<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1998
REGISTRATION NOS. 333-51825 AND 333-51825-01
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT No. 2
TO
Form S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------------
KAUFMAN AND BROAD HOME CORPORATION
KBHC FINANCING I
(Exact name of each of the Registrants as specified in its charter)
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DELAWARE 95-3666267 10990 WILSHIRE BOULEVARD
DELAWARE 526919186 LOS ANGELES, CALIFORNIA 90024
(State or other jurisdiction of (I.R.S. Employer Identification No.) (310) 231-4000
incorporation or organization) (Address, including zip code,
and telephone number, including area
code,
of principal executive offices)
- --------------------------------------------------------------------------------------------------------------
KIMBERLY N. KING, ESQ.
CORPORATE SECRETARY AND ASSOCIATE COUNSEL
KAUFMAN AND BROAD HOME CORPORATION
10990 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(310) 231-4000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
- --------------------------------------------------------------------------------------------------------------
COPIES TO:
VINCENT J. PISANO, ESQ. R. GREGORY MORGAN, ESQ. ERIC S. HAUETER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP MUNGER, TOLLES & OLSON LLP BROWN & WOOD LLP
919 THIRD AVENUE 355 S. GRAND AVENUE, 35TH FL. 555 CALIFORNIA STREET
NEW YORK, NEW YORK 10022 LOS ANGELES, CA 90071 SAN FRANCISCO, CA 94104
(212) 735-3000 (213) 683-9100 (415) 772-1200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JUNE 25, 1998
PROSPECTUS
15,000,000 FELINE PRIDES(SM)
(CONSISTING OF INCOME PRIDES(SM) AND GROWTH PRIDES(SM))
[KAUFMAN BROAD LOGO]
,000,000 CAPITAL SECURITIES
KBHC FINANCING I
(LIQUIDATION AMOUNT $10 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED TO
THE EXTENT SET FORTH HEREIN BY
KAUFMAN AND BROAD HOME CORPORATION
------------------------
The securities offered hereby are 15,000,000 FELINE PRIDES(SM) ("FELINE
PRIDES") of Kaufman and Broad Home Corporation, a Delaware corporation (the
"Company"), consisting of separately offered and separately traded units
referred to as "Income PRIDES" and "Growth PRIDES" and separately offered
and separately traded % Capital Securities (the "Capital Securities" and,
together with the FELINE PRIDES, the "Securities") of KBHC Financing I, a
statutory business trust created under the laws of the State of Delaware (the
"Trust"), having a stated liquidation amount per Capital Security equal to $10.
In addition to the separately offered and separately traded Capital Securities,
Capital Securities will be issued and will initially be held as a
component of the Income PRIDES and will not be offered or traded separately from
the Income PRIDES, unless and until substitution is made as described in
"Description of the FELINE PRIDES -- Creating Growth PRIDES."
(continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 25 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE SECURITIES.
Prior to the offering made hereby, there has been no public market for the
Securities. Application has been made to list the Income PRIDES and the Growth
PRIDES on the New York Stock Exchange ("NYSE"), subject to official notice of
issuance. Unless and until substitution is made as described in "Description of
the FELINE PRIDES -- Creating Growth PRIDES" or "-- Creating Income PRIDES,"
neither the Capital Security component of an Income PRIDES nor the Treasury
Security component of a Growth PRIDES will trade separately from such Income
PRIDES or Growth PRIDES, and such Capital Security component will trade as a
unit with the Purchase Contract component of the Income PRIDES and such Treasury
Security component will trade as a unit with the Purchase Contract component of
the Growth PRIDES. If Capital Securities are separately traded to a sufficient
extent that applicable exchange listing requirements are met, the Company will
endeavor to cause such securities to be listed on the exchange on which the
Income PRIDES and Growth PRIDES are then listed, including, if applicable, the
NYSE. On June 24, 1998, the last reported sale price of the Common Stock of the
Company on the NYSE was $32 per share.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRICE TO PUBLIC(1)
$ per Income PRIDES
$ per Growth PRIDES
$ per Capital Security
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UNDERWRITING PROCEEDS TO
COMMISSION(2) COMPANY(3)
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Total(4)................................... $ $
========================================================================================================================
</TABLE>
(1) Plus, as applicable, accrued distributions, interest and Contract Adjustment
Payments, if any, from , 1998.
(2) The Company and the Trust have agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $925,000; such
amount does not include $ used to purchase the Treasury Securities
component of the Growth PRIDES.
(4) The Company and the Trust have granted to the Underwriters 30-day options to
purchase up to an additional Income PRIDES, Growth PRIDES
and Capital Securities to cover over-allotments, if any; provided,
however, that the Underwriters must purchase, proportionately, at least as
many Capital Securities as Growth PRIDES and must purchase, proportionately,
at least as many Growth PRIDES as Income PRIDES. If such options are
exercised in full, the total Underwriting Commission and Proceeds to Company
will be $ and $ (such amount does not include $ to be
used to purchase the Treasury Securities component of the Growth PRIDES),
respectively. See "Underwriting."
The Securities are offered by the Underwriters, subject to prior sale, when,
as and if issued to and accepted by them and subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the
Securities offered hereby will be made in New York, New York on or about
, 1998.
------------------------
MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE
S E C U R I T I E S
C O R P O R A T I O N
------------------------
The date of this Prospectus is , 1998.
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(SM)Service mark of Merrill Lynch & Co., Inc.
<PAGE> 3
(cover continued from previous page)
The FELINE PRIDES offered hereby will initially consist of (A) units
(referred to as "Income PRIDES") with a stated amount per Income PRIDES equal to
$10 (the "Stated Amount") and (B) units (referred to as "Growth PRIDES")
with a Stated Amount per Growth PRIDES equal to $10. Each Income PRIDES will
initially consist of a unit comprised of (a) a stock purchase contract (a
"Purchase Contract") under which (i) the holder will purchase from the Company
not later than , 2001 (the "Purchase Contract Settlement Date"), for $10,
a number of newly issued shares of common stock, $1 par value per share (the
"Common Stock"), of the Company equal to the Settlement Rate described herein,
and (ii) the Company will pay to the holder unsecured contract adjustment
payments ("Contract Adjustment Payments"), if any, at the rate of % of
the Stated Amount per annum and (b) either beneficial ownership of a Capital
Security or, upon the occurrence of a Tax Event Redemption (as defined herein)
prior to the Purchase Contract Settlement Date, the Applicable Ownership
Interest (as defined herein) in the Treasury Portfolio (as defined herein). Each
Growth PRIDES will consist of a unit comprised of (a) a Purchase Contract under
which (i) the holder will purchase from the Company not later than the Purchase
Contract Settlement Date, for $10, a number of newly issued shares of Common
Stock of the Company, equal to the Settlement Rate, and (ii) the Company will
pay the holder Contract Adjustment Payments, if any, at the rate of % of
the Stated Amount per annum, and (b) a 1/100 undivided beneficial interest in a
zero-coupon U.S. Treasury Security (CUSIP No. ) with a principal amount
at maturity equal to $1,000 and maturing on , 2001 (each such security a
"Treasury Security" and, collectively, the "Treasury Securities"). The Company
will, directly or indirectly, own all the common securities (the "Common
Securities" and, together with the Capital Securities, the "Trust Securities"),
representing undivided beneficial ownership interests in the assets of the
Trust. The Trust exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in an equivalent amount of Debentures of the
Company, due , 2003 and initially bearing interest at % per annum
(the "Debentures"). As long as the FELINE PRIDES are in the form of Income
PRIDES or Growth PRIDES, the related Capital Securities or the Treasury
Portfolio or the Treasury Securities, as applicable, will be pledged to the
Collateral Agent (as defined herein), to secure the holder's obligation to
purchase Common Stock under the related Purchase Contracts.
The number of shares of Common Stock issuable upon settlement of each
Purchase Contract on the Purchase Contract Settlement Date (the "Settlement
Rate") will be calculated as follows (subject to adjustment under certain
circumstances): (a) if the Applicable Market Value (as defined herein) is equal
to or greater than $ (the "Threshold Appreciation Price," which is
approximately % above the last reported sale price of the Common Stock
set forth on the cover page of this Prospectus (the "Reference Price")), the
Settlement Rate will be ; (b) if the Applicable Market Value is less than
the Threshold Appreciation Price but greater than the Reference Price, the
Settlement Rate will be equal to the Stated Amount divided by the Applicable
Market Value; and (c) if the Applicable Market Value is less than or equal to
the Reference Price, the Settlement Rate will be .
Aggregate payments of % of the Stated Amount per annum will be made
or accrue on each Income PRIDES quarterly in arrears on February 16, May 16,
August 16 and November 16 of each year, commencing , 1998, until the
Purchase Contract Settlement Date. These payments will consist of cumulative
cash distributions on the related Capital Securities or Treasury Portfolio, as
applicable, payable at the rate of % of the stated liquidation amount per
annum, and Contract Adjustment Payments, if any, payable by the Company at the
rate of % of the Stated Amount per annum, subject in the case of Capital
Securities and Contract Adjustment Payments, if any, to the Company's right to
defer payment of such amounts. Contract Adjustment Payments, if any, payable by
the Company at the rate of % of the Stated Amount per annum, will be made
or accrue on each Growth PRIDES quarterly in arrears on February 16, May 16,
August 16 and November 16 of each year, commencing , 1998, until the
Purchase Contract Settlement Date, subject to the Company's right to defer such
payments. In addition, original issue discount ("OID") will accrue on the
related Treasury Security. Holders of each Capital Security will receive
cumulative cash distributions, payable quarterly in arrears, on February 16, May
16, August 16 and November 16 of each year, commencing , 1998 at the rate
of % of the stated
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<PAGE> 4
liquidation amount per annum. Such quarterly distributions on the Capital
Securities will constitute all, or a portion, of the quarterly distributions on
the related Income PRIDES. The ability of the Trust to make the quarterly
distributions on the Capital Securities will be solely dependent upon the
receipt of corresponding interest payments from the Company on the Debentures.
The Company will have the right at any time, and from time to time, limited to a
period not extending beyond the maturity date of the Debentures, to defer the
interest payments due on the Debentures. As a consequence of such deferral,
quarterly distributions on the Capital Securities and the Income PRIDES (to the
extent that all, or a portion, of the quarterly distributions on the Income
PRIDES are comprised of the quarterly distributions on the Capital Securities)
would be deferred, but would continue to accrue with interest at the rate of %
of the stated liquidation amount per annum compounded quarterly. The Company
will have the right at any time, and from time to time, limited to a period not
extending beyond the Purchase Contract Settlement Date, to defer Contract
Adjustment Payments, if any. As a consequence of such deferral, such portion of
the cumulative quarterly distributions on the Income PRIDES that is comprised of
the Contract Adjustment Payments, if any, and the quarterly cash distributions
on the Growth PRIDES would be deferred; however, such deferred Contract
Adjustment Payments, if any, will bear additional Contract Adjustment Payments
at the rate of % per annum (the higher of (i) the rate which would accrue
on Income PRIDES for such payments and (ii) the rate which would accrue on
Growth PRIDES for such payments) until paid, compounded quarterly (such deferred
Contract Adjustment Payments together with such additional Contract Adjustment
Payments shall be referred to as "Deferred Contract Adjustment Payments").
The distribution rate on the Capital Securities and the interest rate on
the related Debentures outstanding on and after the Purchase Contract Settlement
Date will be reset on the third Business Day (as defined herein) immediately
preceding the Purchase Contract Settlement Date to a rate per annum (the "Reset
Rate") to be determined by the Reset Agent (as defined herein) equal to the sum
of (x) a spread amount (the "Reset Spread") and (y) the rate of interest on the
Two-Year Benchmark Treasury (as defined herein), provided that the Company may
limit the Reset Rate or the Reset Rate may be limited by applicable law as
described herein.
The payment of distributions and certain redemptions out of monies held by
the Trust and payments on liquidation of the Trust will be guaranteed by the
Company (the "Guarantee") to the extent described herein and under "Description
of the Guarantee."
The Company's obligations in respect of the Debentures and the Guarantee
will be senior unsecured obligations of the Company. The Contract Adjustment
Payments, if any, will be subordinated and junior in right of payment only to
the Company's obligations under the Senior Indebtedness. "Senior Indebtedness"
means indebtedness of any kind of the Company unless the instrument under which
such indebtedness is incurred expressly provides that it is on a parity in right
of payment with or subordinate in right of payment to the Contract Adjustment
Payments, if any.
If the holder of an Income PRIDES has not notified the Purchase Contract
Agent (as defined herein), in the manner described herein, of its intention to
settle the related Purchase Contract with separate cash, the Remarketing Agent
(as defined herein), pursuant to the terms of the Remarketing Agreement (as
defined herein), will use its reasonable efforts to remarket the related Capital
Security (bearing the Reset Rate) on the third Business Day immediately
preceding the Purchase Contract Settlement Date for settlement on the Purchase
Contract Settlement Date at a price of approximately 100.75% of such Capital
Security's stated liquidation amount plus accrued and unpaid distributions
(including deferred distributions, if any) thereon. The portion of proceeds from
such remarketing, in an amount equal to the aggregate stated liquidation amount
of such Capital Securities, will automatically be applied to satisfy in full
such holder's obligation to purchase Common Stock under the related Purchase
Contract. In addition, after deducting as a remarketing fee (the "Remarketing
Fee") an amount not exceeding 50 basis points (.50%) of the aggregate stated
liquidation amount of the remarketed Capital Securities from any amount received
in connection with such remarketing in excess of the aggregate stated
liquidation amount of such Capital Securities plus any accrued and unpaid
distributions (including deferred distributions, if any), the Remarketing Agent
will remit the remaining portion of the proceeds, if any, to the Purchase
Contract Agent for the benefit of such holder. If, despite using its reasonable
efforts, the Remarketing Agent fails to remarket the Capital Securities (other
than to the
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<PAGE> 5
Company) at a price not less than 100% of their aggregate stated liquidation
amount plus accrued and unpaid distributions (including deferred distributions,
if any), or if the remarketing shall not have occurred because a condition
precedent to the remarketing shall not have been fulfilled, the remarketing will
be deemed to have failed (a "Failed Remarketing") and the Company will exercise
its rights as a secured party to dispose of the Capital Securities in accordance
with applicable law and satisfy in full, from the proceeds of such disposition,
such holder's obligation to purchase Common Stock under the related Purchase
Contracts; provided that, if the Company exercises such rights as a secured
party with respect to such Capital Securities, any accrued and unpaid
distributions (including deferred distributions, if any) on such Capital
Securities will be paid in cash by the Company to the holder of record of such
Capital Securities. Holders of Capital Securities which are not components of
Income PRIDES may elect, in the manner described herein, to have their Capital
Securities remarketed by the Remarketing Agent.
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder of Income PRIDES may substitute for the
related Capital Securities or the Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, Treasury Securities in an amount payable at the
stated maturity thereof per Income PRIDES equal to the Stated Amount, thereby
creating Growth PRIDES. Such Treasury Securities will be pledged with the
Collateral Agent to secure the holder's obligation to purchase Common Stock
under the related Purchase Contracts. In the event that Contract Adjustment
Payments, if any, are at a higher rate for Growth PRIDES than for Income PRIDES,
holders of Income PRIDES wishing to create Growth PRIDES will also be required
to deliver cash in an amount equal to the excess of the Contract Adjustment
Payments, if any, that would have accrued since the last Payment Date (as
defined herein) on which cash distributions have been paid through the date of
substitution on the Growth PRIDES being created by such holders, over the
Contract Adjustment Payments, if any, that have accrued over the same time
period on the related Income PRIDES. Upon the substitution of Treasury
Securities for the related Capital Securities as collateral, such Capital
Securities will be released to the holder as described herein.
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder of Growth PRIDES may substitute for the
related Treasury Securities, Capital Securities, thereby creating Income PRIDES.
Such Capital Securities will be pledged with the Collateral Agent to secure the
holder's obligation to purchase Common Stock under the related Purchase
Contracts. Upon the substitution of Capital Securities for the related Treasury
Securities as collateral, such Treasury Securities will be released to the
holder as described herein.
If a Failed Remarketing has occurred, each holder of Trust Securities (or,
following the distribution of the Debentures upon a dissolution of the Trust as
described herein, the holders of such Debentures) holding such Trust Securities
(or Debentures, as the case may be) following the Purchase Contract Settlement
Date will have the right, in the case of the Trust Securities, to require the
Trust to distribute their pro rata share of the Debentures to The First National
Bank of Chicago, as exchange agent (the "Exchange Agent"), and the Exchange
Agent will put such Debentures to the Company on behalf of such holders (or, in
the case of the persons who hold the Debentures directly, such persons will have
the right to put their Debentures directly to the Company) on , 2001,
upon at least three Business Days' prior notice, at a price equal to the
principal amount thereof, plus accrued and unpaid interest (including deferred
interest), if any, thereon.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the
related Purchase Contracts through the early delivery of cash to the Purchase
Contract Agent in the manner described herein, (ii) in the case of Income
PRIDES, has settled the related Purchase Contracts with separate cash on the
Business Day immediately preceding the Purchase Contract Settlement Date
pursuant to prior notification to the Purchase Contract Agent, (iii) in the case
of Income PRIDES, has had the Capital Securities related to such holder's
Purchase Contracts remarketed in the manner described herein in connection with
settling such Purchase Contracts, or (iv) an event described under "Description
of the Purchase Contracts -- Termination" has occurred, then (A) in the case of
Income PRIDES (unless a Tax Event Redemption has occurred) the Company will
exercise its rights as a secured party to dispose of the Capital Securities in
accordance with applicable law and (B) in the case of Growth PRIDES or Income
PRIDES (in the event that a Tax Event Redemption has occurred), the principal
amount of the related Treasury Securities or the appropriate Applicable
Ownership
4
<PAGE> 6
Interest of the Treasury Portfolio, as applicable, when paid at maturity, will
automatically be applied to satisfy in full such holder's obligation to purchase
Common Stock under the related Purchase Contracts.
In the event that a holder of either Income PRIDES or Growth PRIDES effects
the early settlement of the related Purchase Contracts through the delivery of
cash or settles (in the case of Income PRIDES) such Purchase Contracts with cash
on the Business Day immediately preceding the Purchase Contract Settlement Date,
the related Capital Securities, the appropriate Applicable Ownership Interest of
the Treasury Portfolio or Treasury Securities, as the case may be, will be
released to the holder as described herein.
The Company will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities to creditors, cause the Debentures to be
distributed to the holders of the Trust Securities. If the Debentures are
distributed to the holders of the Capital Securities, the Company will use its
best efforts to cause the Debentures to be listed on such exchange on which the
Capital Securities are then listed, if any, including, if applicable, the NYSE.
The Debentures (and, thus, the Trust Securities) are redeemable at the
option of the Company, in whole but not in part, upon the occurrence and
continuation of a Tax Event (as defined herein) under the circumstances
described herein (a "Tax Event Redemption"). If the Company so redeems all of
the Debentures, the Trust must redeem all of the Trust Securities at a
redemption price (the "Redemption Price") per Trust Security equal to the
Redemption Amount (as defined herein) plus accrued and unpaid distributions
including deferred distributions, if any, thereon to the date fixed for
redemption and pay in cash such Redemption Price to the holders of such Trust
Securities. If such Tax Event Redemption occurs prior to the Purchase Contract
Settlement Date, the Redemption Price payable in liquidation of the Income
PRIDES holders' interests in the Trust or in the Debentures will be distributed
to the Collateral Agent, who in turn will apply an amount equal to the
Redemption Amount of such Redemption Price to purchase, on behalf of the holders
of Income PRIDES, the Treasury Portfolio and remit the remaining portion, if
any, of such Redemption Price to the Purchase Contract Agent for payment to the
holder of such Income PRIDES. See "Description of the Debentures -- Tax Event
Redemption." Such Treasury Portfolio will be substituted for the Capital
Securities and will be pledged to the Collateral Agent to secure such Income
PRIDES holders' obligations to purchase the Common Stock under their Purchase
Contracts.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES AND
THE COMMON STOCK OF THE COMPANY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING
TRANSACTIONS, THE PURCHASE OF SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
5
<PAGE> 7
FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained or incorporated
by reference in this Prospectus are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").
Statements which are predictive in nature, which depend upon or refer to future
events or conditions, or which include words such as "expects", "anticipates",
"intends", "plans", "believes", "estimates", "hopes", and similar expressions
constitute forward-looking statements. In addition, any statements concerning
future financial performance (including future revenues, earnings or growth
rates), ongoing business strategies or prospects, and possible future Company
actions, are also forward-looking statements as defined by the Act.
Forward-looking statements are based on current expectations and projections
about future events and are subject to risks, uncertainties, and assumptions
about the Company, economic and market factors and the homebuilding industry,
among other things. These statements are not guaranties of future performance,
and the Company has no specific intention to update these statements.
Actual events and results may differ materially from those expressed or
forecasted in the forward-looking statements made by the Company due to a number
of factors. The principal important risk factors that could cause the Company's
actual performance and future events and actions to differ materially from such
forward-looking statements include, but are not limited to, changes in general
economic conditions either nationally or in regions where the Company operates
or may commence operations, employment growth or unemployment rates, lumber or
other homebuilding material prices, labor costs, home mortgage interest rates,
currency exchange rates as they affect the Company's operations in France and
Mexico, consumer confidence, government regulation or restrictions on real
estate development, costs and effects of unanticipated legal or administrative
proceedings and capital or credit market conditions affecting the Company's cost
of capital; the availability and cost of land in desirable areas, and conditions
in the overall homebuilding market in the Company's geographic markets
(including the historic cyclicality of the industry); as well as seasonality,
competition, population growth, property taxes, and unanticipated delays in the
Company's operations. See the Company's Annual Report on Form 10-K for the year
ended November 30, 1997, its Quarterly Report on Form 10-Q for the quarterly
period ended February 28, 1998 and other Company filings with the Securities and
Exchange Commission, copies of which may be obtained as described under
"Available Information," for a further discussion of risks and uncertainties
applicable to the Company's business.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a site on the world wide web at http:www.sec.gov that contains
reports, proxy and information statements and other information filed
electronically by the Company. In addition, such reports, proxy statements and
other information may be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, upon which the Common Stock
is traded.
This Prospectus constitutes a part of a registration statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company and the Trust with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company, the
Trust and the Securities offered hereby, reference is made to the Registration
Statement and the exhibits and the financial statements, notes and schedules
filed as a part thereof or incorporated by reference therein, which
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<PAGE> 8
may be inspected at the public reference facilities of the Commission at the
addresses set forth above. Statements made in this Prospectus concerning the
contents of any documents referred to herein are not necessarily complete, and
in each instance reference is hereby made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
for a more complete description of the matter involved. Each such statement is
qualified in its entirety by such reference.
No separate financial statements of the Trust have been included herein.
The Company and the Trust do not consider that such financial statements would
be material to holders of the Capital Securities because the Trust is a newly
formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than its holding as trust assets the Debentures and the issuance of the
Trust Securities. See "The Trust," "Description of FELINE PRIDES," "Description
of the Debentures," "Description of the Capital Securities" and "Description of
the Guarantee." The Trust is not currently subject to the information reporting
requirements of the Exchange Act. The Trust will become subject to such
requirements upon the effectiveness of the Registration Statement, although the
Trust intends to seek and expects to receive an exemption therefrom.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission, are
hereby incorporated by reference:
1. Annual Report on Form 10-K of the Company for the year ended
November 30, 1997;
2. Quarterly Report on Form 10-Q of the Company for the quarter ended
February 28, 1998; and
3. Current Report on Form 8-K dated June 23, 1998.
All documents filed by the Company after the date of this Prospectus
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the
termination of the offering of the securities offered hereby and the remarketing
of the Capital Securities shall be deemed to be incorporated herein by reference
and to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superceded for purposes of this
Prospectus to the extent that a statement contained herein (or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein) modifies or supersedes such statement. Any statements so
modified or superseded shall be deemed to constitute a part of this Prospectus,
except as so modified or superseded.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the documents referred
to in this section which have been or may be incorporated by reference in this
Prospectus (other than certain exhibits to such documents). Telephone requests
for such documents may be made by dialing 1-888-KBH-NYSE (1-888-524-6973). Mail
requests for such documents should be directed to Kaufman and Broad Home
Corporation, 10990 Wilshire Boulevard, Los Angeles, California 90024, Attention:
Investor Relations.
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<PAGE> 9
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and consolidated financial statements of the Company
appearing elsewhere in this Prospectus and in the documents incorporated herein
by reference. Except as otherwise noted, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment options. For purposes of
the discussions set forth herein under "The Company" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition,"
references to results of operations or financial condition as of or for a
particular year or quarter refer to the Company's fiscal year ending November 30
and its fiscal quarters ending February 28, May 31, August 31 and November 30,
as the case may be, of each year.
A listing of the pages on which certain definitions of capitalized terms
used in this Prospectus Summary and elsewhere in this Prospectus are defined is
set forth in the "Index of Certain Terms for Prospectus" herein.
THE COMPANY
GENERAL
The Company is a builder of single-family homes with domestic operations in
seven western states and international operations in France and Mexico.
Domestically, the Company is the largest home builder west of the Mississippi
River, delivering more single-family homes than any other builder in the region.
Founded in 1957, the Company builds innovatively designed homes that cater
primarily to first-time home buyers, generally in medium-sized developments
close to major metropolitan areas. Internationally, the Company is among the
largest builders in greater metropolitan Paris, France, based on the number of
homes delivered. In France, the Company also builds high-density residential
properties, such as condominium and apartment complexes. The Company provides
mortgage banking services to domestic home buyers through its wholly owned
subsidiary, Kaufman and Broad Mortgage Company.
As used herein, the term "Company" refers to Kaufman and Broad Home
Corporation and its subsidiaries, unless otherwise expressly stated or the
context indicates otherwise.
RECENT DEVELOPMENTS
During the second quarter of 1998, the Company acquired three privately
held home builders with regional operations in certain key markets. On March 19,
1998, the Company acquired all of the issued and outstanding capital stock of
Houston-based Hallmark Residential Group, Inc. ("Hallmark") for approximately
$54 million, including the assumption of debt. Hallmark builds single-family
homes in Houston, San Antonio and Austin, Texas under the trade names of Dover
Homes and Ideal Builders. The Company acquired substantially all of the assets
of Denver-based PrideMark Homebuilding Group ("PrideMark") on March 23, 1998 for
approximately $65 million, including the assumption of trade liabilities and
debt. PrideMark builds single-family homes in Denver, Colorado. On April 9,
1998, the Company acquired all of the issued and outstanding capital stock of
Estes Homebuilding Co. ("Estes") for approximately $48 million, including the
assumption of debt. Estes builds single-family homes in Phoenix and Tucson,
Arizona. See "The Company -- Recent Developments." The Company currently
estimates that the acquisitions in aggregate will produce incremental unit
deliveries and revenues in fiscal 1998 of approximately 1,500 and $175 million,
respectively, and will be accretive to 1998 earnings per share, subject to the
assumptions and other considerations set forth in "The Company -- Recent
Developments."
Company-wide net orders for the second quarter ended May 31, 1998 increased
43.1% from the same period a year ago. Domestic net orders were up 36.1% from
the prior year's quarter, including a 5.8% decrease in California net orders due
to a 17.1% decline in active communities in the state which was partially offset
by faster sales rates. The impact of El Nino rains on the Company's deliveries
in the first two quarters of 1998 was only modest, with approximately 10 to 20
unit deliveries in each quarter delayed to each subsequent quarter. The Company
believes a similar number of deliveries may be postponed in the third quarter
due to land development delays caused by the El Nino rains during the first half
of 1998. Nonetheless, the Company anticipates that, assuming a return to more
normal weather patterns in California, all such delayed deliveries
8
<PAGE> 10
will be recorded before the end of the 1998 fiscal year, and, accordingly,
expects that El Nino conditions will have no material effect on year-end
revenues. Net orders from non-California domestic operations (Arizona, Colorado,
Nevada, New Mexico, Texas and Utah) (collectively, "Other U.S.") for the second
quarter of 1998 increased 72.9% from the second quarter of 1997. Excluding 539
aggregate net orders attributable to recently completed acquisitions, the
percentage increases in net orders for the 1998 second quarter versus the prior
year for Other U.S., total U.S., and the Company were 40.9%, 19.1% and 27.3%,
respectively. In France, net orders were up 137.4% for the second quarter of
1998 compared to the prior year quarter, attributable in part to the Company's
acquisition of SMCI in the third quarter of 1997.
9
<PAGE> 11
THE TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to (i) a declaration of trust executed by the Company, as Sponsor (the
"Sponsor"), and the trustees of the Trust (the "KBHC Trustees") and (ii) the
filing of a certificate of trust with the Secretary of State of the State of
Delaware. Such declaration of trust will be amended and restated in its entirety
(as so amended and restated, the "Declaration") substantially in the form filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part. The Declaration will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Trust exists
for the exclusive purposes of (i) issuing the Trust Securities, which represent
undivided beneficial ownership interests in the assets of the Trust, (ii)
investing the gross proceeds of the Trust Securities in the Debentures and (iii)
engaging in only those other activities necessary or incidental thereto. See
"The Trust."
THE OFFERING
Securities Offered......... 15,000,000 FELINE PRIDES, consisting of
Income PRIDES and Growth PRIDES, and
separate Capital Securities.
Capital Securities will be initially issued and
held as a component of the Income PRIDES.
Issuers.................... Kaufman and Broad Home Corporation and KBHC
Financing I.
Listing of the Income
PRIDES
and Growth PRIDES........ Application has been made to list the Income PRIDES
and the Growth PRIDES on the NYSE, subject to
official notice of issuance. Unless and until
substitution has been made as described in
"Description of the FELINE PRIDES -- Creating
Growth PRIDES" or "-- Creating Income PRIDES,"
neither the Capital Security component of an Income
PRIDES nor the Treasury Security component of a
Growth PRIDES will trade separately from such
Income PRIDES or Growth PRIDES, and such Capital
Security component will trade as a unit with the
Purchase Contract component of the Income PRIDES
and such Treasury Security component will trade as
a unit with the Purchase Contract component of the
Growth PRIDES. If the Capital Securities are
separately traded to a sufficient extent that the
applicable exchange listing requirements are met,
the Company will endeavor to cause such securities
to be listed on the exchange on which the Income
PRIDES and the Growth PRIDES are then listed,
including, if applicable, the NYSE. See
"Underwriting."
NYSE Symbol of
Common Stock............. "KBH"
Use of Proceeds............ All of the proceeds from the sale of the Income
PRIDES, the Capital Securities that are not
components of the Income PRIDES and the Common
Securities will be invested by the Trust in
Debentures of the Company. The Company currently
anticipates using substantially all of the net
proceeds from the sale of the Debentures (net of
amounts paid to purchase the Common Securities),
estimated to be approximately $ million
(approximately $ million if the
Underwriters' over-allotment options are exercised
in full) (in each case after deducting the
underwriting commission and estimated expenses
payable by the Company), for general corporate
purposes, including potential future acquisitions.
Pending application for such purposes, the Company
intends to use such net proceeds to repay
outstanding indebtedness under the Company's
unsecured revolving credit facility (the "Credit
Facility"). All of the proceeds from the sale of
the Growth PRIDES will be used to purchase the
underlying Treasury Securities to be transferred to
10
<PAGE> 12
holders of the Growth PRIDES pursuant to the terms
thereof, and the Company will receive no proceeds
from the sale of the Growth PRIDES.
Components of
FELINE PRIDES............ The 15,000,000 FELINE PRIDES offered hereby will
initially consist of (A) units referred
to as Income PRIDES and (B) units
referred to as Growth PRIDES. Each Income PRIDES
will initially consist of a unit with a Stated
Amount of $10 comprised of (a) a Purchase Contract
under which (i) the holder will purchase from the
Company not later than the Purchase Contract
Settlement Date, for an amount of cash equal to the
Stated Amount, a number of newly issued shares of
Common Stock equal to the Settlement Rate, and (ii)
the Company will pay to the holder Contract
Adjustment Payments, if any, at the rate of % of
the Stated Amount per annum, and (b) a beneficial
ownership interest in a Capital Security having a
stated liquidation amount equal to $10 representing
an undivided beneficial ownership interest in the
assets of the Trust.
The Company may at any time dissolve the Trust and,
after satisfaction of liabilities to creditors of
the Trust, if any, cause the Debentures to be
distributed to the holders of the Capital
Securities. References herein to Capital
Securities, unless the context otherwise requires,
mean (i) the Capital Securities or (ii) the
Debentures which have been delivered to the holders
of the Capital Securities upon dissolution of the
Trust.
In addition, as described below, upon the
occurrence of a Tax Event (as defined herein) prior
to the Purchase Contract Settlement Date, the
Company may at its option cause the Debentures
(and, thus, the Capital Securities) to be redeemed
at the Redemption Price and the Treasury Portfolio
will be substituted for the redeemed Capital
Securities in the manner described herein to secure
the Income PRIDES holders' obligations under their
related Purchase Contracts. The distribution rate
and the payment dates for the Capital Securities
will be the same as the interest rate and the
payment dates for the Debentures, which will be the
sole assets of the Trust.
As long as a FELINE PRIDES is in the form of an
Income PRIDES, the related Capital Securities or
the Treasury Portfolio, as applicable, will be
pledged pursuant to a pledge agreement (the "Pledge
Agreement"), between the Company, The Bank of New
York, as collateral agent for the Company (together
with any successor thereto in such capacity, the
"Collateral Agent") and the Purchase Contract Agent
(as defined herein), to secure the holder's
obligation to purchase Common Stock under the
related Purchase Contract.
Each Growth PRIDES will consist of a unit with a
Stated Amount of $10 comprised of (a) a Purchase
Contract under which (i) the holder will purchase
from the Company not later than the Purchase
Contract Settlement Date, for an amount of cash
equal to the Stated Amount of such Growth PRIDES, a
number of newly issued shares of Common Stock equal
to the Settlement Rate and (ii) the Company will
pay to the holder Contract Adjustment Payments, if
any, at the rate of % of the Stated Amount per
annum, and (b) a 1/100 undivided beneficial
ownership interest in a zero-coupon U.S. Treasury
Security with a principal amount at maturity equal
to $1,000 and which matures on the Business Day
immediately preceding the Purchase Contract
Settlement Date.
The FELINE PRIDES will be issued under a Purchase
Contract Agreement (the "Purchase Contract
Agreement"), between the Com-
11
<PAGE> 13
pany and The First National Bank of Chicago, as
agent for the holders of the FELINE PRIDES
(together with any successor thereto in such
capacity, the "Purchase Contract Agent").
Stated Amount.............. $10 per Income PRIDES and Growth PRIDES.
Creating Growth PRIDES..... Each holder of Income PRIDES may substitute for the
related Capital Securities or the Applicable
Ownership Interest of the Treasury Portfolio, as
the case may be, held by the Collateral Agent
zero-coupon U.S. Treasury Securities in an
aggregate principal amount at maturity equal to the
aggregate stated liquidation amount of such Capital
Securities, thereby creating Growth PRIDES. Such
substitution may be made at any time on or prior to
the fifth Business Day immediately preceding the
Purchase Contract Settlement Date but only in
integral multiples of 100 Income PRIDES; provided,
however, if the Treasury Portfolio has become a
component of the Income PRIDES, holders of Income
PRIDES may make such substitutions only in integral
multiples of 4,000,000 Income PRIDES at any time on
or prior to the second Business Day immediately
preceding the Purchase Contract Settlement Date.
Holders wishing to make such substitution must hold
at least 4,000,000 Income PRIDES. In the event that
Contract Adjustment Payments, if any, are at a
higher rate for Growth PRIDES than for Income
PRIDES, holders of Income PRIDES wishing to create
Growth PRIDES also will be required to deliver cash
in an amount equal to the excess of the Contract
Adjustment Payments, if any, that would have
accrued since the last Payment Date to which
Contract Adjustment Payments have been paid to the
date of substitution on the Growth PRIDES being
created by such holders, over the Contract
Adjustment Payments that have accrued over the same
time period on the related Income PRIDES.
Creating Income PRIDES..... At any time on or prior to the fifth Business Day
immediately preceding the Purchase Contract
Settlement Date, a holder of Growth PRIDES will
have the right to create Income PRIDES by
delivering 100 Growth PRIDES to the Purchase
Contract Agent plus 100 Capital Securities (which
Capital Securities must be purchased by such holder
in the open market at such holder's expense) to the
Collateral Agent in exchange for 100 Income PRIDES
and the release of the related Treasury Security to
such holder; provided, however, if a Tax Event
Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury Portfolio
has become a component of the Income PRIDES,
holders of Growth PRIDES may make such substitution
(but using the Applicable Ownership Interest of the
Treasury Portfolio rather than Capital Securities)
only in integral multiples of 4,000,000 Growth
PRIDES at any time on or prior to the second
Business Day immediately preceding the Purchase
Contract Settlement Date. Holders wishing to make
such substitution must hold at least 4,000,000
Growth PRIDES. Such Capital Securities or the
appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, will be
pledged with the Collateral Agent to secure the
holder's obligation to purchase Common Stock under
the related Purchase Contracts.
