income) of
Subsidiaries............................. 22 51 73 115 84 199
Benefit (Provision) for Income Taxes...... 10 18(e) 28 (70) --(e) (70)
Minority Interest in Net Losses (Income)
of Subsidiaries.......................... 1 -- 1 (8) -- (8)
---------- ----------- ---------------- ----------- ----------- ------------
Net Earnings.............................. $ 33 $ 69 $ 102 $ 37 $ 84 $ 121
---------- ----------- ---------------- ----------- ----------- ------------
---------- ----------- ---------------- ----------- ----------- ------------
Net Earnings Per Common and Common
Equivalent Share......................... $ 1.63 $ 4.73 $ 1.75 $ 5.39
---------- ---------------- ----------- ------------
---------- ---------------- ----------- ------------
Weighted Average Shares Outstanding....... 20,438,806 21,636,604(f) 21,261,632 22,580,435(f)
---------- ---------------- ----------- ------------
---------- ---------------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-18
<PAGE>
KIEWIT DIVERSIFIED GROUP
PRO FORMA CONDENSED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
AND SIX MONTHS ENDED JUNE 30, 1995
(SCENARIO 2 ASSUMING 5 MILLION SHARES OF
EXCHANGEABLE STOCK EXCHANGED FOR CLASS D STOCK)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994 SIX MONTHS ENDED JUNE 30, 1995
------------------------------------------ ---------------------------------------
OTHER OTHER
ADJUSTMENTS ADJUSTMENTS
HISTORICAL (NOTE 2) PRO FORMA HISTORICAL (NOTE 2) PRO FORMA
---------- ----------- ---------------- ----------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue................................ $ 534 $-- $ 534 $ 274 $-- $ 274
Cost of Revenue........................ (318) -- (318) (156) -- (156)
---------- ----------- ---------------- ----------- ----------- ------------
216 -- 216 118 -- 118
General and Administrative Expenses.... (138) -- (138) (62) -- (62)
---------- ----------- ---------------- ----------- ----------- ------------
Operating Income....................... 78 -- 78 56 -- 56
Other Income (Expense):
Gain on Subsidiary's Stock
Transactions, net................... 54 (54)(a) -- 3 (3)(a) --
Investment Income, net............... 30 5(b) 35 24 3(b) 27
Interest Expense, net................ (36) --(c) (36) (23) --(c) (23)
Other, net........................... (2) -- )(2 140 -- 140
---------- ----------- ---------------- ----------- ----------- ------------
46 (49) )(3 144 -- 144
Equity in Loss of MFS.................. (102) 102(d) -- (85) 85(d) --
---------- ----------- ---------------- ----------- ----------- ------------
Earnings before Income Taxes and
Minority Interest in Net Losses
(Income) of Subsidiaries.............. 22 53 75 115 85 200
Benefit (Provision) for Income Taxes... 10 17(e) 27 (70) --(e) (70)
Minority Interest in Net Losses
(Income) of Subsidiaries.............. 1 -- 1 (8) -- (8)
---------- ----------- ---------------- ----------- ----------- ------------
Net Earnings........................... $ 33 $ 70 $ 103 $ 37 $ 85 $ 122
---------- ----------- ---------------- ----------- ----------- ------------
---------- ----------- ---------------- ----------- ----------- ------------
Net Earnings Per Common and Common
Equivalent Share...................... $ 1.63 $ 4.63 $ 1.75 $ 5.23
---------- ---------------- ----------- ------------
---------- ---------------- ----------- ------------
Weighted Average Shares Outstanding.... 20,438,806 22,389,129(f) 21,261,632 23,413,630(f)
---------- ---------------- ----------- ------------
---------- ---------------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-19
<PAGE>
KIEWIT DIVERSIFIED GROUP
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1995
(SCENARIO 1 ASSUMING 3 MILLION SHARES OF EXCHANGEABLE STOCK EXCHANGED FOR CLASS
D STOCK)
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL (NOTE 3) PRO FORMA
---------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents......................................................... $ 350 $ 75(a) $ 425
Marketable securities............................................................. 428 -- 428
Receivable, net................................................................... 77 -- 77
Deferred income taxes............................................................. 11 -- 11
Other............................................................................. 34 34
---------- ----------- ---------
Total Current Assets............................................................ 900 75 975
Property, Plant and Equipment, net.................................................. 469 -- 469
Investments......................................................................... 370 -- 370
Intangible Assets, net.............................................................. 385 -- 385
Net Assets of MFS................................................................... 447 (447)(b) --
Other Assets........................................................................ 62 -- 62
---------- ----------- ---------
$2,633 $ (372) $2,261
---------- ----------- ---------
---------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................. $ 42 $-- $ 42
Current portion of long-term debt:
Telecommunications.............................................................. 9 -- 9
Other........................................................................... 3 (1)(c) 2
Accrued costs and billings in excess of revenue on uncompleted contracts.......... 14 -- 14
Accrued reclamation and other mining costs........................................ 17 -- 17
Other............................................................................. 103 12(d) 115
---------- ----------- ---------
Total Current Liabilities....................................................... 188 11 199
Long-term Debt, less current portion:
Telecommunications................................................................ 290 -- 290
Other............................................................................. 82 (1)(c) 81
Deferred Income Taxes............................................................... 309 (93)(e) 216
Retirement Benefits................................................................. 47 -- 47
Accrued Reclamation Costs........................................................... 102 -- 102
Other Liabilities................................................................... 83 -- 83
Minority Interest................................................................... 193 193
Stockholders' Equity:
Common equity..................................................................... 1,330 75(a)
(447)(b)
2(c)
(12)(d)
93(e)
1,041
Foreign currency adjustment....................................................... 1 -- 1
Net unrealized holding gain (loss)................................................ 8 -- 8
---------- ----------- ---------
Total Stockholders' Equity...................................................... 1,339 (289) 1,050
---------- ----------- ---------
$2,633 $ (372) $2,261
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-20
<PAGE>
KIEWIT DIVERSIFIED GROUP
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1995
(SCENARIO 2 ASSUMING 5 MILLION SHARES OF EXCHANGEABLE STOCK EXCHANGED FOR CLASS
D STOCK)
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL (NOTE 3) PRO FORMA
---------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents......................................................... $ 350 $ 84(a) $ 434
Marketable securities............................................................. 428 42(a) 470
Receivable, net................................................................... 77 -- 77
Deferred income taxes............................................................. 11 -- 11
Other............................................................................. 34 34
---------- ----------- ---------
Total Current Assets................................................................ 900 126 1,026
Property, Plant and Equipment, net.................................................. 469 -- 469
Investments......................................................................... 370 -- 370
Intangible Assets, net.............................................................. 385 -- 385
Net Assets of MFS................................................................... 447 (447)(b) --
Other Assets........................................................................ 62 -- 62
---------- ----------- ---------
$2,633 $ (321) $2,312
---------- ----------- ---------
---------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................. $ 42 $-- $ 42
Current portion of long-term debt:................................................
Telecommunications.............................................................. 9 -- 9
Other........................................................................... 3 (1)(c) 2
Accrued costs and billings in excess of revenue on uncompleted contracts.......... 14 -- 14
Accrued reclamation and other mining costs........................................ 17 -- 17
Other............................................................................. 103 12(d) 115
---------- ----------- ---------
Total Current Liabilities........................................................... 188 11 199
Long-term Debt, less current portion:...............................................