Current Payments........... Holders of Income PRIDES will be entitled to
receive aggregate cash distributions at a rate of
% of the Stated Amount per annum, payable
quarterly in arrears, consisting of cumulative cash
distributions on the related Capital Securities or
on the Treasury Portfolio, as applicable, payable
at the rate of % of the Stated Amount per annum,
and
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<PAGE> 14
Contract Adjustment Payments, if any, payable by
the Company at the rate of % of the Stated
Amount per annum, subject (in the case of both the
distributions on the Capital Securities and of the
Contract Adjustment Payments, if any) to the
Company's right to defer the payment of such
amounts. The ability of the Trust to make the
quarterly distributions on the related Capital
Securities will be solely dependent upon the
receipt of corresponding interest payments from the
Company on the Debentures. The Company's
obligations with respect to the Debentures will be
senior and unsecured and will rank on a parity in
right of payment with all other senior unsecured
obligations of the Company. If a Tax Event
Redemption has occurred, quarterly distributions to
the holders of Income PRIDES will not be deferred.
Holders of Growth PRIDES will be entitled to
receive quarterly cash distributions of Contract
Adjustment Payments, if any, payable by the Company
at the rate of % of the Stated Amount per
annum, subject to the Company's rights of deferral
described herein. In addition, OID will accrue on
the related Treasury Securities.
Contract Adjustment
Payments................. Contract Adjustment Payments, if any, will be fixed
at a rate per annum of % of the Stated Amount
per Purchase Contract in the case of Income PRIDES,
and % of the Stated Amount per Purchase
Contract in the case of Growth PRIDES. Contract
Adjustment Payments will be specified as a
component of the distributions on the Income PRIDES
or Growth PRIDES only if and to the extent that the
distribution rate on the Capital Securities or the
yield on the Treasury Securities, as determined on
the date on which the Income PRIDES or Growth
PRIDES are priced for sale, is less than the
aggregate distribution rate or yield required on
such date for the offer and sale of the Income
PRIDES or Growth PRIDES at the price to public
specified on the cover page of this Prospectus. The
Contract Adjustment Payments, if any, will be
subordinated and junior in right of payment to the
Senior Indebtedness. See "Description of the
Purchase Contracts -- Contract Adjustment
Payments."
Option to Defer
Current Payments......... The Company has the right at any time, and from
time to time, limited to a period not extending
beyond the maturity date of the Debentures, to
defer the interest payments due on the Debentures
(each, an "Extension Period"). As a consequence of
such deferral, the corresponding quarterly
distributions to holders of Capital Securities and
Income PRIDES would be deferred (but despite such
deferral, would continue to accrue, compounded
quarterly, at the rate of % per annum through
and including , 2001, and at the Reset
Rate thereafter). The Company also has the right to
defer the payment of Contract Adjustment Payments,
if any, on the related Purchase Contracts until no
later than the Purchase Contract Settlement Date;
however, such Deferred Contract Adjustment
Payments, if any, would continue to accrue at the
rate of % per annum (such rate to be equal to
the higher of (i) the rate which would accrue on
Income PRIDES for such payments and (ii) the rate
which would accrue on Growth PRIDES for such
payments) until paid. See "Description of the
Purchase Contracts -- Contract Adjustment
Payments." If interest payments on the Debentures
or the Contract Adjustment Payments, if any, are
deferred, the Company has agreed, among other
things, not to declare or pay any dividend on or
repurchase its capital stock (subject to certain
exceptions) during the
13
<PAGE> 15
period of such deferral. If a Tax Event Redemption
has occurred prior to the Purchase Contract
Settlement Date and the Treasury Portfolio has
become a component of the Income PRIDES, quarterly
distributions on the appropriate Applicable
Ownership Interest of the Treasury Portfolio as a
portion of the cumulative quarterly distributions
to the holders of Income PRIDES will not be
deferred. See "Risk Factors -- Right to Defer
Current Payments."
In the event that the Company elects to defer the
payment of Contract Adjustment Payments, if any, on
the related Purchase Contracts until the Purchase
Contract Settlement Date, each holder of the
related Income PRIDES or Growth PRIDES will receive
on the Purchase Contract Settlement Date in respect
of such Deferred Contract Adjustment Payments, in
lieu of a cash payment, a number of shares of
Common Stock equal to (x) the aggregate amount of
Deferred Contract Adjustment Payments payable to
such holder divided by (y) the Applicable Market
Value (as defined herein). See "Description of the
Purchase Contracts -- Option to Defer Contract
Adjustment Payments."
Payment Dates.............. Subject to the deferral provisions described
herein, the current payments described above in
respect of the Income PRIDES and Growth PRIDES will
be payable quarterly in arrears on February 16, May
16, August 16 and November 16 of each year,
commencing , 1998, through and including
(i) in the case of the Contract Adjustment
Payments, if any, the earlier of the Purchase
Contract Settlement Date or the most recent such
quarterly date on or prior to any early settlement
of the related Purchase Contracts and (ii) in the
case of Capital Securities that are components of
Income PRIDES, the most recent such quarterly date
on or prior to the earlier of the Purchase Contract
Settlement Date and the date the liquidation amount
of such Capital Security, together with all
accumulated and unpaid distributions thereon (each,
a "Payment Date") is paid in full.
Remarketing................ Unless a Tax Event Redemption has occurred,
pursuant to a remarketing agreement (the
"Remarketing Agreement") among the Company, the
Trust, the Purchase Contract Agent and a nationally
recognized investment banking firm chosen by the
Company (the "Remarketing Agent"), and subject to
the terms of a Remarketing Underwriting Agreement
to be dated as of the third Business Day
immediately preceding the Purchase Contract
Settlement Date among such parties (the
"Remarketing Underwriting Agreement"), the Capital
Securities of such Income PRIDES holders who have
failed to notify the Purchase Contract Agent on or
prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date of
their intention to settle the related Purchase
Contracts with separate cash will be remarketed on
the third Business Day immediately preceding the
Purchase Contract Settlement Date. The Remarketing
Agent will use its reasonable efforts to remarket
such Capital Securities (bearing the Reset Rate) on
such date for settlement on the Purchase Contract
Settlement Date at a price of approximately 100.75%
of the aggregate stated liquidation amount of such
Capital Security, plus accrued and unpaid
distributions (including any deferred
distributions), if any, thereon. The portion of the
proceeds from such remarketing equal to the
aggregate stated liquidation amount of such Capital
Securities will be automatically applied to satisfy
in full such Income PRIDES holders' obligations to
purchase Common Stock under the related Purchase
Contracts. In addition, after deducting as the
Remarketing Fee an amount not exceed-
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<PAGE> 16
ing 50 basis points (.50%) of the aggregate stated
liquidation amount of the remarketed Capital
Securities from any amount of such proceeds in
excess of the aggregate stated liquidation amount
of the remarketed Capital Securities plus any
accrued and unpaid distributions (including any
deferred distributions), the Remarketing Agent will
remit the remaining portion of the proceeds, if
any, for the benefit of such holder. Income PRIDES
holders whose Capital Securities are so remarketed
will not otherwise be responsible for any
Remarketing Fee in connection therewith. If,
despite using its reasonable efforts, the
Remarketing Agent cannot remarket the related
Capital Securities (other than to the Company) of
such holders of Income PRIDES at a price not less
than 100% of the aggregate stated liquidation
amount of such Capital Securities plus accrued and
unpaid distributions, including deferred
distributions, if any, or if the remarketing shall
not have occurred because a condition precedent to
the remarketing shall not have been fulfilled
thereby resulting in a Failed Remarketing, the
Company will exercise its rights as a secured party
to dispose of the Capital Securities in accordance
with applicable law and to satisfy in full, from
the proceeds of such disposition, such holder's
obligation to purchase Common Stock under the
related Purchase Contracts; provided, that if the
Company exercises such rights as a secured party
with respect to such Capital Securities, any
accrued and unpaid distributions (including any
deferred distributions) on such Capital Securities
will be paid in cash by the Company to the holder
of record of such Capital Securities. The Company
will cause a notice of such Failed Remarketing to
be published on the second Business Day immediately
preceding the Purchase Contract Settlement Date.
Holders of Capital Securities that are not
components of Income PRIDES may elect, in the
manner described herein, to have their Capital
Securities remarketed by the Remarketing Agent. It
is currently anticipated that Merrill Lynch,
Pierce, Fenner & Smith Incorporated will be the
Remarketing Agent. See "Description of the Purchase
Contracts -- Remarketing."
Settlement of Purchase
Contracts................ The Purchase Contract Settlement Date is
, 2001. On the Business Day immediately
preceding the Purchase Contract Settlement Date,
unless a holder of Income PRIDES or Growth PRIDES
(i) has settled the related Purchase Contracts
through the early delivery of cash to the Purchase
Contract Agent in the manner described herein, (ii)
in the case of Income PRIDES, has settled the
related Purchase Contracts with separate cash on
the Business Day prior to the Purchase Contract
Settlement Date pursuant to prior notification to
the Purchase Contract Agent, (iii) in the case of
Income PRIDES, has had the Capital Securities
related to such holder's Purchase Contracts
remarketed in the manner described herein in
connection with settling such Purchase Contracts
(and such remarketing has not "failed" (as
described herein)), or (iv) an event described
under "Description of the Purchase
Contracts -- Termination" has occurred, then (A) in
the case of Income PRIDES (unless a Tax Event
Redemption has occurred), the Company will exercise
its rights as a secured party to dispose of the
related Capital Securities in accordance with
applicable law and will satisfy in full from the
proceeds of such disposition, such holder's
obligation to purchase Common Stock under the
related Purchase Contracts, and (B) in the case of
Growth PRIDES or Income PRIDES (if a Tax Event
Redemption has occurred) the principal amount of
the related Treasury Securities or the appropriate
Applicable Ownership
15
<PAGE> 17
Interest of the Treasury Portfolio, as applicable,
when paid at maturity, will automatically be
applied pursuant to the exercise of such rights by
the Company to satisfy in full such holder's
obligation to purchase Common Stock under the
related Purchase Contracts.
In the event that a holder of either Income PRIDES
or Growth PRIDES effects the early settlement of
the related Purchase Contracts through the delivery
of cash or, in the case of an Income PRIDES,
settles such Purchase Contracts with cash on the
Business Day immediately preceding the Purchase
Contract Settlement Date, the related Capital
Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or the Treasury
Securities, as the case may be, will be released to
such holder as described herein.
Settlement Rate............ The number of newly issued shares of Common Stock
issuable upon settlement of each Purchase Contract
on the Purchase Contract Settlement Date (the
"Settlement Rate") will be calculated as follows
(subject to adjustment under certain
circumstances): (a) if the Applicable Market Value
is equal to or greater than the Threshold
Appreciation Price of $ which is
approximately % above the Reference Price, the
Settlement Rate (which will be equal to the Stated
Amount divided by the Threshold Appreciation Price)
will be ; (b) if the Applicable Market Value
is less than the Threshold Appreciation Price but
greater than the Reference Price, the Settlement
Rate will be equal to the Stated Amount divided by
the Applicable Market Value; and (c) if the
Applicable Market Value is less than or equal to
the Reference Price, the Settlement Rate (which
will be equal to the Stated Amount divided by the
Reference Price) will be . "Applicable
Market Value" means the average of the Closing
Price (as defined herein) per share of Common Stock
on each of the twenty consecutive Trading Days (as
defined herein) ending on the third Trading Day
immediately preceding the Purchase Contract
Settlement Date. See "Description of the Purchase
Contracts -- General."
Early Settlement........... A holder of Income PRIDES may settle the related
Purchase Contracts at any time on or prior to the
fifth Business Day immediately preceding the
Purchase Contract Settlement Date in the manner
described herein, but only in integral multiples of
100 Income PRIDES; provided, however, if a Tax
Event Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury Portfolio
has become a component of the Income PRIDES,
holders of Income PRIDES may settle early only in
integral multiples of 4,000,000 Income PRIDES, at
any time on or prior to the second Business Day
immediately preceding the Purchase Contract
Settlement Date. A holder of Growth PRIDES may
settle the related Purchase Contracts at any time
on or prior to the second Business Day immediately
preceding the Purchase Contract Settlement Date in
the manner described herein (in either case, an
"Early Settlement"). Upon Early Settlement, (i) the
holder's rights to receive Deferred Contract
Adjustment Payments, if any, on the Purchase
Contracts being settled will be forfeited, (ii) the
holder's right to receive future Contract
Adjustment Payments, if any, in respect of such
Purchase Contracts will terminate and (iii) no
adjustment will be made to or for the holder on
account of Deferred Contract Adjustment Payments or
any amount accrued in respect of Contract
Adjustment Payments, if any. See "Description of
the Purchase Contracts -- Early Settlement."
Termination................ The Purchase Contracts, and the rights and
obligations of the Company and the holders of the
FELINE PRIDES thereunder (including the
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<PAGE> 18
right thereunder to receive accrued or Deferred
Contract Adjustment Payments, if any, and the right
and obligation to purchase Common Stock), will
automatically terminate upon the occurrence of
certain events of bankruptcy, insolvency or
reorganization with respect to the Company. Upon
such termination, the Collateral Agent will release
the related Capital Securities, the appropriate
Applicable Ownership Interest of the Treasury
Portfolio or the Treasury Securities, as the case
may be, held by it to the Purchase Contract Agent
for distribution to the holders, subject in the
case of the Treasury Portfolio to the Purchase
Contract Agent's disposition of the subject
securities for cash, and the payment of such cash
to the holders, to the extent that the holder would
otherwise have been entitled to receive less than
$1,000 principal amount at maturity of any such
security. Upon such termination, there may be a
delay before such release and distribution. In the
event that the Company becomes the subject of a
case under the United States Bankruptcy Code of
1978, as amended (the "Bankruptcy Code"), such
delay may occur as a result of the automatic stay
under the Bankruptcy Code and continue until such
automatic stay has been lifted. See "Description of
the Purchase Contracts -- Termination."
Voting and Certain
Other Rights............. Holders of Capital Securities will not be entitled
to vote to appoint, remove or replace, or to
increase or decrease the number of Regular Trustees
(as defined herein) and will generally have no
voting rights except in the limited circumstances
described under "Description of Capital
Securities -- Voting Rights." Holders of Purchase
Contracts forming part of the Income PRIDES or
Growth PRIDES, in their capacities as such holders,
will have no voting or other rights in respect of
the Common Stock.
Capital Securities
Amount and Designation..... % Capital Securities (liquidation amount $10 per
Capital Security), representing undivided
beneficial ownership interests in the assets of the
Trust.
Distributions.............. Distributions on the Capital Securities that are
components of Income PRIDES will constitute a
portion of the distributions on the Income PRIDES,
will be cumulative and will accrue from the first
date of issuance of the Capital Securities. Such
distributions will be payable initially at the
annual rate of % of the liquidation amount of
$10 per Capital Security to, but excluding, the
Purchase Contract Settlement Date, and in the case
of Capital Securities that remain outstanding on
and after the Purchase Contract Settlement Date,
from the Purchase Contract Settlement Date to, but
excluding, , 2003, at the Reset Rate,
in each case, when, as and if funds are available
for payment. Subject to the distribution deferral
provisions, distributions will be payable quarterly
in arrears on each February 16, May 16, August 16
and November 16, commencing , 1998.
Market Rate Reset.......... Unless a Tax Event Redemption has occurred, the
interest rate on the Debentures (and therefore the
distribution rate on the Capital Securities) on and
after the Purchase Contract Settlement Date will be
reset on the third Business Day immediately
preceding the Purchase Contract Settlement Date to
the Reset Rate determined by the Reset Agent as the
rate the Capital Securities should bear in order
for a Capital Security to have an approximate
market value of 100.75% of the Stated Amount on the
third Business Day immediately preceding the
Purchase Contract
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<PAGE> 19
Settlement Date, provided, that the Company may
limit such Reset Rate to be no higher than the rate
on the Two-Year Benchmark Treasury plus 300 basis
points (3%) and, provided further that the Reset
Rate may not exceed the maximum rate permitted by
applicable law. It is possible that such market
value may be less than 100.75%, particularly where
the Reset Spread is limited to the maximum of 3% or
if the Reset Rate were to be limited by applicable
law. The Reset Rate will be determined by Merrill
Lynch, Pierce, Fenner & Smith Incorporated as the
Reset Agent. See "Description of the Capital
Securities -- Market Rate Reset."
Optional Remarketing....... Pursuant to the Remarketing Agreement and subject
to the terms of a Remarketing Underwriting
Agreement, on or prior to the fifth Business Day
immediately preceding the Purchase Contract
Settlement Date, but no earlier than the Payment
Date immediately preceding the Purchase Contract
Settlement Date, holders of separate Capital
Securities that are not components of Income PRIDES
may elect to have their Capital Securities
remarketed by delivering their Capital Securities
along with a notice of such election to The Bank of
New York, as custodial agent (the "Custodial
Agent"). Holders of Capital Securities electing to
have their Capital Securities remarketed will also
have the right to withdraw such election on or
prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date.
Distribution Deferral
Provisions................. The ability of the Trust to pay distributions on
the Capital Securities will be solely dependent on
the receipt of interest payments from the Company
on the Debentures. The Company will have the right
at any time, and from time to time, to defer the
interest payments due on the Debentures for
successive extension periods (the "Extension
Periods") limited, in the aggregate, to a period
not extending beyond the maturity date of the
Debentures. The corresponding quarterly
distributions on the Capital Securities would be
deferred by the Trust (but would continue to
accrue, compounded quarterly, at the rate of %
per annum through and including ,
2001, and at the Reset Rate thereafter) until the
end of any such Extension Period. If a deferral of
an interest payment occurs, the holders of the
Capital Securities will be required to accrue OID
for United States federal income tax purposes in
advance of the receipt of any corresponding cash
distribution with respect to such deferred interest
payment. See "Risk Factors -- Right to Defer
Current Payments," "Description of the Capital
Securities -- Distributions" and "Federal Income
Tax Consequences -- Income PRIDES -- Capital
Securities -- Interest Income and Original Issue
Discount."
Rights Upon Deferral of
Distribution............. During any period in which interest payments on the
Debentures are deferred, interest will accrue on
the Debentures (compounded quarterly) and the
corresponding quarterly distributions on the
Capital Securities will continue to accrue,
compounded quarterly, at the rate of % per annum
through and including , 2001, and at
the Reset Rate thereafter.
Liquidation Amount......... In the event of any liquidation of the Trust, and
after satisfaction of liabilities to creditors of
the Trust, if any, holders will be entitled to
receive Debentures in an aggregate principal amount
equal to the aggregate stated liquidation amount of
the Capital Securities.
Put Option Upon a Failed
Remarketing.............. If a Failed Remarketing has occurred, each holder
of Capital Securities (or, following the
distribution of the Debentures upon a dissolution
of the Trust as described herein, each holder of
such Debentures), holding such
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<PAGE> 20
Capital Securities (or Debentures, as the case may
be), following the Purchase Contract Settlement
Date will have the right, in the case of Capital
Securities, to require the Trust to distribute
their pro rata share of the Debentures to the
Exchange Agent who will put such Debentures to the
Company on behalf of such holders (or, in the case
of persons who hold the Debentures directly, such
persons shall have the right to put such Debentures
directly to the Company) on , 2001,
upon at least three Business Days' prior notice, at
a price equal to the principal amount, plus accrued
and unpaid interest (including deferred interest),
if any, thereon.
Distribution of
Debentures................. In certain circumstances involving an Investment
Company Event (as defined herein), the Trust would
be dissolved, with the result that, after
satisfaction of liabilities to creditors of the
Trust, if any, Debentures with an aggregate
principal amount equal to the aggregate stated
liquidation amount of the Capital Securities would
be distributed to the holders of the Capital
Securities, including the Collateral Agent, on a
pro rata basis. In such event, an Income PRIDES
would thereafter consist of beneficial ownership of
a Debenture with a principal amount equal to $10
and the related Purchase Contract, and such
Debenture would otherwise be treated as if it were
a Capital Security. See "Description of the Capital
Securities--Distribution of the Debentures."
Tax Event Redemption....... The Debentures (and, thus, the Trust Securities)
are redeemable, at the option of the Company, on
not less than 30 days or more than 60 days prior
written notice, in whole but not in part, upon the
occurrence and continuation of a Tax Event under
the circumstances described herein at a Redemption
Price equal to, for each Debenture, the Redemption
Amount together with accrued and unpaid interest
(including deferred interest). See "Description of
the Debentures -- Tax Event Redemption." If the
Company so redeems all of the Debentures, the Trust
must redeem all of the Trust Securities and pay in
cash such Redemption Price to the holders of such
Trust Securities. If such Tax Event Redemption
occurs prior to the Purchase Contract Settlement
Date, the Redemption Price payable in liquidation
of any Income PRIDES holders' interest in the Trust
will be distributed to the Collateral Agent, who in
turn will apply an amount equal to the Redemption
Amount of such Redemption Price to purchase the
Treasury Portfolio on behalf of the holders of
Income PRIDES and remit the remaining portion, if
any, of such Redemption Price to the Purchase
Contract Agent for payment to holders of such
Income PRIDES. The Treasury Portfolio will be
substituted for the Capital Securities and will be
pledged with the Collateral Agent to secure such
Income PRIDES holders' obligations to purchase the
Common Stock under their Purchase Contracts.
Other than in the event of a Tax Event Redemption,
the Company will not have the ability to redeem the
Debentures prior to their stated maturity date. See
"Description of the Debentures -- Tax Event
Redemption."
Guarantee.................. The Company will irrevocably and unconditionally
guarantee pursuant to the Guarantee, on a senior
unsecured basis, the payment in full of (i)
distributions on the Trust Securities to the extent
the Trust has funds available therefor, (ii) the
redemption price of Trust Securities in respect of
which the related Debentures have been repurchased
by the Company on the Purchase Contract Settlement
Date, to the extent the Trust has funds available
therefor, and (iii) generally, the liquidation
amount of the Trust Securities or the Redemption
Price upon a Tax Event Redemption, to the extent
the Trust has assets available for
19
<PAGE> 21
distribution to holders of Trust Securities in the
event of a dissolution of the Trust. The Company's
obligations under the Guarantee will be a senior
unsecured obligation of the Company and will rank
on a parity with all of the Company's other senior
unsecured obligations. See "Description of the
Guarantee."
Debentures................. Unless a Tax Event Redemption has occurred, the
Debentures will mature on , 2003, and
will bear interest initially at the rate of %
per annum, payable quarterly in arrears on each
February 16, May 16, August 16 and November 16,
commencing , 1998. The interest rate on
the Debentures, and the distribution rate on the
Capital Securities that remain outstanding after
the Purchase Contract Settlement Date, will be
reset on the third Business Day immediately
preceding the Purchase Contract Settlement Date to
the Reset Rate determined by the Reset Agent. See
"Description of Debentures -- Interest." Interest
payments on the Debentures may be deferred from
time to time by the Company for successive
Extension Periods not extending, in the aggregate,
beyond the stated maturity date of the Debentures.
During any Extension Period, interest at the rate
of % per annum through and including
, 2001, and at the Reset Rate thereafter
would continue to accrue and compound quarterly.
Upon the termination of any Extension Period and
the payment of all amounts then due, the Company
may commence a new Extension Period, provided such
new Extension Period does not extend beyond the
stated maturity date of the Debentures. No interest
shall be due during an Extension Period until the
end of such period. An Extension Period may only
end on a Payment Date. During an Extension Period,
the Company will be prohibited (subject to certain
exceptions) from paying dividends on or purchasing
any of its capital stock and making certain other
restricted payments until quarterly interest
payments are resumed and all amounts then due on
the Debentures are paid. The Debentures will be
senior unsecured obligations of the Company and
will rank on a parity with all of the Company's
other senior unsecured obligations. See
"Description of the Debentures."
Federal Income Tax
Consequences Related to
the Income PRIDES, Growth
PRIDES and Capital
Securities............... Provided the Company does not exercise its right to
defer interest on the Debentures, a beneficial
owner of Income PRIDES and Capital Securities will
include in gross income its pro rata share of the
stated interest on the Debentures when such
interest income is paid or accrued in accordance
with its regular method of tax accounting. The
Company intends to report the Contract Adjustment
Payments, if any, as income to holders of Income
PRIDES and Growth PRIDES, but holders should
consult their tax advisors concerning the
possibility that the Contract Adjustment Payments,
if any, may be treated as loans, purchase price
adjustments, rebates or option premiums rather than
being includible in income on a current basis. A
beneficial owner of Growth PRIDES will be required
to include in gross income its allocable share of
any OID with respect to the Treasury Securities as
it accrues on a constant yield to maturity basis.
If a Tax Event Redemption has occurred, a
beneficial owner of Income PRIDES will be required
to include in gross income its allocable share of
OID on the Treasury Portfolio as it accrues on a
constant yield to maturity basis. See "Federal
Income Tax Consequences."
20
<PAGE> 22
EXPLANATORY DIAGRAMS
For illustrative purposes only, the following diagrams demonstrate some of
the key features of Purchase Contracts, Income PRIDES, Growth PRIDES and Capital
Securities and the transformation of Income PRIDES into Growth PRIDES and
Capital Securities. The hypothetical percentages, coupon rates and time periods
below are for illustration only. There can be no assurance that the actual
percentage of shares delivered will be limited by the range of hypothetical
percentages shown. In addition, there can be no assurance that payment rates on
the FELINE PRIDES will be at the levels set forth below or that Contract
Adjustment Payments will constitute a component of Income PRIDES or Growth
PRIDES.
The following diagrams and the related text are not complete, are general
in nature and are qualified in their entirety by more detailed information
appearing elsewhere in this Prospectus and in documents which are on file with
the Commission.
FELINE PRIDES PURCHASE CONTRACT
- Income PRIDES and Growth PRIDES both include a Purchase Contract under
which the investor agrees to purchase shares of Common Stock of the
Company at the end of three years. In addition, such Purchase Contracts
include specified Contract Adjustment Payments, if any, shown in the
diagrams on the following pages.
PURCHASE CONTRACT
[PURCHASE CONTRACT DIAGRAM]
- ---------------
* For each of the percentage categories shown, the percentage of shares to be
delivered at maturity to an investor in Income PRIDES or Growth PRIDES is
determined by dividing the related number of shares to be delivered, as
indicated in the footnote for each such category, by an amount equal to the
Stated Amount divided by the Reference Price.
** The number of shares to be delivered will be calculated by dividing the
Stated Amount by the Reference Price.
*** The number of shares to be delivered will be calculated by dividing the
Stated Amount by the Applicable Market Value.
**** The number of shares to be delivered will be calculated by dividing the
Stated Amount by the Threshold Appreciation Price.
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<PAGE> 23
INCOME PRIDES
- Income PRIDES consist of two components as described below:
[INCOME PRIDES DIAGRAM]
- The investor owns the Capital Security but will pledge it to the Company
to secure its obligations under the Purchase Contract.
GROWTH PRIDES
- Growth PRIDES consist of two components as described below:
[GROWTH PRIDES DIAGRAM]
- The investor owns the zero-coupon Treasury Security but will pledge it to
the Company to secure its obligations under the Purchase Contract.
22
<PAGE> 24
CAPITAL SECURITIES
- Capital Securities have the terms described below:
[Capital Securities Diagram]
- The holder of Capital Securities that are a component of Income PRIDES
has an option at the end of year 3 to either:
c Cash settle the Purchase Contract for $10 and receive Capital
Securities whose rate has been reset at the end of year 3, or
c Cash settle the Purchase Contract by allowing the Capital Securities
to be included in the remarketing process.
- The holder of Capital Securities that are separate and not a component of
Income PRIDES has the option at the end of year 3 to either:
c Continue to hold the Capital Securities whose rate has been reset at
the end of year 3, or
c Deliver the Capital Securities to the Custodial Agent to be included
in the remarketing process.
23
<PAGE> 25
TRANSFORMING INCOME PRIDES INTO GROWTH PRIDES AND CAPITAL SECURITIES
- To create a Growth PRIDES, the investor separates an Income PRIDES into
its components -- the Purchase Contract and the Capital Security -- and
then combines the Purchase Contract with a specific zero-coupon Treasury
Security that matures concurrently with the maturity of the Purchase
Contract.
- The investor owns the zero-coupon Treasury Security but will pledge it to
the Company to secure its obligations under the Purchase Contract.
- The zero-coupon Treasury Security together with the Purchase Contract
constitute a Growth PRIDES. The Capital Securities, which are no longer a
component of the Income PRIDES, are tradeable as separate securities.
[TRANSFORMING DIAGRAMS]
- The investor can also transform Growth PRIDES and Capital Securities into
Income PRIDES.
- The transformation of Income PRIDES into Growth PRIDES and Capital
Securities, and the transformation of Growth PRIDES and Capital
Securities into Income PRIDES, require certain minimum amounts of
securities, as more fully provided herein.
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<PAGE> 26
RISK FACTORS
Potential purchasers of the FELINE PRIDES offered hereby should carefully
consider the risk factors set forth herein under "Risk Factors" as well as other
information contained in this Prospectus, including, without limitation, those
factors set forth under the caption "Forward Looking Statements," and in the
documents incorporated by reference herein.
INVESTMENT IN FELINE PRIDES REQUIRES HOLDERS TO PURCHASE COMMON STOCK; RISK OF
DECLINE IN EQUITY VALUE
Although holders of the FELINE PRIDES will be the beneficial owners of the
related Capital Securities, Treasury Portfolio or Treasury Securities, as the
case may be, prior to the Purchase Contract Settlement Date, unless a holder of
FELINE PRIDES settles the related Purchase Contracts through the delivery of
cash to the Purchase Contract Agent in the manner described below or the
Purchase Contracts are terminated (upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company), the
proceeds derived from the remarketing of the Capital Securities or the principal
of the related Treasury Securities, or the applicable Appropriate Ownership
Interest of the Treasury Portfolio, when paid at maturity, as the case may be,
will automatically be applied to the purchase of a specified number of shares of
Common Stock on behalf of such holder. Thus, unless a holder of Income PRIDES
has cash settled, following the Purchase Contract Settlement Date, the holder
will own shares of Common Stock rather than a beneficial interest in Capital
Securities, Treasury Securities or the Treasury Portfolio, as the case may be.
See "Description of the Purchase Contracts -- General." There can be no
assurance that the market value of the Common Stock received by the holder on
the Purchase Contract Settlement Date will be equal to or greater than the
Stated Amount of the FELINE PRIDES held by such holder. If the Applicable Market
Value of the Common Stock is less than the Reference Price, the aggregate market
value of the Common Stock issued to the holder in settlement of each Purchase
Contract on the Purchase Contract Settlement Date (assuming that such market
value is the same as the Applicable Market Value of such Common Stock) will be
less than the Stated Amount paid for the FELINE PRIDES and the market value per
share of such Common Stock will be less than the effective price per share paid
by each holder for such Common Stock on the date hereof, in which case an
investment in the Securities will result in an economic loss as of the Purchase
Contract Settlement Date. Accordingly, a holder of the FELINE PRIDES assumes the
risk that the market value of the Common Stock may decline, and that such
decline could be substantial.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION
The opportunity for equity appreciation afforded by an investment in the
FELINE PRIDES is less than the opportunity for equity appreciation afforded by a
direct investment in the Common Stock because the market value of the Common
Stock to be received by a holder of Purchase Contracts on the Purchase Contract
Settlement Date (assuming that such market value is the same as the Applicable
Market Value of such Common Stock) will only exceed the Stated Amount if the
Applicable Market Value of the Common Stock exceeds the Threshold Appreciation
Price (which represents an appreciation of approximately % over the Reference
Price). Moreover, in such event, holders of FELINE PRIDES would receive on the
Purchase Contract Settlement Date only approximately % (the percentage equal
to the Reference Price divided by the Threshold Appreciation Price) of the
shares of Common Stock that such holders would have received if they had made a
direct investment in the Common Stock on the date hereof, and therefore would
receive on the Purchase Contract Settlement Date only approximately % of the
appreciation in the value of the Common Stock in excess of the Threshold
Appreciation Price. See "Prospectus Summary -- Explanatory Diagrams -- FELINE
PRIDES Purchase Contract."
FACTORS AFFECTING TRADING PRICES
The trading prices of Income PRIDES and Growth PRIDES in the secondary
market will be directly affected by the trading prices of the Common Stock, the
general level of interest rates and the credit quality of the Company. It is
impossible to predict whether the price of the Common Stock or interest rates
will rise or fall. Trading prices of the Common Stock will be influenced by the
Company's operating results and prospects and by economic, financial and other
factors and market conditions that can affect the capital markets
25
<PAGE> 27
generally, including the level of, and fluctuations in, the trading prices of
stocks generally and sales of substantial amounts of Common Stock in the market
subsequent to the offering of the Securities or the perception that such sales
could occur. Fluctuations in interest rates may give rise to opportunities of
arbitrage based upon changes in the relative value of the Common Stock
underlying the Purchase Contracts and of the other components of the FELINE
PRIDES. Any such arbitrage could, in turn, affect the trading prices of the
Income PRIDES, Growth PRIDES, Capital Securities and Common Stock.
VOTING AND CERTAIN OTHER RIGHTS
Holders of Capital Securities will not be entitled to vote to appoint,
remove or replace or to increase or decrease the number of KBHC Trustees, and
generally will have no voting rights except in the limited circumstances
described under "Description of the Capital Securities -- Voting Rights."
Holders of FELINE PRIDES will not be entitled to any rights with respect to the
Common Stock (including, without limitation, voting rights and rights to receive
any dividends or other distributions in respect thereof) unless and until such
time as the Company shall have delivered shares of Common Stock for FELINE
PRIDES on the Purchase Contract Settlement Date or as a result of Early
Settlement, as the case may be, and unless the applicable record date, if any,
for the exercise of such rights occurs after such date. For example, in the
event that an amendment is proposed to the Articles of Incorporation or By-Laws
of the Company and the record date for determining the stockholders of record
entitled to vote on such amendment occurs prior to such delivery, holders of
FELINE PRIDES will not be entitled to vote on such amendment.
DILUTION OF COMMON STOCK
The number of shares of Common Stock that holders of the FELINE PRIDES are
entitled to receive on the Purchase Contract Settlement Date or as a result of
Early Settlement is subject to adjustment for certain events arising from stock
splits and combinations, stock dividends and certain other actions of the
Company that modify its capital structure. See "Description of the Purchase
Contracts -- Anti-Dilution Adjustments." Such number of shares of Common Stock
to be received by such holders on the Purchase Contract Settlement Date or as a
result of Early Settlement will not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with acquisitions. The
Company is not restricted from issuing additional Common Stock during the term
of the Purchase Contracts and has no obligation to consider the interests of the
holders of FELINE PRIDES for any reason. Additional issuances may materially and
adversely affect the price of the Common Stock and, because of the relationship
of the number of shares to be received on the Purchase Contract Settlement Date
to the price of the Common Stock, such other events may adversely affect the
trading price of Income PRIDES or Growth PRIDES.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how Income PRIDES, Growth PRIDES or Capital
Securities will trade in the secondary market or whether such market will be
liquid or illiquid. Income PRIDES and Growth PRIDES are novel securities and
there is currently no secondary market for either Income PRIDES or Growth
PRIDES. Application will be made to list the Income PRIDES and Growth PRIDES on
the NYSE. If Capital Securities are separately traded to a sufficient extent
that applicable exchange listing requirements are met, the Company will endeavor
to cause such securities to be listed on such exchange on which the Income
PRIDES and Growth PRIDES are then listed, including, if applicable, the NYSE.
There can be no assurance as to the liquidity of any market that may develop for
the Income PRIDES, the Growth PRIDES or the Capital Securities, the ability of
holders to sell such securities or whether a trading market, if it develops,
will continue. In addition, in the event that holders of Income PRIDES or Growth
PRIDES were to substitute Treasury Securities for Capital Securities or Capital
Securities for Treasury Securities, thereby converting their Income PRIDES to
Growth PRIDES or their Growth PRIDES to Income PRIDES, as the case may be, the
liquidity of Income PRIDES or Growth PRIDES could be adversely affected. There
can be no assurance that the Income PRIDES or Growth PRIDES will not be delisted
from the NYSE or that trading in the Income PRIDES or Growth PRIDES and Capital
Securities will not be suspended as a result of the election by holders to
create Income PRIDES or Growth PRIDES through the substitution of collateral,
which could cause the number of Income PRIDES or Growth PRIDES to fall below the
requirement for listing securities on the NYSE that at least 1,000,000 Income
PRIDES or Growth PRIDES be outstanding at any time.
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<PAGE> 28
PLEDGED SECURITIES ENCUMBERED
Although the beneficial owners of FELINE PRIDES will be the beneficial
owners of the related Capital Securities, Treasury Portfolio or Treasury
Securities (together, the "Pledged Securities"), as applicable, those Pledged
Securities will be pledged with the Collateral Agent to secure the obligations
of the holders under the related Purchase Contracts. Thus, rights of the holders
to their Pledged Securities will be subject to the Company's security interest.
Additionally, notwithstanding the automatic termination of the Purchase
Contracts, in the event that the Company becomes the subject of a case under the
Bankruptcy Code, the delivery of the Pledged Securities to holders of the FELINE
PRIDES may be delayed by the imposition of the automatic stay of Section 362 of
the Bankruptcy Code.
INVESTMENT COMPANY EVENT DISTRIBUTION
Upon the occurrence of an Investment Company Event, the Trust will be
dissolved (except in the limited circumstances described in the following
sentence) with the result that Debentures with an aggregate principal amount
equal to the aggregate stated liquidation amount of the Capital Securities would
be distributed to the holders of the Capital Securities on a pro rata basis.
Such dissolution and distribution shall be conditioned on the Company being
unable to avoid such Investment Company Event within a 90-day period by taking
some ministerial action or pursuing some other reasonable measure that will have
no adverse effect on the Trust, the Company or the holders of the Capital
Securities, and will involve no material cost. In addition, the Company will
have the right at any time to dissolve the Trust. See "Description of the
Capital Securities -- Distribution of the Debentures."
There can be no assurance as to the impact on the market prices for Income
PRIDES of a distribution of the Debentures in exchange for Capital Securities
upon a dissolution of the Trust. Because Income PRIDES will consist of
Debentures and related Purchase Contracts upon the occurrence of the dissolution
of the Trust as a result of an Investment Company Event or otherwise,
prospective purchasers of Income PRIDES are also making an investment decision
with regard to the Debentures and should carefully review all the information
regarding the Debentures contained herein. See "Description of the Capital
Securities -- Distribution of the Debentures" and "Description of the
Debentures -- General."
TAX EVENT REDEMPTION
The Debentures (and, thus, the Trust Securities) are redeemable, at the
option of the Company, on not less than 30 days or more than 60 days prior
written notice, in whole but not in part, at any time prior to the Purchase
Contract Settlement Date upon the occurrence and continuation of a Tax Event
under the circumstances described herein at a Redemption Price equal to, for
each Debenture, the Redemption Amount plus accrued and unpaid interest
(including deferred interest, if any). See "Description of the Debentures -- Tax
Event Redemption." If the Company so redeems all of the Debentures, the Trust
must redeem all of the Trust Securities and pay in cash such Redemption Price to
the holders of such Trust Securities. If the Tax Event Redemption has occurred
prior the Purchase Contract Settlement Date, the Redemption Price payable in
liquidation of the Income PRIDES holders' interest in the Trust will be
distributed to the Collateral Agent, who in turn will apply an amount equal to
the Redemption Amount of such Redemption Price to purchase the Treasury
Portfolio on behalf of the holders of Income PRIDES. Holders of Capital
Securities not held in the form of Income PRIDES will receive redemption
payments directly. The Treasury Portfolio will be substituted for the Capital
Securities and will be pledged with the Collateral Agent to secure such Income
PRIDES holders' obligations to purchase the Company's Common Stock under their
Purchase Contracts. There can be no assurance as to the impact on the market
prices for the Income PRIDES of the substitution of the Treasury Portfolio as
collateral in replacement of any Capital Securities so redeemed. See
"Description of the Capital Securities -- Optional Redemption." A Tax Event
Redemption will be a taxable event to the beneficial owners of the Capital
Securities. See "Federal Income Tax Consequences -- Tax Event Redemption of
Capital Securities."
RIGHT TO DEFER CURRENT PAYMENTS
The Company may, at its option, defer the payment of Contract Adjustment
Payments, if any, on the Purchase Contracts until the Purchase Contract
Settlement Date. However, deferred installments of Contract
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<PAGE> 29
Adjustment Payments will bear additional Contract Adjustment Payments at the
rate of % per annum (compounding on each succeeding Payment Date)
until paid (such rate to be equal to the higher of (i) the rate which would
accrue on Income PRIDES for such payments and (ii) the rate which would accrue
on Growth PRIDES for such payments). If the Purchase Contracts are settled early
or terminated (upon the occurrence of certain events of bankruptcy, insolvency
or reorganization with respect to the Company), the right to receive Contract
Adjustment Payments, if any, and Deferred Contract Adjustment Payments, if any,
will also terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments, if any, on the Purchase Contracts until the Purchase
Contract Settlement Date, each holder of Purchase Contracts will receive on the
Purchase Contract Settlement Date in respect of the Deferred Contract Adjustment
Payments, in lieu of a cash payment, a number of shares of Common Stock equal to
(x) the aggregate amount of Deferred Contract Adjustment Payments payable to
such holder divided by (y) the Applicable Market Value. See "Description of the
Purchase Contracts -- Contract Adjustment Payments."
The Company will also have the right under the Indenture to defer payments
of interest on the Debentures by extending the interest payment period at any
time, and from time to time, on the Debentures. As a consequence of such an
extension, quarterly distributions on the Capital Securities, held either as a
component of the Income PRIDES or held separately, would be deferred (but
despite such deferrals would continue to accrue at a rate of % per
annum through and including 15, 2001, and at the Reset Rate
thereafter, compounded on a quarterly basis) by the Trust during any such
Extension Period. Such right to extend the interest payment period for the
Debentures will be limited such that an Extension Period may not extend beyond
the stated maturity of the Debentures or end on other than a Payment Date.
During any such Extension Period, (a) the Company shall not declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of capital stock of the Company in
connection with the satisfaction by the Company of its obligations under any
employee benefit plans or the satisfaction by the Company of its obligations
pursuant to any contract or security outstanding on the date of such event
requiring the Company to purchase capital stock of the Company, (ii) as a result
of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, (iv) dividends or distributions in capital stock of the Company (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan or the
declaration thereunder of a dividend of rights in the future) and (b) the
Company shall not make any guarantee payments with respect to the foregoing
(other than payments pursuant to the Guarantee). Prior to the termination of any
such Extension Period, the Company may further extend the interest payment
period; provided, that such Extension Period may not extend beyond the stated
maturity of the Debentures or end on other than a Payment Date. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may commence a new Extension Period, subject to the above requirements.
See "Description of the Capital Securities -- Distributions" and "Description of
the Debentures -- Option to Extend Interest Payment Period."
The Company believes, and intends to take the position, that as of the
issue date of the Debentures, the likelihood that it will exercise its right to
defer payments of stated interest on the Debentures is remote and that,
therefore, the Debentures should not be considered to have been issued with OID
as a result of the Company's right to defer payments of stated interest on the
Debentures until such time that the Company actually exercises such deferral
right. There is no assurance that the Internal Revenue Service (the "IRS") will
agree with such position. See "Federal Income Tax Consequences -- Capital
Securities -- Interest Income and Original Issue Discount."
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each U.S. Holder (as defined herein) of
Capital Securities held either as a component of the Income PRIDES or held
separately would be required to include such U.S. Holder's share of the stated
interest on the
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<PAGE> 30
Debentures in gross income, as OID, on a daily economic accrual basis,
regardless of such U.S. Holder's method of tax accounting. As a result, each
U.S. Holder of Capital Securities would recognize income for United States
federal income tax purposes in advance of the receipt of cash attributable to
such income, and would not receive the cash from the Trust related to such
income if such holder disposes of its Capital Securities prior to the record
date for the date on which distributions of such amounts are made. See "Federal
Income Tax Consequences -- Capital Securities -- Interest Income and Original
Issue Discount." In addition, as a result of the existence of the Company's
right to defer interest payments, the market price of the Capital Securities
(which represent undivided beneficial ownership interests in the assets of the
Trust) may be more volatile than the market price of other securities that are
not subject to such deferral. Should the Company exercise such right in the
future, the market price of the Capital Securities is likely to be adversely
affected. A holder that disposes of its Capital Securities during an Extension
Period, therefore, might not receive the same return on its investment as
a holder that continues to hold its Capital Securities.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
No statutory, judicial or administrative authority directly addresses the
treatment of the FELINE PRIDES or instruments similar to the FELINE PRIDES for
United States federal income tax purposes. As a result, certain United States
federal income tax consequences of the purchase, ownership and disposition of
FELINE PRIDES are not entirely clear. See "Federal Income Tax Consequences."
PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT;
LIMITED OBLIGATIONS OF PURCHASE CONTRACT AGENT
Although the Capital Securities constituting a part of the Income PRIDES
will be issued pursuant to the Declaration, which will be qualified under the
Trust Indenture Act, the Purchase Contract Agreement will not be qualified as an
indenture under the Trust Indenture Act and the Purchase Contract Agent will not
be required to qualify as a trustee thereunder. Accordingly, holders of FELINE
PRIDES will not have the benefit of the protections of the Trust Indenture Act.
The protections generally afforded the holder of the security issued under an
indenture that has been qualified under the Trust Indenture Act include
disqualification of the indenture trustee for "conflicting interests" as defined
under the Trust Indenture Act, provisions preventing a trustee that is also a
creditor of the issuer from improving its own credit position at the expense of
the security holders immediately prior to or after a default under such
indenture and the requirement that the indenture trustee deliver reports at
least annually with respect to certain matters concerning the indenture trustee
and the securities. Under the terms of the Purchase Contract Agreement, the
Purchase Contract Agent will have only limited obligations to the holders of
FELINE PRIDES. See "Certain Provisions of the Purchase Contract Agreement and
the Pledge Agreement -- Information Concerning the Purchase Contract Agent."
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Guarantee Trustee will act as indenture trustee under the Guarantee for
the purposes of compliance with the provisions of the Trust Indenture Act. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Trust Securities. The Guarantee guarantees to the holders of the Trust
Securities, generally on a senior unsecured basis, the payment of (i) any
accrued and unpaid distributions that are required to be paid on the Trust
Securities, to the extent the Trust has funds available therefor, (ii) the
redemption price, including all accumulated and unpaid distributions to the date
of redemption, of Trust Securities in respect of which the related Debentures
have been redeemed by the Company upon the occurrence of a Tax Event Redemption,
to the extent the Trust has funds available therefor, and (iii) upon a voluntary
or involuntary dissolution of the Trust (other than in connection with the
distribution of Debentures to the holders of Trust Securities), the lesser of
(a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Trust Securities to the date of payment to the extent the
Trust has funds available therefor or (b) the amount of assets of the Trust
remaining available for distribution to holders of the Trust Securities in
liquidation of the Trust. The holders of a majority in liquidation amount of the
Trust Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee or
to direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. Notwithstanding the foregoing, but
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<PAGE> 31
only under the limited circumstances described under "-- Enforcement of Certain
Rights by Holders of Capital Securities," any holder of the Trust Securities may
institute a legal proceeding directly against the Company to enforce such
holder's rights under the Guarantee without first instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other person or entity. If the
Company were to default on its obligation to pay amounts payable on the
Debentures or otherwise, the Trust would lack funds for the payment of
distributions or amounts payable on redemption of the Trust Securities or
otherwise, and, in such event, holders of the Trust Securities would not be able
to rely upon the Guarantee for payment of such amounts. Instead, holders of the
Trust Securities would rely on the enforcement (1) by the Institutional Trustee
of its rights as registered holder of the Debentures against the Company
pursuant to the terms of the Indenture and the Debentures or (2) by such holder
of the Institutional Trustee's or such holder's own rights against the Company
to enforce payments on the Debentures. See "-- Enforcement of Certain Rights by
Holders of Capital Securities," "Description of the Debentures" and "Description
of the Guarantee." The Declaration provides that each holder of Trust
Securities, by acceptance thereof, agrees to the provisions of the Guarantee and
the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, the holders of Capital Securities would rely on the enforcement by
the Institutional Trustee of its rights as registered holder of the Debentures
against the Company. In addition, the holders of a majority in liquidation
amount of the Capital Securities will have the right to direct the time, method,
and place of conducting any proceeding for any remedy available to the
Institutional Trustee or to direct the exercise of any trust or power conferred
upon the Institutional Trustee under the Declaration, including the right to
direct the Institutional Trustee to exercise the remedies available to it as the
holder of the Debentures. The Indenture provides that the Debt Trustee (as
defined herein) shall give holders of Debentures notice of all defaults or
events of default within 30 days after occurrence. However, except in the cases
of a default or an event of default in payment on the Debentures, the Debt
Trustee will be protected in withholding such notice if its responsible officers
in good faith determine that withholding of such notice is in the interest of
such holders.
If the Institutional Trustee fails to enforce its rights under the
Debentures in respect of an Indenture Event of Default (as defined herein) after
a holder of record of Capital Securities has made a written request, such holder
of record of Capital Securities may, to the extent permitted by applicable law,
institute a legal proceeding against the Company to enforce the Institutional
Trustee's rights under the Debentures. In addition, if the Company fails to pay
interest or principal on the Debentures on the date such interest or principal
is otherwise payable, and such failure to pay is continuing, a holder of Capital
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Debentures having a principal
amount equal to the aggregate stated liquidation amount of the Capital
Securities of such holder (a "Direct Action") after the respective due date
specified in the Debentures. In connection with such a Direct Action, the
Company shall have the right under the Indenture to set off any payment made to
such holder by the Company. The holders of Capital Securities will not be able
to exercise directly any other remedy available to the holders of the
Debentures. See "Description of the Capital Securities -- Declaration Events of
Default."
LIMITED RIGHTS OF ACCELERATION
The Institutional Trustee, as holder of the Debentures, may accelerate
payment of the principal and accrued and unpaid interest on the Debentures only
upon the occurrence and continuation of an Indenture Event of Default, which
generally is limited to payment defaults, breach of certain covenants and
certain events of bankruptcy, insolvency and reorganization of the Company. See
"Description of the Debentures -- Events of Default." Accordingly, there is no
right to acceleration upon default by the Company of its payment obligations
under the Guarantee.
HOLDING COMPANY STRUCTURE
The Company is a holding company that conducts its operations through
subsidiaries. As a result, the ability of the Company to pay the principal of
and interest on its indebtedness (including the Debentures) and to pay amounts
due in respect of its other obligations (including the Guarantee and the
Contract Adjustment
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<PAGE> 32
Payments, if any), and therefore the ability of the Trust to make distributions
and other payments on the Capital Securities, will depend on the results of
operations of the Company's subsidiaries and the distribution of funds by such
subsidiaries to the Company. The ability of such subsidiaries to provide funds
to the Company may be subject to contractual and other limitations, is
contingent upon results of operations and financial condition of such
subsidiaries, and is subject to various other business considerations. See
"Forward-Looking Statements."
All of the operating assets of the Company are owned by its subsidiaries.
As a result, the obligations of the Company under the Debentures, the Contract
Adjustment Payments and the Guarantee are effectively subordinated to all
existing and future indebtedness and other liabilities, including trade
payables, of the Company's subsidiaries. At February 28, 1998, the indebtedness
and other liabilities of such subsidiaries on a consolidated basis aggregated
approximately $981.8 million.
TRADING PRICE OF THE CAPITAL SECURITIES
The Capital Securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying Debentures.
A holder who disposes of his Capital Securities between record dates for
payments of distributions thereon will be required to include accrued but unpaid
interest on the Debentures through the date of disposition in income as ordinary
income (i.e., interest or, possibly, OID), and to add such amount to his
adjusted tax basis in his pro rata share of the underlying Debentures deemed
disposed of. To the extent the selling price is less than the holder's adjusted
tax basis, a holder will recognize a loss. See "Federal Income Tax
Consequences -- Capital Securities -- Interest Income and Original Issue
Discount" and "-- Sales, Exchanges or Other Taxable Dispositions of Capital
Securities."
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<PAGE> 33
THE COMPANY
GENERAL
The Company is a builder of single-family homes with domestic operations in
seven western states, and international operations in France and Mexico.
Domestically, the Company is the largest home builder west of the Mississippi
River, delivering more single-family homes than any other builder in the region.
Founded in 1957, the Company builds innovatively designed homes that cater
primarily to first-time home buyers, generally in medium-sized developments
close to major metropolitan areas. Internationally, the Company is among the
largest builders in greater metropolitan Paris, France, based on the number of
homes delivered. In France, the Company also builds high-density residential
properties, such as condominium and apartment complexes. The Company provides
mortgage banking services to domestic home buyers through its wholly owned
subsidiary, Kaufman and Broad Mortgage Company.
The Company is a Delaware corporation and maintains its principal executive
offices at 10990 Wilshire Boulevard, Los Angeles, California 90024. Its
telephone number is (310) 231-4000.
RECENT DEVELOPMENTS
During the second quarter of 1998, the Company acquired three privately
held home builders with regional operations in certain key markets. On March 19,
1998, the Company acquired all of the issued and outstanding capital stock of
Houston-based Hallmark for approximately $54 million, including the assumption
of debt. Hallmark builds single family homes in Houston, San Antonio and Austin,
Texas under the trade names of Dover Homes and Ideal Builders. The acquisition
of Hallmark marks the Company's entry into the Houston market and will form the
core of those operations, while strengthening the Company's position in San
Antonio and Austin. The Company acquired substantially all of the assets of
PrideMark on March 23, 1998 for approximately $65 million, including the
assumption of trade liabilities and debt. PrideMark builds single family homes
in Denver, Colorado, and its acquisition will significantly increase the
Company's already substantial market presence in Denver. On April 9, 1998, the
Company acquired all of the issued and outstanding capital stock of Estes for
approximately $48 million, including the assumption of debt. Estes builds single
family homes in Phoenix and Tucson, Arizona. Estes provides the Company's entry
into Tucson and will significantly increase the Company's already substantial
market presence in Phoenix. The acquisitions of Hallmark, PrideMark and Estes
will be accounted for under the purchase method and the results of their
operations will be included in the Company's consolidated financial statements
from the respective dates of acquisition. All three acquisitions described above
were consistent with the Company's acquisition strategy and support the
Company's overall growth strategy and unit growth goals (see "-- Strategy"). The
Company currently estimates that the acquisitions in aggregate will produce
incremental unit deliveries and revenues in fiscal 1998 of approximately 1,500
and $175 million, respectively, and will be accretive to 1998 earnings per share
subject to the assumptions and other considerations set forth in the following
paragraph.
Company-wide net orders for the second quarter ended May 31, 1998 increased
43.1% from the same period a year ago. Domestic net orders were up 36.1% from
the prior year's quarter, including a 5.8% decrease in California net orders due
to a 17.1% decline in active communities in the state which was partially offset
by faster sales rates. The impact of El Nino rains on the Company's deliveries
in the first two quarters of 1998 was only modest, with approximately 10 to 20
unit deliveries in each quarter delayed to each subsequent quarter. The Company
believes a similar number of deliveries may be postponed in the third quarter
due to land development delays caused by the El Nino rains during the first half
of 1998. Nonetheless, the Company anticipates that, assuming a return to more
normal weather patterns in California, all such delayed deliveries will be
recorded before the end of the 1998 fiscal year, and, accordingly, expects that
the El Nino conditions will have no material effect on year-end revenues and
earnings. Net orders from non-California domestic operations (Arizona, Colorado,
Nevada, New Mexico, Texas and Utah) (collectively, "Other U.S.") for the second
quarter of 1998 increased 72.9% from the second quarter of 1997. Excluding 539
aggregate net orders attributable to recently completed acquisitions, the
percentage increases in net orders for the 1998 second quarter versus the prior
year quarter for Other U.S., total U.S., and the total Company were 40.9%, 19.1%
and 27.3%, respectively. In France, net orders were up 137.4% for the second
quarter of 1998 compared to the prior year quarter, attributable in part to the
Company's acquisition of SMCI in the third quarter of 1997.
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<PAGE> 34
Assuming stable or improving business conditions, employment levels, interest
rates, weather conditions and consumer confidence in its major markets, among
other risk factors, the Company continues to believe that ongoing progress on
its primary strategic initiatives and the acquisitions of Hallmark, PrideMark
and Estes should result in higher delivery volumes from a higher average number
of active communities, and improved operating income in 1998 compared to 1997.
In the aggregate, the Company has established goals of achieving Company-wide
deliveries in excess of 15,000 units in 1998 and 18,000 units for 1999,
inclusive of the deliveries by recently acquired homebuilders. Both of these
unit delivery goals could be materially affected by various risk factors such as
changes in general economic conditions either nationally or in the regions in
which the Company operates or may commence operations, job growth and employment
levels, home mortgage interest rates or consumer confidence, among other things.
The Company believes that the benefits of the continued implementation of its
strategic initiatives will provide long-term sustainable improvement throughout
the Company's operations, boosting earnings per share and return on investment
in 1998 and beyond. In that regard, a number of statements set forth under this
caption, the caption "Prospectus Summary -- The Company -- Recent Developments"
and the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" constitute forward-looking statements within the meaning
of the Act. See "Forward-Looking Statements."
STRATEGY
In the remainder of 1998, the Company plans to continue to focus on the two
primary strategic initiatives it established for 1997: further implementation of
its KB2000 operational business model and acceleration of the Company's growth.
In addition, the Company also intends to concentrate on two complementary
strategies in 1998 consisting of establishing optimum local market dominance and
increasing its focus on acquisitions.
The Company is continuing to concentrate on its KB2000 operational business
model in 1998 and intends to further the Company-wide implementation of KB2000
during the remainder of the year. KB2000 integrates many of the basic operating
principles that were historically used in the Company's recently acquired San
Antonio operations. These include: achieving a deep understanding of customer
desires and preferences through detailed market surveys; emphasizing pre-sales
as opposed to building speculative inventory; maintaining lower levels of
inventory in-process and standing inventory; establishing even flow production;
providing a wide spectrum of choice to customers in terms of location, design
and options; offering low base prices; and reducing the use of sales incentives.
Through its intense focus on the KB2000 strategy, the Company seeks to achieve a
leading market presence in each of its key markets. As expected, implementation
of the KB2000 principles, such as emphasizing pre-selling of homes over
speculative starts, resulted in higher backlog levels at the end of the first
quarter of 1998 compared to February 28, 1997 levels, as well as an increase in
the percentage of sold inventory in production at February 28, 1998 to 75%
compared to 55% at February 28, 1997. In addition, the Company's backlog ratio
rose to 160.3% at the end of the 1998 first quarter from 134.7% at the end of
the year ago quarter (backlog ratio is defined as the ratio of beginning backlog
to actual deliveries in the succeeding quarter).
In order to leverage the benefits of the KB2000 operational business model,
the Company is implementing a strategy designed to achieve a dominant market
position in its major markets. The Company believes that "dominant" does not
require that it become the largest builder in a market in terms of unit
deliveries or revenues or that the Company control the pricing of new homes in
any market; rather, the Company's goal is to achieve the optimum market position
that will enable its local business unit to maximize the benefits of its KB2000
operational business model, including lower land acquisition costs, improved
terms with suppliers and subcontractors, the offering of maximum choice and the
best value to customers, and retention of the best management talent. The
Company believes that by operating at large, optimal volume levels, it can
better execute its KB2000 operational business model and use economies of scale
to increase profits in fewer but larger markets. The Company's strategy involves
entering new markets at high volume levels, principally through acquisitions, as
well as rapidly growing existing operations to optimal market dominant volume
levels through both organic growth and acquisitions.
The Company intends to increase the overall growth of its deliveries in
1998, 1999 and future years through growth in its existing markets as well as de
novo entry into new markets. In the aggregate, growth in existing markets will
be driven by the Company's ability to increase the number of active communities
in its major markets by the successful implementation of its KB2000 operational
business model. In addition, as
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discussed below, the Company has an ongoing acquisition strategy which will
supplement growth in both existing and new markets. The Company's current goals
are to achieve 15,000 deliveries in fiscal 1998 and 18,000 deliveries in fiscal
1999.
The Company intends to actively consider additional strategic acquisitions
in 1998 to enter new markets and/or rapidly increase volume in existing markets.
Consideration for such acquisitions may be paid in cash, notes or Common Stock
of the Company or any combination thereof. The acquisitions of Hallmark,
PrideMark and Estes were executed in accordance with the Company's acquisition
strategy. Under its strategy, the Company seeks to acquire home builders which
have a business model close to KB2000, have access to land to support growth,
possess a strong management team and will be accretive to earnings in the first
full year following acquisition. The Company believes its acquisition strategy
will enable it to identify and pursue appropriate targets for expanding its
operations in 1998 and beyond in a focused and disciplined manner; however, this
strategy can be impacted by several factors, including, among other things, the
general availability of applicable acquisition candidates, pricing for such
transactions, competition among other national or regional builders for such
target companies, changes in general and economic conditions nationally and in
target markets and capital or credit market conditions.
THE TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to (i) the Declaration, executed by the Sponsor and the KBHC Trustees and (ii)
the filing of a certificate of trust with the Secretary of State of the State of
Delaware. Such Declaration of trust will be amended and restated in its entirety
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Declaration will be qualified as an
indenture under the Trust Indenture Act. Although upon issuance of the Capital
Securities, the holders of Income PRIDES will be the beneficial owners of the
related Capital Securities, such Capital Securities will be pledged with the
Collateral Agent to secure the obligations of the holders under the related
Purchase Contracts. See "Description of the Purchase Contracts -- Pledged
Securities and Pledge Agreement" and "Description of the Capital
Securities -- Book-Entry Only Issuance -- The Depository Trust Company." The
Company will directly or indirectly acquire Common Securities in an aggregate
liquidation amount equal to at least 3% of the total capital of the Trust. The
Trust exists for the exclusive purposes of (i) issuing the Trust Securities
representing undivided beneficial ownership interests in the assets of the
Trust, (ii) investing the gross proceeds of the Trust Securities in the
Debentures and (iii) engaging in only those other activities necessary or
incidental thereto. The Trust has a term of approximately seven years, but may
dissolve earlier as provided in the Declaration.
The number of KBHC Trustees is initially four. Two of the KBHC Trustees
(the "Regular Trustees") are persons who are employees or officers of, or who
are affiliated with, the Company. Pursuant to the Declaration, the third trustee
is The First National Bank of Chicago, a financial institution that is
unaffiliated with the Company, which trustee serves as institutional trustee
under the Declaration and as indenture trustee for the purposes of compliance
with the provisions of the Trust Indenture Act (the "Institutional Trustee").
The fourth trustee, First Chicago Delaware Inc., an entity that is unaffiliated
with the Company, will serve as the Delaware Trustee, until removed or replaced
by the holder of the Common Securities. For purposes of compliance with the
provisions of the Trust Indenture Act, The First National Bank of Chicago will
also act as the guarantee trustee (the "Guarantee Trustee") under the Guarantee.
See "Description of the Guarantee" and "Description of the Capital
Securities -- Voting Rights."
The Institutional Trustee will hold title to the Debentures for the benefit
of the holders of the Trust Securities and will have the power to exercise all
rights, powers and privileges under the Indenture as the holder of the
Debentures. In addition, the Institutional Trustee will maintain exclusive
control of a segregated noninterest bearing bank account (the "Property
Account") to hold all payments made in respect of the Debentures for the benefit
of the holders of the Trust Securities. The Institutional Trustee will make
payments of distributions and payments on liquidation, redemption and otherwise
to the holders of the Trust Securities out of funds from the Property Account.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders of
the Capital Securities. The Company, as the direct or indirect holder of all the
Common Securities, will have the right to appoint, remove or replace any KBHC
Trustee and to increase or decrease the number of KBHC Trustees; provided,
however, that the number of KBHC Trustees shall be no fewer than two, at least
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<PAGE> 36
one of which shall be a Regular Trustee. The Company, in its capacity as
borrower, will pay all fees and expenses related to the Trust and the offering
of the Trust Securities. See "Description of the Debentures -- Miscellaneous."
The rights of the holders of the Capital Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Business Trust Act of the State of Delaware (the "Trust Act")
and the Trust Indenture Act. See "Description of the Capital Securities."
The principal place of business of the Trust is c/o Kaufman and Broad Home
Corporation, 10990 Wilshire Boulevard, Los Angeles, California 90024 and its
telephone number is (310) 231-4000.
USE OF PROCEEDS
All of the proceeds from the sale of the Income PRIDES, the Capital
Securities that are not components of the Income PRIDES and the Common
Securities will be invested by the Trust in Debentures of the Company. The
Company currently anticipates using substantially all of the net proceeds from
the sale of the Debentures (net of amounts paid to purchase the Common
Securities), estimated to be approximately $ million (approximately $
million if the Underwriters' over-allotment options are exercised in full) (in
each case after deducting the underwriting commission and estimated expenses
payable by the Company), for general corporate purposes, including potential
future acquisitions. Pending application for such purposes, the Company intends
to use such net proceeds to repay outstanding indebtedness under the Credit
Facility. All of the proceeds from the sale of the Growth PRIDES will be used to
purchase the underlying Treasury Securities to be transferred to holders of the
Growth PRIDES pursuant to the terms thereof, and the Company will receive no
proceeds from the sale of the Growth PRIDES. As of June 22, 1998 the weighted
average interest rate on borrowings outstanding under the Credit Facility was
approximately 6.5% per annum.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed on the NYSE and is traded under the
symbol KBH. The following table sets forth, for the fiscal quarters shown, the
quarterly high and low sale prices per share of Common Stock as reported on the
New York Stock Exchange Composite Tape, and the regular quarterly dividends per
share of the Common Stock.
<TABLE>
<CAPTION>
MARKET PRICE
---------------- CASH DIVIDEND
HIGH LOW PER SHARE
---- --- -------------
<S> <C> <C> <C>
1996
First Quarter............................................... $16 7/8 $12 3/4 $.075
Second Quarter.............................................. 16 3/8 13 3/8 .075
Third Quarter............................................... 15 11 1/4 .075
Fourth Quarter.............................................. 13 5/8 11 3/4 .075
1997
First Quarter............................................... $14 5/8 $11 3/4 $.075
Second Quarter.............................................. 15 1/4 12 7/8 .075
Third Quarter............................................... 22 1/8 14 3/4 .075
Fourth Quarter.............................................. 23 1/8 18 15/16 .075
1998
First Quarter............................................... $26 13/16 $20 5/16 $.075
Second Quarter.............................................. 34 1/2 22 5/16 .075
Third Quarter (through June 24, 1998)....................... 32 1/2 24 11/16 --
</TABLE>
A recent last reported sale price for the Common Stock on the NYSE is set
forth on the cover page of this Prospectus.
DIVIDEND POLICY
The Company has a policy of paying quarterly dividends. The Company is,
however, subject to covenants under its bank revolving credit agreement which
limit its ability to pay dividends. The actual amount of dividends paid is
subject to the discretion of the Board of Directors and will depend on the
Company's operating results, business requirements, financial covenants and
other factors.
35
<PAGE> 37
CAPITALIZATION
The following table summarizes the unaudited capitalization of the Company
and its consolidated subsidiaries at February 28, 1998, and as adjusted to give
effect to: (i) the sale of FELINE PRIDES and Capital Securities offered hereby,
and (ii) the concurrent purchase by the Trust from the Company of the
Debentures.
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
-------------------------------------------------
ADJUSTMENTS FOR THE
ISSUANCE OF
ACTUAL FELINE PRIDES(1) AS ADJUSTED
--------- -------------------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Construction:
Credit Facility................................ $ -- $ --(2) $ --
Mortgages and notes payable.................... 39.7 39.7
7 3/4% Senior Notes............................ 175.0 175.0
9 3/8% Senior Subordinated Notes............... 174.1 174.1
9 5/8% Senior Subordinated Notes............... 124.5 124.5
Mortgage banking:
Notes payable.................................. 148.4 148.4
Collateralized mortgage obligations secured by
mortgage-backed securities.................. 58.5 58.5
-------- ------ --------
Total debt.................................. 720.2 -- 720.2
-------- ------ --------
Minority interest in consolidated joint
ventures....................................... 2.0 2.0
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company....... 150.0(3) 150.0
Stockholders' equity:
Preferred Stock -- $1.00 par value; authorized,
10,000,000 shares; none outstanding
Common Stock -- $1.00 par value, authorized,
100,000,000 shares; 39,228,777; shares
outstanding(4).............................. 39.2 39.2
Special Common Stock -- $1.00 par value;
authorized, 25,000,000 shares; none
outstanding
Paid-in capital................................ 187.7 187.7
Retained earnings.............................. 165.1 165.1
Cumulative foreign currency translation
adjustments................................. (3.7) (3.7)
-------- ------ --------
Total stockholders' equity.................. 388.3 -- 388.3
-------- ------ --------
Total capitalization............................. $1,110.5 $150.0 $1,260.5
======== ====== ========
</TABLE>
- ---------------
(1) The pro forma adjustments assume no Contract Adjustment Payments.
(2) No borrowings were outstanding under the Credit Facility at February 28,
1998. Borrowings of approximately $223.5 million were outstanding under the
Credit Facility on June 22, 1998. The Company currently anticipates using
substantially all the net proceeds from the sale of the FELINE PRIDES and of
the Capital Securities for other general corporate purposes, including
potential future acquisitions. Pending application for such purposes, the
Company intends to use such net proceeds to repay outstanding indebtedness
under the Company's Credit Facility. (see "Use of Proceeds").
(3) Subsequent to the completion of the Offering, the assets of the Trust will
consist solely of approximately $154.6 million in aggregate principal amount
of Debentures with an interest rate of % and a maturity date of
, 2003.
(4) Does not include 3,334,277 shares of Common Stock issuable upon exercise of
outstanding stock options issued pursuant to employee stock option plans.
36
<PAGE> 38
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
AND OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the consolidated ratios of earnings to fixed
charges and earnings to combined fixed charges and preferred stock dividends of
the Company for each of the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FEBRUARY 28, YEAR ENDED NOVEMBER 30,
------------- ----------------------------------------
1998 1997 1997 1996 1995 1994 1993
----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges(1)....... 1.91x 1.51x 2.44x --(2)(3) 1.35x 2.09x 2.07x
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends(1).......... 1.91x 1.51x 2.44x --(2)(3) 1.12x 1.64x 1.80x
</TABLE>
- ---------------
(1) For purposes of calculating the ratio of earnings to fixed charges and the
ratio of earnings to combined fixed charges and preferred stock dividends,
earnings are computed by adding fixed charges (except capitalized interest
and the effect of preferred stock dividends) and amortization of previously
capitalized interest to pretax earnings (excluding undistributed earnings of
unconsolidated joint ventures). Fixed charges consist of interest expense
plus capitalized interest and the portion of rental expense considered to be
interest and, for the ratio of earnings to combined fixed charges and
preferred stock dividends prior to April 1, 1996, include the effect of
preferred stock dividends on the Company's Series B Mandatory Conversion
Premium Dividend Preferred Stock. On April 1, 1996, all shares of the
Company's only outstanding series of preferred stock, the Series B Mandatory
Conversion Premium Dividend Preferred Stock, were mandatorily converted to
shares of Common Stock and no future preferred stock dividends will be paid
or are payable with respect to such preferred stock.
In computing the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends, interest
expense excludes interest incurred by the Company's wholly owned limited
purpose financing subsidiaries with respect to their outstanding
collateralized mortgage obligations. If interest on such collateralized
mortgage obligations were included, (i) earnings for the year ended
November 30, 1996 would have been inadequate to cover fixed charges by
$97.8 million, while the ratio of earnings to fixed charges for the three
months ended February 28, 1998 and 1997 and the years ended November 30,
1997, 1995, 1994 and 1993 would have been 1.82x, 1.45x, 2.29x, 1.31x, 1.88x
and 1.77x, respectively, and (ii) earnings for the year ended November 30,
1996 would have been inadequate to cover combined fixed charges and
preferred stock dividends by $105.5 million, while the ratio of earnings to
combined fixed charges and preferred stock dividends for the three months
ended February 28, 1998 and 1997 and the years ended November 30, 1997,
1995, 1994 and 1993 would have been 1.82x, 1.45x, 2.29x, 1.11x, 1.54x and
1.60x, respectively.
(2) The amount of earnings used in the calculation of the ratio of earnings to
fixed charges and the ratio of earnings to combined fixed charges and
preferred stock dividends for the year ended November 30, 1996 includes the
$170.8 million pretax non-cash charge for impairment of long-lived assets
recorded by the Company in the second quarter of 1996. If the non-cash
charge for impairment of long-lived assets were excluded, the ratio of
earnings to fixed charges and the ratio of earnings to combined fixed
charges and preferred stock dividends for the year ended November 30, 1996
would have been 1.96x and 1.78x, respectively.
(3) Earnings for the year ended November 30, 1996 were inadequate to cover fixed
charges by $97.8 million. Earnings for the year ended November 30, 1996 were
inadequate to cover combined fixed charges and preferred stock dividends by
$105.5 million.