Telecommunications................................................................ 290 -- 290
Other............................................................................. 82 (1)(c) 81
Deferred Income Taxes............................................................... 309 (93)(e) 216
Retirement Benefits................................................................. 47 -- 47
Accrued Reclamation Costs........................................................... 102 -- 102
Other Liabilities................................................................... 83 -- 83
Minority Interest................................................................... 193 193
Stockholders' Equity:
Common equity..................................................................... 1,330 126(a)
(447)(b)
2(c)
(12)(d)
93(e)
1,092
Foreign currency adjustment....................................................... 1 -- 1
Net unrealized holding gain (loss)................................................ 8 -- 8
---------- ----------- ---------
Total Stockholders' Equity.......................................................... 1,339 (238) 1,101
---------- ----------- ---------
$2,633 $ (321) $2,312
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
F-21
<PAGE>
KIEWIT DIVERSIFIED GROUP
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. BASIS OF REPORTING
The accompanying pro forma condensed financial statements of the Kiewit
Diversified Group ("the Group") are presented based upon the historical
financial statements and the notes thereto of the Group, as adjusted to remove
the earnings statement and balance sheet accounts of MFS and to give effect to
certain other elements of the MFS Recapitalization, the Exchange Offer and the
Spin-off, (together, the "Transactions"). The pro forma information assumes, in
two separate scenarios, that 3 million (Scenario 1) and 5 million (Scenario 2)
shares of the Exchangeable Stock and all the Exchangeable Debentures are
exchanged in the Exchange Offer. Such pro forma financial statements should be
read in conjunction with the separate historical financial statements and the
notes thereto of the Group incorporated herein by reference. Such pro forma
financial statements are not necessarily indicative of the future results of
operations or financial position.
The PKS Board of Directors preliminarily approved a plan to make a tax-free
distribution of its entire ownership interest in MFS to the Class D Stockholders
at a special meeting on June 9, 1995. The operating results of MFS have been
classified as a single line item on the condensed statements of earnings. The
Group's proportionate share of the net assets of MFS at June 30, 1995 of $447
million have been reported separately on the condensed balance sheet.
Completion of the Transactions has been assumed to be as of June 30,1995 in
the pro forma condensed balance sheet and as of December 26, 1993 and January 1,
1995, in the pro forma condensed statements of earnings for the year ended
December 31, 1994 and the six months ended June 30, 1995, respectively.
The significant accounting policies followed by the Group, described in the
notes to its historical financial statements incorporated herein by reference,
have been used in preparing the accompanying pro forma condensed financial
statements.
Although the pro forma financial statements of PKS' Diversified Group and
Construction & Mining Group separately report the assets, liabilities and
stockholders' equity of PKS attributed to each such group, legal title to such
assets and responsibility for such liabilities will not be affected by such
attribution. Holders of Class B, Class C Stock and Class D Stock are
stockholders of PKS. Accordingly, the PKS pro forma consolidated financial
statements and related notes should be read in conjunction with these pro forma
financial statements.
2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS
As described in Note 1, the historical statements of earnings for the Group
have been adjusted to remove the income and expense accounts of MFS and to give
effect to certain other elements of the Transactions. The other adjustments made
in preparation of the Group's Pro Forma Statements of Earnings are described
below:
(a) Adjustment made to reverse the gain recognized from MFS stock
transactions that would not have been recorded if the Transactions were
completed at the beginning of the periods.
(b) Adjustment made to recognize additional interest income on cash
transferred from Kiewit Construction & Mining Group upon exchange of 3
million shares of Exchangeable Stock to Class D Stock in Scenario 1 and
5 million shares of Exchangeable Stock to Class D Stock in Scenario 2.
The interest rate used to calculate the additional interest income
approximates the average rate earned by the Group during the periods.
(c) No adjustment has been made for the decrease in interest expense due to
the assumed exchange of the Exchangeable Debentures to stock as the
adjustment is less than $1 million.
(d) Adjustment made to remove the earnings statement account of MFS.
F-22
<PAGE>
KIEWIT DIVERSIFIED GROUP
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
2. STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS (CONTINUED)
(e) Adjustment made to reflect the tax effect of the above adjustments.
(f) Scenario 1 assumes 3 million shares of Exchangeable Stock are exchanged
for Class D Stock and Scenario 2 assumes 5 million shares of
Exchangeable Stock are exchanged for Class D Stock at the prior year end
conversion ratio, adjusted for dividends declared during the periods.
The pro forma weighted average shares also include an additional 69,010
Class D Shares attributable to the exchange of the Exchangeable
Debentures.
3. BALANCE SHEET PRO FORMA ADJUSTMENTS
As described in Note 1, the historical balance sheet of the Group has been
adjusted to remove the balance sheet accounts attributable to MFS and give
effect to certain other elements of the Transactions. The other adjustments made
in preparation of the Group's Pro Forma Condensed Balance Sheet are described
below:
(a) Adjustment made to reflect the increase in cash, cash equivalents and
marketable securities as the result of the exchange of 3 million shares
(Scenario 1) and 5 million shares (Scenario 2) of Exchangeable Stock at
the prior year end stock prices and conversion ratios, adjusted for
dividends declared during the periods.
(b) Adjustment to remove the Group's investment in MFS.
(c) Adjustment made to reflect the exchange of the Exchangeable Debentures
for Class D Stock.
(d) Adjustment made to record the accrual of certain estimated corporate
United States Federal income taxes attributable to the corporate
built-in gain on the stock of MFS being distributed to certain
non-United States Class D stockholders.
(e) Adjustment made to reverse certain deferred tax liabilities recognized
on gains from MFS stock transactions that are no longer payable.
4. EARNINGS PER SHARE
Primary earnings per share of common stock have been computed using the
weighted average number of shares outstanding during each period. Fully diluted
earnings per share have not been presented because they are not materially
different from primary earnings per share.
F-23
<PAGE>
ANNEX I
CS FIRST BOSTON CORPORATION
July 21, 1995
Board of Directors
Peter Kiewit Sons', Inc.
1000 Kiewit Plaza
Omaha, NE 68131
Dear Sirs:
You have advised us that Peter Kiewit Sons', Inc. ("PKS" or the "Company")
proposes to cause its wholly owned subsidiary, Kiewit Diversified Group Inc.
("KDG" and, collectively with the Company and the Company's wholly owned
subsidiary Kiewit Construction Group Inc., the "Companies"), to distribute to
PKS (the "Distribution") all the shares of common stock, par value $.01 per
share (the "MFS Common Stock"), of MFS Communications Company, Inc. ("MFS") and
all the shares of a newly issued Series B convertible preferred stock, par value
$.01 per share (the "MFS Preferred Stock"), of MFS held by KDG. You have also
advised us that, immediately following the Distribution, PKS will distribute all
the MFS Common Stock and the MFS Preferred Stock then held by it (the
"Spin-Off") on a pro rata basis to the holders (the "Class D Stockholders") of
the Class D Diversified Group Convertible Exchangeable Common Stock, par value
$.0625 per share (the "Class D Common Stock"), of the Company.
You have advised us that the Spin-Off will be consummated only if it can be
effected on a tax-free basis, which is possible only if, prior to the Spin-Off,
KDG holds at least 80% of the total voting power for the election of directors
of MFS. Accordingly, in order to facilitate the Spin-Off, KDG proposes to
exchange 2.9 million shares of MFS Common Stock currently held by it for 15
million shares of MFS Preferred Stock (the "MFS Exchange") prior to the
Distribution. You have advised us that the Company has determined the MFS
Exchange to be the most feasible method of facilitating the Spin-Off on a
tax-free basis, and that the Spin-Off will qualify as a tax-free spin-off under
Section 355 of the Internal Revenue Code of 1986, as amended. In addition, you
have advised us that the Company and MFS will take all action necessary to
ensure that the MFS Common Stock and the MFS Preferred Stock to be received by
the Class D Stockholders in the Spin-Off will not be "restricted securities"
within the meaning of Rule 144(a)(3) promulgated under the Securities Act of
1933, as amended (the "Securities Act"), and will not be subject to restrictions
on transfer under the Securities Act (other than restrictions imposed as a
result of the holder being an "affiliate" (within the meaning of Rule 144(a)(1)
under the Securities Act) of MFS).
You have also advised us that, prior to the consummation of the Spin-Off,
the holders (the "Class B Stockholders") of the Company's Class B Construction
and Mining Group Nonvoting Restricted Redeemable Convertible Exchangeable Common
Stock, par value $.0625 (the "Class B Common Stock"), and the holders (the
"Class C Stockholders" and, collectively with the Class B Stockholders and the
Class D Stockholders, the "Company Stockholders") of the Company's Class C
Construction and Mining Group Nonvoting Redeemable Convertible Exchangeable
Common Stock, par value $.0625 (the "Class C Common Stock"), will be given the
opportunity to exchange their shares for shares of Class D Common Stock at an
exchange ratio of .416598 shares of Class D Common Stock for each share of Class
B Common Stock or Class C Common Stock (the "Common Stock Exchanges"). You have
advised us that Class B Stockholders and Class C Stockholders who elect to
exchange their shares will be required to do so during a period (the "Special
Window Period") of at least 20 business days. You have advised us that you
estimate that an aggregate of approximately three million shares of Class B
Common Stock and Class C Common Stock will be exchanged for Class D Common
Stock, and we have assumed, in any event, that less than an aggregate of six
million shares of Class B Common Stock and Class C Common Stock will be
exchanged for Class D Common Stock. We understand that, while the Company does
not currently anticipate that it will be necessary to impose a limit on the
amount of Class B Common Stock and Class C Common Stock that will be exchanged
for
<PAGE>
Class D Common Stock, the Board of Directors of the Company has reserved the
right to impose such a limit if it determines that the acceptance of all shares
tendered for exchange would not be in the best interests of the Company or its
stockholders. You have advised us that any such limit would be imposed on a pro
rata basis.
In addition, you have advised us that, during the Special Window Period, (a)
the holders of the Company's 1990 Series Convertible Debentures due October 31,
2000 (the "1990 Series Debentures") will be given the opportunity to exchange
such 1990 Series Debentures for approximately 24.8 shares of Class C Common
Stock and approximately 24.8 shares of Class D Common Stock for each $1,000
principal amount of 1990 Series Debentures, (b) the holders of the Company's
1991 Series Convertible Debentures due October 31, 2001 (the "1991 Series
Debentures") will be given the opportunity to exchange such 1991 Series
Debentures for approximately 23 shares of Class C Common Stock and approximately
23 shares of Class D Common Stock for each $1,000 principal amount of 1991
Series Debentures, and (c) the holders of the Company's 1993 Series Class D
Convertible Debentures due October 31, 2003 (the "1993 Series Debentures" and,
collectively with the 1990 Series Debentures and the 1991 Series Debentures, the
"Debentures"; the holders of the Debentures being collectively referred to as
the "Debentureholders") will be given the opportunity to exchange such 1993
Series Debentures for approximately 19.96 shares of Class D Common Stock for
each $1,000 principal amount of 1993 Series Debentures (collectively, the
"Debenture Exchanges").
The Distribution, the Spin-Off, the MFS Exchange, the Common Stock Exchanges
and the Debenture Exchanges will be described in the Company's joint prospectus
with MFS to be distributed to the Company's Class B, Class C, and Class D
Stockholders and to the Debentureholders (the "Prospectus"). The Distribution,
the Spin-Off, the MFS Exchange, the Common Stock Exchanges and the Debenture
Exchanges, upon the terms, and subject to the conditions, set forth in the draft
Prospectus referred to below are collectively referred to herein as the
"Transactions".
You have asked us to advise you with respect to the fairness, from a
financial point of view, of the Transactions to the Company Stockholders.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Companies and MFS. We have
also reviewed a draft dated July 11, 1995 of the Prospectus, a draft dated June
2, 1995 of the Certificate of Designation for the MFS Preferred Stock and
certain other information, including financial forecasts and pro forma
financials, provided to us by the Companies and MFS, and have met with the
managements of the Companies and MFS to discuss the businesses and prospects of
the Companies and MFS, as well as the terms of the Transactions. We have also
considered certain financial and stock market data of MFS, and we have compared
that data with similar data for other publicly held companies in businesses
similar to those of MFS. In addition, we have compared the financial terms of
the MFS Preferred Stock with the financial terms of other securities and have
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that we deemed
relevant. We have also analyzed the financial benefits that will be afforded the
Class D Stockholders as a result of the Spin-Off and we have considered the fact
that the Class B Stockholders and Class C Stockholders will be given the
opportunity, as a result of the Common Stock Exchanges, to exchange their shares
of Class B Common Stock and Class C Common Stock for shares of Class D Common
Stock prior to the Distribution and thereby to participate in the financial
benefits of the Spin-Off.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information (including the
information contained in the draft Prospectus) and have relied on its being
complete and accurate in all material respects. With respect to the financial
forecasts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of each of the Companies and MFS as to the future financial
performance of each of the Companies and MFS, respectively. In addition, we have
not made an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of any of the Companies or MFS, nor have we been
furnished with any such evaluations or appraisals. We have assumed that the
Company will complete the Spin-Off as described
<PAGE>
in the draft Prospectus and that the consummation of the Transactions will not
result in any default or similar event under any loan agreement, instrument of
indebtedness or other contract of the Companies or MFS which will not be waived.
We did not participate in the determination by the Company and MFS of the
terms of any of the Transactions or the MFS Preferred Stock and have not been
asked to consider alternative means of effecting a distribution of the MFS
Common Stock or the MFS Preferred Stock to the Class D Stockholders. In
addition, our opinion does not in any manner address or constitute a
recommendation regarding the business decisions of the Company or MFS to effect
the MFS Exchange or the Spin-Off or to offer the Special Window Period for the
Common Stock Exchanges or the determination by the Company of the exchange ratio
and other terms and conditions applicable to the Common Stock Exchanges.
Furthermore, our opinion does not in any manner address or constitute a
recommendation regarding the business decision of the Company to offer the
Special Window Period for the Debenture Exchanges or the determination by the
Company of the terms and conditions of the Debenture Exchanges. Although we
understand that the Company intends to effect certain other transactions in
connection with the Transactions, our opinion does not in any manner address or
constitute a recommendation regarding the business decisions of the Company to
effect, or the financial impact on the Company or any of its stockholders of,
such other transactions. In addition, our opinion does not in any manner address
or constitute a recommendation regarding whether Class B Stockholders or Class C
Stockholders should elect to exchange their shares of Class B Common Stock and
Class C Common Stock for shares of Class D Common Stock during the Special
Window Period or whether Debentureholders should elect to exchange their
Debentures for Class C Common Stock or Class D Common Stock, as the case may be,
during the Special Window Period. Moreover, we express no opinion as to the
market value of the MFS Preferred Stock upon receipt by KDG pursuant to the MFS
Exchange or the prices at which the MFS Common Stock or the MFS Preferred Stock
will trade subsequent to the MFS Exchange or the Spin-Off. The actual market
value of the MFS Common Stock and the MFS Preferred Stock may vary depending
upon changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors which generally influence the price of
securities. Our opinion is necessarily based upon financial, economic, market
and other conditions as they exist and can be evaluated on the date hereof.
We have acted as the financial advisor to a special committee of the Board
of Directors of the Company constituted to review certain aspects of the
Transactions and will receive a fee that is contingent upon our rendering a
fairness opinion. In the past, CS First Boston performed certain investment
banking services for the Company and received customary fees for such services.
In the ordinary course of our business, CS First Boston and its affiliates may
actively trade the debt and equity securities of MFS for their own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Transactions are fair from a financial point of view to the
Company Stockholders.
Very truly yours,
CS FIRST BOSTON CORPORATION
<PAGE>
ANNEX II
LEHMAN BROTHERS INC.
CONFIDENTIAL
JULY 17, 1995
Board of Directors
Peter Kiewit Sons', Inc.
1000 Kiewit Plaza
Omaha, NE 68131
Members of the Board:
We understand that Peter Kiewit Sons', Inc. (the "Company") intends to
effect a tax-free distribution to the holders (the "Class D Stockholders") of
its Class D Diversified Group Convertible Exchangeable Common Stock (the "Class
D Common Stock") of all of the shares of Common Stock ("MFS Common Stock") and
Preferred Stock ("MFS Preferred Stock") of MFS Communications Company, Inc.
("MFS"), an indirect subsidiary of the Company, held by the Company at the time
of the distribution (the "Distribution"). Kiewit Diversified Group, Inc.