37
<PAGE> 39
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of the
Company. The data (other than housing, commercial and land revenues and unit
deliveries) for the fiscal years ended November 30, 1997, 1996, 1995, 1994 and
1993 are derived from the financial statements for those years which have been
audited by Ernst & Young LLP, independent auditors. Data related to housing,
commercial and land revenues and unit deliveries are derived from unaudited
financial statements. Selected unaudited financial data at February 28, 1998 and
1997 and for each of the three month periods ended February 28, 1998 and 1997
reflect, in the opinion of the Company, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results
of operations for these periods. The results of operations for the three months
ended February 28, 1998 are not necessarily indicative of results to be expected
for the full year. The following data should be read in conjunction with the
financial statements and the related notes thereto incorporated by reference in
this Prospectus. For information regarding the Company's ratios of earnings to
fixed charges and of earnings to combined fixed charges and preferred stock
dividends, see "Consolidated Ratios of Earnings to Fixed Charges and of Earnings
to Combined Fixed Charges and Preferred Stock Dividends."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FEBRUARY 28, YEAR ENDED NOVEMBER 30,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA:
Revenues:
Housing................................... $ 414.2 $ 333.8 $ 1,827.3 $ 1,673.7 $ 1,328.1 $ 1,263.0 $ 1,097.6
Commercial................................ -- -- 2.7 12.2 20.5 17.4 94.2
Land...................................... 3.1 5.8 13.6 68.2 18.3 27.2 8.0
Mortgage banking.......................... 8.9 7.6 32.7 31.8 29.7 28.7 38.1
--------- --------- --------- --------- --------- --------- ---------
Total revenues.......................... $ 426.2 $ 347.2 $ 1,876.3 $ 1,785.9 $ 1,396.6 $ 1,336.3 $ 1,237.9
========= ========= ========= ========= ========= ========= =========
Construction:
Revenues.................................. $ 417.3 $ 339.6 $ 1,843.6 $ 1,754.1 $ 1,366.9 $ 1,307.6 $ 1,199.8
Costs and expenses........................ (402.1) (327.9) (1,741.8) (1,655.4) (1,301.4) (1,219.3) (1,113.2)
Non-cash charge for impairment of
long-lived assets....................... -- -- -- (170.8) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)................... 15.2 11.7 101.8 (72.1) 65.5 88.3 86.6
Interest income........................... 1.5 1.1 5.1 2.7 2.1 2.0 3.5
Interest expense, net of amounts
capitalized............................. (7.1) (8.4) (29.9) (36.7) (27.5) (17.8) (16.8)
Minority interests in pretax income of
consolidated joint ventures............. (0.2) (0.1) (0.4) (0.2) (0.6) (0.9) (10.2)
Equity in pretax income (loss) of
unconsolidated joint ventures........... 0.2 0.1 (0.1) (2.1) (3.4) (3.7) (6.3)
--------- --------- --------- --------- --------- --------- ---------
Construction pretax income (loss)......... 9.6 4.4 76.5 (108.4) 36.1 67.9 56.8
--------- --------- --------- --------- --------- --------- ---------
Mortgage banking:
Revenues.................................. 8.9 7.6 32.7 31.8 29.7 28.7 38.1
Expenses.................................. (5.8) (5.1) (18.2) (19.1) (20.3) (22.7) (30.6)
--------- --------- --------- --------- --------- --------- ---------
Mortgage banking pretax income............ 3.1 2.5 14.5 12.7 9.4 6.0 7.5
--------- --------- --------- --------- --------- --------- ---------
Total pretax income (loss).................. 12.7 6.9 91.0 (95.7) 45.5 73.9 64.3
Income taxes................................ (4.6) (2.5) (32.8) 34.5 (16.4) (27.3) (24.4)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........................... $ 8.1 $ 4.4 $ 58.2 $ (61.2) $ 29.1 $ 46.6 $ 39.9
========= ========= ========= ========= ========= ========= =========
Basic earnings per share.................... $ .21 $ .11 $ 1.50 $ (1.80) $ .59 $ 1.13 $ 1.01
========= ========= ========= ========= ========= ========= =========
Diluted earnings per share.................. $ .20 $ .11 $ 1.45 $ (1.80) $ .58 $ 1.09 $ .94
========= ========= ========= ========= ========= ========= =========
OTHER OPERATING DATA:
California unit deliveries.................. 1,022 914 4,731 5,171 5,430 6,238 5,745
Other U.S. unit deliveries.................. 1,341 1,102 5,642 4,294 1,800 834 207
France unit deliveries...................... 260 83 1,032 749 574 685 657
Other unit deliveries....................... 6 9 38 35 53 67 155
--------- --------- --------- --------- --------- --------- ---------
Total unit deliveries..................... 2,629 2,108 11,443 10,249 7,857 7,824 6,764
========= ========= ========= ========= ========= ========= =========
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FEBRUARY 28, YEAR ENDED NOVEMBER 30,
--------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Assets:
Construction assets......................... $ 1,139.0 $ 989.3 $ 1,133.9 $ 1,000.2 $ 1,269.2 $ 1,167.2 $ 983.5
Mortgage banking assets..................... 233.2 184.0 285.1 243.3 305.0 287.3 355.9
--------- --------- --------- --------- --------- --------- ---------
Total assets.............................. $ 1,372.2 $ 1,173.3 $ 1,419.0 $ 1,243.5 $ 1,574.2 $ 1,454.5 $ 1,339.4
========= ========= ========= ========= ========= ========= =========
Liabilities and Stockholders' Equity:
Construction liabilities:
Accounts payable, accrued expenses and
other liabilities....................... $ 256.1 $ 192.5 $ 269.0 $ 248.8 $ 246.3 $ 219.0 $ 233.5
Mortgages and notes payable............... 513.3 477.3 496.9 442.6 639.6 565.0 313.4
--------- --------- --------- --------- --------- --------- ---------
769.4 669.8 765.9 691.4 885.9 784.0 546.9
Mortgage banking liabilities................ 212.4 165.0 268.2 210.8 245.4 232.0 304.8
Deferred income taxes....................... -- -- -- -- 24.5 31.4 26.9
Minority interests in consolidated joint
ventures.................................. 2.0 0.8 1.9 0.9 2.9 2.3 16.5
Stockholders' equity........................ 388.4 337.7 383.0 340.4 415.5 404.8 444.3
--------- --------- --------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity.................................. $ 1,372.2 $ 1,173.3 $ 1,419.0 $ 1,243.5 $ 1,574.2 $ 1,454.5 $ 1,339.4
========= ========= ========= ========= ========= ========= =========
</TABLE>
39
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues are primarily generated from the Company's (i) housing operations
in the western United States and France and (ii) its domestic mortgage banking
operations.
FIRST QUARTERS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
RESULTS OF OPERATIONS
OVERVIEW. Total revenues for the three months ended February 28, 1998
increased 22.8% to $426.2 million from $347.2 million for the quarter ended
February 28, 1997 due to higher housing and mortgage banking revenues, partially
offset by lower land revenues. Net income for the first quarter of 1998
increased to $8.1 million or $.20 per share from $4.4 million or $.11 per share
for the same period a year ago. The increase in net income was principally
driven by significantly higher unit deliveries, an improved operating income
margin and lower interest expense, as well as an increase in mortgage banking
pretax income. Despite a modest adverse impact on first quarter California
deliveries related to severe rains, Company-wide housing revenues for the first
quarter of 1998 increased 24.1% from the year-earlier period reflecting a 24.7%
increase in unit deliveries, partially offset by a .5% decline in average
selling price. Mortgage banking pretax income increased 24.4% in the first three
months of 1998 compared to the first three months of 1997 primarily due to a
higher volume of loan closings.
CONSTRUCTION
REVENUES. Revenues increased by $77.7 million, or 22.9%, to $417.3 million
in the first quarter of 1998 from $339.6 million in the first quarter of 1997
due to an increase in housing revenues, partially offset by lower land revenues.
Housing revenues for the period increased by $80.3 million to $414.2 million
from $333.9 million in the year-earlier period as a result of a 24.7% increase
in unit deliveries, partly offset by a .5% decline in average selling price.
Housing revenues in the United States rose to $379.6 million on 2,363 unit
deliveries in the first three months of 1998, compared to $313.8 million on
2,016 units in the first three months of 1997, reflecting increased housing
revenues from both California and Other U.S. operations. California housing
revenues for the first quarter of 1998 rose 18.9% to $218.6 million on 1,022
unit deliveries from $183.8 million on 914 unit deliveries in the year-earlier
period. California unit deliveries increased 11.8% in the first quarter of 1998
from the first quarter of 1997 despite a 16.9% decrease in the average number of
active communities and severe El Nino rains during the quarter. The Company
believes a similar number of deliveries may be postponed in the third quarter
due to land development delays caused by the El Nino rains during the first half
of 1998. Nonetheless, the Company anticipates that, assuming a return to more
normal weather patterns in California, all such delayed deliveries will be
recorded before the end of the 1998 fiscal year, and, accordingly, expects that
El Nino conditions will have no material effect on year-end revenues. Housing
revenues from Other U.S. operations rose 23.8% to $161.0 million in the first
quarter of 1998 from $130.0 million in the first quarter of 1997. Other U.S.
deliveries increased 21.7% to 1,341 units in the first quarter of 1998 from
1,102 units in the first quarter of 1997 as a result of a 38.5% increase in the
average number of active communities. Revenues from French housing operations
during the first quarter of 1998 increased to $32.8 million on 260 unit
deliveries from $17.4 million on 83 units in the prior year's quarter primarily
due to the inclusion of operations of Paris-based SMCI, acquired in the third
quarter of 1997.
During the first quarter of 1998, the Company's overall average selling
price decreased .5% to $157,600 from $158,400 in the prior year's period. This
slight decrease primarily resulted from a lower average selling price in France.
The domestic average selling price rose 3.2% to $160,600 in the first quarter of
1998, reflecting a 6.4% increase in the Company's California average selling
price to $213,900 from $201,100 and a 1.8% increase in the average selling price
in Other U.S. operations to $120,100 from $118,000. These increases occurred as
a result of selected increases in sales prices in certain markets, as well as a
change in product mix favoring a greater number of higher priced urban in-fill
locations and first time move up sales. In France, the average selling price in
the first quarter of 1998 fell 39.9% to $126,300 from $210,000 in the
year-earlier quarter primarily due to the lower priced unit deliveries from the
SMCI developments.
Revenues from land sales totaled $3.1 million in the first quarter of 1998
compared to $5.8 million in the first quarter of 1997.
40
<PAGE> 42
OPERATING INCOME. Operating income increased by $3.4 million to $15.2
million in the first quarter of 1998 from $11.8 million in the first quarter of
1997. As a percentage of construction revenues, operating income increased by .1
percentage point to 3.6% in the first quarter of 1998 compared to 3.5% in the
first quarter of 1997. Gross profits increased by $12.4 million, or 20.6%, to
$72.4 million in the first quarter of 1998 from $60.0 million in the prior
year's period. During this same period, housing gross profits increased by $13.8
million to $72.1 million from $58.3 million. Gross profits as a percentage of
construction revenues decreased to 17.4% in the first quarter of 1998 from 17.7%
in the year-earlier quarter primarily due to a decrease in the Company's housing
gross margin to 17.4% from 17.5%. The decrease in the Company's housing gross
margin resulted from a lower housing gross margin in California due to the
continued sell-through of older, non KB2000 communities, partially offset by an
improved gross margin on new KB2000 deliveries. Company-wide land sales
generated gross profits of $.3 million and $1.8 million in the first quarter of
1998 and 1997, respectively.
Selling, general and administrative expenses increased by $8.9 million, or
18.5%, to $57.2 million in the three months ended February 28, 1998 from $48.3
million in the corresponding 1997 period. As a percentage of housing revenues,
selling, general and administrative expenses improved .7 percentage points to
13.8% in the first quarter of 1998 from 14.5% for the year-earlier period. This
improvement was due to the higher volume of deliveries, as well as lower
advertising and sales incentives, partially offset by higher sales commissions.
INTEREST INCOME AND EXPENSE. Interest income totaled $1.5 million in the
first quarter of 1998 compared to $1.1 million in the first quarter of 1997,
reflecting increases in the interest bearing average balances of short-term
investments and mortgages receivable compared to the same period a year ago.
Interest expense (net of amounts capitalized) decreased by $1.3 million to
$7.1 million in the first quarter of 1998 from $8.4 million in the first quarter
of 1997. Gross interest incurred in the three months ended February 28, 1998 was
$.8 million lower than the year ago period, reflecting a lower average interest
rate as a result of more favorable financing terms obtained by the Company due
to the redemption of its $100 million 10 3/8% senior notes and the issuance of
$175 million of 7 3/4% senior notes in the fourth quarter of 1997. The
percentage of interest capitalized during the three months ended February 28,
1998 and 1997 was 42.2% and 36.3%, respectively. These capitalization rates
reflect the timing and proportion of land in production during the periods.
MINORITY INTERESTS IN PRETAX INCOME OF CONSOLIDATED JOINT VENTURES.
Minority interests in pretax income of consolidated joint ventures totaled $.3
million in the first quarter of 1998 and $.1 million in the first quarter of
1997. Minority interests relate to residential and commercial activities in
France. In the first quarters of 1998 and 1997, minority interests related only
to residential activities. Minority interests are expected to remain at
relatively low levels reflecting the limited opportunities currently available
and reasonably expected to be available in the French commercial market as well
as the Company's strategy to focus on its French residential development
business.
EQUITY IN PRETAX INCOME OF UNCONSOLIDATED JOINT VENTURES. Equity in pretax
income of unconsolidated joint ventures totaled $.2 million in the first quarter
of 1998 compared to the essentially break-even results recorded in the first
quarter of 1997. The Company's joint ventures recorded combined revenues of $4.6
million in the first three months of 1998 compared to $2.5 million in the
corresponding period of 1997. All of the joint venture revenues in the first
quarter of 1998 and 1997 were generated from residential properties.
MORTGAGE BANKING
INTEREST INCOME AND EXPENSE. Interest income and interest expense increased
by $.1 million and $.3 million, respectively, in the first quarter of 1998
compared to the same quarter a year ago. Interest income increased as a result
of the higher balance of first mortgages held under commitment of sale and other
receivables outstanding during the first quarter of 1998 compared to the prior
year's first quarter, while interest expense rose due to the higher balance of
notes payable outstanding during the period.
OTHER MORTGAGE BANKING REVENUES. Other mortgage banking revenues increased
by $1.3 million to $5.3 million in the first three months of 1998 from $4.0
million in the first three months of 1997. This increase
41
<PAGE> 43
was primarily the result of higher gains on the sale of servicing rights due to
an increased level of mortgage originations resulting from higher unit volume in
the United States.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $.4 million to $2.2 million for the quarter ended February 28, 1998
from $1.8 million for the same period a year ago. The increase in general and
administrative expenses was primarily due to increased mortgage production
volume.
INCOME TAXES
Income tax expense totaled $4.6 million in the first quarter of 1998 and
$2.5 million in the prior year's first quarter. These amounts represented an
effective income tax rate of approximately 36% in both 1998 and 1997.
FISCAL YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
RESULTS OF OPERATIONS
OVERVIEW. During fiscal 1997, the Company focused on two primary strategic
initiatives -- acceleration of the Company's growth and the implementation of
its KB2000 operational business model. The excellent progress made by the
Company on these initiatives in 1997 was a key factor in the improvement in
Company-wide revenues and earnings compared to 1996.
Total Company revenues increased to $1.88 billion in 1997, up 5.1% from
$1.79 billion in 1996, which had increased 28.0% from revenues of $1.40 billion
in 1995. The 1997 increase primarily resulted from higher housing revenues,
partially offset by lower land sale revenues. In addition, 1997 results included
a full year's contribution from the Company's San Antonio homebuilding
operations (formerly Rayco, Ltd.); in contrast, 1996 results included only a
nine-month contribution as the Company's acquisition of these operations
occurred on March 1, 1996. The increase in revenues in 1996 compared to 1995
results was largely due to the acquisition of the San Antonio operations, as
well as the continued maturation of the Company's Other U.S. businesses and
higher land sale revenues. Included in total Company revenues were mortgage
banking revenues of $32.7 million in 1997, $31.8 million in 1996 and $29.7
million in 1995.
Net income increased approximately $10.2 million or 21.3% to $58.2 million
or $1.45 per share in 1997, up from $48.0 million or $1.20 per share in 1996,
excluding the after-tax non-cash charge of $109.3 million for impairment of
long-lived assets recorded in 1996. Including the non-cash charge, the Company
recorded a net loss of $61.2 million or $1.54 per share in 1996. Excluding the
charge, 1996 net income of $48.0 million was 65.2% higher than the $29.1 million
or $.73 per share recorded in 1995. Net income increased in 1997 due to higher
unit deliveries, lower net interest expense and higher pretax earnings from the
mortgage banking operations. In addition, earnings for 1997 included a full year
of operating results from the San Antonio operations while 1996 included only
three quarters of results. In 1996, net income, excluding the non-cash charge,
rose due to improved unit deliveries (including three quarters of San Antonio
operations), continued progress in implementing the Company's key 1996
initiatives to improve gross margins and contain costs, and an increase in
pretax income from mortgage banking operations. Mortgage banking pretax income
rose in 1996 primarily due to increased loan volume and higher income from sales
of mortgages and servicing rights stemming from an improved mix of fixed-rate
and variable loans.
As a result of continued domestic expansion outside of California, 54.4% of
the Company's domestic deliveries were generated from Other U.S. operations in
1997, compared to 45.4% in 1996. In response to persistently weak conditions for
new housing and general recessionary trends in California during the first half
of the 1990's, the Company has diversified its business through aggressive
expansion into other western states. Although market conditions appear to have
improved in many markets within California (particularly in Northern
California), the Company remains selective in its land investments in the state
while focusing on improving gross margins, reducing overhead expenses and
improving rates of return. The Company is cautiously optimistic that improving
economic trends statewide will soon lead to stronger housing markets in other
areas of the state and hopes to expand its overall level of business in
California in 1998, 1999 and in subsequent years through increases in the number
of active communities or the acquisition of existing businesses.
42
<PAGE> 44
The Company's domestic operations outside of California experienced
continued growth in 1997, with the Company delivering its first homes in Austin,
Texas. This new source of deliveries combined with the first full year of San
Antonio operations and the continued maturation of non-California operations
resulted in a 31.4% increase in Other U.S. deliveries in 1997 compared to the
prior year. The Company expects to continue to actively seek additional
opportunities for non-California domestic expansion in future years, in both
existing and new markets, through either de novo entry or the acquisition of
existing businesses.
The French housing market improved modestly in 1997 from the prior year,
which was marked by lingering high unemployment and other recessionary factors.
The Company anticipates significant increases in deliveries from its French
housing operations in 1998 in line with the nation's improving economy and as a
result of its mid-1997 acquisition of SMCI developments. The Company's French
commercial activities are likely to remain at or below 1997 levels, reflecting
persistently poor conditions in the French commercial market and the Company's
strategy to focus on its residential development business.
CONSTRUCTION
REVENUES. Construction revenues increased in 1997 to $1.84 billion from
$1.75 billion in 1996, which had increased from $1.37 billion in 1995. The
improvement in 1997 was primarily the result of increased housing revenues,
which included a full year's operating results from the Company's San Antonio
division, partially offset by a decline in revenues from land sales. In 1996,
the increase in revenues primarily reflected the inclusion of $189.2 million in
revenues from nine months of San Antonio operations, continued growth within the
Company's Other U.S. operations and increased land sale revenues.
Housing revenues totaled $1.83 billion in 1997, $1.67 billion in 1996 and
$1.33 billion in 1995. The increase in 1997 reflected an 11.7% increase in unit
volume, partially offset by a 2.2% decline in average selling price. Housing
revenues in 1997 included four quarters of results from the Company's San
Antonio operations versus three quarters in 1996. These operations recorded
revenues of $57.6 million on 611 deliveries in the first quarter of 1997. In
1996, excluding revenues from the San Antonio operations, housing revenues
totaled $1.48 billion, up 11.8% from 1995 as a result of a 4.6% increase in unit
volume and a 6.9% higher average selling price. California housing operations
generated 54.0% of Company-wide housing revenues in 1997, down from 59.6% in
1996 and 72.3% in 1995, reflecting the March 1, 1996 acquisition of the
Company's San Antonio operations and continued diversification beyond
California. Housing revenues from California operations were $986.6 million in
1997, down 1.1% from $997.3 million in 1996. The Company's Other U.S. housing
revenues totaled $669.4 million in 1997, up 30.3% from $513.9 million in 1996.
The 1996 results, which included three quarters of revenues from San Antonio
operations, had more than doubled from $245.4 million in 1995; excluding the San
Antonio results, Other U.S. housing revenues in 1996 totaled $324.7 million, up
32.3% from 1995. The Company's operations in France and Mexico generated housing
revenues of $160.5 million and $10.8 million, respectively, in 1997 and $154.7
million and $6.4 million, respectively, in 1996, reflecting an increase in
international housing deliveries. Housing revenues from French operations
totaled $116.9 million in 1995.
RESIDENTIAL QUARTERLY UNIT AND BACKLOG DATA
<TABLE>
<CAPTION>
OTHER
CALIFORNIA U.S. FRANCE OTHER TOTAL
---------- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
UNIT DELIVERIES
1997
First.......................................... 914 1,102 83 9 2,108
Second......................................... 1,095 1,211 151 8 2,465
Third.......................................... 1,204 1,513 295 4 3,016
Fourth......................................... 1,518 1,816 503 17 3,854
-------- -------- ------- ------ --------
Total.......................................... 4,731 5,642 1,032 38 11,443
======== ======== ======= ====== ========
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
OTHER
CALIFORNIA U.S. FRANCE OTHER TOTAL
---------- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
1996
First.......................................... 1,095 487 96 5 1,683
Second......................................... 1,453 1,265 160 5 2,883
Third.......................................... 1,259 1,307 180 3 2,749
Fourth......................................... 1,364 1,235 313 22 2,934
-------- -------- ------- ------ --------
Total.......................................... 5,171 4,294 749 35 10,249
======== ======== ======= ====== ========
NET ORDERS
1997
First.......................................... 1,077 1,528 140 10 2,755
Second......................................... 1,476 1,681 230 9 3,396
Third.......................................... 1,506 1,599 191 14 3,310
Fourth......................................... 1,134 1,368 513 13 3,028
-------- -------- ------- ------ --------
Total.......................................... 5,193 6,176 1,074 46 12,489
======== ======== ======= ====== ========
1996
First.......................................... 1,292 540 123 21 1,976
Second......................................... 1,577 1,399 241 21 3,238
Third.......................................... 1,395 1,144 104 7 2,650
Fourth......................................... 1,135 968 267 5 2,375
-------- -------- ------- ------ --------
Total.......................................... 5,399 4,051 735 54 10,239
======== ======== ======= ====== ========
ENDING BACKLOG-UNITS
1997
First.......................................... 1,017 2,182 272 15 3,486
Second......................................... 1,398 2,652 351 16 4,417
Third.......................................... 1,700 2,738 576 26 5,040
Fourth......................................... 1,316 2,290 586 22 4,214
-------- -------- ------- ------ --------
1996
First.......................................... 823 599 256 27 1,705
Second......................................... 947 2,186 337 27 3,497
Third.......................................... 1,083 2,023 261 31 3,398
Fourth......................................... 854 1,756 215 14 2,839
-------- -------- ------- ------ --------
ENDING BACKLOG-VALUE (IN THOUSANDS)
1997
First.......................................... $219,908 $248,835 $56,783 $4,290 $529,816
Second......................................... 288,719 307,977 66,582 4,224 667,502
Third.......................................... 377,332 321,007 71,041 8,320 777,700
Fourth......................................... 303,050 274,591 82,750 6,270 666,661
-------- -------- ------- ------ --------
1996
First.......................................... $153,074 $86,880 $51,820 $4,948 $296,722
Second......................................... 182,718 236,970 72,215 5,265 497,168
Third.......................................... 225,486 229,348 55,236 7,595 517,665
Fourth......................................... 180,513 196,195 47,603 3,584 427,895
-------- -------- ------- ------ --------
</TABLE>
Housing deliveries rose 11.7% to 11,443 units in 1997, exceeding the
previous Company-wide record of 10,249 units in 1996. This improvement reflected
increases in U.S. and French operations of 9.6% and 37.8%, respectively. Growth
in domestic deliveries was driven by a 31.4% increase in Other U.S. deliveries
to 5,642 units in 1997 from 4,294 units in 1996, partially offset by a decline
in California deliveries. Unit deliveries in Other U.S. operations increased in
1997 for several reasons: a higher number of average active
44
<PAGE> 46
communities, reflecting the Company's growth strategy; the inclusion of twelve
months of operating results from the San Antonio division; and start-up
operations in Austin. In California, deliveries decreased 8.5% in 1997, to 4,731
units from 5,171 units in 1996, reflecting a decline in the average number of
active communities in the state. In France, deliveries in 1997 increased
primarily as a result of the acquisition of certain active developments of
French homebuilder SMCI. These developments, which consist of condominiums in
Paris and other cities in France, were acquired in the third quarter of 1997 for
$2.2 million in cash and the assumption of approximately $8.1 million of debt.
Housing deliveries increased to 10,249 units in 1996 from 7,857 units in
1995. Excluding 2,027 San Antonio deliveries, Company-wide deliveries in 1996
increased 4.6% from the prior year, reflecting increases in U.S. and French
operations of 2.9% and 30.5%, respectively. The modest increase in domestic
deliveries was driven by a 25.9% rise in Other U.S. deliveries, reflecting the
Company's accelerated expansion into domestic markets beyond California. Other
U.S. deliveries in 1996 increased to 2,267 units from 1,800 units in 1995, while
California deliveries decreased 4.8% to 5,171 units in 1996 from 5,430 units in
1995.
The Company-wide average new home price decreased 2.2% in 1997, to $159,700
from $163,300 in 1996. The 1996 average had decreased 3.3% from $168,900 in
1995. The decrease in 1997 was primarily due to a lower average selling price in
France resulting from SMCI deliveries, as well as a greater proportion of
lower-priced homes sold in the Company's Other U.S. business. The decrease in
1996 reflected a lower average selling price in the United States, resulting
primarily from the inclusion of the San Antonio operations acquired that year.
In California, the Company's average selling price rose 8.1% in 1997 to
$208,500 from $192,900 in 1996, which had increased 9.1% from $176,800 in 1995.
The increases in both years reflected a shift in mix toward higher-priced homes
in the state. The Company's average selling price in Other U.S. markets was
$118,700 in 1997, down from $119,700 in 1996 and $136,300 in 1995. Both
decreases reflected the impact of the San Antonio operations. These operations
had average selling prices of $94,700 and $93,400 in 1997 and 1996,
respectively, substantially below the Company's average. The Company's average
selling price in France decreased to $155,500 in 1997 from $206,600 in 1996,
which was up modestly from $203,700 in 1995. The average selling price in France
declined in 1997 because of lower-priced deliveries generated from the newly
acquired SMCI developments. In 1996, the French average price rose slightly due
to a change in product mix.
Revenues from the development of commercial buildings, all located in
metropolitan Paris, totaled $2.7 million in 1997, $12.2 million in 1996 and
$20.5 million in 1995. These significant revenue declines reflected reduced
opportunities in French commercial markets due to the lingering effects of the
country's recession, as well as the Company's strategy to focus primarily on its
residential development business.
Land sale revenues totaled $13.6 million in 1997, $68.2 million in 1996 and
$18.2 million in 1995. The results for 1997 and 1995 are more representative of
typical Company land sales activity levels when viewed historically. The 1996
results were abnormally high due to an aggressive asset sale program undertaken
as part of the Company's debt reduction strategy. Land sold in 1996 was
primarily property previously held for long-term development, which the Company
disposed of in order to redeploy the invested capital at potentially higher
returns. Generally, land sale revenues fluctuate based on the Company's decision
to maintain or decrease its land ownership position in certain markets, the
strength and number of competing developers entering particular markets at given
points in time, the availability of land in markets served by the Company's
housing divisions, and prevailing market conditions.
OPERATING INCOME. Operating income increased to $101.8 million in 1997
from $98.7 million (excluding the $170.8 million non-cash charge for impairment
of long-lived assets) in 1996. The increase was primarily due to higher housing
gross profits, resulting from higher unit volume, partially offset by lower
gross profits from commercial activities and losses from land sales. Gross
profits in 1997 (excluding losses from land sales) increased by $15.7 million to
$332.2 million from $316.5 million in 1996. As a percentage of related revenues,
the Company's gross profit margin (excluding losses from land sales) was 18.2%
in 1997, down from 18.8% in the prior year. The Company's housing gross margin
dropped to 18.2% in 1997 from 18.7% in 1996, primarily due to the accelerated
sell-through of older, lower margin non-KB2000 communities, particularly in
California, and lower margins associated with the Company's entry into new
markets in Austin and Dallas, Texas, partially offset by an improved gross
margin from new KB2000 communities.
45
<PAGE> 47
Company-wide land sales produced a loss of $1.4 million in 1997, compared
to profits of $2.6 million in 1996.
Selling, general and administrative expenses increased by $8.7 million in
1997 to $229.1 million. This increase was primarily due to the inclusion of a
full year of results from the San Antonio operations in 1997 (including
amortization of goodwill) compared to nine months of results in 1996, and higher
sales commissions, partially offset by cost-containment efforts that reduced
sales incentives and advertising expenses. As a percentage of housing revenues,
to which these expenses are most closely correlated, selling, general and
administrative expenses decreased .7 percentage points to 12.5% in 1997 from
13.2% in 1996. This improvement reflected higher unit volume as well as more
favorable ratios for sales incentives, advertising expenses and general and
administrative expenses. These improvements were partially offset by increased
sales commissions associated with a higher proportion of the Company's domestic
sales being generated from third party brokers; increased use of third party
brokers is a component of the KB2000 business model. The Company remains focused
on improving efficiency and will seek to reduce selling, general and
administrative expenses to the extent possible in 1998.
Excluding the $170.8 million non-cash charge for impairment of long-lived
assets recorded in the second quarter of 1996, operating income in 1996
increased by $33.2 million or 50.6% to $98.7 million from $65.5 million in 1995.
This increase was primarily due to higher gross profits on housing sales,
resulting from both higher unit volume and improved margins, mainly due to the
inclusion of three quarters of San Antonio operations. Including the non-cash
charge, the Company reported an operating loss of $72.1 million in 1996. Gross
profits in 1996 (excluding profits from land sales) increased by $74.3 million
to $316.5 million from $242.2 million in 1995. As a percentage of related
revenues, the Company's gross profit margin (excluding profits from land sales)
was 18.8% in 1996, up from 18.0% in the prior year. The Company's housing gross
margin increased to 18.7% in 1996 from 17.9% in 1995, primarily reflecting the
addition of the San Antonio operations and continued growth in the Company's
higher margin operations in its Other U.S. markets.
Despite an increase in land sale revenues in 1996, Company-wide profits
from these sales decreased by $2.7 million to $2.6 million from $5.3 million in
1995. The decrease reflected the Company's accelerated disposition of certain
real estate assets, many of which were written down to fair value in 1996 in
order to reduce financial leverage and redeploy capital to improve overall
return on investment.
Selling, general and administrative expenses increased by $38.5 million in
1996. This increase was primarily due to the inclusion of three quarters of San
Antonio operations which added $25.9 million of selling, general and
administrative expenses (including the amortization of goodwill), as well as
higher marketing expenses generated by increased unit volume from the Company's
remaining operations. As a percentage of housing revenues, selling, general and
administrative expenses declined .5 percentage points to 13.2% in 1996 from
13.7% in 1995. This improvement reflected higher unit volume, primarily as a
result of the 1996 acquisition of the San Antonio operations, and more favorable
ratios for sales incentives, advertising expenses and general and administrative
expenses, partially offset by increased sales commissions associated with a
higher proportion of third party broker commissions.
In the second quarter of 1996, the Company decided to accelerate the
disposition of certain real estate assets in order to help effectuate the
Company's strategies to improve overall return on investment, restore financial
leverage to targeted levels, and position the Company for continued geographic
expansion. In addition, in 1996, the Company substantially eliminated its prior
practice of investing in long term development projects in order to reduce the
operating risk associated with such projects. The accelerated disposition of
long term development assets caused certain assets, primarily inventories and
investments in unconsolidated joint ventures in California and France, to be
identified as being impaired and to be written down. Certain of the Company's
California properties were impacted by the charge, while none of its
non-California domestic properties were affected. The Company's non-California
domestic properties were not affected since they were not held for long term
development and were expected to be economically successful such that they were
determined not to be impaired.
Based on the Company's evaluation of impaired assets, a non-cash write-down
of $170.8 million ($109.3 million, net of income taxes) was recorded in the
second quarter of 1996 to state the impaired assets at their fair values. The
fair values established were based on various methods, including discounted cash
flow
46
<PAGE> 48
projections, appraisals and evaluations of comparable market prices, as
appropriate. The inventories affected by the charge primarily consisted of land
which was not under active development and the charge did not have a material
effect on gross margins in the balance of 1996 or in 1997.
The write-down for impairment of long-lived assets was calculated in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("SFAS No. 121"), which the Company decided to adopt in the second quarter
of 1996; however, the write-down was not necessitated by implementation of this
standard. Had the Company not adopted SFAS No. 121, a substantial write-down
would have nonetheless been recorded. SFAS No. 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable, and
requires impairment losses to be recorded on long-lived assets when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Under the standard, when an impairment write-down is required, the related
assets are adjusted to their estimated fair value. Fair value for purposes of
SFAS No. 121 is deemed to be the amount a willing buyer would pay a willing
seller for such property in a current transaction, that is, other than in a
forced or liquidation sale. This is a change from the previous accounting
standard which required home builders to carry real estate assets at the lower
of cost or net realizable value.
INTEREST INCOME AND EXPENSE. Interest income, which is generated from
mortgages receivable, principally from land sales, and from short-term
investments, amounted to $5.1 million in 1997, $2.7 million in 1996 and $2.1
million in 1995. The higher interest income in 1997 reflected an increase in the
average balances of interest bearing mortgages receivable compared to a year
ago. Interest income in 1996 reflected little change from the 1995 average
balances of interest bearing short-term investments and mortgages receivable.
Interest expense results principally from borrowings to finance land
purchases, housing inventory, and other operating and capital needs. In 1997,
interest expense, net of amounts capitalized, decreased to $29.8 million from
$36.7 million in 1996. Gross interest incurred in 1997 was lower than that
incurred in 1996 by $11.2 million, reflecting a decrease in average indebtedness
in 1997. The Company's average debt level for 1997 decreased primarily as a
result of the Company's 1996 debt reduction strategy. The percentages of
interest capitalized during 1997 and 1996 were 43.1% and 42.3%, respectively.
These rates reflect the timing and proportion of land in production during each
period. In 1996, interest expense, net of amounts capitalized, increased to
$36.7 million from $27.5 million in the prior year, largely due to a decline in
the percentage of interest capitalized (42.3% versus 57.4% capitalized in 1995).
The lower capitalization rate during 1996 reflected a higher proportion of land
in production that year compared to 1995 and the non-capitalization of interest
on borrowings associated with the San Antonio acquisition.
MINORITY INTERESTS IN PRETAX INCOME OF CONSOLIDATED JOINT VENTURES. The
Company conducts a portion of both its residential and commercial development
activities through majority-owned partnerships, primarily in France, which are
fully consolidated in the accompanying financial statements. As a result,
operating income has been reduced by minority interests in the pretax income of
these partnerships of $.4 million in 1997, $.2 million in 1996 and $.6 million
in 1995.
EQUITY IN PRETAX INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES. The
Company's unconsolidated joint-venture activities, located in California, New
Mexico and France, posted combined revenues of $98.2 million in 1997, $6.7
million in 1996 and $33.9 million in 1995. Of these amounts, French commercial
activities accounted for $87.7 million in 1997, $.1 million in 1996 and $5.9
million in 1995. Combined revenues recorded by the Company's joint ventures
increased in 1997 primarily as a result of the sale of a commercial project in
France. The Company's unconsolidated joint ventures generated combined pretax
losses of $2.9 million in 1997, $14.8 million in 1996 and $20.5 million in 1995.
Losses in 1996 and 1995 primarily consisted of selling, general, administrative
and interest expenses associated with a single French multi-family residential
project, as well as reserves taken on a French commercial development project.
The Company's share of pretax losses from these joint ventures totaled $.1
million in 1997, $2.1 million in 1996, and $3.5 million in 1995. Overall, the
Company's share of pretax losses from unconsolidated joint ventures declined in
1997 and 1996 due to a lower level of activity from these ventures and the
effects of charges taken in previous years. As a result of the non-cash charge
taken in 1996 to reflect the impairment in unconsolidated
47
<PAGE> 49
joint ventures, the Company does not anticipate incurring significant additional
losses from these joint ventures in the foreseeable future.
MORTGAGE BANKING
INTEREST INCOME AND EXPENSE. The Company's mortgage banking operations
provide financing to purchasers of homes sold by the Company's domestic housing
operations through the origination of residential mortgages. Revenues are also
realized from the sale of such mortgages and related servicing rights to outside
financial institutions. Prior to 1989, substantially all such mortgages were
pledged for collateralized mortgage obligations. Accordingly, interest income is
earned primarily from mortgage-backed securities held for long-term investment
as collateral, while interest expense results mainly from the associated
collateralized mortgage obligations.
Interest income decreased to $13.3 million in 1997 from $14.6 million in
1996, and $15.6 million in 1995, while interest expense also declined to $12.7
million in 1997 from $13.5 million in 1996, and $14.8 million in 1995. These
amounts decreased primarily due to the declining balances of outstanding
mortgage-backed securities and related collateralized mortgage obligations,
stemming from both regularly scheduled, monthly principal amortization and
prepayment of mortgage collateral. These balances, and the related interest
income and expense, will continue to decline as the Company's practice of
participating in collateralized mortgage financings was discontinued in 1988 due
to market conditions and tax law changes. Combined interest income and expense
resulted in net interest income of $.6 million in 1997, $1.1 million in 1996 and
$.8 million in 1995. These differences reflect variations in mortgage production
mix; movements in short-term versus long-term interest rates; and the amount,
timing and rates of return on interim reinvestments of monthly principal
amortization and prepayments.
OTHER MORTGAGE BANKING REVENUES. Other mortgage banking revenues, which
principally consist of gains on sales of mortgages and servicing rights and, to
a lesser extent, mortgage servicing fees, totaled $19.4 million in 1997, $17.2
million in 1996 and $14.1 million in 1995. The increases in 1997 and 1996
reflected higher gains on the sales of mortgages and servicing rights due to a
higher volume of mortgage originations associated with increases in housing unit
volume in the United States. In 1996, a more favorable mix of fixed to variable
rate loans also contributed to the increased revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for mortgage banking operations have remained relatively constant at $5.5
million in 1997, $5.6 million in 1996 and $5.5 million in 1995, despite
increases in the volume of loans closed.
INCOME TAXES
The Company recorded income tax expense of $32.8 million in 1997 and $16.4
million in 1995 and an income tax benefit of $34.5 million in 1996. These
amounts represented effective income tax rates of approximately 36.0% in all
three years. The tax benefit in 1996 reflected the pretax loss reported by the
Company as a result of the non-cash charge for impairment of long-lived assets
recorded in the second quarter of that year. The pretax income/loss for
financial reporting purposes and taxable income/loss for income tax purposes
historically have differed primarily due to the impact of state income taxes,
foreign tax rate differences, intercompany dividends and the use of affordable
housing credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses its liquidity in terms of its ability to generate cash
to fund its operating and investing activities. Historically, the Company has
funded its construction and mortgage banking activities with internally
generated cash flows and external sources of debt and equity financing. In the
first quarter of 1998, net cash used by operating, investing and financing
activities totaled $27.0 million compared to $1.3 million provided in the prior
year's first quarter.