("Diversified"), a wholly owned subsidiary of the Company, currently owns the
shares of MFS Common Stock. We understand that immediately prior to the
Distribution, Diversified will exchange a portion of its MFS Common Stock (2.9
million shares) for $15 million face value of MFS Preferred Stock to be issued
by MFS (the "MFS Exchange"). The MFS Preferred Stock will have five votes per
share and, together with the remaining MFS Common Stock owned by Diversified,
will provide Diversified with in excess of 80% of the voting interest in MFS
with respect to the election of directors. Diversified will then dividend to the
Company all of the MFS Common Stock and MFS Preferred Stock held by Diversified,
and the Company will distribute such stock, together with $1 million of MFS
Common Stock acquired by the Company from MFS, to the Class D Stockholders.
We further understand that prior to the Distribution, the Company will
provide the holders (the "Class B Stockholders") of its Class B Construction and
Mining Group Nonvoting Restricted Redeemable Convertible Exchangeable Common
Stock (the "Class B Common Stock") and the holders (the "Class C Stockholders")
of its Class C Construction and Mining Group Voting Restricted Redeemable
Convertible Exchangeable Common Stock (the "Class C Common Stock") with an
opportunity to exchange shares of Class B Common Stock and Class C Common Stock
for shares of Class D Common Stock (the "B, C-D Exchange"). The B, C-D Exchange
will be based solely on the book-value based formula established in the
Certificate of Incorporation of the Company applicable to conversions of Class B
Common Stock and Class C Common Stock into Class D Common Stock as of January 1,
1995, adjusted for dividends paid through the date of the exchange (the
"Exchange Formula"), but holders of Class B Common Stock and Class C Common
Stock will be granted an opportunity to exchange during a specified window
period prior to the Distribution which otherwise would not have been available
to them under the Certificate of Incorporation, and thereby will have an
opportunity to participate in the Distribution on the same terms as the Class D
Stockholders. However, in arriving at our opinion as described below, we have
assumed, based upon the Company's estimate of the likely levels of exchanges
pursuant to the Exchange Offer and with the Company's consent, that no more than
6 million shares of Class B Common Stock and Class C Common Stock will be
exchanged for shares of Class D Common Stock. The Class B Stockholders, the
Class C Stockholders and the Class D Stockholders are collectively referred to
herein as the "Company Stockholders" and the Distribution, the MFS Exchange and
the B, C-D Exchange are collectively referred to herein as the "Proposed
Transactions." The terms and conditions of the Distribution, MFS Exchange and
the B, C-D Exchange are set forth in more detail in the most recent draft of the
Joint Prospectus related to the Proposed Transactions (the "Prospectus").
<PAGE>
Board of Directors
Peter Kiewit Sons', Inc.
Page 2
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company Stockholders of the Proposed Transactions, taken as a whole. We have not
been requested to opine as to, and our opinion does not in any manner address,
the Company's underlying business decision to proceed with or effect all or any
portion of the Proposed Transactions or any alternative means of effecting a
distribution of the Company's equity interests in MFS to the Class D
Stockholders.
In arriving at our opinion, we reviewed and analyzed: (1) the Prospectus,
(2) such publicly available information concerning MFS which we believe to be
relevant to our inquiry, including the Form 10-K for the fiscal year ended
December 31, 1994 and its annual report, (3) financial and operating information
with respect to the business, operations, and prospects of MFS and the Company
furnished to us by the Company, (4) a comparison of the historical financial
results and present financial condition of MFS and the Company with those of
other companies which we deemed relevant, (5) a trading history of MFS's common
stock from May 1993 to the present and a comparison of that trading history with
those of other companies which we deemed relevant, (6) a comparison of the
financial terms of the MFS Exchange and the MFS Preferred Stock with the terms
of certain other transactions and securities which we deemed relevant and (7)
Diversified's tax bases of its equity interests in MFS and, based upon the
advice of the Company and its tax advisors, the likely tax impact of various
disposition strategies with respect to the equity interests in MFS or its
underlying assets and the proposed tax and financial reporting treatment of the
Distribution. In addition, we have had discussions with the managements of MFS
and the Company concerning their respective businesses, operations, assets,
financial condition and prospects and undertook such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of the managements of MFS and the Company
that they are not aware of any facts that would make such information inaccurate
or misleading. With respect to the financial forecasts of the Company and MFS,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of the
Company and MFS as to the future financial performance of the Company and MFS,
respectively. In addition, we have not made an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company
or MFS, nor have we been furnished with any such evaluations or appraisals. We
have assumed that the consummation of the Proposed Transactions will not result
in any default or similar event under any loan agreement, instrument of
indebtedness or other contract of the Company or MFS which will not be waived.
Our opinion is necessarily based upon financial, market, economic and other
conditions, and upon tax laws, accounting standards and legal and regulatory
requirements, as they exist on, and can be evaluated as of, the date of this
letter, and, with your consent, we have not considered possible changes in such
applicable tax laws, accounting standards or regulatory and legal requirements.
In arriving at our opinion, we have relied upon the advice of the Company
and its tax advisors that the Proposed Transactions, and in particular the MFS
Exchange, are the most feasible methods of ensuring that the Distribution will
qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code of
1986, as amended. In addition, we have further relied upon the advice of the
Company and its legal advisors that the shares of MFS Common Stock to be
received by the Class D Stockholders in the Distribution (other than shares
received by persons who are "affiliates" of MFS under the federal securities
laws) will be freely tradeable securities.
We also have not been requested to opine as to, and our opinion does not in
any manner address, the fairness, from a financial point of view, of the
Exchange Formula, which as described above is based on the book value formula
set forth in the Certificate of Incorporation of the Company.
<PAGE>
Board of Directors
Peter Kiewit Sons', Inc.
Page 3
In addition, we have not been requested to opine as to, and our opinion does
not in any manner address, the price at which shares of MFS Common Stock and MFS
Preferred Stock will actually trade following consummation of the Distribution.
In addition, trading in shares of MFS Common Stock and MFS Preferred Stock may
be characterized by a period of redistribution among the Class D Stockholders
who receive such shares in the Distribution which may temporarily depress the
trading prices of such shares during such period. The market prices of shares of
MFS Common Stock and MFS Preferred Stock also will fluctuate with changes in
prevailing interest rates, economic and financial market conditions, the
financial condition and prospects of MFS, and other factors which generally
influence the prices of securities.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Proposed Transactions,
taken as a whole, are fair to the Company Stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transactions and will receive an additional fee from the Company upon
delivery of this opinion. In addition, the Company has agreed to indemnify us
against certain liabilities which might arise out of our acting as financial
advisor and the rendering of this opinion. We also have performed various
investment banking services for the Company in the past and have received
customary fees for such services. In the ordinary course of our business, we
actively trade in the debt and equity securities of MFS for our own account and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. This opinion is not intended to be and does not constitute a
recommendation to any Class B Stockholder or Class C Stockholder as to whether
to exchange their shares of Class B Common Stock or Class C Common Stock for
shares of Class D Common Stock in the B, C-D Exchange.
Very truly yours,
LEHMAN BROTHERS
<PAGE>
, 1995
PETER KIEWIT SONS', INC.
INSTRUCTIONS FOR LETTER OF TRANSMITTAL
TO TENDER SHARES OF
CLASS B STOCK
FOR SHARES OF
CLASS D STOCK
PURSUANT TO THE EXCHANGE OFFER DESCRIBED BELOW
_________________
Peter Kiewit Sons', Inc. ("PKS" or the "Company") has provided you with a
Joint Prospectus dated , 1995 (the "Prospectus") that describes your
right to exchange the shares of Class B Stock held by you for shares of the
Company's Class D Stock, on the terms and subject to the conditions set forth in
the Prospectus and in the Letter of Transmittal attached to these Instructions.
As described in the Prospectus, the Exchange Offer is being made in connection
with the Spin-off. THE EXCHANGE OFFER, THE CLASS D STOCK AND THE SPIN-OFF ARE
MORE FULLY DESCRIBED IN THE PROSPECTUS, AND YOU SHOULD CAREFULLY REVIEW THE
PROSPECTUS, INCLUDING THE DESCRIPTIONS THEREIN OF THE CONDITIONS TO THE EXCHANGE
OFFER AND THE SPIN-OFF AND OF PKS'S RIGHT TO ABANDON THE EXCHANGE OFFER OR THE
SPIN-OFF OR BOTH, PRIOR TO MAKING A DECISION REGARDING WHETHER TO EXCHANGE
SHARES OF CLASS B STOCK FOR SHARES OF CLASS D STOCK. Terms used in these
Instructions and the Letter of Transmittal have the meanings ascribed to them in
the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., OMAHA, NEBRASKA TIME, ON
, 1995, UNLESS EXTENDED AS DESCRIBED IN THE PROSPECTUS.
EXCHANGING SHARES OF CLASS B STOCK FOR SHARES OF CLASS D STOCK IS STRICTLY
VOLUNTARY. IF YOU DO NOT WISH TO EXCHANGE ANY SHARES OF CLASS B STOCK FOR
SHARES OF CLASS D STOCK, DO NOT FILL OUT THE ATTACHED LETTER OF TRANSMITTAL.
SHARES OF CLASS B STOCK TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN
PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE OFFER ONLY IN THE MANNER DESCRIBED
IN THE PROSPECTUS; OTHERWISE, SUCH TENDERS ARE IRREVOCABLE BY THE TENDERING
STOCKHOLDERS.
PLEASE READ THE FOLLOWING GENERAL INSTRUCTIONS CAREFULLY BEFORE COMPLETING
THE LETTER OF TRANSMITTAL. FOR FURTHER INFORMATION OR ASSISTANCE CONCERNING THE
LETTER OF TRANSMITTAL, CONTACT MICHAEL A. KELLEY, STOCK REGISTRAR, PETER
KIEWIT SONS', INC., 1000 KIEWIT PLAZA, OMAHA, NEBRASKA 68131, TELEPHONE
(402) 271-2870; TELECOPY (402) 271-2965.
GENERAL INSTRUCTIONS
1. GENERAL
The Letter of Transmittal or a photocopy of it should be properly filled
in, dated and signed, and should be delivered to Michael A. Kelley, Stock
Registrar (the "Stock Registrar"), at the address set forth below:
Michael A. Kelley
Stock Registrar
Peter Kiewit Sons', Inc.
1000 Kiewit Plaza
Omaha, Nebraska 68131
YOUR LETTER OF TRANSMITTAL MUST BE ACCOMPANIED BY YOUR STOCK CERTIFICATES
FOR THE CLASS B STOCK BEING TENDERED. DO NOT SIGN OR OTHERWISE ENDORSE ANY
STOCK CERTIFICATES TENDERED PURSUANT TO THE EXCHANGE OFFER. EXECUTION OF THE
LETTER OF TRANSMITTAL WILL ASSIGN YOUR STOCK TO PKS, SUBJECT TO CONSUMMATION OF
THE EXCHANGE OFFER.
TO BE EFFECTIVE, DELIVERY OF THIS LETTER OF TRANSMITTAL AND THE
CERTIFICATES REPRESENTING SHARES OF CLASS B STOCK YOU WISH TO EXCHANGE MUST
- i -
<PAGE>
BE MADE PRIOR TO 5:00 P.M., OMAHA, NEBRASKA TIME, ON THE EXPIRATION DATE,
WHICH WILL BE , 1995, UNLESS EXTENDED AS DESCRIBED IN THE
PROSPECTUS. THE METHOD OF DELIVERY OF ALL DOCUMENTS TO THE STOCK REGISTRAR IS
AT YOUR OPTION AND RISK. IF YOU CHOOSE TO SEND BY MAIL, IT IS RECOMMENDED THAT
YOU SEND BY REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED.
IF THE EXCHANGE OFFER IS NOT COMPLETED FOR ANY REASON, YOUR CLASS B STOCK
CERTIFICATES WILL BE RETURNED TO YOU (OR TO YOUR LENDER, IF YOUR CERTIFICATES
ARE PLEDGED TO A LENDER).
2. SIGNATURES
The signature on the Letter of Transmittal must correspond exactly to the
name as written on the face of the share certificate(s) sent to the Stock
Registrar. If there is insufficient space to list all of your share
certificates being submitted to the Stock Registrar or to respond to any other
information, please attach a separate sheet.
3. LOST CERTIFICATES
If one or more of your share certificates have been lost or destroyed, you
should contact the Stock Registrar for instructions regarding the relevant
documentation and what supporting evidence to supply.
4. VALIDITY OF SURRENDER
A surrender of certificate(s) will not be deemed to have been made until
all irregularities and defects have been cured or waived. The Company reserves
full discretion to determine whether the documentation with respect to tendered
Class B Stock is complete and generally to resolve all questions relating to
tenders, including the date and hour of receipt of a tender, the propriety of
execution of any document and all other questions regarding the validity or
acceptability of any tender. The Company reserves the right to reject any
tender not in proper form or to waive any irregularities or conditions. The
Company's interpretation of the terms and conditions of the Exchange Offer, the
Letter of Transmittal and these Instructions will be final. All improperly
tendered certificates representing Class B Stock will be returned, unless
irregularities are waived, without cost to the tendering holder thereof.
5. PARTIAL TENDERS
If less than all of the shares of Class B Stock which are evidenced by any
share certificate are to be tendered, fill in the number of shares you actually
wish to tender on the line(s) entitled "No. of Shares Tendered" in Box B and the
balance of the shares on the adjacent line(s) entitled "No. of Shares to be
Reissued." A new certificate(s) for the remainder of the shares of Class B
Stock which were evidenced by your old certificate(s) will be sent to you (or
the applicable lender) as soon as practicable after the consummation of the
Exchange Offer. All shares evidenced by certificate(s) listed will be deemed to
have been tendered unless otherwise indicated.
Additional copies of the Letter of Transmittal may be obtained from the
Stock Registrar.
- ii -
<PAGE>
LETTER OF TRANSMITTAL
To accompany certificates representing shares of Class C Stock of Peter
Kiewit Sons', Inc., a Delaware corporation ("PKS"), or to authorize the
delivery of pledged Class B Stock to PKS by FirsTier Bank, N.A., when submitted
in connection with the offer by PKS to issue shares of Class D Stock in exchange
for issued and outstanding shares of Class C Stock as described in the Joint
Prospectus dated , 1995 (the "Prospectus").
Michael A. Kelley, Stock Registrar:
I hereby tender the certificates listed in Box B below representing shares
of Class B Stock of PKS for exchange for shares of Class D Stock on the terms
and subject to the conditions set forth in the Memorandum and this Letter of
Transmittal.
BOX A: NAME AND ADDRESS OF
REGISTERED HOLDER
- --------------------------------------------------
- --------------------------------------------------
PLEASE TYPE OR PRINT THE NAME OF THE REGISTERED
HOLDER OF THE SHARES OF CLASS C STOCK LISTED IN
BOX C EXACTLY AS SUCH NAME APPEARS ON THE
SURRENDERED SHARE CERTIFICATE(S), ALONG WITH THE
ADDRESS OF THE REGISTERED HOLDER.
Name and Address of Registered Holder (type or
print)
Name:
-----------------------------------------
Address:
-----------------------------------------
- --------------------------------------------------
- --------------------------------------------------
(Zip Code)
Telephone Number:
---------------------------------
- --------------------------------------------------
- --------------------------------------------------
Upon request, I agree to execute and deliver any additional documents
deemed necessary or desirable by the Stock Registrar to complete the exchange of
the certificates.
The undersigned requests that the stock certificates for any shares of
Class D Stock to which the undersigned is entitled be registered in the name of,
and be delivered to, the registered holder set forth in Box A above at the
address set forth in Box A above.
- 1 -
<PAGE>
BOX B: CERTIFICATES TENDERED: Please list in this Box B (and an
attached sheet, if necessary) ALL the certificates representing Class
B Stock you are submitting with this Letter of Transmittal.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Certificate Enclosed Certificate No. No. of Shares No. of Shares Tendered No. of Shares to be
Reissued
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total:
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The undersigned represents and warrants that the undersigned has full power
and authority to assign and transfer the certificates tendered and has good
title to such certificates, free and clear of all liens, restrictions, charges,
encumbrances, pledges, security interests or other obligations affecting the
assignment or transfer of the certificates, and such certificates are not
subject to any adverse claim (except to the extent so pledged). All authority
conferred or agreed to be conferred in this Letter of Transmittal shall not be
affected by, and shall survive, the death or incapacity of the undersigned, and
any obligation of the undersigned under this Letter of Transmittal shall be
binding upon successors, assigns, heirs, executors, administrators and legal
representatives of the undersigned.