Operating activities provided $18.7 million of cash during the first three
months of 1998 compared to $11.8 million provided during the same period of
1997. The Company's sources of operating cash in the first quarter of 1998
included a reduction in receivables of $70.9 million and first quarter earnings
of $8.1 million. Uses of cash during the first three months of 1998 included net
investments of $43.3 million in inventories
48
<PAGE> 50
(excluding $4.7 million of inventories acquired through seller financing) and a
$14.7 million decrease in accounts payable, accrued expenses and other
liabilities. Inventories increased, primarily in California and Other U.S.
operations, as the Company continued its accelerated growth strategy in certain
markets. The reduction in receivables related primarily to a lower balance of
mortgages held under commitment of sale due to lower mortgage origination volume
in the first quarter of 1998 compared to the fourth quarter of 1997.
Operating activities for the first quarter of 1997 provided $49.6 million
of cash from a reduction in receivables, $20.4 million from a reduction in
inventories and $4.4 million from first quarter earnings. The cash provided was
partially offset by cash used to pay down $57.7 million in accounts payable,
accrued expenses and other liabilities. The reduction in receivables related
primarily to a decrease in mortgage origination volume in the first quarter of
1997 compared to the fourth quarter of 1996. Inventories decreased, primarily in
California, where the Company benefitted by remaining selective with regard to
new investment in its home state.
Cash provided by investing activities was essentially zero in the first
quarter of 1998 compared to $2.7 million provided in the year-earlier period. In
the first quarter of 1998, cash was provided from $2.1 million in proceeds
received from mortgage-backed securities, which were principally used to pay
down the collateralized mortgage obligations for which the mortgage-backed
securities have served as collateral, $1.0 million in distributions related to
investments in unconsolidated joint ventures and $.5 million from net sales of
mortgages held for long-term investment. The cash provided was offset by $3.6
million used for other investing activities. In the first quarter of 1997, cash
was provided from $2.1 million in proceeds received from mortgage-backed
securities and $.6 million in distributions related to investments in
unconsolidated joint ventures.
Financing activities in the first three months of 1998 used $45.7 million
of cash, while first quarter 1997 financing activities used $13.1 million. In
the first quarter of 1998, cash was used for net payments on borrowings of $40.7
million, payments on collateralized mortgage obligations of $2.0 million and
cash dividend payments of $2.9 million. Financing activities in 1997's first
quarter resulted in net cash outflows due mainly to net payments on borrowings
of $8.3 million, payments on collateralized mortgage obligations of $1.8 million
and cash dividend payments of $2.9 million.
External sources of financing for the Company's construction activities
include the Credit Facility, other domestic and foreign bank lines, third-party
secured financings, and the public debt and equity markets. Substantial unused
lines of credit remain available for the Company's future use, if required,
principally through the Credit Facility. The Credit Facility is comprised of a
$400 million revolving credit facility scheduled to expire on April 30, 2001 and
a $100 million 364-day revolving credit facility.
The principal sources of liquidity for the Company's mortgage banking
operations are internally generated funds from the sales of mortgages and
related servicing rights. Mortgages originated by the mortgage banking
operations are generally sold in the secondary market within 60 days of
origination. External sources of financing for these operations include a
secured $250 million revolving mortgage warehouse facility.
As of February 28, 1998, no borrowings were outstanding under the Credit
Facility. The Company's French unsecured financing agreements totaling $52.1
million had in the aggregate $23.6 million available at February 28, 1998. In
addition, the Company's mortgage banking operation had $101.6 million available
under its secured $250 million revolving mortgage warehouse facility at
quarter-end. The Company's financial leverage, as measured by the ratio of debt
to total capital, was 56.9% at the end of the 1998 first quarter compared to
58.6% at the end of the 1997 first quarter. Adjusted to reflect the $31.6
million of invested cash at February 28, 1998, the Company's ratio of debt to
total capital at the end of the 1998 first quarter was 55.4%. Subsequent to the
end of the first quarter of 1998, the Company acquired three homebuilding
companies for purchase prices aggregating to approximately $167 million,
including the assumption of debt. These acquisitions were financed by the Credit
Facility.
On December 5, 1997, the Company filed a universal shelf registration
statement with the Securities and Exchange Commission for up to $500 million of
the Company's debt and equity securities. The universal shelf registration
provides that securities may be offered from time to time in one or more series
and in the form of senior, senior subordinated or subordinated debt, preferred
stock, common stock, and/or warrants to purchase
49
<PAGE> 51
such securities. The registration was declared effective on December 16, 1997,
and no securities have been issued thereunder.
The Company believes it has adequate resources and sufficient credit line
facilities to satisfy its current and reasonably anticipated future requirements
for funds to acquire capital assets and land, to construct homes, to fund its
mortgage banking operations and to meet other anticipated needs of its business,
both on a short and long-term basis. However, the Company may be required to
obtain additional external financing to repay its indebtedness as it becomes
due.
IMPACT OF THE YEAR 2000 ISSUE
The "year 2000 issue" refers to complications that may be caused by
existing computer hardware and software that were designed without consideration
for the upcoming change in the century. If not corrected, such programs may
cause computer systems to fail or to miscalculate data. To prevent any
complications related to the year 2000 issue, the Company has undertaken a
project to modify or replace portions of its existing hardware and software so
that its computer systems will function properly with respect to dates in the
year 2000 and thereafter. Management currently anticipates that the project will
be completed by the end of fiscal 1998, and that the year 2000 issue will not
have a materially adverse effect upon the Company's financial position or
results of operations.
OUTLOOK
The Company's residential backlog as of February 28, 1998 consisted of
5,301 units, representing aggregate future revenues of approximately $799.1
million, up 52.1% and 50.8%, respectively, from 3,486 units, representing
aggregate future revenues of approximately $529.8 million as of February 28,
1997. The backlog units and value at February 28, 1998 were the highest of any
quarter-end backlog in the Company's history. Company-wide net orders for the
first three months of 1998 totaled 3,716, up 34.9% compared to the 2,755 net
orders in the first three months of 1997.
The Company's domestic operations accounted for approximately $700.8
million of backlog value on 4,574 units at February 28, 1998, up from
approximately $468.7 million on 3,199 units at February 28, 1997, reflecting
higher backlogs from both California and Other U.S. operations. Backlog in
California increased to approximately $337.4 million on 1,563 units at February
28, 1998 from $219.9 million on 1,017 units at February 28, 1997 as net orders
increased 17.8% to 1,269 in the first quarter from 1,077 for the same quarter a
year ago. The Company's Other U.S. operations also demonstrated year-over-year
growth in backlog levels with approximately $363.3 million in backlog, based on
3,011 units at February 28, 1998, up from $248.8 million on 2,182 units at
February 28, 1997, reflecting a 34.9% increase in Other U.S. net orders to 2,062
in the first quarter of 1998 from 1,528 in the year-earlier quarter. The
year-over-year growth in total domestic backlog units and value resulted
primarily from improved absorption rates and the Company's emphasis on
pre-sales. Improved market conditions in California and the success of the
Company's communities designed under its KB2000 operational business model also
contributed to the increase in backlog levels in the United States. The average
number of active communities in the Company's domestic operations for the first
quarter of 1998 was up 5.4% from the same quarter a year ago, as a decrease of
16.9% in California was more than offset by an increase of 38.5% in Other U.S.
operations.
In France, the value of residential backlog at February 28, 1998 was
approximately $89.3 million on 696 units, up from $56.8 million on 272 units a
year earlier. The Company's net orders in France increased by 164.3% to 370 in
the first quarter of 1998 from 140 net orders in the first quarter of 1997
primarily due to the acquisition of Paris-based SMCI in the third quarter of
1997. The value of backlog associated with the Company's French commercial
development activities declined to approximately $4.1 million at February 28,
1998 from $10.6 million at February 28, 1997, reflecting a reduced level of
activity.
In Mexico, the value of residential backlog at February 28, 1998 was
approximately $9.1 million on 31 units compared to $4.3 million on 15 units at
February 28, 1997. Operations in Mexico generated 15 net orders in the first
quarter of 1998, an increase from the 10 net orders generated in the same period
a year ago. Mexico's economy has shown signs of recovering from the country's
recent deep recession brought about by
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the devaluation of the peso. Consequently, the Company is considering additional
investment opportunities in Mexico.
Substantially all of the homes included in residential backlog at February
28, 1998 are expected to be delivered in 1998; however, cancellations could
occur, particularly if market conditions deteriorate or mortgage interest rates
increase, thereby decreasing backlog and related future revenues.
The Company continues to benefit in all of its operations from the strength
of its capital position, which has allowed it to finance expansion, re-engineer
product lines and diversify into new homebuilding markets during the 1990's.
Access to capital at competitive rates should enable the Company to continue to
grow and expand in 1998. The Company's capital position has helped enable it to
maintain overall profitability during troubled economic times in California and
France, its two primary markets at the outset of the decade. As a result of its
geographic diversification, the disciplines of the KB2000 business model and a
strong capital position, the Company believes it has established strategies to
help maximize future performance under both robust and difficult market
conditions.
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ACCOUNTING TREATMENT
Under generally accepted accounting principles, alternatives exist with
respect to the accounting treatment and presentation of the Capital Securities
in the Company's consolidated financial statements. This Prospectus assumes the
following treatment: The financial statements of the Trust will be reflected in
the Company's consolidated financial statements, with the Capital Securities
shown on the Company's balance sheet under the caption "Company obligated
mandatorily redeemable preferred securities of subsidiary trust holding solely
debentures of the Company." The financial statement footnotes to the Company's
consolidated financial statements will reflect that the sole asset of the Trust
will be the Debentures. Distributions on the Capital Securities will be
reflected as a charge to the Company's consolidated income, identified as
Minority Interest in Net Income of Consolidated Subsidiaries, whether paid or
accrued.
The Company may elect an alternative accounting treatment for the Capital
Securities. Such treatment would involve the following: The financial statements
of the Trust would be reflected in the Company's consolidated financial
statements, with the Capital Securities shown as debt on the Company's balance
sheet. The financial statement footnotes to the Company's consolidated financial
statements would reflect that the sole asset of the Trust would be the
Debentures. Distributions on the Capital Securities would be reflected as a
charge to the Company's consolidated income, identified as Interest Expense,
whether paid or accrued.
The Purchase Contracts are forward transactions in the Company's Common
Stock. Under generally accepted accounting principles, the Purchase Contracts
(which include Contract Adjustment Payments, if any) will be valued at fair
value at the date of issuance. Upon settlement of a Purchase Contract, the
Company will receive the Stated Amount on such Purchase Contract and will issue
the requisite number of shares of Common Stock. The Stated Amount thus received
will be credited to stockholders' equity allocated between common stock and
paid-in capital accounts.
Prior to the issuance of shares of Common Stock upon settlement of the Purchase
Contracts, it is anticipated that the FELINE PRIDES will be reflected in the
Company's earnings per share calculations using the treasury stock method. Under
this method, the number of shares of Common Stock used in calculating earnings
per share is deemed to be increased by the excess, if any, of the number of
shares issuable upon settlement of the Purchase Contracts over the number of
shares that could be purchased by the Company in the market (at the average
market price during the period) using the proceeds receivable upon settlement.
Consequently, it is anticipated there will be no dilutive effect on the
Company's earnings per share except during periods when the average market price
of Common Stock is above the Threshold Appreciation Price.
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DESCRIPTION OF THE FELINE PRIDES
The summaries of certain provisions of documents described below do not
purport to be complete, and in each instance reference is hereby made to the
copies of the forms of such documents (including the definitions therein of
certain terms) which are on file with the Commission and copies of which may be
obtained as described under "Available Information". Wherever particular
sections of, or terms defined in, such documents are referred to herein, such
sections or defined terms are incorporated by reference herein. As used under
this caption, references to the Company mean Kaufman and Broad Home Corporation
excluding, unless otherwise expressly stated or the context otherwise requires,
its subsidiaries.
Each FELINE PRIDES will be issued under the Purchase Contract Agreement
between the Company and the Purchase Contract Agent. The FELINE PRIDES offered
hereby initially will consist of (A) units referred to as Income
PRIDES with a Stated Amount per Income PRIDES equal to $10 and (B)
units referred to as Growth PRIDES with a Stated Amount per Growth PRIDES equal
to $10. Each Income PRIDES will initially consist of a unit comprised of (a) a
Purchase Contract under which (i) the holder (including, initially, an
Underwriter) will purchase from the Company not later than the Purchase Contract
Settlement Date, for an amount of cash equal to the Stated Amount, a number of
newly issued shares of Common Stock equal to the Settlement Rate described below
under "Description of the Purchase Contracts -- General," and (ii) the Company
will pay Contract Adjustment Payments, if any, to the holder at the rate of
% of the Stated Amount per annum, and (b) (i) a beneficial ownership
interest in a related Capital Security, having a stated liquidation amount per
Capital Security equal to the Stated Amount, representing an undivided
beneficial ownership interest in the assets of the Trust, which will consist
solely of the Debentures, (ii) in the case of a distribution of the Debentures
upon the dissolution of the Trust as a result of an Investment Company Event, as
described below, or otherwise, Debentures having a principal amount equal to the
stated liquidation amount of the Capital Securities or (iii) upon the occurrence
of a Tax Event Redemption prior to the Purchase Contract Settlement Date, the
appropriate Applicable Ownership Interest in the Treasury Portfolio. "Applicable
Ownership Interest" means, with respect to an Income PRIDES and the U.S.
Treasury Securities in the Treasury Portfolio, (A) a 1/100, or 1%, undivided
beneficial ownership interest in a $1,000 principal or interest amount of a
principal or interest strip in a U.S. Treasury Security included in such
Treasury Portfolio which matures on or prior to , 2001 and (B) for
each scheduled interest payment date on the Debentures that occurs after the Tax
Event Redemption Date, a % undivided beneficial ownership interest in a
$1,000 face amount of such U.S. Treasury Security which is a principal or
interest strip maturing on such date.
Each Growth PRIDES will consist of a unit comprised of (a) a Purchase
Contract under which (i) the holder will purchase from the Company not later
than the Purchase Contract Settlement Date, for an amount in cash equal to the
Stated Amount, a number of newly issued shares of Common Stock of the Company
equal to the Settlement Rate, and (ii) the Company will pay to the holder
Contract Adjustment Payments, if any, at the rate of % of the Stated Amount
per annum, and (b) a 1/100 undivided beneficial ownership interest in a
zero-coupon U.S. Treasury Security.
The purchase price of each FELINE PRIDES will be allocated between the
related Purchase Contract and the related Capital Security or interest in a
Treasury Security in proportion to their respective fair market values at the
time of purchase. The Company expects that the entire purchase price of a FELINE
PRIDES will be allocated to the related Capital Security or interest in a
Treasury Security and that no amount will be allocated to the related Purchase
Contract. Such position generally will be binding on each beneficial owner of
each Income PRIDES (but not on the IRS). See "Federal Income Tax
Consequences -- FELINE PRIDES -- Allocation of Purchase Price." As long as a
FELINE PRIDES is in the form of an Income PRIDES or Growth PRIDES, the related
Capital Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio or the Treasury Securities, as applicable, will be pledged to
the Collateral Agent to secure the holder's obligation to purchase Common Stock
under the related Purchase Contracts.
CREATING GROWTH PRIDES
Each holder of Income PRIDES (unless a Tax Event Redemption has occurred)
will have the right, at any time on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date,
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to substitute for the related Capital Securities held by the Collateral Agent
Treasury Securities in an aggregate principal amount at maturity equal to the
aggregate stated liquidation amount of such Capital Securities, thereby creating
Growth PRIDES. Because Treasury Securities are issued in integral multiples of
$1,000, holders of Income PRIDES may make such substitution only in integral
multiples of 100 Income PRIDES; provided, however, if a Tax Event Redemption has
occurred prior to the Purchase Contract Settlement Date and the Treasury
Portfolio has become a component of the Income PRIDES, holders of such Income
PRIDES may make such substitutions only in integral multiples of 4,000,000
Income PRIDES (but obtaining the release of the appropriate Applicable Ownership
Interest in the Treasury Portfolio rather than the Capital Securities), at any
time on or prior to the second Business Day immediately preceding the Purchase
Contract Settlement Date. Holders wishing to make such substitution must hold at
least 4,000,000 Income PRIDES. To create 100 Growth PRIDES, (unless a Tax Event
Redemption has occurred), the Income PRIDES holder will (a) deposit with the
Collateral Agent a Treasury Security having a principal amount at maturity of
$1,000 and (b) transfer 100 Income PRIDES to the Purchase Contract Agent
accompanied by a notice stating that such Income PRIDES holder has deposited a
Treasury Security with the Collateral Agent and requesting that the Purchase
Contract Agent instruct the Collateral Agent to release to such holder the 100
Capital Securities relating to such 100 Income PRIDES. In the event that
Contract Adjustment Payments, if any, are at a higher rate for Growth PRIDES
than for Income PRIDES, holders of Income PRIDES wishing to create Growth PRIDES
will also be required to deliver cash in an amount equal to the excess of the
Contract Adjustment Payments, if any, that would have accrued since the last
Payment Date on which Contract Adjustment Payments have been paid to the date of
substitution on the Growth PRIDES being created by such holders, over the
Contract Adjustment Payments, if any, that have accrued over the same time
period on the related Income PRIDES. Upon such deposit and receipt of an
instruction from the Purchase Contract Agent, the Collateral Agent will effect
the release of the related 100 Capital Securities from the pledge under the
Pledge Agreement free and clear of the Company's security interest therein to
the Purchase Contract Agent, which will (i) cancel the 100 Income PRIDES, (ii)
transfer the 100 related Capital Securities to such holder and (iii) deliver 100
Growth PRIDES to the holder. The Treasury Security will be substituted for the
Capital Securities and will be pledged with the Collateral Agent to secure the
holder's obligation to purchase Common Stock under the related Purchase
Contracts. The related Capital Securities released to the holder thereafter will
trade separately from the resulting Growth PRIDES. Contract Adjustment Payments,
if any, will be payable by the Company on such Growth PRIDES on each Payment
Date from the later of , 1998 (the "Original Issue Date") and the last
Payment Date on which Contract Adjustment Payments, if any, were paid. In
addition, OID will accrue on the related Treasury Securities.
CREATING INCOME PRIDES
Each holder of a Growth PRIDES (unless a Tax Event Redemption has occurred)
will have the right, at any time on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date, to substitute for
the related Treasury Securities held by the Collateral Agent Capital Securities
in an aggregate stated liquidation amount equal to the aggregate principal
amount at stated maturity of such Treasury Securities, thereby creating Income
PRIDES. Because Treasury Securities are issued in integral multiples of $1,000,
holders of Growth PRIDES may make such substitutions only in integral multiples
of 100 Growth PRIDES; provided, however, if a Tax Event Redemption has occurred
and the Treasury Portfolio has become a component of the Income PRIDES, holders
of the Growth PRIDES may make such substitution only in integral multiples of
4,000,000 Growth PRIDES at any time on or prior to the second Business Day
immediately preceding the Purchase Contract Settlement Date. Holders wishing to
make such substitution must hold at least 4,000,000 Growth PRIDES. To create 100
Income PRIDES (unless a Tax Event Redemption has occurred), the Growth PRIDES
holder will (a) deposit with the Collateral Agent 100 Capital Securities (which
Capital Securities must be purchased by such holder in the open market at such
holder's expense) and (b) transfer 100 Growth PRIDES certificates to the
Purchase Contract Agent accompanied by a notice stating that such Growth PRIDES
holder has deposited 100 Capital Securities with the Collateral Agent and
requesting that the Purchase Contract Agent instruct the Collateral Agent to
release to such Growth PRIDES holder the Treasury Security relating to such
Growth PRIDES. Upon such deposit and receipt of an instruction from the Purchase
Contract Agent, the Collateral Agent will effect the release of the related
Treasury Security from the pledge under the Pledge Agreement free and clear of
the Company's
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security interest therein to the Purchase Contract Agent, which will (i) cancel
the 100 Growth PRIDES, (ii) transfer the related Treasury Security to such
holder of Growth PRIDES and (iii) deliver 100 Income PRIDES to such holder of
Growth PRIDES. The substituted Capital Securities will be pledged with the
Collateral Agent to secure such Income PRIDES holder's obligation to purchase
Common Stock under the related Purchase Contracts. Cumulative cash
distributions, payable quarterly at a rate of % of the Stated Amount per
annum (subject to the Company's deferral rights) on such Income PRIDES, will be
payable on such Income PRIDES by the Company on each Payment Date from the later
of the Original Issue Date and the last Payment Date on which such cumulative
cash distributions, if any, were paid.
Holders who elect to substitute Pledged Securities, thereby creating Growth
PRIDES or Income PRIDES or recreating Income PRIDES or Growth PRIDES (as
discussed below), shall be responsible for any fees or expenses payable in
connection with such substitution. See "Certain Provisions of the Purchase
Contract Agreement and the Pledge Agreement -- Miscellaneous."
CURRENT PAYMENTS
Holders of Income PRIDES are entitled to receive aggregate cash
distributions at a rate of % of the Stated Amount per annum from and after
the Original Issue Date payable quarterly in arrears. The quarterly payments on
the Income PRIDES will consist of (i) cumulative cash distributions on the
related Capital Securities or the Treasury Portfolio, as applicable, payable at
the rate of % of the Stated Amount per annum and (ii) Contract Adjustment
Payments, if any, payable by the Company at the rate of % of the Stated
Amount per annum, subject (in the case of both the distributions on the Capital
Securities and the Contract Adjustment Payments, if any) to the Company's right
of deferral as described herein.
Each holder of Growth PRIDES will be entitled to receive quarterly Contract
Adjustment Payments, if any, payable by the Company at the rate of % of the
Stated Amount per annum, subject to the Company's rights of deferral as
described herein. In addition, OID will accrue on the related Treasury
Securities.
The ability of the Trust to make the quarterly distributions on the Capital
Securities is solely dependent upon the receipt of corresponding interest
payments from the Company on the Debentures. The Company has the right at any
time, and from time to time, limited to a period not extending beyond the
maturity of the Debentures, to defer the interest payments on the Debentures. As
a consequence of such deferral, the corresponding quarterly distributions
(unless a Tax Event Redemption has occurred) to holders of Income PRIDES (or any
Capital Securities outstanding after the Purchase Contract Settlement Date or
after a substitution of collateral resulting in the creation of Growth PRIDES)
would be deferred (but despite such deferral, would continue to accrue,
compounded quarterly, at the rate of % per annum through and including
, 2001 and at the Reset Rate thereafter). The Company also has the
right to defer the payment of Contract Adjustment Payments, if any, on the
related Purchase Contracts until no later than the Purchase Contract Settlement
Date; however, such deferred Contract Adjustment Payments will bear additional
Contract Adjustment Payments at the rate of % per annum (such rate to be
equal to the higher of (i) the rate which would accrue on Income PRIDES for such
payments and (ii) the rate which would accrue on Growth PRIDES for such
payments) until paid. See "Description of the Purchase Contracts -- Contract
Adjustment Payments" and "Description of the Capital
Securities -- Distributions." If a Tax Event Redemption has occurred and the
Treasury Portfolio has become a component of the Income PRIDES, quarterly
distributions on the Treasury Portfolio, as a portion of the cumulative
quarterly distributions to the holders of Income PRIDES, will not be deferred.
The Company's obligations with respect to the Debentures will be senior and
unsecured and will rank on a parity in right of payment with all other senior
unsecured obligations of the Company. The Company's obligations with respect to
the Contract Adjustment Payments, if any, will be subordinated and junior in
right of payment to the Company's Senior Indebtedness.
VOTING AND CERTAIN OTHER RIGHTS
Holders of Capital Securities, in their capacities as such holders, will
not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of Regular Trustees and will generally have no voting
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rights except in the limited circumstances described under "Description of the
Capital Securities -- Voting Rights." Holders of Purchase Contracts forming part
of the Income PRIDES or Growth PRIDES, in their capacities as such holders, will
have no voting or other rights in respect of the Common Stock.
LISTING OF THE SECURITIES
Application will be made to list the Income PRIDES and the Growth PRIDES on
the NYSE, subject to official notice of issuance. Unless and until substitution
has been made as described in "Description of the FELINE PRIDES -- Creating
Growth PRIDES" or "-- Creating Income PRIDES," neither the Capital Security
component of an Income PRIDES nor the Treasury Security component of a Growth
PRIDES will trade separately from such Income PRIDES or Growth PRIDES, and such
Capital Security component will trade as a unit with the Purchase Contract
component of the Income PRIDES and such Treasury Security component will trade
as a unit with the Purchase Contract component of the Growth PRIDES. If Capital
Securities are separately traded to a sufficient extent that the applicable
exchange listing requirements are met, the Company will endeavor to cause such
securities to be listed on the exchange on which the Income PRIDES and the
Growth PRIDES are then listed, including, if applicable, the NYSE. See
"Underwriting."
NYSE SYMBOL OF COMMON STOCK
The Common Stock is listed on the NYSE under the symbol "KBH."
MISCELLANEOUS
The Company or its affiliates may from time to time purchase any of the
Securities offered hereby which are then outstanding by tender, in the open
market or by private agreement.
DESCRIPTION OF THE PURCHASE CONTRACTS
The summaries of certain provisions of documents described below do not
purport to be complete, and in each instance reference is hereby made to the
copies of the forms of such documents (including the definitions therein of
certain terms) which are on file with the Commission and copies of which may be
obtained as described under "Available Information". Wherever particular
sections of, or terms defined in, such documents are referred to herein, such
sections or defined terms are incorporated by reference herein. As used under
this caption, references to the Company mean Kaufman and Broad Home Corporation
excluding, unless otherwise expressly stated or the context otherwise requires,
its subsidiaries.
GENERAL
Each Purchase Contract underlying a FELINE PRIDES (unless earlier
terminated, or earlier settled at the holder's option) will obligate the holder
of such Purchase Contract to purchase, and the Company to sell, on the Purchase
Contract Settlement Date, for an amount in cash equal to the Stated Amount of
such FELINE PRIDES, a number of newly issued shares of Common Stock equal to the
Settlement Rate. The Settlement Rate will be calculated as follows (subject to
adjustment under certain circumstances): (a) if the Applicable Market Value is
equal to or greater than the Threshold Appreciation Price of $ , which
is approximately % above the Reference Price, the Settlement Rate will be
(which will be equal to the Stated Amount divided by the
Threshold Appreciation Price); accordingly, if, between the date of this
Prospectus and the period during which the Applicable Market Value is measured,
the market price for the Common Stock increases to an amount that is higher than
the Threshold Appreciation Price, the aggregate market value of the shares of
Common Stock issued upon settlement of each Purchase Contract (assuming that
such market value is the same as the Applicable Market Value of such Common
Stock) will be higher than the Stated Amount, and if such market price is the
same as the Threshold Appreciation Price, the aggregate market value of such
shares (assuming that such market value is the same as the Applicable Market
Value of such Common Stock) will be equal to the Stated Amount; (b) if the
Applicable Market Value is less than the Threshold Appreciation price but
greater than the Reference Price, the Settlement Rate will be equal to the
Stated Amount divided by the Applicable Market Value; accordingly, if the market
price for the Common Stock increases between the date of this Prospectus and the
period during which the Applicable Market Value is measured but such market
price is less than the Threshold Appreciation Price, the
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aggregate market value of the shares of Common Stock issued upon settlement of
each Purchase Contract (assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will be equal to the Stated
Amount; and (c) if the Applicable Market Value is less than or equal to the
Reference Price, the Settlement Rate (which is equal to the Stated Amount
divided by the Reference Price) will be ; accordingly, if the market
price for the Common Stock decreases between the date of this Prospectus and the
period during which the Applicable Market Value is measured, the aggregate
market value of the shares of Common Stock issued upon settlement of each
Purchase Contract (assuming that such market value is the same as the Applicable
Market Value of such Common Stock) will be less than the Stated Amount, and if
such market price stays the same, the aggregate market value of such shares
(assuming that such market value is the same as the Applicable Market Value of
such Common Stock) will be equal to the Stated Amount. "Closing Price" of the
Common Stock on any date of determination means the closing sale price (or, if
no closing price is reported, the last reported sale price) of the Common Stock
on the NYSE on such date or, if the Common Stock is not listed for trading on
the NYSE on any such date, as reported in the composite transactions for the
principal United States securities exchange on which the Common Stock is so
listed, or if the Common Stock is not so listed on a United States national or
regional securities exchange, as reported by the Nasdaq Stock Market, or, if the
Common Stock is not so reported, the last quoted bid price for the Common Stock
in the over-the-counter market as reported by the National Quotation Bureau or
similar organization, or, if such bid price is not available, the market value
of the Common Stock on such date as determined by a nationally recognized
independent investment banking firm retained for this purpose by the Company. A
"Trading Day" means a day on which the Common Stock (A) is not suspended from
trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and (B) has traded at least
once on the national or regional securities exchange or association or over-the-
counter market that is the primary market for the trading of the Common Stock.
No fractional shares of Common Stock will be issued by the Company pursuant
to the Purchase Contracts. In lieu of fractional shares otherwise issuable
(calculated on an aggregate basis) in respect of Purchase Contracts being
settled by a holder of Income PRIDES or Growth PRIDES, the holder will be
entitled to receive an amount of cash equal to such fraction of a share times
the Applicable Market Value.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the
related Purchase Contracts prior to the Purchase Contract Settlement Date
through the early delivery of cash to the Purchase Contract Agent in the manner
described under "-- Early Settlement," (ii) in the case of Income PRIDES, has
settled the related Purchase Contracts with separate cash on the Business Day
immediately preceding the Purchase Contract Settlement Date pursuant to prior
notice in the manner described under "-- Notice to Settle with Cash", (iii) has
had the Capital Securities related to such holder's Purchase Contracts
remarketed in the manner described herein in connection with settling such
Purchase Contracts, or (iv) an event described under "-- Termination" below has
occurred, then (A) in the case of Income PRIDES (unless a Tax Event Redemption
has occurred) the Company will exercise its rights as a secured party to dispose
of the Capital Securities in accordance with applicable law and (B) in the case
of Growth PRIDES or Income PRIDES (in the event that a Tax Event Redemption has
occurred), the principal amount of the related Treasury Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as
applicable, when paid at maturity, will automatically be applied to satisfy in
full the holder's obligation to purchase Common Stock under the related Purchase
Contracts. Such Common Stock will then be issued and delivered to such holder or
such holder's designee, upon presentation and surrender of the certificate
evidencing such FELINE PRIDES (a "FELINE PRIDES Certificate") and payment by the
holder of any transfer or similar taxes payable in connection with the issuance
of the Common Stock to any person other than such holder.
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the related Purchase
Contracts be deemed to have (a) irrevocably agreed to be bound by the terms and
provisions of the related Purchase Contracts and the Pledge Agreement and to
have covenanted and agreed to perform its obligations thereunder for so long as
such holder remains a holder of such FELINE PRIDES, and (b) duly appointed the
Purchase Contract Agent as such holder's attorney-in-fact to enter into and
perform the related Purchase Contracts and Pledge Agreement on behalf of and in
the name of such holder. In addition, each beneficial owner of Income PRIDES or
Growth PRIDES, by
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acceptance of such interest, will be deemed to have agreed to treat (i) itself
as the owner of the related Capital Securities, the appropriate Applicable
Ownership Interest of the Treasury Portfolio or the Treasury Securities, as the
case may be, and (ii) the Debentures as indebtedness of the Company for all
United States federal tax purposes.
REMARKETING
Pursuant to the Remarketing Agreement and subject to the terms of the
Remarketing Underwriting Agreement between the Remarketing Agent, the Purchase
Contract Agent, the Company and the Trust, unless a Tax Event Redemption has
occurred, the Capital Securities of Income PRIDES holders who have failed to
notify the Purchase Contract Agent on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date in the manner
described under "-- Notice to Settle with Cash" of their intention to settle the
related Purchase Contracts with separate cash on the Business Day immediately
preceding the Purchase Contract Settlement Date will be remarketed on the third
Business Day immediately preceding the Purchase Contract Settlement Date. The
Remarketing Agent will use its reasonable efforts to remarket such Capital
Securities on such date at a price of approximately 100.75% of the aggregate
stated liquidation amount of such Capital Securities, plus any accrued and
unpaid distributions (including deferred distributions, if any), thereon. The
portion of the proceeds from such remarketing equal to the aggregate stated
liquidation amount of such Capital Securities will be automatically applied to
satisfy in full such Income PRIDES holders' obligations to purchase Common Stock
under the related Purchase Contracts. In addition, after deducting as the
Remarketing Fee an amount not exceeding 50 basis points (.50%) of the aggregate
stated liquidation amount of the remarketed Capital Securities from any amount
of such proceeds in excess of the aggregate stated liquidation amount of the
remarketed Capital Securities plus any accrued and unpaid distributions
(including deferred distributions, if any), the Remarketing Agent will remit the
remaining portion of the proceeds, if any, for the benefit of such holder.
Income PRIDES holders whose Capital Securities are so remarketed will not
otherwise be responsible for the payment of any Remarketing Fee in connection
therewith. If, despite using its reasonable efforts, the Remarketing Agent
cannot remarket the related Capital Securities (other than to the Company) of
such holders of Income PRIDES at a price not less than 100% of the aggregate
stated liquidation amount of such Capital Securities plus any accrued and unpaid
distributions (including deferred distributions, if any) or if the remarketing
shall not have occurred because a condition precedent to the remarketing shall
not have been fulfilled, resulting in a Failed Remarketing, the Company will
exercise its rights as a secured party to dispose of the Capital Securities in
accordance with the applicable law and satisfy in full, from the proceeds of
such disposition, such holder's obligation to purchase Common Stock under the
related Purchase Contracts; provided, that if the Company exercises such rights
as a secured creditor, any accrued and unpaid distributions (including deferred
distributions, if any) on such Capital Securities will be paid in cash by the
Company to the holders of record of such Capital Securities. The Company will
cause a notice of such Failed Remarketing to be published on the second Business
Day immediately preceding the Purchase Contract Settlement Date by publication
in a daily newspaper in the English language of general circulation in The City
of New York, which is expected to be The Wall Street Journal. In addition, the
Company will request, not later than seven nor more than 15 calendar days prior
to the remarketing date, that the Depository notify its participants holding
Capital Securities, Income PRIDES and Growth PRIDES of such remarketing,
including, in the case of a Failed Remarketing, the procedures that must be
followed if a Capital Security holder wishes to exercise its right to put its
Capital Security to the Company as described herein. If required, the Company
will endeavor to ensure that a registration statement with regard to the full
amount of the Capital Securities to be remarketed shall be effective in such
form as will enable the Remarketing Agent to rely on it in connection with the
remarketing process. It is currently anticipated that Merrill Lynch, Pierce,
Fenner & Smith Incorporated will be the Remarketing Agent.
EARLY SETTLEMENT
A holder of Income PRIDES may settle the related Purchase Contracts at any
time on or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date by presenting and surrendering the FELINE PRIDES
Certificate evidencing such Income PRIDES at the offices of the Purchase
Contract Agent with the form of "Election to Settle Early" on the reverse side
of such certificate
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completed and executed as indicated, accompanied by payment (payable to the
Company in immediately available funds) of an amount equal to the Stated Amount
times the number of Purchase Contracts being settled, but only in integral
multiples of 100 Income PRIDES; provided, however, if a Tax Event Redemption has
occurred prior to the Purchase Contract Settlement Date and the Treasury
Portfolio has become a component of the Income PRIDES, holders of such Income
PRIDES may settle early only in integral multiples of 4,000,000 Income PRIDES at
any time on or prior to the second Business Day immediately preceding the
Purchase Contract Settlement Date, and, in such case, a holder must hold at
least 4,000,000 Income PRIDES to settle early. A holder of Growth PRIDES may
settle the related Purchase Contracts at any time on or prior to the second
Business Day immediately preceding the Purchase Contract Settlement Date by
presenting and surrendering the FELINE PRIDES Certificate evidencing such Growth
PRIDES at the offices of the Purchase Contract Agent with the form of "Election
to Settle Early" on the reverse side of such certificate completed and executed
as indicated, accompanied by payment in immediately available funds of an amount
equal to (i) the Stated Amount times the number of Purchase Contracts being
settled plus (ii) if such delivery is made with respect to any Purchase Contract
during the period from the close of business on any Record Date next preceding
any Payment Date to the opening of business on such Payment Date, an amount
equal to the Contract Adjustment Payments, if any, payable on such Payment Date
with respect to such Purchase Contract; provided that no payment shall be
required if the Company shall have elected to defer the Contract Adjustment
Payments which would otherwise be payable on such Payment Date. So long as the
FELINE PRIDES are evidenced by one or more global security certificates
deposited with the Depositary (as defined herein), procedures for early
settlement will also be governed by standing arrangements between the Depositary
and the Purchase Contract Agent.
Upon Early Settlement of the Purchase Contracts related to any Income
PRIDES or Growth PRIDES, (a) the holder will receive newly issued
shares of Common Stock per Income PRIDES or Growth PRIDES having a Stated Amount
of $10 (regardless of the market price of the Common Stock on the date of such
Early Settlement), subject to adjustment under the circumstances described in
"-- Anti-Dilution Adjustments" below, accompanied by this Prospectus, as amended
or stickered, (b) the Capital Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or the Treasury Securities, as the case may
be, related to such Income PRIDES or Growth PRIDES will thereupon be transferred
to the holder free and clear of the Company's security interest therein, (c) the
holder's right to receive Deferred Contract Adjustment Payments, if any, on the
Purchase Contracts being settled will be forfeited, (d) the holder's right to
receive future Contract Adjustment Payments, if any, will terminate and (e) no
adjustment will be made to or for the holder on account of Deferred Contract
Adjustment Payments, if any, or any amounts accrued in respect of Contract
Adjustment Payments, if any.