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS RECEIVED
AND READ THE PROSPECTUS DATED , 1995, OF PETER KIEWIT
SONS', INC. AND MFS RELATING TO THE EXCHANGE OFFER AND SPIN-OFF.
Signed By:_________________________________
(Signature)
Date: ___________________ ___________________________________________
Name (Print)
- 2 -
<PAGE>
, 1995
PETER KIEWIT SONS', INC.
INSTRUCTIONS FOR LETTER OF TRANSMITTAL
TO TENDER SHARES OF
CLASS C STOCK
FOR SHARES OF
CLASS D STOCK
PURSUANT TO THE EXCHANGE OFFER DESCRIBED BELOW
_________________
Peter Kiewit Sons', Inc. ("PKS" or the "Company") has provided you with a
Joint Prospectus dated , 1995 (the "Prospectus") that describes your
right to exchange the shares of Class C Stock held by you for shares of the
Company's Class D Stock, on the terms and subject to the conditions set forth in
the Prospectus and in the Letter of Transmittal attached to these Instructions.
As described in the Prospectus, the Exchange Offer is being made in connection
with the Spin-off. THE EXCHANGE OFFER, THE CLASS D STOCK AND THE SPIN-OFF ARE
MORE FULLY DESCRIBED IN THE PROSPECTUS, AND YOU SHOULD CAREFULLY REVIEW THE
PROSPECTUS, INCLUDING THE DESCRIPTIONS THEREIN OF THE CONDITIONS TO THE EXCHANGE
OFFER AND THE SPIN-OFF AND OF PKS'S RIGHT TO ABANDON THE EXCHANGE OFFER OR THE
SPIN-OFF OR BOTH, PRIOR TO MAKING A DECISION REGARDING WHETHER TO EXCHANGE
SHARES OF CLASS C STOCK FOR SHARES OF CLASS D STOCK. Terms used in these
Instructions and the Letter of Transmittal have the meanings ascribed to them in
the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., OMAHA, NEBRASKA TIME, ON
, 1995, UNLESS EXTENDED AS DESCRIBED IN THE PROSPECTUS.
EXCHANGING SHARES OF CLASS C STOCK FOR SHARES OF CLASS D STOCK IS STRICTLY
VOLUNTARY. IF YOU DO NOT WISH TO EXCHANGE ANY SHARES OF CLASS C STOCK FOR
SHARES OF CLASS D STOCK, DO NOT FILL OUT THE ATTACHED LETTER OF TRANSMITTAL.
SHARES OF CLASS C STOCK TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN
PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE OFFER ONLY IN THE MANNER DESCRIBED
IN THE PROSPECTUS; OTHERWISE, SUCH TENDERS ARE IRREVOCABLE BY THE TENDERING
STOCKHOLDERS.
PLEASE READ THE FOLLOWING GENERAL INSTRUCTIONS CAREFULLY BEFORE COMPLETING
THE LETTER OF TRANSMITTAL. FOR FURTHER INFORMATION OR ASSISTANCE CONCERNING THE
LETTER OF TRANSMITTAL, CONTACT MICHAEL A. KELLEY, STOCK REGISTRAR, PETER
KIEWIT SONS', INC., 1000 KIEWIT PLAZA, OMAHA, NEBRASKA 68131, TELEPHONE
(402) 271-2870; TELECOPY (402) 271-2965.
GENERAL INSTRUCTIONS
1. GENERAL
The Letter of Transmittal or a photocopy of it should be properly filled
in, dated and signed, and should be delivered to Michael A. Kelley, Stock
Registrar (the "Stock Registrar"), at the address set forth below:
Michael A. Kelley
Stock Registrar
Peter Kiewit Sons', Inc.
1000 Kiewit Plaza
Omaha, Nebraska 68131
UNLESS YOU ARE DIRECTING FIRSTIER BANK, N.A. TO DELIVER PLEDGED
CERTIFICATES DIRECTLY TO THE STOCK REGISTRAR AS DESCRIBED BELOW, YOUR LETTER OF
TRANSMITTAL MUST BE ACCOMPANIED BY YOUR STOCK CERTIFICATES FOR THE CLASS C STOCK
BEING TENDERED. DO NOT SIGN OR OTHERWISE ENDORSE ANY STOCK CERTIFICATES
TENDERED PURSUANT TO THE EXCHANGE OFFER. EXECUTION OF THE
- i -
<PAGE>
LETTER OF TRANSMITTAL WILL ASSIGN YOUR STOCK TO PKS, SUBJECT TO CONSUMMATION OF
THE EXCHANGE OFFER. If any certificates for your Class C Stock being tendered
have been pledged to FirsTier Bank, N.A., you must so indicate in Box C, and
upon delivery by you to PKS of an executed Letter of Transmittal, PKS and
FirsTier Bank, N.A. will be authorized to arrange for (i) the delivery of
pledged Class C Stock to PKS, and (ii) the delivery to FirsTier Bank, N.A. of
certificates representing the shares of Class D Stock to which you are entitled
upon exchange of your Class C Stock.
If any of your Class C Stock has been pledged to a lending institution
OTHER THAN FIRSTIER, you must complete Box B and arrange with such lending
institution for delivery to PKS of the certificates for the pledged Class C
Stock, together with the Letter of Transmittal. EVEN IF YOU DO NOT DESIGNATE A
LENDING INSTITUTION IN BOX B OR BOX C, PKS MAY DELIVER CERTIFICATES DIRECTLY TO
A LENDING INSTITUTION IF PKS BELIEVES IN GOOD FAITH THAT SUCH LENDING
INSTITUTION IS ENTITLED TO RECEIVE SUCH CERTIFICATES UNDER A BORROWING
ARRANGEMENT WITH YOU.
TO BE EFFECTIVE, DELIVERY OF THIS LETTER OF TRANSMITTAL AND THE
CERTIFICATES REPRESENTING SHARES OF CLASS C STOCK YOU WISH TO EXCHANGE MUST
BE MADE PRIOR TO 5:00 P.M., OMAHA, NEBRASKA TIME, ON THE EXPIRATION DATE,
WHICH WILL BE , 1995, UNLESS EXTENDED AS DESCRIBED IN THE
PROSPECTUS. THE METHOD OF DELIVERY OF ALL DOCUMENTS TO THE STOCK REGISTRAR IS
AT YOUR OPTION AND RISK. IF YOU CHOOSE TO SEND BY MAIL, IT IS RECOMMENDED THAT
YOU SEND BY REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED.
IF THE EXCHANGE OFFER IS NOT COMPLETED FOR ANY REASON, YOUR CLASS C STOCK
CERTIFICATES WILL BE RETURNED TO YOU (OR TO YOUR LENDER, IF YOUR CERTIFICATES
ARE PLEDGED TO A LENDER).
2. SIGNATURES
The signature on the Letter of Transmittal must correspond exactly to the
name as written on the face of the share certificate(s) sent to the Stock
Registrar. If there is insufficient space to list all of your share
certificates being submitted to the Stock Registrar or to respond to any other
information, please attach a separate sheet.
3. LOST CERTIFICATES
If one or more of your share certificates have been lost or destroyed, you
should contact the Stock Registrar for instructions regarding the relevant
documentation and what supporting evidence to supply.
4. VALIDITY OF SURRENDER
A surrender of certificate(s) will not be deemed to have been made until
all irregularities and defects have been cured or waived. The Company reserves
full discretion to determine whether the documentation with respect to tendered
Class C Stock is complete and generally to resolve all questions relating to
tenders, including the date and hour of receipt of a tender, the propriety of
execution of any document and all other questions regarding the validity or
acceptability of any tender. The Company reserves the right to reject any
tender not in proper form or to waive any irregularities or conditions. The
Company's interpretation of the terms and conditions of the Exchange Offer, the
Letter of Transmittal and these Instructions will be final. All improperly
tendered certificates representing Class C Stock will be returned, unless
irregularities are waived, without cost to the tendering holder thereof.
5. PARTIAL TENDERS
If less than all of the shares of Class C Stock which are evidenced by any
share certificate are to be tendered, fill in the number of shares you actually
wish to tender on the line(s) entitled "No. of Shares Tendered" in Box C and the
balance of the shares on the adjacent line(s) entitled "No. of Shares to be
Reissued." A new certificate(s) for the remainder of the shares of Class C
Stock which were evidenced by your old certificate(s) will be sent to you (or
the applicable lender) as soon as practicable after the consummation of the
Exchange Offer. All shares evidenced by certificate(s) listed will be deemed to
have been tendered unless otherwise indicated.
Additional copies of the Letter of Transmittal may be obtained from the
Stock Registrar.
- ii -
<PAGE>
LETTER OF TRANSMITTAL
To accompany certificates representing shares of Class C Stock of Peter
Kiewit Sons', Inc., a Delaware corporation ("PKS"), or to authorize the
delivery of pledged Class C Stock to PKS by FirsTier Bank, N.A., when submitted
in connection with the offer by PKS to issue shares of Class D Stock in exchange
for issued and outstanding shares of Class C Stock as described in the Joint
Prospectus dated , 1995 (the "Prospectus").
Michael A. Kelley, Stock Registrar:
I hereby tender the certificates listed in Box C below representing shares
of Class C Stock of PKS for exchange for shares of Class D Stock on the terms
and subject to the conditions set forth in the Memorandum and this Letter of
Transmittal.
BOX A: NAME AND ADDRESS OF BOX B: SPECIAL DELIVERY
REGISTERED HOLDER INSTRUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE TYPE OR PRINT THE NAME OF THE FILL IN ONLY IF YOUR CERTIFICATES ARE
REGISTERED HOLDER OF THE SHARES OF TO BE SENT TO A LENDING INSTITUTION,
CLASS C STOCK LISTED IN BOX C EXACTLY OTHER THAN FIRSTIER, TO WHICH YOUR
AS SUCH NAME APPEARS ON THE CLASS C STOCK IS PLEDGED.
SURRENDERED SHARE CERTIFICATE(S),
ALONG WITH THE ADDRESS OF THE
REGISTERED HOLDER. These Special Delivery Instructions
Cover Class D Stock Issuable in
Respect of the Following Number of
Name and Address of Registered Holder Shares of Class C Stock:
(type or print)
------------------------
Name:
------------------------------ Mail or deliver to:
Address: Name
------------------------------ ---------------------------------
(Please Print)
- -------------------------------------- Address
------------------------------
- --------------------------------------
--------------------------------------
(Zip Code)
Telephone Number: --------------------------------------
-------------------- (Zip Code)
Lender
Contact person:
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Upon request, I agree to execute and deliver any additional documents
deemed necessary or desirable by the Stock Registrar to complete the exchange of
the certificates.
Except as otherwise indicated in Box B above or Box C below, the
undersigned requests that the stock certificates for any shares of Class D Stock
to which the undersigned is entitled be registered in the name of, and be
delivered to, the registered holder set forth in Box A above at the address set
forth in Box A above, subject to the right of PKS to deliver such certificates
directly to a lending institution (whether or not such lending institution is
set forth in Box B or Box C) if PKS believes in good faith that such lending
institution is entitled to receive such certificates under a borrowing
arrangement with the undersigned.
- 1 -
<PAGE>
BOX C: CERTIFICATES TENDERED: Please list in this Box C (and an
attached sheet, if necessary) ALL the certificates representing Class
C Stock you are submitting with this Letter of Transmittal or, if such
certificates are pledged to FirsTier, the certificates you are
authorizing to be surrendered to PKS by FirsTier. PKS will send to
FirsTier certificates for Class D Stock issuable in exchange for Class
C Stock pledged to FirsTier as indicated in this Box C.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Check the appropriate box: Certificate No. No. of Shares No. of Shares No. of Shares to be
- ----------------------------------------------- Tendered Reissued
Certificate Certificate Held By
Enclosed FirsTier Bank, N.A.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total:
</TABLE>
The undersigned represents and warrants that the undersigned has full power
and authority to assign and transfer the certificates tendered and has good
title to such certificates, free and clear (except to the extent pledged to
FirsTier or to a lending institution named in Box B above) of all liens,
restrictions, charges, encumbrances, pledges, security interests or other
obligations affecting the assignment or transfer of the certificates, and such
certificates are not subject to any adverse claim (except to the extent so
pledged). All authority conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned, and any obligation of the undersigned under this Letter of
Transmittal shall be binding upon successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned.
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS RECEIVED
AND READ THE PROSPECTUS DATED , 1995, OF PETER KIEWIT
SONS', INC. AND MFS RELATING TO THE EXCHANGE OFFER AND SPIN-OFF.
Signed By:_________________________________
(Signature)
Date: ___________________ ___________________________________________
Name (Print)
- 2 -
<PAGE>
, 1995
PETER KIEWIT SONS', INC.
INSTRUCTIONS FOR LETTER OF TRANSMITTAL
TO TENDER
1990 SERIES CONVERTIBLE DEBENTURES
DUE OCTOBER 31, 2000
1991 SERIES CONVERTIBLE DEBENTURES
DUE OCTOBER 31, 2001
AND/OR
1993 SERIES CLASS D CONVERTIBLE
DEBENTURES DUE OCTOBER 31, 2003 (TOGETHER, "DEBENTURES")
FOR SHARES OF
CLASS C STOCK AND /OR CLASS D STOCK
PURSUANT TO THE EXCHANGE OFFER DESCRIBED BELOW
_________________
Peter Kiewit Sons', Inc. ("PKS" or the "Company") has provided you with an
Joint Prospectus dated , 1995 (the "Prospectus") that describes your
right to exchange the Debentures owned by you for shares of the Company's Class
C Stock and/or Class D Stock, on the terms and subject to the conditions set
forth in the Prospectus and in the Letter of Transmittal attached to these
Instructions. As described in the Prospectus, the Exchange Offer is being made
in connection with the Spin-off. THE EXCHANGE OFFER, THE CLASS C STOCK, THE
CLASS D STOCK AND THE SPIN-OFF ARE MORE FULLY DESCRIBED IN THE PROSPECTUS, AND
YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS, INCLUDING THE DESCRIPTIONS THEREIN
OF THE CONDITIONS TO THE EXCHANGE OFFER AND THE SPIN-OFF AND OF PKS'S RIGHT TO
ABANDON THE EXCHANGE OFFER OR THE SPIN-OFF OR BOTH, PRIOR TO MAKING A DECISION
REGARDING WHETHER TO EXCHANGE DEBENTURES FOR SHARES OF CLASS D STOCK. Terms
used in these Instructions and the Letter of Transmittal have the meanings
ascribed to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., OMAHA, NEBRASKA TIME, ON
, 1995, UNLESS EXTENDED AS DESCRIBED IN THE PROSPECTUS.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT HOLDERS OF DEBENTURES
PARTICIPATE IN THE EXCHANGE OFFER, FOR THE REASONS DESCRIBED IN THE PROSPECTUS
AT "RISK FACTORS -- CERTAIN CONSEQUENCES OF DECISION NOT TO EXCHANGE".
PLEASE READ THE FOLLOWING GENERAL INSTRUCTIONS CAREFULLY BEFORE COMPLETING
THE LETTER OF TRANSMITTAL. FOR FURTHER INFORMATION OR ASSISTANCE CONCERNING
THE LETTER OF TRANSMITTAL, CONTACT MICHAEL A. KELLEY, STOCK REGISTRAR,
PETER KIEWIT SONS', INC., 1000 KIEWIT PLAZA, OMAHA, NEBRASKA 68131,
TELEPHONE (402) 271-2870; TELECOPY (402) 271-2965.
GENERAL INSTRUCTIONS
1. GENERAL
The Letter of Transmittal or a photocopy of it should be properly filled
in, dated and signed, and should be delivered to Michael A. Kelley, Stock
Registrar (the "Stock Registrar"), at the address set forth below:
- i -
<PAGE>
Michael A. Kelley
Stock Registrar
Peter Kiewit Sons', Inc.