If the Purchase Contract Agent receives a FELINE PRIDES Certificate,
accompanied by the completed "Election to Settle Early" and requisite
immediately available funds, from a holder of FELINE PRIDES by 5:00 p.m., New
York City time, on a Business Day, that day will be considered the settlement
date. If the Purchase Contract Agent receives the foregoing after 5:00 p.m., New
York City time, on a Business Day or at any time on a day that is not a Business
Day (other than from Income PRIDES holders after the occurrence of a Tax Event
Redemption), the next Business Day will be considered the settlement date.
Upon Early Settlement of Purchase Contracts in the manner described above,
presentation and surrender of the FELINE PRIDES Certificate evidencing the
related Income PRIDES or Growth PRIDES and payment of any transfer or similar
taxes payable by the holder in connection with the issuance of the related
Common Stock to any person other than the holder of such Income PRIDES or Growth
PRIDES, the Company will cause the shares of Common Stock being purchased to be
issued, and the related Capital Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or the Treasury Securities, as the case may
be, securing such Purchase Contracts to be released from the pledge under the
Pledge Agreement (described in "-- Pledged Securities and Pledge Agreement") and
transferred, within three Business Days following the settlement date, to the
purchasing holder or such holder's designee.
NOTICE TO SETTLE WITH CASH
A holder of an Income PRIDES wishing to settle the related Purchase
Contract with separate cash on the Business Day immediately preceding the
Purchase Contract Settlement Date must notify the Purchase
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Contract Agent by presenting and surrendering the Income PRIDES Certificate
evidencing such Income PRIDES at the offices of the Purchase Contract Agent with
the form of "Notice to Settle by Separate Cash" on the reverse side of the
certificate completed and executed as indicated on or prior to 5:00 p.m., New
York City time, on the second Business Day immediately preceding the Purchase
Contract Settlement Date (if a Tax Event Redemption has occurred) or on the
fifth Business Day immediately preceding the Purchase Contract Settlement Date
(if a Tax Event has not occurred). If a holder that has given notice of such
holder's intention to settle the related Purchase Contract with separate cash
fails to deliver such cash to the Collateral Agent on the Business Day
immediately preceding the Purchase Contract Settlement Date, the Company will
exercise its right as a secured party to dispose of, in accordance with
applicable law, the related Capital Security to satisfy in full, from the
disposition of such Capital Security such holder's obligation to purchase Common
Stock under the related Purchase Contracts.
CONTRACT ADJUSTMENT PAYMENTS
Contract Adjustment Payments, if any, will be fixed at a rate per annum of
% of the Stated Amount per Purchase Contract in the case of Income PRIDES,
and at a rate per annum of % of the Stated Amount per Purchase Contract in
the case of Growth PRIDES. Contract Adjustment Payments, if any, that are not
paid when due (after giving effect to any permitted deferral thereof) will bear
interest thereon at the rate per annum of % thereof (such rate to be equal
to the higher of (i) the rate which would accrue on Income PRIDES for such
payments and (ii) the rate which would accrue on Growth PRIDES for such
payments), compounded quarterly, until paid. Contract Adjustment Payments, if
any, payable for any period will be computed on the basis of a 360-day year of
twelve 30-day months. Contract Adjustment Payments, if any, will accrue from the
Original Issue Date and will be payable quarterly in arrears on February 16, May
16, August 16 and November 16 of each year, commencing 16, 1998.
Contract Adjustment Payments will be specified as a component of the
distributions on the Income PRIDES or Growth PRIDES only if and to the extent
that the rate of distribution on the Capital Securities or the yield on the
Treasury Securities, as determined on the date on which the Income PRIDES or
Growth PRIDES are priced for sale, is less than the aggregate distribution rate
or yield required on such date for the offer and sale of the Income PRIDES or
Growth PRIDES at the price to public specified on the cover page of this
Prospectus. Accordingly, the final Prospectus will indicate whether and to what
extent Contract Adjustment Payments will be required to be made by the Company.
Contract Adjustment Payments, if any, will be payable to the holders of
Purchase Contracts as they appear on the books and records of the Purchase
Contract Agent on the relevant record dates, which, as long as the Income PRIDES
or Growth PRIDES remain in book-entry only form, will be one Business Day prior
to the relevant payment dates. Such distributions will be paid through the
Purchase Contract Agent, who will hold amounts received in respect of the
Contract Adjustment Payments, if any, for the benefit of the holders of the
Purchase Contracts relating to such Income PRIDES or Growth PRIDES. Subject to
any applicable laws and regulations, each such payment will be made as described
under "-- Book-Entry System." In the event that the Income PRIDES or Growth
PRIDES do not continue to remain in book-entry only form, the relevant record
dates shall be one Business Day prior to the relevant payment dates. In the
event that any date on which Contract Adjustment Payments, if any, are to be
made on the Purchase Contracts related to the Income PRIDES or Growth PRIDES is
not a Business Day, then payment of the Contract Adjustment Payments, if any,
payable on such date will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such payment date. A "Business Day"
shall mean any day other than Saturday, Sunday or any other day on which banking
institutions in New York City (in the State of New York) are permitted or
required by any applicable law to close.
The Company's obligations with respect to Contract Adjustment Payments, if
any, will be subordinated and junior in right of payment to the Company's
obligations under any Senior Indebtedness.
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OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
The Company may, at its option and upon prior written notice to the holders
of the FELINE PRIDES and the Purchase Contract Agent, defer the payment of
Contract Adjustment Payments, if any, on the related Purchase Contracts until no
later than the Purchase Contract Settlement Date. However, Deferred Contract
Adjustment Payments, if any, will bear additional Contract Adjustment Payments
at the rate of % per annum (such rate to be equal to the higher of (i) the
rate which would accrue on Income PRIDES for such payments and (ii) the rate
which would accrue on Growth PRIDES for such payments) (compounding on each
succeeding Payment Date) until paid. If the Purchase Contracts are terminated
(upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company), the right to receive Contract
Adjustment Payments, if any, and Deferred Contract Adjustment Payments, if any,
will also terminate.
No fractional shares of Common Stock will be issued by the Company with
respect to the payment of Deferred Contract Adjustment Payments on the Purchase
Contract Settlement Date. In lieu of fractional shares otherwise issuable with
respect to such payment of Deferred Contract Adjustment Payments, the holder
will be entitled to receive an amount in cash equal to such fraction of a share
times the Applicable Market Value.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments, if any, on the Purchase Contracts until the Purchase
Contract Settlement Date, each holder of FELINE PRIDES will receive on the
Purchase Contract Settlement Date in respect of the Deferred Contract Adjustment
Payments, in lieu of a cash payment, a number of shares of Common Stock equal to
(x) the aggregate amount of Deferred Contract Adjustment Payments payable to
such holder divided by (y) the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, if any, until the Deferred Contract Adjustment
Payments have been paid, the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or make guarantee
payments with respect to the foregoing (other than (i) purchases or acquisitions
of shares of capital stock of the Company in connection with the satisfaction by
the Company of its obligations under any employee benefit plans or the
satisfaction by the Company of its obligations pursuant to any contract or
security outstanding on the date of such event requiring the Company to purchase
capital stock of the Company, (ii) as a result of a reclassification of the
Company's capital stock or the exchange or conversion of one class or series of
the Company's capital stock for another class or series of such capital stock,
(iii) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (iv) dividends or distributions in
capital stock of the Company (or rights to acquire capital stock) or repurchases
or redemptions of capital stock solely from the issuance or exchange of capital
stock or (v) redemptions or repurchases of any rights outstanding under a
shareholder rights plan or the declaration thereunder of a dividend of rights in
the future).
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment (without duplication) upon the occurrence of certain events,
including: (a) the payment of dividends (and other distributions) of Common
Stock on Common Stock; (b) the issuance to all holders of Common Stock of
rights, warrants or options (other than any dividend reinvestment or share
purchase plans) entitling them, for a period of up to 45 days, to subscribe for
or purchase Common Stock at less than the Current Market Price (as defined
herein) thereof; (c) subdivisions, splits and combinations of Common Stock; (d)
distributions to all holders of Common Stock of evidences of indebtedness of the
Company, shares of capital stock, securities, cash or property (excluding any
dividend or distribution covered by clause (a) or (b) above and any dividend or
distribution paid exclusively in cash); (e) distributions (other than regular
quarterly cash distributions) consisting exclusively of cash to all holders of
Common Stock in an aggregate amount that, together with (i) other all-cash
distributions (other than regular quarterly cash distributions) made within the
preceding 12 months and (ii) any cash and the fair market value, as of the
expiration of the tender or exchange offer referred to below, of consideration
payable in respect of any tender or exchange offer (other than consideration
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payable in respect of any odd-lot tender offer) by the Company or a subsidiary
thereof for Common Stock concluded within the preceding 12 months, exceeds 15%
of the Company's aggregate market capitalization (such aggregate market
capitalization being the product of the Current Market Price of Common Stock
multiplied by the number of shares of Common Stock then outstanding) on the date
of such distribution; and (f) the successful completion of a tender or exchange
offer made by the Company or any subsidiary thereof for Common Stock which
involves an aggregate consideration that, together with (i) any cash and the
fair market value of other consideration payable in respect of any tender or
exchange offer (other than consideration payable in respect of any odd-lot
tender offer) by the Company or a subsidiary thereof for the Common Stock
concluded within the preceding 12 months and (ii) the aggregate amount of any
all-cash distributions (other than regular quarterly cash distributions) to all
holders of Common Stock made within the preceding 12 months, exceeds 15% of the
Company's aggregate market capitalization on the expiration of such tender or
exchange offer. The "Current Market Price" per share of Common Stock on any day
means the average of the daily Closing Prices for the five consecutive Trading
Days selected by the Company commencing not more than 30 Trading Days before,
and ending not later than, the earlier of the day in question and the day before
the "ex date" with respect to the issuance or distribution requiring such
computation. For purposes of this paragraph, the term "ex date," when used with
respect to any issuance or distribution, shall mean the first date on which the
Common Stock trades regular way on such exchange or in such market without the
right to receive such issuance or distribution.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the Common Stock is
converted into the right to receive other securities, cash or property, each
Purchase Contract then outstanding would, without the consent of the holders of
the related Income PRIDES or Growth PRIDES, as the case may be, become a
contract to purchase only the kind and amount of securities, cash and other
property receivable upon consummation of the transaction by a holder of the
number of shares of Common Stock which would have been received by the holder of
the related Income PRIDES or Growth PRIDES immediately prior to the date of
consummation of such transaction if such holder had then settled such Purchase
Contract.
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (i.e., distributions out of the
Company's current or accumulated earnings and profits of evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe to capital stock) and, pursuant to the Settlement Rate
adjustment provisions of the Purchase Contract Agreement, the Settlement Rate is
increased, such increase may give rise to a taxable dividend to holders of
FELINE PRIDES. See "Federal Income Tax Consequences -- Purchase
Contracts -- Adjustment to Settlement Rate."
In addition, the Company may make such increases in the Settlement Rate as
the Board of Directors of the Company deems advisable to avoid or diminish any
income tax to holders of its capital stock resulting from any dividend or
distribution of capital stock (or rights to acquire capital stock) or from any
event treated as such for income tax purposes or for any other reasons.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the Settlement Rate; provided, however, that any adjustments which by
reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
The Company will be required, within ten Business Days following the
adjustment of the Settlement Rate, to provide written notice to the Purchase
Contract Agent of the occurrence of such event and a statement in reasonable
detail setting forth the method by which the adjustment to the Settlement Rate
was determined and setting forth the revised Settlement Rate.
Each adjustment to the Settlement Rate will result in a corresponding
adjustment to the number of shares of Common Stock issuable upon early
settlement of a Purchase Contract.
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TERMINATION
The Purchase Contracts, and the rights and obligations of the Company and
of the holders of the FELINE PRIDES thereunder (including the right thereunder
to receive accrued Contract Adjustment Payments, if any, or Deferred Contract
Adjustment Payments, if any, and the right and obligation to purchase Common
Stock), will immediately and automatically terminate upon the occurrence of
certain events of bankruptcy, insolvency or reorganization with respect to the
Company. Upon such termination, the Collateral Agent will release the related
Capital Securities, the appropriate Applicable Ownership Interest of the
Treasury Portfolio or the Treasury Securities, as the case may be, held by it to
the Purchase Contract Agent for distribution to the holders, subject in the case
of the Treasury Portfolio to the Purchase Contract Agent's disposition of the
subject securities for cash, and the payment of such cash to the holders, to the
extent that the holders would otherwise have been entitled to receive less than
$1,000 principal amount at maturity of any such security. Upon such termination,
however, such release and distribution may be subject to a delay. In the event
that the Company becomes the subject of a case under the Bankruptcy Code, such
delay may occur as a result of the automatic stay under the Bankruptcy Code and
continue until such automatic stay has been lifted.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
Pledged Securities will be pledged to the Collateral Agent, for the benefit
of the Company, pursuant to the Pledge Agreement to secure the obligations of
holders of FELINE PRIDES to purchase Common Stock under the related Purchase
Contracts. The rights of holders of FELINE PRIDES to the related Pledged
Securities will be subject to the Company's security interest therein created by
the Pledge Agreement. No holder of Income PRIDES or Growth PRIDES will be
permitted to withdraw the Pledged Securities related to such Income PRIDES or
Growth PRIDES from the pledge arrangement except (i) to substitute Treasury
Securities for the related Capital Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, (ii) to
substitute Capital Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be, for the related Treasury
Securities (for both (i) and (ii), as provided for under "Description of the
FELINE PRIDES -- Creating Growth PRIDES" and "-- Creating Income PRIDES") or
(iii) upon the termination or Early Settlement of the related Purchase
Contracts. Subject to such security interest and the terms of the Purchase
Contract Agreement and the Pledge Agreement, each holder of Income PRIDES
(unless a Tax Event Redemption has occurred) will be entitled through the
Purchase Contract Agent and the Collateral Agent to all of the proportional
rights and preferences of the related Capital Securities (including
distribution, voting, redemption, repayment and liquidation rights), and each
holder of Growth PRIDES or Income PRIDES (if a Tax Event Redemption has
occurred) will retain beneficial ownership of the related Treasury Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
applicable, pledged in respect of the related Purchase Contracts. The Company
will have no interest in the Pledged Securities other than its security
interest.
Except as described in "-- General," the Collateral Agent will, upon
receipt of distributions on the Pledged Securities, distribute such payments to
the Purchase Contract Agent, which will in turn distribute those payments,
together with Contract Adjustment Payments, if any, received from the Company,
to the persons in whose names the related Income PRIDES or Growth PRIDES are
registered at the close of business on the record date immediately preceding the
date of such distribution.
BOOK ENTRY-SYSTEM
The Depository Trust Company (the "Depositary", which term includes its
successors in such capacity) will act as securities depositary for the FELINE
PRIDES. The FELINE PRIDES will be issued only as fully-registered securities
registered in the name of Cede & Co. (the Depositary's nominee). One or more
fully-registered global security certificates ("Global Security Certificates"),
representing the total aggregate number of FELINE PRIDES, will be issued and
will be deposited with the Depositary and will bear a legend regarding the
restrictions on exchanges and registration of transfer thereof referred to
below.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the FELINE PRIDES so
long as such FELINE PRIDES are represented by Global Security Certificates.
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The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants ("Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). The Depositary is owned by a number of
its Direct Participants and by the NYSE, the American Stock Exchange, Inc., and
the National Association of Securities Dealers, Inc. Access to the Depositary's
system is also available to others, such as securities brokers and dealers,
banks and trust companies that clear transactions through or maintain a direct
or indirect custodial relationship with a Direct Participant either directly or
indirectly ("Indirect Participants"). The rules applicable to the Depositary and
its Participants are on file with the Commission.
Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the Global Security Certificates among
Participants, the Depositary is under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
None of the Company, the Trust or any KBHC Trustee will have any responsibility
for the performance by the Depositary or its Direct Participants or Indirect
Participants under the rules and procedures governing the Depositary. In the
event that (i) the Depositary notifies the Company that it is unwilling or
unable to continue as a depositary for such Global Security Certificates and no
successor depositary shall have been appointed within 90 days after notice
thereof to the Company, (ii) the Depositary at any time ceases to be a clearing
agency registered under the Exchange Act at which time the Depositary is
required to be so registered to act as such depositary and no successor
depositary shall have been appointed within 90 days after the Company learns
that the Depositary has ceased to be so registered, (iii) the Company, in its
sole discretion, determines that such Global Security Certificates shall be so
exchangeable or (iv) there shall have occurred and be continuing an Indenture
Event of Default, certificates for the FELINE PRIDES will be printed and
delivered in exchange for beneficial interests in the Global Security
Certificates. Any global Capital Security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for FELINE PRIDES Certificates
registered in such names as the Depositary shall direct. It is expected that
such instructions will be based upon directions received by the Depositary from
its Participants with respect to ownership of beneficial interests in such
Global Security Certificates.
As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the Global Security
Certificates and all FELINE PRIDES represented thereby for all purposes under
the FELINE PRIDES and the Purchase Contract Agreement. Except in the limited
circumstances referred to above, owners of beneficial interests in Global
Security Certificates will not be entitled to have such Global Security
Certificates or the FELINE PRIDES represented thereby registered in their names,
will not receive or be entitled to receive physical delivery of FELINE PRIDES
Certificates in exchange therefor and will not be considered to be owners or
holders of such Global Security Certificates or any FELINE PRIDES represented
thereby for any purpose under the FELINE PRIDES or the Purchase Contract
Agreement. All payments on the FELINE PRIDES represented by the Global Security
Certificates and all transfers and deliveries of Capital Securities, Treasury
Portfolio, Treasury Securities and Common Stock with respect thereto will be
made to the Depositary or its nominee, as the case may be, as the holder
thereof.
Ownership of beneficial interests in the Global Security Certificates will
be limited to Participants or persons that may hold beneficial interests through
institutions that have accounts with the Depositary or its nominee. Ownership of
beneficial interests in Global Security Certificates will be shown only on, and
the transfer of those ownership interests will be effected only through, records
maintained by the Depositary or its nominee (with respect to Participants'
interests) or any such Participant (with respect to interests of persons held by
such Participants on their behalf). Procedures for settlement of Purchase
Contracts on the Purchase Contract Settlement Date or upon Early Settlement will
be governed by arrangements among the Depositary,
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Participants and persons that may hold beneficial interests through Participants
designed to permit such settlement without the physical movement of
certificates. Payments, transfers, deliveries, exchanges and other matters
relating to beneficial interests in Global Security Certificates may be subject
to various policies and procedures adopted by the Depositary from time to time.
None of the Company, the Purchase Contract Agent or any agent of the Company or
the Purchase Contract Agent will have any responsibility or liability for any
aspect of the Depositary's or any Participant's records relating to, or for
payments made on account of, beneficial interests in Global Security
Certificates, or for maintaining, supervising or reviewing any of the
Depositary's records or any Participant's records relating to such beneficial
ownership interests.
The information in this section concerning the Depositary and its
book-entry system has been obtained from sources that the Company and the Trust
believe to be reliable, but neither the Company nor the Trust have attempted to
verify the accuracy thereof.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue (i) 100,000,000 shares of Common Stock,
of which 39,849,867 shares were outstanding as of June 22, 1998, (ii) 25,000,000
shares of Special Common Stock, none of which is outstanding and (iii)
10,000,000 shares of preferred stock, par value $1.00 per share ("Preferred
Stock"), none of which is outstanding. The Company has also authorized the
issuance of up to 1,600,000 shares of its Series A Participating Cumulative
Preferred Stock in connection with its shareholder rights plan. See
"-- Shareholder Rights Plan" below. At June 22, 1998, there were 1,765 holders
of record of the Common Stock. The following summaries of certain provisions of
the Company's Certificate of Incorporation and Shareholder Rights Plan do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, the Company's Certificate of Incorporation and Shareholder
Rights Plan, copies of which have been incorporated by reference as exhibits to
the Registration Statement of which this Prospectus is a part.
COMMON STOCK AND SPECIAL COMMON STOCK
The holders of Common Stock and Special Common Stock generally have
identical rights except that holders of Common Stock are entitled to one vote
per share while holders of Special Common Stock are entitled to one-tenth of a
vote per share on all matters to be voted on by stockholders. Holders of shares
of Common Stock and Special Common Stock are not entitled to cumulate their
votes in the election of directors. Subject to any voting rights of holders of
outstanding Preferred Stock, if any, all matters to be voted on by stockholders
generally must be approved by a majority of the combined voting power of the
outstanding shares of Common Stock and Special Common Stock, voting together as
a single class, and amendments to the Company's Certificate of Incorporation
must be approved by a majority of the combined voting power of all shares of
Common Stock and Special Common Stock, voting together as a single class.
However, amendments to the Company's Certificate of Incorporation (i) that
adversely affect the rights of the Common Stock or Special Common Stock also
must be approved by a majority of the shares of such class voting as a separate
class, (ii) that modify the classified board provisions contained in the
Certificate of Incorporation must be approved by an 80% supermajority of the
combined voting power of all shares of outstanding capital stock (including
Common Stock and any outstanding Special Common Stock and voting Preferred
Stock) and (iii) that modify the "fair price" provisions contained in the
Company's Certificate of Incorporation must likewise by approved by an 80%
supermajority of the combined voting power of all shares of outstanding voting
stock excluding voting stock held by a Related Person (see -- "Additional
Provisions of the Company's Certificate of Incorporation") and its Affiliates
and Associates (as defined in the Certificate of Incorporation).
PREEMPTIVE RIGHTS; REDEMPTION; NONASSESSABLE. The holders of Common Stock
and Special Common Stock have no preemptive rights and there are no redemption
provisions with respect to such shares. Although no shares of Special Common
Stock are currently outstanding if issued, then each share of Special Common
Stock would be convertible, at the option of the holder thereof, into one share
of Common Stock in the event that the Company or a third party made a tender
offer for the Common Stock. Shares of Special Common Stock could be so converted
only to enable such shares to be tendered pursuant to such offer, and any
converted shares which would not be purchased pursuant to such offer would be
automatically re-converted into Common Stock. All the outstanding shares of
Common Stock are fully paid and nonassessable, the shares
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of Common Stock issuable upon settlement of the Purchase Contract will be fully
paid and non-assessable, and the shares of Special Common Stock, if issued, will
be fully paid and nonassessable.
DIVIDENDS. Subject to the prior dividend rights of holders of outstanding
Preferred Stock, if any (see "-- Preferred Stock -- Rights Preferred Stock"
below), the holders of Common Stock and Special Common Stock are entitled to
receive such dividends and distributions, if any, as may be declared from time
to time by the Board of Directors in its discretion from funds legally available
therefore, and shall share equally in all such dividends and distributions on a
per share basis. In the case of dividends or other distributions payable in
capital stock other than Preferred Stock (including stock splits), only shares
of Common Stock shall be paid and distributed with respect to Common Stock and
only shares of Special Common Stock shall be paid and distributed with respect
to Special Common Stock, in each case in an amount per share equal to the amount
per share distributed with respect to the Common Stock or the Special Common
Stock, as the case may be. In the case of any combination or reclassification of
Common Stock or Special Common Stock, the shares of each such class shall be
combined or reclassified in such manner so as to retain the proportionate
interest of each such class after giving effect to such combination or
reclassification.
DISTRIBUTIONS ON LIQUIDATION. The holders of Common Stock and Special
Common Stock are entitled to share pro rata in any distribution upon the
liquidation, dissolution or winding up of the Company, after giving effect to
any liquidation preference of any Preferred Stock and after payment or provision
for the payment of all debts and other liabilities of the Company. See
"-- Preferred Stock -- Rights Preferred Stock" below.
REORGANIZATION, CONSOLIDATION OR MERGER. In the event of a reorganization,
consolidation or merger of the Company, each holder of a share of Common Stock
shall be entitled to receive the same kind and amount of property receivable by
a holder of a share of Special Common Stock and each holder of a share of
Special Common Stock shall be entitled to receive the same kind and amount of
property receivable by a holder of Common Stock.
PREFERRED STOCK
The Company is authorized to issue Preferred Stock in one or more series
with such designations, rights, preferences and limitations as the Board of
Directors may determine, including the consideration to be received therefor,
the number of shares comprising each series, dividend rates, redemption
provisions, liquidation preferences, mandatory retirement provisions, conversion
rights and voting rights, all without any stockholder approval. The future
issuance of Preferred Stock with voting rights could make an acquisition of
control of the Company more difficult and could adversely affect the rights of
holders of Common Stock. Preferred stockholders typically would be entitled to
satisfaction in full of specified dividend and liquidation rights before any
payment of dividends or distribution of assets on liquidation is made to holders
of the Common Stock. If voting rights are granted to the holders of Preferred
Stock, the voting power of the Common Stock will be diluted and under some
circumstances control of the Company would shift from the holders of the Common
Stock to the holders of Preferred Stock. Certain fundamental matters requiring
stockholder approval (such as mergers, sale of assets, and certain amendments to
the Certificate of Incorporation) may require approval by the separate vote of
the holders of the Preferred Stock.
In connection with its shareholder rights plan, the Company has authorized
the issuance of a series of Preferred Stock designated as the Series A
Participating Cumulative Preferred Stock (the "Rights Preferred Stock"). The
initial number of shares constituting such series is 1,600,000. No shares of
Rights Preferred Stock were outstanding as of June 22, 1997. See"-- Shareholder
Rights Plan".
SHAREHOLDER RIGHTS PLAN
On January 11, 1989, the Board of Directors declared a dividend of one
Preferred Stock share purchase right (a "Right") for each share of Common Stock
outstanding on March 7, 1989. Each Right entitles the registered holder, subject
to the occurrence of certain events, to purchase from the Company one
one-hundredth of a share (a "Unit") of Rights Preferred Stock, at a purchase
price of $30.00 per Unit subject to adjustment. The terms of the Rights are set
forth in a rights agreement (the "Shareholder Rights Plan") between the Company
and ChaseMellon Shareholder Services, L.L.C. (assignee of the Bank of America
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National Trust and Savings Association, successor-by-merger to Security Pacific
National Bank), as Rights Agent.
Until the Rights Distribution Date (as defined below) or the earlier
redemption, expiration or termination of the Rights, (i) the Rights are
evidenced by the certificates for the Common Stock and Special Common Stock and
are transferred with, and only with, such certificates which contain a notation
incorporating the Shareholder Rights Plan by reference and (ii) the surrender
for transfer of any certificates for Common Stock or Special Common Stock
constitutes a transfer of the Rights associated with the Common Stock or Special
Common Stock represented by such certificate. The Rights will separate from the
Common Stock and Special Common Stock and will be distributed on the date (the
"Rights Distribution Date") which occurs upon the earlier of (a) ten days
following the date (the "Stock Acquisition Date") of a public announcement that
a person has become an Acquiring Person (as defined below) or (b) ten business
days following the commencement of a tender offer or exchange offer that would
result in a person becoming an Acquiring Person. Under the Shareholder Rights
Plan, an "Acquiring Person" means any person who or which, together with all
Affiliates and Associates (as defined in the Shareholder Rights Plan) of such
person, beneficially owns 20% or more of the aggregate voting power of the
outstanding Common Stock, or Special Common Stock but does not include (x) the
Company or any of its subsidiaries or any of their respective employee benefit
plans or (y) a specifically designated individual formerly affiliated with the
Company or certain of his Affiliates or Associates.
The Rights are not exerciseable until the Rights Distribution Date and will
expire at the close of business on March 7, 1999, unless earlier redeemed by the
Company as described below or amended or extended, or if a subsequent rights
plan is adopted.
As soon as practicable after the Rights Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock and Special
Common Stock as of the close of business on the Rights Distribution Date and,
thereafter, the separate Rights Certificates alone will represent the Rights.
Except (i) in connection with the exercise of employee stock options or under
any employee benefit plan or arrangement, (ii) in connection with the exercise,
conversion or exchange of securities issued by the Company after the date of the
Shareholder Rights Plan and (iii) as otherwise determined by the Board of
Directors, only Common Stock and Special Common Stock issued prior to the Rights
Distribution Date will be issued with Rights. Notwithstanding the foregoing, no
such Rights shall be issued (i) if, and to the extent that, the Company shall be
advised by counsel that, such issuance would create a significant risk of
material adverse tax consequences to the Company or the person to whom such
Rights would be issued, (ii) if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof, and (iii) after
the earlier of the redemption and expiration of the Rights.
If at any time following the Stock Acquisition Date, (i) the Company is
acquired in a merger or other business combination transaction or (ii) 50% or
more the Company's assets or earning power is sold, each holder of a Right shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the current purchase price
of the Right.
If (i) any person becomes an Acquiring Person or (ii) the Company is the
surviving corporation in a merger with an Acquiring Person and the Common Stock
and Special Common Stock is not changed or exchanged, proper provision will be
made so that each holder of a Right originally issued to a holder of Common
Stock or Special Common Stock, other than Rights that are, or (under certain
circumstances specified in the Shareholder Rights Plan) were, beneficially owned
by an Acquiring Person (which will thereafter be void), will thereafter have the
right to receive upon exercise that number of shares of Common Stock (the
"Exercise Number") having a market value equal to two times the exercise price
of the Right. The events described in this and the immediately preceding
paragraph are referred to as the "Triggering Events."
The purchase price payable for a Unit and the number of Units issuable upon
exercise of the Rights is subject to adjustment from time to time in certain
cases. In addition, the number of Rights associated with each share of Common
Stock and Special Common Stock is subject to adjustment from time to time in the
event of a stock dividend on, or a subdivision or combination of, Common Stock
or Special Common Stock.
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With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments amount to at least one percent of the
purchase price. No fractional shares of Common Stock or Special Common Stock
will be issued and in lieu thereof, an adjustment in cash will be made based on
the market price of the Common Stock on the last trading date prior to the date
on which such fractional shares would have been otherwise issuable.
The Board of Directors may redeem the Rights in whole, but not in part, at
the redemption price of $.01 per Right at any time prior to the expiration of a
ten day period following the Stock Acquisition Date. The foregoing redemption
period can be extended by a majority of Continuing Directors (as defined in the
Shareholder Rights Plan) at any time prior to the date on which the Rights would
otherwise become nonredeemable. Immediately upon the action of the Board of
Directors ordering redemption of the Rights, the Rights will terminate, no
further Rights will be issued and the only right of the holders of Rights will
be to receive the redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
Prior to the Rights Distribution Date, the Company may, subject to certain
exceptions, amend any provision of the Shareholder Rights Plan without the
approval of any holders of Common Stock or Special Common Stock.
If and when issued, the Rights Preferred Stock will rank, with respect to
dividend rights and rights on liquidation, winding up and dissolution of the
Company, prior to the Common Stock and the Special Common Stock. Subject to the
dividend rights of holders of any other series of Preferred Stock ranking senior
to the Rights Preferred Stock, the holders of Rights Preferred Stock, in
preference to the shares of Common Stock and Special Common Stock, will be
entitled to receive cumulative dividends, payable on quarterly dividend payment
dates, in an amount per share equal to the greater of (a) $1.00 or (b) 100 times
the aggregate per share amount of all cash and non-cash dividends or
distributions (other than dividends payable in shares of Common Stock) paid on
the Common Stock since the immediately preceding quarterly dividend payment
date. In addition, subject to the rights of any holders of Preferred Stock
ranking senior to the Rights Preferred Stock, in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, holders of
Rights Preferred Stock entitled to receive out of assets of the Company legally
available therefor, in preference to the Common Stock and Special Common Stock,
an amount per share equal to 100 times the aggregate amount to be distributed
per share to holders of Common Stock or, if greater, $100 per share plus an
amount equal to unpaid cumulative dividends.
In addition to such voting rights as may be provided by applicable law,
holders of Rights Preferred Stock will be entitled to 100 votes per share with
respect to all matters submitted to a vote of holders of Common Stock as well as
any other class or series of capital stock having the right to vote with the
Common Stock, and all such shares shall vote together as one class, subject to
certain exceptions and except as otherwise required by law. Shares of Rights
Preferred Stock will not be entitled to cumulative voting in the election of
directors. In addition, if at any time cumulative dividends on the outstanding
shares of Rights Preferred Stock shall be unpaid in an aggregate amount per
share equal to or exceeding six quarterly dividends thereon, then the number of
directors constituting the Board of Directors of the Company shall be increased
by two and the holders of the Rights Preferred Stock, voting separately as a
class with the holders of any other series of Preferred Stock ranking on a
parity with or senior to the Rights Preferred Stock and upon which substantially
similar voting rights have been conferred and are exercisable, shall have the
right to elect two additional members to the Board of Directors. Such voting
rights shall terminate when all accumulated dividends on the Rights Preferred
Stock shall have been paid in full (subject to the revesting of such rights in
the event of any future such dividend arrearage) and the term of office of all
directors so elected shall thereupon terminate.
The amounts payable on the Rights Preferred Stock as dividends,
distributions or in the event of liquidation, dissolution or winding up of the
Company and the number of votes per share of Rights Preferred Stock, are subject
to adjustments in certain circumstances.
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ADDITIONAL PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation contains "fair price" provisions
which are intended to protect the Company's stockholders from certain possible
pricing abuses in connection with, among other things, unsolicited attempts to
gain control of the Company. These provisions require the affirmative vote of
the holders of at least 80% of the outstanding shares of voting stock of the
Company held by persons other than a Related Person in order to permit certain
mergers and other major corporate transactions involving the Company and a
Related Person, unless the merger or other transaction is approved by at least
two-thirds of the Continuing Directors (as defined in the Certificate of
Incorporation) or certain "fair price" criteria are met. A "Related Person" is
defined as (x) any individual, corporation, partnership or other person or
entity that, together with its Affiliates and Associates (as defined in the
Certificate of Incorporation), beneficially owns in the aggregate 20% or more of
the Company's outstanding voting stock, and (y) any "Affiliate" or "Associate"
of any such individual, corporation, partnership or other person or entity;
provided, however, that the term "Related Person" shall not include (i) any
trustee, person or entity whose acquisition of such voting stock was approved in
advance by at least two-thirds of the Continuing Directors, (ii) any fiduciary
in respect of any employee benefit plan of the Company or a wholly owned
subsidiary of the Company or (iii) a specifically designated corporation
formerly affiliated with the Company or any of its Affiliates or Associates. The
"fair price" provisions are deemed to have been satisfied if, in general, the
cash or other consideration received per share by holders of each class or
series of the Company's outstanding voting stock in the merger or other
transaction is not less than the highest price paid at any time by the Related
Person in acquiring stock of such class or series, as determined by two-thirds
of the Continuing Directors. The term "Continuing Director" means a director of
the Company who was a member of the Board of Directors prior to the time that a
Related Person involved in a merger or other major corporate transaction became
a Related Person.
The Company has also adopted certain defensive measures that include
classifying the Board of Directors into three classes of directors, requiring a
supermajority vote of the Company's stockholders to effect certain amendments to
its Certificate of Incorporation and bylaws, restricting stockholders' ability
to call special meetings of stockholders, implementing the Shareholder Rights
Plan and amending the Certificate of Incorporation to provide that Section 203
of the Delaware General Corporation Law shall apply to the Company. In addition,
the Certificate of Incorporation prohibits stockholder action by written
consent.
The foregoing defensive measures, together with the provisions of the
Shareholder Rights Plan and the Certificate of Incorporation, in certain
circumstances could require a potential acquiror of the Company to pay a higher
price than might otherwise be the case or to obtain the approval of a larger
percentage of the stockholders than might otherwise be the case, and may have
the effect of discouraging a proxy contest or making more difficult a merger
involving the Company, or a tender offer, open-market purchase program or other
purchase of the Company's shares, in circumstances that would give stockholders
the opportunity to realize a premium over then-prevailing market prices for
their shares.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
As a Delaware corporation, the Company is subject to the provisions of
Section 203 of the General Corporation Law of the State of Delaware. Section 203
generally provides that if a person or group acquires 15% or more of a
corporation's voting stock (thereby becoming an "interested stockholder")
without prior board approval, such interested stockholder may not, for a period
of three years, engage in a wide range of business combination transactions with
the corporation. However, this restriction does not apply to a person who
becomes an interested stockholder in a transaction resulting in the interested
stockholder owning at least 85% of the corporation's voting stock (excluding
from the outstanding shares, shares held by officers, directors or pursuant to
employee stock plans without confidential tender offer decision provisions), or
to a business combination approved by the board of directors and authorized by
the affirmative vote of a least 66 2/3% of the outstanding voting stock not
owned by the interested stockholder. In addition, Section 203 does not apply to
certain business combinations proposed subsequent to the public announcement of
specified business combination transactions which are not opposed by the board
of directors.
TRANSFER AGENT
The transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.
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CERTAIN PROVISIONS OF THE PURCHASE CONTRACT
AGREEMENT AND THE PLEDGE AGREEMENT
GENERAL
Distributions on the FELINE PRIDES will be payable, Purchase Contracts (and
documents related thereto) will be settled and transfers of the FELINE PRIDES
will be registrable at the office of the Purchase Contract Agent in the Borough
of Manhattan, The City of New York. In addition, in the event that the FELINE
PRIDES do not remain in book-entry form, payment of distributions on the FELINE
PRIDES may be made, at the option of the Company, by check mailed to the address
of the person entitled thereto as shown on the Security Register.