1000 Kiewit Plaza
Omaha, Nebraska 68131
If your Debentures have been pledged to FirsTier Bank, N.A. ("FirsTier") or
any other lending institution, you must complete Box B, and upon delivery by you
to PKS of an executed Letter of Transmittal, PKS and the lending institution
will be authorized to arrange for (i) the delivery of pledged Debentures to PKS,
and (ii) the delivery to the lending institution of certificates representing
the shares of Class C Stock and/or Class D Stock to which you are entitled upon
exchange of your Debentures. If your Debentures are not pledged to a lending
institution, your Letter of Transmittal must be accompanied by your certificates
for the Debentures being tendered.
TO BE EFFECTIVE, DELIVERY OF THIS LETTER OF TRANSMITTAL AND THE
CERTIFICATES REPRESENTING DEBENTURES YOU WISH TO EXCHANGE MUST BE MADE
PRIOR TO 5:00 P.M., OMAHA, NEBRASKA TIME, ON THE EXPIRATION DATE, WHICH
WILL BE , 1995, UNLESS EXTENDED AS DESCRIBED IN THE PROSPECTUS.
THE METHOD OF DELIVERY OF ALL DOCUMENTS TO THE STOCK REGISTRAR IS AT YOUR
OPTION AND RISK. IF YOU CHOOSE TO SEND BY MAIL, IT IS RECOMMENDED THAT YOU SEND
BY REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED.
IF THE EXCHANGE OFFER IS NOT COMPLETED FOR ANY REASON, YOUR DEBENTURE
CERTIFICATES WILL BE RETURNED TO YOU (OR YOUR LENDER, IF THE DEBENTURE
CERTIFICATES ARE PLEDGED TO A LENDER).
2. SIGNATURES
The signature on the Letter of Transmittal must correspond exactly to the
name as written on the face of the Debenture certificate(s) sent to the Stock
Registrar.
3. LOST CERTIFICATES
If one or more of your Debenture certificates have been lost or destroyed,
you should contact the Stock Registrar for instructions regarding the relevant
documentation and what supporting evidence to supply.
4. VALIDITY OF SURRENDER
A surrender of certificate(s) will not be deemed to have been made until
all irregularities and defects have been cured or waived. The Company reserves
full discretion to determine whether the documentation with respect to tendered
Debentures is complete and generally to resolve all questions relating to
tenders, including the date and hour of receipt of a tender, the propriety of
execution of any document and all other questions regarding the validity or
acceptability of any tender. The Company reserves the right to reject any
tender not in proper form or to waive any irregularities or conditions. The
Company's interpretation of the terms and conditions of the Exchange Offer, the
Letter of Transmittal and these Instructions will be final. All improperly
tendered certificates representing Debentures will be returned, unless
irregularities are waived, without cost to the tendering holder thereof.
5. NO PARTIAL TENDERS
A holder of a Debentures may not tender fewer than all Debentures held or
less than the full principal amount of each Debenture in the Exchange Offer.
Additional copies of the Letter of Transmittal may be obtained from the
Stock Registrar.
- ii -
<PAGE>
LETTER OF TRANSMITTAL
To accompany certificates representing 1990 Series Convertible Debentures
due October 31, 2000, 1991 Series Convertible Debentures due October 31, 2001
and/or 1993 Series Class D Convertible Debenture due October 31, 2003
("Debenture"), of Peter Kiewit Sons', Inc., a Delaware corporation ("PKS"), or
to authorize the delivery of a Debenture certificates to PKS by a lending
institution to which the Debenture(s) has been pledged, when surrendered in
connection with the offer by PKS to issue shares of Class C Stock and/or Class D
Stock in exchange for issued and outstanding Debentures as described in the
Joint Prospectus dated , 1995 (the "Prospectus").
Michael A. Kelley, Stock Registrar:
I hereby tender for exchange my Debenture(s) of PKS for shares of Class C
Stock and Class D Stock on the terms and subject to the conditions set forth in
the Prospectus and this Letter of Transmittal.
BOX A: NAME AND ADDRESS OF BOX B: SPECIAL DELIVERY
REGISTERED HOLDER INSTRUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE TYPE OR PRINT THE NAME OF THE FILL IN ONLY IF YOUR DEBENTURE(S) ARE
REGISTERED HOLDER OF THE DEBENTURE(S) PLEDGED TO A LENDING INSTITUTION (IN
EXACTLY AS SUCH NAME APPEARS ON THE WHICH CASE YOUR STOCK CERTIFICATES
SURRENDERED DEBENTURE CERTIFICATE, WILL BE SENT TO SUCH LENDING
ALONG WITH THE ADDRESS OF THE INSTITUTION).
REGISTERED HOLDER.
Check the following box if your
Debenture(s) are pledged to FirsTier:
Name and Address of Registered Holder / /
(type or print)
- OR -
Name: Provide the following information for
------------------------------ any lending institution other than
FirsTier:
Address:
------------------------------ Name
---------------------------------
(Please Print)
- --------------------------------------
Address
------------------------------
- --------------------------------------
(Zip Code) --------------------------------------
Telephone Number:
--------------------------------------
- ---------------------- (Zip Code)
Lender
Contact person:
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Upon request, I agree to execute and deliver any additional documents
deemed necessary or desirable by the Stock Registrar to complete the exchange of
the certificates.
Except as otherwise indicated in Box B above, the undersigned requests that
the certificates for any shares Class C Stock and/or of Class D Stock to which
the undersigned is entitled be registered in the name of, and be delivered to,
the registered holder set forth in Box A above at the address set forth in Box A
above.
- 1 -
<PAGE>
The undersigned represents and warrants that the undersigned has full power
and authority to assign and transfer the certificates tendered and has good
title to such certificates, free and clear (except to the extent pledged to a
lending institution named in Box B above) of all liens, restrictions, charges,
encumbrances, pledges, security interests or other obligations affecting the
assignment or transfer of the certificates, and such certificates are not
subject to any adverse claim (except to the extent so pledged). All authority
conferred or agreed to be conferred in this Letter of Transmittal shall not be
affected by, and shall survive, the death or incapacity of the undersigned, and
any obligation of the undersigned under this Letter of Transmittal shall be
binding upon successors, assigns, heirs, executors, administrators and legal
representatives of the undersigned.
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS RECEIVED
AND READ THE JOINT PROSPECTUS DATED , 1995, OF PETER KIEWIT
SONS', INC. AND MFS RELATING TO THE EXCHANGE OFFER AND SPIN-OFF.
Signed By:______________________________
(signature)
Date: ___________________ ________________________________________
Name (Print)
- 2 -
<PAGE>
April 27, 1995
Board of Directors
Peter Kiewit Sons', Inc.
1000 Kiewit Plaza
Omaha, NE 68131
Re: Exchange Offer by Peter Kiewit Sons', Inc.
Gentlemen:
I understand that Peter Kiewit Sons', Inc. ("PKS") is contemplating an
offering (the "Exchange Offer") of its Class D Diversified Group Convertible
Exchangeable Common Stock, par value $0.0625 ("Class D Stock"), in exchange for
its Class C Construction & Mining Group Restricted Redeemable Convertible
Exchangeable Common Stock, par value $0.0625 ("Class C Stock"), in anticipation
of a possible spin-off distribution to the holders of Class D Stock of PKS'
entire ownership interest in MFS Communications Company, Inc., as described in
the Form 10-K of PKS dated March 31, 1995 (which PKS has provided to me). You
have asked me to indicate whether, if the Exchange Offer occurs, I would tender
shares of Class C Stock held or controlled by me or my family members to PKS in
exchange for Class D Stock pursuant to the Exchange Offer.
I hereby agree that, if the Exchange Offer occurs, I would not tender such
Class C Stock pursuant to the Exchange Offer.
I understand that you will rely upon this information in making certain
decisions regarding the Exchange Offer, and that my tender intentions will be
disclosed to PKS shareholders in the offering document provided to PKS
shareholders in connection with the Exchange Offer. I also understand that
my agreement applies only to the Exchange Offer, and that I will have the right
to convert Class C Stock into Class D Stock during any subsequent conversion
period provided in PKS' Certificate of Incorporation.
Sincerely,