Shares of Common Stock will be delivered on the Purchase Contract
Settlement Date (or earlier upon Early Settlement), or, if the Purchase
Contracts have terminated, the related Pledged Securities will be delivered
potentially after a delay as a result of the imposition of the automatic stay
under the Bankruptcy Code (see "Description of the Purchase
Contracts -- Termination"), in each case upon presentation and surrender of the
FELINE PRIDES Certificate at the office of the Purchase Contract Agent.
If a holder of outstanding Income PRIDES or Growth PRIDES fails to present
and surrender the FELINE PRIDES Certificate evidencing such Income PRIDES or
Growth PRIDES to the Purchase Contract Agent on the Purchase Contract Settlement
Date, the shares of Common Stock issuable in settlement of the related Purchase
Contract and in payment of any Deferred Contract Adjustment Payments will be
registered in the name of the Purchase Contract Agent and, together with any
distributions thereon, shall be held by the Purchase Contract Agent as agent for
the benefit of such holder, until such FELINE PRIDES Certificate is presented
and surrendered or the holder provides satisfactory evidence that such
certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Purchase Contract Agent and the Company.
If the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, the related Pledged Securities have been transferred to the
Purchase Contract Agent for distribution to the holders entitled thereto and a
holder fails to present and surrender the FELINE PRIDES Certificate evidencing
such holder's Income PRIDES or Growth PRIDES to the Purchase Contract Agent, the
related Pledged Securities delivered to the Purchase Contract Agent and payments
thereon shall be held by the Purchase Contract Agent as agent for the benefit of
such holder, until such FELINE PRIDES Certificate is presented or the holder
provides the evidence and indemnity described above.
The Purchase Contract Agent will have no obligation to invest or to pay
interest on any amounts held by the Purchase Contract Agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or exchange
of the FELINE PRIDES, except for any tax or other governmental charge that may
be imposed in connection therewith.
MODIFICATION
The Purchase Contract Agreement and the Pledge Agreement will contain
provisions permitting the Company and the Purchase Contract Agent or Collateral
Agent, as the case may be, with the consent of the holders of not less than a
majority of the Purchase Contracts at the time outstanding, to modify the terms
of the Purchase Contracts, the Purchase Contract Agreement and the Pledge
Agreement, except that no such modification may, without the consent of the
holder of each outstanding Purchase Contract affected thereby, (a) change any
Payment Date, (b) change the amount or type of Pledged Securities related to
such Purchase Contract, impair the right of the holder of any Pledged Securities
to receive distributions on such Pledged Securities or otherwise adversely
affect the holder's rights in or to such Pledged Securities, (c) change the
place or currency of payment or reduce any Contract Adjustment Payments, if any,
or any Deferred Contract Adjustment Payments, (d) impair the right to institute
suit for the enforcement of such Purchase Contract, any Contract Adjustment
Payments, if any, or any Deferred Contract Adjustment Payments, if any, (e)
reduce the number of shares of Common Stock or the amount of any other property
purchasable under such Purchase Contract, increase the price to purchase Common
Stock or any other property upon settlement of such Purchase Contract, change
the Purchase Contract Settlement Date or the right to Early Settlement or
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otherwise adversely affect the holder's rights under such Purchase Contract or
(f) reduce the above-stated percentage of outstanding Purchase Contracts the
consent of whose holders is required for the modification or amendment of the
provisions of the Purchase Contracts, the Purchase Contract Agreement or the
Pledge Agreement; provided, that if any amendment or proposal referred to above
would adversely affect only the Income PRIDES or the Growth PRIDES, then only
the affected class of holders will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
consent of the holders of not less than a majority of such class.
NO CONSENT TO ASSUMPTION
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Income PRIDES or
Growth PRIDES, as applicable, be deemed expressly to have withheld any consent
to the assumption (i.e., affirmance) of the related Purchase Contracts by the
Company or its trustee in the event that the Company becomes the subject of a
case under the Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company will covenant in the Purchase Contract Agreement that it will
not merge or consolidate with or into any other entity or sell, assign,
transfer, lease or convey all or substantially all of its properties and assets
to any person or entity, unless the Company is the continuing corporation or the
successor entity is a corporation organized and existing under the laws of the
United States of America or a state hereof or the District of Columbia and such
corporation expressly assumes the obligations of the Company under the Purchase
Contracts, the Debentures, the Purchase Contract Agreement, the Pledge
Agreement, the Indenture (including any supplemental indenture thereto) and the
Remarketing Agreement and the Company or such successor corporation is not,
immediately after such merger, consolidation, sale, assignment, transfer, lease
or conveyance, in default of its payment obligations thereunder or in material
default in the performance of any of its other obligations thereunder.
TITLE
The Company, the Purchase Contract Agent and the Collateral Agent may treat
the registered owner of any FELINE PRIDES as the absolute owner thereof for the
purpose of making payment and settling the related Purchase Contracts and for
all other purposes.
REPLACEMENT OF FELINE PRIDES CERTIFICATES
In the event that physical certificates have been issued, any mutilated
FELINE PRIDES Certificate will be replaced by the Company at the expense of the
holder upon surrender of such certificate to the Purchase Contract Agent. FELINE
PRIDES Certificates that become destroyed, lost or stolen will be replaced by
the Company at the expense of the holder upon delivery to the Company and the
Purchase Contract Agent of evidence of the destruction, loss or theft thereof
satisfactory to the Company and the Purchase Contract Agent. In the case of a
destroyed, lost or stolen FELINE PRIDES Certificate, an indemnity satisfactory
to the Purchase Contract Agent and the Company may be required at the expense of
the holder of the FELINE PRIDES evidenced by such certificate before a
replacement will be issued.
Notwithstanding the foregoing, the Company will not be obligated to issue
any Income PRIDES or Growth PRIDES on or after the Purchase Contract Settlement
Date (or after Early Settlement) or after the Purchase Contracts have
terminated. The Purchase Contract Agreement will provide that in lieu of the
delivery of a replacement FELINE PRIDES Certificate following the Purchase
Contract Settlement Date, the Purchase Contract Agent, upon delivery of the
evidence and indemnity described above, will deliver the Common Stock issuable
pursuant to the Purchase Contracts included in the Income PRIDES or Growth
PRIDES evidenced by such certificate, or, if the Purchase Contracts have
terminated prior to the Purchase Contract Settlement Date, transfer the Pledged
Securities included in the Income PRIDES or Growth PRIDES evidenced by such
certificate.
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GOVERNING LAW
The Purchase Contract Agreement, the Pledge Agreement and the Purchase
Contracts will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The First National Bank of Chicago will be the Purchase Contract Agent. The
Purchase Contract Agent will act as the agent for the holders of Income PRIDES
and Growth PRIDES from time to time. The Purchase Contract Agreement will not
obligate the Purchase Contract Agent to exercise any discretionary actions in
connection with a default under the terms of the Income PRIDES and Growth PRIDES
or the Purchase Contract Agreement.
The Purchase Contract will contain provisions limiting the liability of the
Purchase Contract Agent. The Purchase Contract Agreement will contain provisions
under which the Purchase Contract Agent may resign or be replaced. Such
resignation or replacement would be effective upon the appointment of a
successor.
The First National Bank of Chicago maintains commercial banking
relationships with the Company.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Bank of New York will be the Collateral Agent. The Collateral Agent
will act solely as the agent of the Company and will not assume any obligation
or relationship of agency or trust for or with any of the holders of the Income
PRIDES and Growth PRIDES except for the obligations owed by a pledgee of
property to the owner thereof under the Pledge Agreement and applicable law.
The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which the
Collateral Agent may resign or be replaced. Such resignation or replacement
would be effective upon the appointment of a successor.
The Bank of New York maintains commercial banking relationships with the
Company.
MISCELLANEOUS
The Purchase Contract Agreement will provide that the Company will pay all
fees and expenses related to (i) the offering of the FELINE PRIDES, (ii) the
retention of the Collateral Agent and (iii) the enforcement by the Purchase
Contract Agent of the rights of the holders of the FELINE PRIDES; provided,
however, that holders who elect to substitute the related Pledged Securities,
thereby creating Growth PRIDES or Income PRIDES or recreating Income PRIDES or
Growth PRIDES, shall be responsible for any fees or expenses payable in
connection with such substitution, as well as any commissions, fees or other
expenses incurred in acquiring the Pledged Securities to be substituted, and the
Company shall not be responsible for any such fees or expenses.
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DESCRIPTION OF THE CAPITAL SECURITIES
The Capital Securities, a certain portion of which will initially form a
component of the Income PRIDES, and a certain portion of which will initially
trade separately, will be issued pursuant to the terms of the Declaration. See
"Description of the FELINE PRIDES -- Creation of Income PRIDES." The Declaration
will be qualified as an indenture under the Trust Indenture Act. The
Institutional Trustee, The First National Bank of Chicago, an independent
trustee, will act as indenture trustee for the Capital Securities under the
Declaration for purposes of compliance with the provisions of the Trust
Indenture Act. The terms of the Capital Securities will include those stated in
the Declaration and those made part of the Declaration by the Trust Indenture
Act. The following summary of certain provisions of the Capital Securities and
the Declaration does not purport to be complete, and reference is hereby made to
the copy of the Declaration (including the definitions therein of certain terms)
which is filed as an exhibit to the Registration Statement relating to this
Prospectus, the Trust Act and the Trust Indenture Act. Whenever particular
defined terms are referred to in this Prospectus, such defined terms are
incorporated herein by reference. As used under this caption, references to the
Company mean Kaufman and Broad Home Corporation excluding, unless otherwise
expressly stated or the context otherwise requires, its subsidiaries.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust the Trust Securities, which represent undivided beneficial ownership
interests in the assets of the Trust. All of the Common Securities will be
owned, directly or indirectly, by the Company. The Common Securities rank on a
parity, and payments will be made thereon on a pro rata basis, with the Capital
Securities, except that upon the occurrence and during the continuance of an
Indenture Event of Default, the rights of the holders of the Common Securities
to receive payment of periodic distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Capital Securities. The Declaration does not permit the issuance by the
Trust of any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. Pursuant to the Declaration, the Institutional
Trustee will own the Debentures purchased by the Trust for the benefit of the
holders of the Trust Securities. The payment of distributions out of money held
by the Trust, and payments upon redemption of the Capital Securities or
liquidation of the Trust, are guaranteed by the Company to the extent described
under "Description of the Guarantee." The Guarantee, when taken together with
the Company's obligations under the Debentures and the Indenture and its
obligations under the Declaration, including the obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Capital Securities), provides a full and unconditional guarantee of amounts due
on the Capital Securities. The Guarantee will be held by The First National Bank
of Chicago, the Guarantee Trustee, for the benefit of the holders of the Capital
Securities. The Guarantee does not cover payment of distributions when the Trust
does not have sufficient available funds to pay such distributions. In such
event, the remedy of a holder of Capital Securities is to vote to direct the
Institutional Trustee to enforce the Institutional Trustee's rights under the
Debentures (except in the limited circumstances in which the holder may take
direct action). See "-- Declaration Events of Default" and "-- Voting Rights."
DISTRIBUTIONS
Distributions on the Capital Securities will be fixed initially at a rate
per annum of % of the stated liquidation amount of $10 per Capital
Security. The distribution rate on the Capital Securities that remain
outstanding on and after the Purchase Contract Settlement Date will be reset on
the third Business Day immediately preceding the Purchase Contract Settlement
Date to the Reset Rate. See "-- Market Rate Reset." Distributions on the Capital
Securities in arrears for more than one quarter will bear interest at the rate
of % per annum through and including , 2001 and at the Reset Rate
thereafter, compounded quarterly. The term "distribution" as used herein
includes any such interest unless otherwise stated. The amount of distributions
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months and for any period shorter than a full quarterly distribution
period for which distributions are computed, distributions will be computed on
the basis of the actual number of days elapsed per 30-day month.
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Distributions on the Capital Securities will be cumulative and will accrue
from the Original Issue Date and will be payable quarterly in arrears on
February 16, May 16, August 16, and November 16 of each year, commencing ,
1998, when, as and if funds are available for payment. Distributions will be
made by the Institutional Trustee, except as otherwise described below.
The Company has the right under the Indenture to defer payments of interest
on the Debentures by extending the interest payment period from time to time on
the Debentures, which right, if exercised, would defer quarterly distributions
on the Capital Securities (though such distributions would continue to accrue,
compounded quarterly, to the extent permitted by law, at the rate of % per
annum through and including , 2001 and at the Reset Rate thereafter)
during any such Extension Period. Such right to extend the interest payment
period for the Debentures is limited to a period, in the aggregate, not
extending beyond the maturity date of the Debentures; provided that an Extension
Period must end on one of the quarterly distribution Payment Dates. In the event
that the Company exercises this right, then (a) the Company shall not declare or
pay dividends on, make distributions with respect to, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of capital stock of the Company in
connection with the satisfaction by the Company of its obligations under any
employee benefit plans or the satisfaction by the Company of its obligations
pursuant to any contract or security outstanding on the date of such event
requiring the Company to purchase capital stock of the Company, (ii) as a result
of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, (iv) dividends or distributions in capital stock of the Company (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan or the
declaration thereunder of a dividend of rights in the future), and (b) the
Company shall not make any guarantee payments with respect to the foregoing
other than pursuant to the Guarantee. Prior to the termination of any such
Extension Period, the Company may further extend the interest payment period;
provided, that such Extension Period, together with all such previous and
further extensions thereof, may not extend beyond the maturity date of the
Debentures and each Extension Period must end on a Payment Date. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may commence a new Extension Period, subject to the above requirements.
See "Description of the Debentures -- Interest" and "-- Option to Extend
Interest Payment Period." If distributions are deferred, the deferred
distributions and accrued interest thereon shall be paid to holders of record of
the Capital Securities as they appear on the books and records of the Trust at
the close of business on the record date for the Payment Date on which such
Extension Period ends.
Distributions on the Capital Securities must be paid on the dates payable
to the extent that the Trust has funds available in the Property Account for the
payment of such distributions. The Trust's funds available for distribution to
the holders of the Capital Securities will be limited to payments received from
the Company on the Debentures. See "Description of the Debentures." The payment
of distributions out of moneys held by the Trust is guaranteed by the Company to
the extent set forth under "Description of the Guarantee." Distributions on the
Capital Securities will be payable to the holders thereof, including the
Collateral Agent, as they appear on the books and records of the Trust at the
close of business on the relevant record dates, which, as long as the Capital
Securities remain in book-entry only form, will be one Business Day prior to the
relevant payment dates. Such distributions will be paid through the
Institutional Trustee who will hold amounts received in respect of the
Debentures in the Property Account for the benefit of the holders of the Capital
Securities. Subject to any applicable laws and regulations and the provisions of
the Declaration, each such payment will be made as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company" below. With
respect to Capital Securities not in book-entry form, the relevant record dates
for the Capital Securities shall conform to the rules of any securities exchange
on which the Capital Securities are listed, and, if none the relevant record
dates shall be one Business Day prior to the relevant payment dates. In the
event that any date on which distributions are to be made on the Capital
Securities is not a Business Day, then payment of the distributions payable on
such date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such
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Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such record date.
Because the Company is a holding company whose operations are conducted
through its subsidiaries, the ability of the Company to pay the principal amount
of and interest on the Debentures, and therefore the ability of the Trust to pay
distributions on the Capital Securities, will depend upon the ability of such
subsidiaries to provide funds to the Company. The ability of subsidiaries to
provide funds to the Company may be subject to contractual and other
limitations, is contingent upon the results of operations and financial
conditions of such subsidiaries, and is subject to various other business
considerations. See "Risk Factors -- Holding Company Structure."
MARKET RATE RESET
The interest rate on the Debentures that remain outstanding on and after
the Purchase Contract Settlement Date (and therefore the distribution rate on
the Capital Securities) will be reset on the third Business Day immediately
preceding the Purchase Contract Settlement Date to the Reset Rate, which will be
equal to the sum of the Reset Spread and the rate of interest on the Two-Year
Benchmark Treasury in effect on the third Business Day immediately preceding the
Purchase Contract Settlement Date and will be determined by the Reset Agent as
the rate the Capital Securities should bear in order for a Capital Security to
have an approximate market value on the third Business Day immediately preceding
the Purchase Contract Settlement Date of 100.75% of the Stated Amount; provided
that the Company may limit such Reset Rate to be no higher than the rate on the
Two-Year Benchmark Treasury on the Purchase Contract Settlement Date plus 300
basis points (3%), and provided, further that the Reset Rate shall in no event
exceed the maximum rate permitted by applicable law. Such market value may be
less than 100.75%, including where the Reset Spread is limited to the maximum of
3% or if the Reset Rate were to be limited by applicable law. The "Two-Year
Benchmark Treasury" shall mean direct obligations of the United States (which
may be obligations traded on a when-issued basis only) having a maturity
comparable to the remaining term to maturity of the Capital Securities, as
agreed upon by the Company and the Reset Agent. The rate for the Two-Year
Benchmark Treasury will be the bid side rate displayed at 10:00 A.M., New York
City time, on the third Business Day immediately preceding the Purchase Contract
Settlement Date in the Telerate system (or if the Telerate system is (a) no
longer available on the third Business Day immediately preceding the Purchase
Contract Settlement Date or (b) in the opinion of the Reset Agent (after
consultation with the Company) no longer an appropriate system from which to
obtain such rate, such other nationally recognized quotation system as, in the
opinion of the Reset Agent (after consultation with the Company) is
appropriate). If such rate is not so displayed, the rate for the Two-Year
Benchmark Treasury shall be, as calculated by the Reset Agent, the yield to
maturity for the Two-Year Benchmark Treasury, expressed as a bond equivalent on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis, and computed by taking the arithmetic mean of the secondary market bid
rates, as of 10:30 A.M., New York City time, on the third Business Day
immediately preceding the Purchase Contract Settlement Date of three leading
United States government securities dealers selected by the Reset Agent (after
consultation with the Company) (which may include the Reset Agent or an
affiliate thereof). It is currently anticipated that Merrill Lynch, Pierce,
Fenner & Smith Incorporated will be the investment banking firm acting as the
Reset Agent.
On the tenth Business Day immediately preceding the Purchase Contract
Settlement Date, the Two-Year Benchmark Treasury to be used to determine the
Reset Rate on the Purchase Contract Settlement Date will be selected and the
Reset Spread to be added to the rate on the Two-Year Benchmark Treasury in
effect on the third Business Day immediately preceding the Purchase Contract
Settlement Date will be established by the Reset Agent, and the Reset Spread and
the Two-Year Benchmark Treasury will be announced by the Company (the "Reset
Announcement Date"). The Company will cause a notice of the Reset Spread and
such Two-Year Benchmark Treasury to be published on the Business Day following
the Reset Announcement Date by publication in a daily newspaper in the English
language of general circulation in The City of New York, which is expected to be
The Wall Street Journal. The Company will request, not later than 7 nor more
than 15 calendar days prior to the Reset Announcement Date, that the Depositary
notify its participants holding Capital Securities, Income PRIDES or Growth
PRIDES of such Reset Announce-
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ment Date and of the procedures that must be followed if any owner of Income
PRIDES wishes to settle the related Purchase Contract with cash on the Business
Day immediately preceding the Purchase Contract Settlement Date.
OPTIONAL REMARKETING
Pursuant to the Remarketing Agreement and subject to the terms of the
Remarketing Underwriting Agreement, on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date, but no earlier than
the Payment Day immediately preceding the Purchase Contract Settlement Date,
holders of separate Capital Securities which are not components of Income PRIDES
may elect to have their Capital Securities remarketed in the same manner as
Capital Securities which are components of Income PRIDES by delivering their
Capital Securities along with a notice of such election to the Custodial Agent.
The Custodial Agent will hold such Capital Securities in an account separate
from the collateral account in which the Pledged Securities will be held.
Holders of Capital Securities electing to have their Capital Securities
remarketed will also have the right to withdraw such election on or prior to the
fifth Business Day immediately preceding the Purchase Contract Settlement Date.
OPTIONAL REDEMPTION
The Debentures are redeemable at the option of the Company, in whole but
not in part, on not less than 30 days nor more than 60 days notice, upon the
occurrence and continuation of a Tax Event under the circumstances described
under "Description of the Debentures -- Tax Event Redemption". If the Company
redeems the Debentures upon the occurrence and continuation of a Tax Event, the
proceeds from such redemption shall simultaneously be applied on a pro rata
basis to redeem Trust Securities having an aggregate stated liquidation amount
equal to the aggregate principal amount of the Debentures so redeemed at a
Redemption Price, per Trust Security, equal to the Redemption Amount plus
accrued and unpaid distributions thereon to the date of such redemption. Such
proceeds will be payable in cash to the holders of such Trust Securities. If the
Tax Event Redemption occurs prior to the Purchase Contract Settlement Date, the
Redemption Price payable to the Collateral Agent, in liquidation of the Income
PRIDES holders' interests in the Trust, will be simultaneously applied by the
Collateral Agent to purchase on behalf of the holders' of the Income PRIDES the
Treasury Portfolio. The Treasury Portfolio will be pledged with the Collateral
Agent to secure the obligation of Income PRIDES holders' to purchase Common
Stock under the related Purchase Contracts.
MANDATORY REDEMPTION
In addition, upon any repayment (other than upon optional redemption) of
any Debentures held by the Trust, whether at stated maturity or otherwise, the
proceeds from such repayment shall simultaneously be applied by the
Institutional Trustee, upon not less than 30 nor more than 60 days notice to
holders of Trust Securities, to redeem, on a pro rata basis, Capital Securities
and Common Securities having an aggregate stated liquidation amount equal to the
aggregate principal amount of the Debentures so redeemed at a Redemption Price,
per Trust Security, equal to the stated liquidation amount thereof plus accrued
and unpaid distributions thereon to the date of such redemption. In the event of
such a mandatory redemption of any Trust Security, the "Redemption Price"
thereof shall mean the stated liquidation amount thereof plus accumulated and
unpaid distributions to the date of redemption.
PUT OPTION UPON A FAILED REMARKETING
If a Failed Remarketing has occurred, holders of Trust Securities
(including, following the distribution of the Debentures upon a dissolution of
the Trust as described herein, such holders of Debentures), holding such Trust
Securities (or Debentures, as the case may be) following the Purchase Contract
Settlement Date will have the right, in the case of Trust Securities, to require
the Trust to distribute their pro rata share of the Debentures to the Exchange
Agent, who will put such Debentures to the Company on behalf of such holders (or
in the case of Debentures held directly, the holders of such Debentures shall
have the right to put such Debentures directly to the Company) on ,
2001, upon at least three Business Days' prior notice, at a
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price equal to the principal amount, plus accrued and unpaid interest (including
deferred interest), if any, thereon.
REDEMPTION PROCEDURES
Redemptions of the Trust Securities shall be made only to the extent that
the Trust has funds on hand available for such payment. See also
"-- Subordination of Common Securities".
If the Trust gives a notice of redemption (which notice will be
irrevocable) in respect of Trust Securities, then, by 12:00 noon, New York City
time, on the redemption date, provided that the Company has paid to the
Institutional Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Debentures, the Trust will irrevocably deposit
with the Depositary, the Purchase Contract Agent or the Collateral Agent, as
applicable, funds sufficient to pay the applicable Redemption Price and will
give the Depositary, the Purchase Contract Agent or the Collateral Agent, as
applicable, irrevocable instructions and authority to pay the Redemption Price
to the holders of the Trust Securities so called for redemption. If notice of
redemption shall have been given and funds deposited as required, then
immediately prior to the close of business on the date of such deposit,
distributions will cease to accrue and all rights of holders of such Trust
Securities so called for redemption will cease, except the right of the holders
of such Trust Securities to receive the Redemption Price but without interest on
such Redemption Price. Notwithstanding the foregoing, distributions on Trust
Securities which are due and payable on a Payment Date falling on or prior to
the relevant redemption date shall be payable to the holders of such Trust
Securities registered as such at the close of business on the relevant record
dates. In the event that any date fixed for redemption of Trust Securities is
not a Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day that is a Business Day (without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. The proceeds from the redemption or other
repayment of the Debentures shall be allocated to the pro rata redemption of
Trust Securities, except as described below under "-- Subordination of Common
Securities". The Redemption Price for Capital Securities to be redeemed on any
redemption date shall be the same as the Redemption Price for Common Securities
to be redeemed on such date.
In the event that payment of the Redemption Price in respect of Trust
Securities called for redemption is improperly withheld or refused and not paid
either by the Trust or by the Company pursuant to the Guarantee, distributions
on such Trust Securities will continue to accumulate at the applicable rate from
the date fixed for such redemption to the date such Redemption Price is actually
paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the applicable redemption date to each holder of Capital
Securities to be redeemed at its registered address.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the Redemption Price of, the Capital
Securities and Common Securities shall be made pro rata based on the liquidation
amount of the Capital Securities and Common Securities; provided, however, that
if on any Payment Date or Redemption Date, a Declaration Event of Default shall
have occurred and be continuing, no payment of any distribution on, or
Redemption Price of, any of the Common Securities, and no other payment on
account of the redemption, liquidation or other acquisition of such Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid distributions on all of the outstanding Capital Securities for all
distribution periods terminating on or prior thereto, or in the case of payment
of the Redemption Price, the full amount of such Redemption Price on all of the
Trust's outstanding Capital Securities then called for redemption, shall have
been made or provided for, and all funds available to the Institutional Trustee
shall first be applied to the payment in full in cash of all distributions on,
or Redemption Price of, the Capital Securities then due and payable.
In the case of any Declaration Event of Default, the Company as holder of
the Common Securities will be deemed to have waived any right to act with
respect to any such Declaration Event of Default until the
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effect of all such Declaration Events of Default have been cured, waived or
otherwise eliminated. Until any such Declaration Events of Default have been so
cured, waived or otherwise eliminated, the Institutional Trustee shall act
solely on behalf of the holders of the Capital Securities and not on behalf of
the Company as holder of the Common Securities, and only the holders of the
Capital Securities will have the right to direct the Institutional Trustee to
act on their behalf, and any waiver by the holders of the Capital Securities of
a Declaration Event of Default with respect to the Capital Securities shall also
be deemed to constitute a waiver by the holders of the Common Securities of any
such Declaration Event of Default with respect to the Common Securities for all
purposes of the Declaration.
DISTRIBUTION OF THE DEBENTURES
"Investment Company Event" means that the Regular Trustees shall have
received an opinion from independent counsel experienced in practice under the
1940 Act (as defined below) to the effect that, as a result of the occurrence of
a change in law or regulation or a written change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), which Change in
1940 Act Law becomes effective on or after the date of this Prospectus, there is
more than an insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act").
If, at any time, an Investment Company Event shall occur and be continuing,
the Trust shall be dissolved, with the result that Debentures with an aggregate
principal amount equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accrued and unpaid distributions on, the Trust Securities,
would be distributed to the holders of the Trust Securities in liquidation of
such holders' interests in the Trust on a pro rata basis within 90 days
following the occurrence of such Investment Company Event; provided, however,
that such dissolution and distribution shall be conditioned on the Company being
unable to avoid such Investment Company Event within such 90-day period by
taking some ministerial action or pursuing some other similar reasonable measure
that will have no adverse effect on the Trust, the Company or the holders of the
Trust Securities and will involve no material cost. If an Investment Company
Event occurs, Debentures distributed to the Collateral Agent in liquidation of
such holder's interest in the Trust would be pledged (in lieu of the Capital
Securities) to secure Income PRIDES holders' obligations to purchase Common
Stock under the Purchase Contracts.
The Company will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities of creditors of the Trust as provided by
applicable law, cause the Debentures to be distributed to the holders of the
Trust Securities. As of the date of any distribution of Debentures upon
dissolution of the Trust, (i) the Capital Securities will no longer be deemed to
be outstanding, (ii) the Depositary or its nominee, as the record holder of the
Capital Securities, will receive a registered global certificate or certificates
representing the Debentures to be delivered upon such distribution, and (iii)
any certificates representing Capital Securities not held by the Depositary or
its nominee will be deemed to represent beneficial interests in the Debentures
having an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, such
Capital Securities until such certificates are presented to the Company or its
agent for transfer or reissuance. Debentures distributed to the Collateral Agent
in liquidation of the interest of the holders of the Capital Securities in the
Trust would be substituted for the Capital Securities and pledged to secure
Income PRIDES holders' obligations to purchase Common Stock under the Purchase
Contracts.
There can be no assurance as to the market prices for either the Capital
Securities or the Debentures that may be distributed in exchange for the Capital
Securities if a dissolution of the Trust were to occur. Accordingly, the Capital
Securities or such Debentures that an investor may receive if a dissolution of
the Trust were to occur may trade at a discount to the price that the investor
paid to purchase the Capital Securities forming a part of the Income PRIDES
offered hereby.
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LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution of the Trust
(unless a Tax Event Redemption has occurred), the holders of the Capital
Securities will be entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors, Debentures in an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and bearing accrued and unpaid
interest in an amount equal to accrued and unpaid distributions on, the Capital
Securities on a pro rata basis in exchange for such Capital Securities.
The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the Capital
Securities, except that if a Declaration Event of Default has occurred and is
continuing, the Capital Securities shall have a preference over the Common
Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall dissolve (i) on ,
2005, the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company or the holder of the Common Securities, (iii) upon the filing of a
certificate of dissolution or its equivalent with respect to the Company or the
revocation of the charter of the Company and the expiration of 90 days after the
date of revocation without a reinstatement thereof, (iv) after the receipt by
the Institutional Trustee of written direction from the Company to dissolve the
Trust, (v) upon the distribution of Debentures upon an Investment Company Event,
(vi) upon the occurrence and continuation of a Tax Event Redemption or (vii)
upon the entry of a decree of a judicial dissolution of the holder of the Common
Securities, the Company or the Trust.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Capital Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Capital Securities have been so cured, waived or otherwise
eliminated, the Institutional Trustee will be deemed to be acting solely on
behalf of the holders of the Capital Securities and only the holders of the
Capital Securities will have the right to direct the Institutional Trustee with
respect to certain matters under the Declaration and, therefore, the Indenture.
If a Declaration Event of Default with respect to the Capital Securities is
waived by holders of Capital Securities, such waiver will also constitute the
waiver of such Declaration Event of Default with respect to the Common
Securities without any further act, vote or consent of the holders of the Common
Securities. If the Institutional Trustee fails to enforce its rights under the
Debentures in respect of an Indenture Event of Default after a holder of record
of Capital Securities has made a written request, such holder of record of
Capital Securities may, to the fullest extent permitted by applicable law,
institute a legal proceeding against the Company to enforce the Institutional
Trustee's rights under the Debentures without first proceeding against the
Institutional Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Debentures on the date such interest or principal is otherwise
payable (after giving effect to any right of deferral), then a holder of Capital
Securities may directly institute a Direct Action for enforcement of such
payment to such holder directly of the principal of or interest on the
Debentures having a principal amount equal to the aggregate liquidation amount
of the Capital Securities of such holder. In connection with such Direct Action,
the Company shall have the right under the Indenture to set off any payment made
to such holder of the Company. The holders of Capital Securities will not be
able to exercise directly any other remedy available to the holders of the
Debentures. See "Effect of Obligations under the Debentures and the Guarantee."
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Debentures will have the right under the
Indenture to declare the principal of and interest on the Debentures to be
immediately due and payable. The Company and the Trust are each required to file
annually with the
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Institutional Trustee an officers' certificate as to its compliance with all
conditions and covenants under the Declaration.
CO-TRUSTEES AND SEPARATE INSTITUTIONAL TRUSTEE
Unless a Declaration Event of Default shall have occurred and be continuing
at any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the trust
property may at the time be located, the Company, as the holder of the Common
Securities, and the Regular Trustees shall have power to appoint one or more
persons either to act as a co-trustee, jointly with the Institutional Trustee,
of all or any part of such trust property, or to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the Declaration. In the event that an Indenture
Event of Default has occurred and is continuing, the Institutional Trustee alone
shall have power to make such appointment.
VOTING RIGHTS
Except as described herein, under the Trust Act and the Trust Indenture Act
and under "Description of the Guarantee -- Modification of the Guarantee;
Assignment," and as otherwise required by law and the Declaration, the holders
of the Capital Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate stated liquidation amount of
the Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Institutional Trustee,
or direct the exercise of any trust or power conferred upon the Institutional
Trustee under the Declaration, including the right to direct the Institutional
Trustee, as holder of the Debentures, to (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Debt Trustee, or
the exercise of any trust or power conferred on the Debt Trustee with respect to
the Debentures, (ii) waive any past Indenture Event of Default and its
consequences that is waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Debentures shall be
due and payable or (iv) consent to any amendment, modification or termination of
the Indenture or the Debentures where such consent shall be required; provided,
however, that, where a consent or action under the Indenture would require the
consent or act of holders of more than a majority in principal amount of the
Debentures (a "Super-Majority") affected thereby, only the holders of at least
such Super-Majority in aggregate stated liquidation amount of the Capital
Securities may direct the Institutional Trustee to give such consent or take
such action. The Institutional Trustee shall notify all holders of the Capital
Securities of any notice of default received from the Debt Trustee (as defined
herein) with respect to the Debentures. Such notice shall state that such
Indenture Event of Default also constitutes a Declaration Event of Default.
Except with respect to directing the time, method and place of conducting a
proceeding for a remedy, the Institutional Trustee shall not take any of the
actions described in clauses (i), (ii) or (iii) above unless the Institutional
Trustee has obtained an opinion of independent tax counsel experienced in such
matters to the effect that, as a result of such action, the Trust will not fail
to be classified as a grantor trust for federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Debentures, is required under the Indenture with respect to any amendment,
modification or termination of the Indenture or the Debentures, the
Institutional Trustee shall request the written direction of the holders of the
Capital Securities and the Common Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in stated liquidation
amount of the Capital Securities and the Common Securities voting together as a
single class; provided, however, that where a consent under the Indenture would
require the consent of a Super-Majority, the Institutional Trustee may only give
such consent at the direction of the holders of at least the proportion in
stated liquidation amount of the Capital Securities and the Common Securities
which the relevant Super-Majority represents of the aggregate principal amount
of the Debentures outstanding. The Institutional Trustee shall not take any such
action in accordance with the directions of the holders of the Capital
Securities and the Common Securities
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unless the Institutional Trustee has obtained an opinion of independent tax
counsel experienced in such matters to the effect that, as a result of such
action, (a) the Trust will not fail to be classified as a grantor trust for
United States federal income tax purposes or (b) such action would not reduce or
otherwise adversely affect the powers of the Institutional Trustee or cause the
Trust to be deemed an "investment company" which is required under the
Investment Company Act.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any approval or direction of holders of Capital Securities may be given at
a separate meeting of holders of Capital Securities convened for such purpose,
at a meeting of all of the holders of Trust Securities or pursuant to written
consent. The Regular Trustees will cause a notice of any meeting at which
holders of Capital Securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be mailed to each
holder of record of Capital Securities. Each such notice will include a
statement setting forth the following information: (i) the date of such meeting
or the date by which such action is to be taken; (ii) a description of any
resolution proposed for adoption at such meeting on which such holders are
entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Capital Securities will be required for the Trust to redeem
and cancel Capital Securities or distribute Debentures in accordance with the
Declaration.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Capital Securities
were not outstanding.
The procedures by which holders of Capital Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
Holders of the Capital Securities will have no rights to appoint or remove
the KBHC Trustees, who may be appointed, removed or replaced solely by the
Company as the indirect or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee or the Delaware
Trustee), provided, that if any proposed amendment provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Trust Securities, whether by
way of amendment to the Declaration or otherwise or (ii) the dissolution of the
Trust other than pursuant to the terms of the Declaration, the holders of the
Trust Securities voting together as a single class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in such stated liquidation
amount of the Trust Securities affected thereby; provided further, that if any
amendment or proposal referred to in clause (i) above would adversely affect
only the Capital Securities or the Common Securities, then only the affected
class will be entitled to vote on such amendment or proposal and such amendment
or proposal shall not be effective except with the approval of a majority in
stated liquidation amount of such class of securities. In addition, the
Declaration may be amended without the consent of the holders of the Trust
Securities to, among other things, cause the Trust to continue to be classified
for United States federal income tax purposes as a grantor trust.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified as other than a grantor trust for purposes of United States
federal income taxation, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
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MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other entity or person,
except as described below or as described in "-- Liquidation Distribution Upon
Dissolution." The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, the Institutional
Trustee or the Delaware Trustee consolidate, amalgamate, merge with or into, or
be replaced by a trust organized as such under the laws of any State; provided,
that (i) if the Trust is not the surviving entity, such successor entity either
(x) expressly assumes all of the obligations of the Trust under the Trust
Securities or (y) substitutes for the Trust Securities other securities having
substantially the same terms as the Trust Securities (the "Successor
Securities"), so long as the Successor Securities rank the same as the Trust
Securities with respect to distributions and payments upon liquidation,
redemption, repayment and otherwise, (ii) the Company expressly acknowledges a
trustee of such successor entity possessing the same powers and duties as the
Institutional Trustee as the holder of the Debentures, (iii) if the Capital
Securities are listed or quoted on any securities exchange or other
organization, any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or with another organization on
which the Capital Securities are then listed or quoted, (iv) such merger,
consolidation, amalgamation or replacement does not cause the Capital Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), (vi) such successor entity has a
purpose substantially identical to that of the Trust, (vii) prior to such
merger, consolidation, amalgamation or replacement, the Company has received an
opinion of a nationally recognized independent counsel to the Trust experienced
in such matters to the effect that, (A) such merger, consolidation, amalgamation
or replacement does not adversely affect the rights, preferences and privileges
of the holders of the Trust Securities (including any Successor Securities) in
any material respect (other than with respect to any dilution of the holders'
interest in the new entity), (B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor such successor entity will be
required to register as an investment company under the 1940 Act and (C)
following such merger, consolidation, amalgamation or replacement, the Trust (or
the successor entity) will continue to be classified as a grantor trust for
federal income tax purposes, and (viii) the Company guarantees the obligations
of such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing the Trust shall not,
except with the consent of holders of 100% in stated liquidation amount of the
Trust Securities, consolidate, amalgamate, merge with or into, or be replaced by
any other entity or permit any other entity to consolidate, amalgamate, merge
with or into, or replace it, if such consolidation, amalgamation, merger or
replacement would cause the Trust or the successor entity to be classified as
other than a grantor trust for federal income tax purposes.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depositary will act as securities depositary for any Capital Securities
that are held separately from the Income PRIDES. In such event, the Capital
Securities will be issued only as fully-registered securities registered in the
name of Cede & Co. (the Depositary's nominee). However, under certain
circumstances, the Regular Trustees with the consent of the Company may decide
not to use the system of book-entry transfers through the DTC with respect to
the Capital Securities. In that event, certificates of the Capital Securities
will be printed and delivered to the holders. In addition, Capital Securities
which are components of Income PRIDES will be issued in definitive form,
registered in the name of The First National Bank of Chicago, as Purchase
Contract Agent.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Capital
Securities as represented by a global certificate.
Purchases of Capital Securities within the Depositary's system must be made
by or through Direct Participants, which will receive a credit for the Capital
Securities on the Depositary's records. The ownership
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interest of each actual purchaser of each Capital Security (a "Beneficial
Owner") is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from the
Depositary of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Capital Securities. Transfers of ownership
interests in the Capital Securities are to be accomplished by entries made on
the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
the Capital Securities, except in the event that use of the book-entry system
for the Capital Securities is discontinued.
To facilitate subsequent transfers, all the Capital Securities deposited by
Participants with the Depositary will initially be registered in the name of the
Depositary's nominee, Cede & Co. The deposit of Capital Securities with the
Depositary and their registration in the name of Cede & Co. effect no change in
beneficial ownership. The Depositary has no knowledge of the actual Beneficial
Owners of the Capital Securities. The Depositary's records reflect only the
identity of the Direct Participants to whose accounts such Capital Securities
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
So long as the Depositary or its nominee is the registered owner or holder
of a global certificate, the Depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the Capital Securities
represented thereby for all purposes under the Declaration and the Capital
Securities. No Beneficial Owner of an interest in a global certificate will be
able to transfer that interest except in accordance with the Depositary's
applicable procedures, in addition to those provided for under the Declaration.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Capital Securities (including the
presentation of Capital Securities for exchange as described below) only at the
direction of one or more Participants to whose account the Depositary's
interests in the global certificates are credited and only in respect of such
portion of the stated liquidation amount of Capital Securities as to which such
Participant or Participants has or have given such directions. However, if there
is a Declaration Event of Default under the Capital Securities, the Depositary
will exchange the global certificates for certificated securities, which it will
distribute to its Participants.
Conveyance of notices and other communications by the Depositary to Direct
Participants and Indirect Participants and by Direct Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements that may be in effect from
time to time.
Although voting with respect to the Capital Securities is limited, in those
cases where a vote is required, neither the Depositary nor Cede & Co. will
itself consent or vote with respect to Capital Securities. Under its usual
procedures, the Depositary would mail an omnibus proxy to the Trust as soon as
possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Capital Securities are credited on the record date (identified in a listing
attached to the omnibus proxy). The Company and the Trust believe that the
arrangements among the Depositary, Direct and Indirect Participants, and
Beneficial Owners will enable the Beneficial Owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a record
holder of a Capital Security.
Payments on the Capital Securities issued in the form of one or more global
certificates will be made to the Depositary in immediately available funds. The
Depositary's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on the
Depositary's records unless the Depositary has reason to believe that it will
not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the account of customers in
bearer form or registered in "street name," and such payments will be the
responsibility of such Participants and not of the Depositary, the Trust or the
Company, subject to any statutory or regulatory requirements to the contrary
that may be in effect from time to time. Payment of distributions to the
Depositary is the responsibility of the Trust, disbursement of
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such payments to Direct Participants is the responsibility of the Depositary,
and disbursement of such payments to the Beneficial Owners is the responsibility
of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Capital Security
certificate will not be entitled to receive physical delivery of Capital
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
the Depositary to exercise any rights under the Capital Securities.
Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the global certificates among Participants,
the Depositary is under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time. None of the
Company, the Trust or any KBHC Trustee will have any responsibility for the
performance by the Depositary or its Direct Participants or Indirect
Participants under the rules and procedures governing the Depositary. In the
event that (i) the Depositary notifies the Company that it is unwilling or
unable to continue as a depositary for such global Capital Securities and no
successor depositary shall have been appointed within 90 days after notice
thereof to the Company, (ii) the Depositary at any time ceases to be a clearing
agency registered under the Exchange Act at which time the Depositary is
required to be so registered to act as such depositary and no successor
depositary shall have been appointed within 90 days after the Company learns
that the Depositary has ceased to be so registered, (iii) the Company, in its
sole discretion, determines that such global Capital Securities shall be so
exchangeable or (iv) there shall have occurred and be continuing a Declaration
Event of Default, certificates for the Capital Securities will be printed and
delivered in exchange for beneficial interests in the global Capital Securities.
Any global Capital Securities that are exchangeable pursuant to the preceding
sentence shall be exchangeable for Capital Securities registered in such names
as the Depositary shall direct. It is expected that such instructions will be
based upon directions received by the Depositary from its Participants with
respect to ownership of beneficial interests in such global Capital Securities.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
and the Trust believe to be reliable, but neither the Company nor the Trust have
attempted to verify the accuracy hereof.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
Payments in respect of the Capital Securities represented by the global
certificates shall be made to the Depositary, which shall credit the relevant
accounts at the Depositary on the applicable distribution dates, or, in the case
of certificated securities, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
securities register. The paying agent shall be permitted to resign as paying
agent upon 30 days' written notice to the KBHC Trustees. In the event that The
First National Bank of Chicago shall no longer be the paying agent, the Regular
Trustees shall appoint a successor to act as paying agent (which shall be a bank
or trust company).
The First National Bank of Chicago will act as registrar, transfer agent
and paying agent for the Capital Securities. Registration of transfers of
Capital Securities will be effected without charge by or on behalf of the Trust,
but upon payment (and the giving of such indemnity as the Trust or the Company
may require) in respect of any tax or other government charge which may be
imposed in relation to it. The Trust will not be required to register or cause
to be registered the transfer of the Capital Securities after the Capital
Securities have been called for redemption.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee prior to the occurrence of a default with respect
to the Trust Securities and after the curing and or waiver of any defaults that
may have occurred, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Institutional Trustee is under no
obligation to exercise any of the powers vested in it by the Declaration at the
request of any holder of Capital Securities, unless offered reasonable indemnity
by such holder against the costs, expenses and liabilities which might be
incurred thereby. The holders of Capital Securities will not be required to
offer such indemnity in the event such holders, by exercising their voting
rights, direct the Institutional
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Trustee to take any action it is empowered to take under the Declaration
following a Declaration Event of Default.
If no Declaration Event of Default has occurred and is continuing and the
Institutional Trustee is required to decide between alternative causes of
action, construe ambiguous provisions in the Declaration or is unsure of the
application of any provision of the Declaration, and the matter is not one in
which holders of Capital Securities are entitled under the Declaration to vote,
then the Institutional Trustee shall take such action as is directed by the
Company and if not so directed, shall take such action as it deems advisable and
in the best interests of the holders of the Trust Securities and will have no
liability except for its own bad faith, negligence or willful misconduct.
The Institutional Trustee maintains commercial banking relationships with
the Company.
GOVERNING LAW
The Declaration and the Capital Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or be characterized as other than a grantor trust
for federal income tax purposes. The Company is authorized and directed to
conduct its affairs so that the Debentures will be treated as indebtedness of
the Company for federal income tax purposes. In this connection, the Company and
the Regular Trustees are authorized to take any action not inconsistent with
applicable law, the Declaration, the certificate of trust of the Trust or the
certificate of incorporation of the Company, that each of the Company and the
Regular Trustees determines in its discretion to be necessary or desirable to
achieve such end, as long as such action does not adversely affect the interests
of the holders of the Capital Securities or vary the terms thereof.
Holders of the Capital Securities have no preemptive or similar rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee which
will be executed and delivered by the Company for the benefit of the holders
from time to time of Trust Securities. The Guarantee will be qualified as an
indenture under the Trust Indenture Act. The First National Bank of Chicago will
act as the Guarantee Trustee for the purposes of compliance with the provisions
of the Trust Indenture Act. The terms of the Guarantee will be those set forth
in the Guarantee and those made part of the Guarantee by the Trust Indenture
Act. The following summary does not purport to be complete, and reference is
hereby made to the copy of the form of Guarantee (including the definitions
therein of certain terms) which is filed as an exhibit to the Registration
Statement relating to this Prospectus, and to the Trust Indenture Act. Whenever
particular defined terms of the Guarantee are referred to in this Prospectus,
such defined terms are incorporated herein by reference. The Guarantee will be
held by the Guarantee Trustee for the benefit of the holders of the Capital
Securities. As used under this caption, references to the Company mean Kaufman
and Broad Home Corporation excluding, unless otherwise expressly stated or the
context otherwise requires, its subsidiaries.
GENERAL
Pursuant to the Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full on a senior unsecured
basis, to the holders of the Trust Securities issued by the Trust, the Guarantee
Payments (as defined herein) (except to the extent paid by the Trust), as and
when due, taking into account any permitted deferral thereof regardless of any
defense, right of set-off or counterclaim which the Trust may have or assert.
The following payments or distributions with respect to Trust Securities issued
by the Trust, to the extent not paid by or on behalf of the Trust (the
"Guarantee Payments"), will be subject to the Guarantee thereon (without
duplication): (i) any accrued and unpaid distributions which are required to be
paid on the Trust Securities, to the extent the Trust shall have funds available
therefor; (ii) the redemption price, including all accumulated and unpaid
distributions to the date of redemption, of Trust Securities in respect of which
the related Debentures have been redeemed by the Company upon the occurrence of
a Tax Event Redemption, winding-up or termination, to the extent the Trust shall
have funds available therefor; and (iii) upon a voluntary or involuntary
dissolution of the Trust (other than in connection with the distribution of
Debentures to the holders of Trust Securities in exchange for the Trust
Securities as provided for in the Declaration), the lesser of (a) the aggregate
of the stated liquidation amount and all accrued and unpaid distributions on
such Trust Securities to the date of payment, to the extent the Trust has funds
available therefor, and (b) the amount of assets of the Trust remaining
available for distribution to holders of the Trust Securities in liquidation of
the Trust. The Company's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by the Company to the holders of Trust
Securities or by causing the Trust to pay such amounts to such holders.
The Guarantee will be a full and unconditional guarantee on a senior
unsecured basis with respect to the Trust Securities issued by the Trust, but
will not apply to any payment of distributions except to the extent the Trust
shall have funds available therefor. If the Company does not make interest
payments on the Debentures purchased by the Trust, the Trust will not pay
distributions on the Trust Securities and will not have funds available
therefor. See "Effect of Obligations under the Debentures and the Guarantee."
The Guarantee, when taken together with the Company's obligations under the
Debentures, the Indenture, and the Declaration, will have the effect of
providing a full and unconditional guarantee on a senior unsecured basis by the
Company of payments due on the Trust Securities.
The Guarantee is for the benefit of all the holders of the Trust Securities
(including the holders of the Common Securities), provided, however, that upon
an Indenture Event of Default, holders of Capital Securities shall have priority
over holders of Common Securities with respect to distributions and payments on
liquidation, redemption or otherwise.
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CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company will covenant that, so long as any Trust
Securities issued by the Trust remain outstanding, if there shall have occurred
any event that would constitute an event of default under the Guarantee or the
Declaration, then (a) the Company shall not declare or pay any dividend on, make
any distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security outstanding on the date of such event requiring the Company to
purchase capital stock of the Company, (ii) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company's
capital stock, (iii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (iv) dividends
or distributions in capital stock of the Company (or rights to acquire capital
stock) or repurchases or redemptions of capital stock solely from the issuance
or exchange of capital stock or (v) redemptions or repurchases of any rights
outstanding under a shareholder rights plan or the declaration thereunder of a
dividend of rights in the future), and (b) the Company shall not make any
guarantee payments with respect to the foregoing (other than payments pursuant
to the Guarantee).
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Trust Securities or the Guarantee Trustee (in which case no
consent of holders of Trust Securities or the Guarantee Trustee will be
required, respectively), the Guarantee may be amended only with the prior
approval of the Guarantor, the Guarantee Trustee and holders of not less than a
majority in stated liquidation amount of the outstanding Trust Securities issued
by the Trust. All guarantees and agreements contained in the Guarantee shall
bind the successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the Trust Securities
then outstanding.
TERMINATION
The Guarantee will terminate (a) upon distribution of the Debentures held
by the Trust to the holders of the Trust Securities, (b) upon full payment of
the redemption price of all the Trust Securities in the event that all of the
Debentures are repurchased by the Company upon the occurrence of a Tax Event
Redemption or (c) upon full payment of the amounts payable in accordance with
the Declaration upon liquidation of the Trust. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Trust Securities must return payment of any sums paid under the Trust
Securities or the Guarantee.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder.
The holders of a majority in stated liquidation amount of the Trust
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce
such Guarantee, any holder of Trust Securities may institute a legal proceeding
directly against the Company to enforce such holder's rights under the
Guarantee, without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity. Notwithstanding the foregoing,
if the Company has failed to make a required guarantee payment, a holder of
Trust Securities may directly institute a proceeding against the Company for
enforcement of the Guarantee for such payment. The Company waives any right or
remedy to require that any action be brought first against the Trust or any
other person or entity before proceeding directly against the Company.
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STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank on a parity with all of the Company's other senior unsecured
obligations.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of Capital Securities, unless offered reasonable indemnity
against the costs, expenses and liabilities which might be incurred thereby; but
the foregoing shall not relieve the Guarantee Trustee, upon the occurrence of an
event of default under the Guarantee, from exercising the rights and powers
vested in it by the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
internal laws of the State of New York.
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DESCRIPTION OF THE DEBENTURES
Set forth below is a description of the specific terms of the Debentures in
which the Trust will invest the proceeds from the issuance and sale of the Trust
Securities. The following description does not purport to be complete, and
reference is hereby made to the copy of the form of the Indenture to be entered
into between the Company and The First National Bank of Chicago, as trustee (the
"Debt Trustee"), as supplemented or amended from time to time (as so
supplemented and amended, the "Indenture") which is filed as an exhibit to the
Registration Statement relating to this Prospectus, and to the Trust Indenture
Act. Certain capitalized terms used herein are defined in the Indenture. As used
under this caption, references to the Company mean Kaufman and Broad Home
Corporation excluding, unless otherwise expressly stated or the context
otherwise requires, its subsidiaries.
Under certain circumstances involving the dissolution of the Trust,
Debentures may be distributed to the holders of the Trust Securities in
liquidation of the Trust. See "Description of the Capital Securities --
Distribution of the Debentures."
GENERAL
The Debentures will be issued as senior unsecured debt under the Indenture
and will rank on a parity in right of payment with all of the Company's other
senior unsecured debt obligations. The Debentures will be limited in aggregate
principal amount to $ million (or up to $ million if the
Underwriters' over-allotment option is exercised in full).
The Indenture provides that debt securities may be issued thereunder from
time to time in one or more series. The Debenture will constitute a series of
debt securities under the Indenture. The Indenture does not limit the incurrence
or issuance of other secured or unsecured debt of the Company, whether under the
Indenture or otherwise.
The Debentures will not be subject to a sinking fund provision. Unless a
Tax Event Redemption has occurred prior to the Purchase Contract Settlement
Date, the entire principal amount of the Debentures will mature and become due
and payable, together with any accrued and unpaid interest thereon including
Compound Interest (as defined herein) and expenses and taxes of the Trust, if
any, on , 2003.
The Company will have the right at any time to dissolve the Trust and cause
the Debentures to be distributed to the holders of the Trust Securities. If
Debentures are distributed to holders of Trust Securities in liquidation of such
holders' interests in the Trust, such Debentures will initially be issued as a
Global Security (as defined herein). As described herein, under certain limited
circumstances, Debentures may be issued in certificated form in exchange for a
Global Security. See "-- Book-Entry and Settlement" below. In the event that
Debentures are issued in certificated form, such Debentures will be in
denominations of $10 and integral multiples thereof, without coupons, and may be
transferred or exchanged, without service charge but upon payment of any taxes
or other governmental charges payable in connection therewith, at the offices
described below. Payments on Debentures issued as a Global Security will be made
to the Depositary, a successor depositary or, in the event that no depositary is
used, to a paying agent for the Debentures. In the event Debentures are issued
in certificated form, principal and interest will be payable, the transfer of
the Debentures will be registrable and Debentures will be exchangeable for
Debentures of other denominations of a like aggregate principal amount, at the
office or agency maintained by the Company for such purpose in the Borough of
Manhattan, The City of New York; provided, that at the option of the Company,
payment of interest may be made by check mailed to the address of the holder
entitled thereto or by wire transfer to an account appropriately designated by
the holder entitled thereto. Notwithstanding the foregoing, so long as the
holder of any Debentures is the Institutional Trustee, the payment of principal
and interest on the Debentures held by the Institutional Trustee will be made at
such place and to such account as may be designated by the Institutional
Trustee. The Company will appoint the Debt Trustee as the initial paying agent,
transfer agent and registrar for the Debentures. The Company may at any time
designate additional transfer agents and paying agents with respect to the
Debentures, and may remove any transfer agent, paying agent or registrar for the
Debentures; provided, that the Company will at all times be required to maintain
a paying agent and transfer agent for the Debentures in the Borough of
Manhattan, The City of New York.
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Any monies deposited with the Debt Trustee or any paying agent, or held by
the Company in trust, for the payment of principal of or interest on any
Debenture and remaining unclaimed for two years after such principal or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company or released from such trust, as applicable, and the holder of such
Debenture shall thereafter look, as a general unsecured creditor, only to the
Company for the payment thereof.
The Indenture does not contain provisions that afford holders of the
Debentures protection in the event of a highly leveraged transaction or other
similar transaction involving the Company that may adversely affect such
holders.
INTEREST
Each Debenture shall bear interest initially at the rate of % per
annum from the Original Issue Date, payable quarterly in arrears on February 16,
May 16, August 16 and November 16 of each year (each an "Interest Payment
Date"), commencing , 1998, to the person in whose name such Debenture
is registered, subject to certain exceptions, at the close of business on the
Business Day next preceding such Interest Payment Date. The applicable interest
rate on the Debentures and the distribution rate on the related Capital
Securities outstanding on and after the Purchase Contract Settlement Date will
be reset on the third Business Day immediately preceding the Purchase Contract
Settlement Date to the Reset Rate. In the event the Debentures shall not
continue to remain in book-entry only form, the record dates shall be one
Business Day prior to the Interest Payment Dates. The amount of interest payable
for any period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. The amount of interest payable for any period shorter than
a full quarterly period for which interest is computed will be computed on the
basis of the actual number of days elapsed in such 90-day period. In the event
that any date on which interest is payable on the Debentures is not a Business
Day, the payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, then such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
TAX EVENT REDEMPTION
If a Tax Event shall occur and be continuing, the Company may, at its
option, redeem Debentures in whole (but not in part) at any time at a Redemption
Price equal to, for each Debenture, the Redemption Amount plus accrued and
unpaid interest thereon, including Compound Interest and expenses and taxes of
the Trust, if any, to the date of redemption (the "Tax Event Redemption Date");
provided that installments of interest on Debentures which are due and payable
on or prior to a redemption date shall be payable to the holders of such
Debentures registered as such at the close of business on the relevant record
dates. If, following the occurrence of a Tax Event, the Company exercises its
option to redeem the Debentures, the proceeds of such redemption will be applied
to redeem Trust Securities having a liquidation amount equal to the principal
amount of Debentures to be paid in accordance with their terms, at the
Redemption Price. Such Redemption Price will be payable in cash to the holders
of such Trust Securities. If such Tax Event Redemption occurs prior to the
Purchase Contract Settlement Date, the Redemption Price payable in liquidation
of the Income PRIDES holders' interest in the Trust will be distributed to the
Collateral Agent, who in turn will apply an amount equal to the Redemption
Amount of such Redemption Price to purchase the Treasury Portfolio on behalf of
the holders of Income PRIDES and remit the remaining portion, if any, of such
Redemption Price to the Purchase Contract Agent for payment to the holders of
such Income PRIDES. Such Treasury Portfolio will be substituted for the Capital
Securities and will be pledged with the Collateral Agent to secure such Income
PRIDES holders' obligation to purchase the Company's Common Stock under the
Purchase Contracts; provided, that if the Tax Event Redemption occurs after the
Purchase Contract Settlement Date, such Treasury Portfolio will not be
purchased.
"Tax Event" means the receipt by the Trust of an opinion of a nationally
recognized independent tax counsel experienced in such matters to the effect
that, as a result of (a) any amendment to, change in, or announced proposed
change in, the laws (or any regulations thereunder) of the United States or any
political
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subdivision or taxing authority thereof or therein affecting taxation, (b) any
amendment to or change in an interpretation or application of such laws or
regulations by any legislative body, court, governmental agency or regulatory
authority or (c) any interpretation or pronouncement that provides for a
position with respect to such laws or regulations that differs from the
generally accepted position on the Original Issue Date, which amendment, change
or proposed change is effective or which interpretation or pronouncement is
announced on or after the Original Issue Date, there is more than an
insubstantial risk that (i) interest payable by the Company on the Debentures
would not be deductible, in whole or in part, by the Company for United States
federal income tax purposes or (ii) the income of the Trust would be subject to
United States federal income tax or the Trust would be subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
"Treasury Portfolio" means, with respect to the Applicable Principal Amount
of Debentures (a) if the Tax Event Redemption Date occurs prior to the Purchase
Contract Settlement Date, a portfolio of zero-coupon U.S. Treasury Securities
consisting of (i) interest or principal strips of U.S. Treasury Securities which
mature on or prior to , 2001 in an aggregate amount equal to the
Applicable Principal Amount and (ii) with respect to each scheduled interest
payment date on the Debentures that occurs after the Tax Event Redemption Date
interest or principal strips of U.S. Treasury Securities which mature on or
prior to such date in an aggregate amount equal to the aggregate interest
payment that would be due on the Applicable Principal Amount of the Debentures
on such date, and (b) if the Tax Event Redemption Date occurs after the Purchase
Contract Settlement Date, a portfolio of zero-coupon U.S. Treasury Securities
consisting of (i) principal or interest strips of U.S. Treasury Securities which
mature on or prior to , 2003 in an aggregate amount equal to the
Applicable Principal Amount and (ii) with respect to each scheduled interest
payment date on the Debentures that occurs after the Tax Event Redemption Date
interest or principal strips of such U.S. Treasury Securities which mature on or
prior to such date in an aggregate amount equal to the aggregate interest
payment that would be due on the Applicable Principal Amount of the Debentures
on such date.
"Applicable Principal Amount" means either (i) if the Tax Event Redemption
Date occurs prior to the Purchase Contract Settlement Date, the aggregate
principal amount of the Debentures corresponding to the aggregate stated
liquidation amount of the Capital Securities which are components of Income
PRIDES on the Tax Event Redemption Date or (ii) if the Tax Event Redemption
occurs on or after the Purchase Contract Settlement Date, the aggregate
principal amount of the Debentures corresponding to the aggregate stated
liquidation amount of the Capital Securities outstanding on such Tax Event
Redemption Date.
"Redemption Amount" means for each Debenture, the product of (i) the
principal amount of such Debenture and (ii) a fraction whose numerator is the
Treasury Portfolio Purchase Price and whose denominator is the Applicable
Principal Amount. All references herein to the "principal" of the Debentures
shall be deemed to include a reference to "and premium, if any," unless
otherwise expressly stated or the context otherwise requires.
"Treasury Portfolio Purchase Price" means the lowest aggregate price quoted
by a primary U.S. government securities dealer in New York City (a "Primary
Treasury Dealer") to the Quotation Agent on the third Business Day immediately
preceding the Tax Event Redemption Date for the purchase of the Treasury
Portfolio for settlement on the Tax Event Redemption Date.
"Quotation Agent" means (i) Merrill Lynch Government Securities, Inc. and
its respective successors, provided, however, that if the foregoing shall cease
to be a Primary Treasury Dealer, the Company shall substitute therefor another
Primary Treasury Dealer, and (ii) any other Primary Treasury Dealer selected by
the Company.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each registered holder of Debentures to be
redeemed at its registered address. Unless the Company defaults in payment of
the Redemption Price, on and after the redemption date interest shall cease to
accrue on such Debentures. In the event any Debentures are called for
redemption, neither the Company nor the Debt Trustee will be required to
register the transfer of or exchange the Debentures to be redeemed.
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OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time, and from time to time, during
the term of the Debentures, to defer payments of interest by extending the
interest payment period for a period not extending beyond the maturity date of
the Debentures, at the end of which Extension Period, the Company shall pay all
interest then accrued and unpaid (including any expenses and taxes of the Trust,
as herein defined) together with interest thereon compounded quarterly at the
rate of % per annum through and including , 2001, and at the
Reset Rate thereafter, to the extent permitted by applicable law ("Compound
Interest"); provided, that during any such Extension Period, (a) the Company
shall not declare or pay dividends on, or make any distribution with respect to,
or redeem, purchase, acquire or make a liquidation payment with respect to, any
of its capital stock (other than (i) purchases or acquisitions of capital stock
of the Company in connection with the satisfaction by the Company of its
obligations under any employee benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security outstanding on the date
of such event requiring the Company to purchase capital stock of the Company,
(ii) as a result of a reclassification of the Company's capital stock or the
exchange or conversion of one class or series of the Company's capital stock for
another class or series of the Company capital stock, (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged, (iv) dividends or distributions in capital stock of the
Company (or rights to acquire capital stock) or repurchases or redemptions of
capital stock solely from the issuance or exchange of capital stock or (v)
redemptions or repurchases of any rights outstanding under a shareholder rights
plan or the declaration thereunder of a dividend of rights in the future), and
(b) the Company shall not make any guarantee payments with respect to the
foregoing (other than payments pursuant to the Guarantee). Prior to the
termination of any such Extension Period, the Company may further defer payments
of interest by extending the interest payment period; provided, however, that
such Extension Period, including all such previous and further extensions, may
not extend beyond the maturity of the Debentures or end on other than a Payment
Date. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may commence a new Extension Period, subject to
the terms set forth in this section. No interest during an Extension Period,
except at the end thereof, shall be due and payable, but the Company, at its
option, may prepay on any Interest Payment Date all of the interest accrued
during then elapsed portion of an Extension Period. The Company has no present
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Debentures. If the Institutional Trustee shall be
the sole holder of the Debentures, the Company shall give the Regular Trustees
and the Institutional Trustee notice of its selection of such Extension Period
one Business Day prior to the earlier of (i) the date distributions on the
Capital Securities are payable or (ii) the date the Regular Trustees are
required to give notice, if applicable, to the NYSE (or other applicable
self-regulatory organization) or to holders of the Capital Securities of the
record or payment date of such distribution. The Regular Trustees shall give
notice of the Company's selection of such Extension Period to the holders of the
Capital Securities. If the Institutional Trustee shall not be the sole holder of
the Debentures, the Company shall give the holders of the Debentures notice of
its selection of such Extension Period ten Business Days prior to the earlier of
(i) the next succeeding Interest Payment Date or (ii) the date upon which the
Company is required to give notice, if applicable, to the NYSE (or other
applicable self-regulatory organization) or to holders of the Debentures of the
record or payment date of such related interest payment.
EXPENSES AND TAXES OF THE TRUST
In the Indenture, the Company, as borrower, has agreed to pay all debts and
other obligations (other than with respect to the Trust Securities) and all
costs and expenses of the Trust (including the costs and expenses relating to
the organization of the Trust, the fees and expenses of the KBHC Trustees and
the costs and expenses relating to the operation of the Trust) and to pay any
and all taxes and all costs and expenses with respect thereto (other than United
States withholding taxes) to which the Trust might become subject. The Company
also has agreed in the Indenture to execute such additional agreements as may be
necessary or desirable to give full effect to the foregoing.
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INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Debentures, will have the right to
declare the principal of and the interest on the Debentures (including any
Compound Interest and expenses and taxes of the Trust, if any) and any other
amounts payable under the Indenture to be forthwith due and payable and to
enforce its other rights as a creditor with respect to the Debentures.
The following are Events of Default under the Indenture with respect to the
Debentures: (1) failure to pay interest on the Debentures when due, continued
for 30 days; provided, however, that if the Company is permitted by the terms of
the Debentures to defer the payment in question, the date on which such payment
is due and payable shall be the date on which the Company is required to make
payment following such deferral, if such deferral has been elected pursuant to
the terms of the Debentures; (2) failure to pay the principal of (or premium, if
any, on) the Debentures when due and payable at the stated maturity date, upon
redemption or otherwise; (3) failure to observe or perform in any material
respect certain other covenants contained in the Indenture, continued for a
period of 90 days after written notice has been given to the Company by the Debt
Trustee or holders of at least 25% in aggregate principal amount of the
outstanding Debentures; and (4) certain events of bankruptcy, insolvency or
reorganization relating to the Company.
The Indenture provides that the Debt Trustee shall, within 90 days after
the occurrence of any Default or Event of Default with respect to the
Debentures, give the holders of the Debentures notice of all uncured Defaults or
Events of Default known to it (the term "Default" includes any event which after
notice or passage of time or both would be an Event of Default); provided,
however, that, except in the case of a Default in the payment of the principal
of (or premium, if any, on) or interest on the Debentures, the Debt Trustee
shall be protected in withholding such notice so long as the executive committee
or directors or responsible officers of the Debt Trustee in good faith determine
that the withholding of such notice is in the interest of the holders of the
Debentures.
If an Indenture Event of Default occurs and is continuing (other than an
Indenture Event of Default described in clause (4) of the second preceding
paragraph), the Debt Trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Debentures, by notice in writing to the
Company (and to the Debt Trustee if given by the holders of at least 25% in
aggregate principal amount of the Debentures), may declare the unpaid principal
of and accrued interest on all the outstanding Debentures to be due and payable
immediately and, upon any such declaration, such amounts shall become
immediately due and payable. If an Indenture Event of Default of the nature
specified in clause (4) of the second preceding paragraph occurs and is
continuing, the principal of and interest on the Debentures shall ipso facto
become immediately due and payable without any declaration or other act on the
part of the Debt Trustee or any holder of Debentures. After any acceleration of
the Debentures, the holders of a majority in aggregate principal amount of the
outstanding Debentures may, under certain circumstances, rescind and annul such
acceleration if all Indenture Events of Default, other than non-payment of the
accelerated principal and interest, have been cured or waived as provided in the
Indenture.
An Indenture Event of Default also constitutes a Declaration Event of
Default. The holders of Capital Securities in certain circumstances have the
right to direct the Institutional Trustee to exercise its rights as the holder
of the Debentures. See "Description of the Capital Securities -- Declaration
Events of Default" and "-- Voting Rights." Notwithstanding the foregoing, if an
Event of Default has occurred and is continuing and such event is attributable
to the failure of the Company to pay interest or principal on the Debentures on
the date such interest or principal is otherwise payable, the Company
acknowledges that a holder of Capital Securities may institute a Direct Action
for enforcement of payment to such holder directly of the principal of and
interest on the Debentures having a principal amount equal to the aggregate
stated liquidation amount of the Capital Securities of such holder after the
respective due date specified in the Debentures. In connection with such action,
the Company shall have the right under the Indenture to set-off any payment made
to such holder by the Company. The Company may not amend the Indenture to remove
the foregoing right to bring a Direct Action without the prior written consent
of the holders of all of the Capital Securities. The holders of
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Capital Securities will not be able to exercise directly any other remedy
available to the holders of the Debentures.
The holders of not less than a majority in aggregate principal amount of
the outstanding Debentures may, on behalf of the holders of all the Debentures,
waive any past defaults except (a) a default in payment of the principal of or
interest on any Debenture and (b) a default in respect of a covenant or
provision of the Indenture which cannot be amended or modified without the
consent of the holder of each Debenture affected.
A default under any other indebtedness of the Company or the Trust would
not constitute an Indenture Event of Default.
Subject to the provisions of the Indenture relating to the duties of the
Debt Trustee in case an Indenture Event of Default shall occur and be
continuing, the Debt Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any holders
of Debentures, unless such holders shall have offered to the Debt Trustee
reasonable indemnity. Subject to such provisions for the indemnification of the
Debt Trustee, the holders of a majority in aggregate principal amount of the
Debentures then outstanding will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debt Trustee,
or exercising any trust or power conferred on the Debt Trustee.
No holder of any Debenture will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless (i) such
holder shall have previously given to the Debt Trustee written notice of a
continuing Indenture Event of Default, (ii) the holders of at least 25% in
aggregate principal amount of the Debentures then outstanding shall have made
written request to the Debt Trustee to institute proceedings, (iii) such holder
has offered reasonable indemnity to the Debt Trustee, (iv) the Debt Trustee
shall have failed to institute such proceeding within 60 days of such notice and
offer of indemnity, and (v) the Debt Trustee shall not have received from the
holders of a majority in aggregate principal amount of the outstanding
Debentures a direction inconsistent with such request. However, such limitations
do not apply to a suit instituted by a holder of a Debenture for enforcement of
payment of the principal interest on such Debenture on or after the respective
due dates expressed in such Debenture.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other person or entity or sell, assign, convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
person or entity unless (i) either the Company is the continuing corporation, or
any successor, lessee, or purchaser is a corporation organized and existing
under the laws of the United States of America, any State thereof or the
District of Columbia, and any such successor, lessee or purchaser expressly
assumes the Company's obligations under the Indenture and the Debentures
pursuant to a supplemental indenture; and (ii) immediately after giving effect
thereto, no Indenture Event of Default, and no event which, after notice or
lapse of time or both, would become an Indenture Event of Default, shall have
happened and be continuing.
SATISFACTION AND DISCHARGE; DEFEASANCE
The Indenture provides that when, among other things, all Debentures not
previously delivered to the Debt Trustee for cancellation (i) have become due
and payable or (ii) will become due and payable at their stated maturity within
one year or (iii) are to be called redemption within one year under arrangements
satisfactory to the Debt Trustee, and the Company deposits or causes to be
deposited with the Debt Trustee, as trust funds in trust for this purpose, an
amount in cash sufficient to pay and discharge the entire indebtedness on the
Debentures not previously delivered to the Debt Trustee for cancellation, for
principal and interest to the date of the deposit or to the stated maturity or
redemption date, as the case may be, then the Indenture will, subject to certain
exceptions, cease to be of further effect and the Company will be deemed to have
satisfied and discharged the Indenture.
The Indenture also provides that the Company may, at its option, defease
the Debentures, whereupon the Company will be discharged (subject to certain
exceptions) from its obligations with respect to the
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Debentures on the date the applicable conditions for defeasance set forth in the
Indenture are satisfied. In order to effect defeasance, the Company will be
required to, among other things, irrevocably deposit with the Debt Trustee (or
another qualifying trustee) cash in an amount, or U.S. Government Obligations
(as defined in the Indenture) which through the scheduled payment of principal
and interest will provide money in an amount, or a combination thereof, in each
case sufficient to pay the principal of and interest on the Debentures as and
when the same shall become due and payable.
MODIFICATION OF INDENTURE
From time to time, the Indenture may be modified by the Company and the
Debt Trustee without the consent of any holders of the Debentures with respect
to certain matters, including (i) to cure any ambiguity, defect or inconsistency
or to correct or supplement any provision which may be inconsistent with any
other provision of the Indenture, (ii) to qualify, or maintain the qualification
of, the Indenture under the Trust Indenture Act and (iii) to make any change
that does not materially adversely affect the interests of any holder of
Debentures. In addition, any provision of the Indenture and the rights of
holders of the Debentures may be amended or modified by the Company and the Debt
Trustee with the written consent of the holders of at least a majority in
aggregate principal amount of the outstanding Debentures; provided that no such
amendment or modification shall, without the consent of each holder of
Debentures affected thereby, among other things, extend the maturity of
Debentures, reduce the interest rate or extend the time for payment of interest
(except pursuant to the interest deferral provisions described herein) on the
Debentures, reduce the principal of or premium, if any, on any Debentures,
change the redemption provisions in a manner adverse to any holder of
Debentures, or reduce the percentage of holders required for any such amendment
or modification.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Capital Securities in connection with the
involuntary or voluntary dissolution of the Trust, the Debentures will be issued
in the form of one or more global certificates (each a "Global Security")
registered in the name of the Depositary or its nominee. Except under the
limited circumstances described below, Debentures represented by the Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Debentures in certificated form. The Global Securities described above may not
be transferred except by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or to a successor depositary or its nominee.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in certificated form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Debentures in
certificated form and will not be considered the holders (as defined in the
Indenture) thereof for any purpose under the Indenture, and no Global Security
representing Debentures shall be exchangeable, except for another Global
Security of like denomination and tenor to be registered in the name of the
Depositary or its nominee or a successor Depositary or its nominee. Accordingly,
each Beneficial Owner must rely on the procedures of the Depositary or if such
person is not a Participant, on the procedures of the Participant through which
such person owns its interest to exercise any rights of a holder under the
Indenture.
THE DEPOSITARY
If Debentures are distributed to holders of Capital Securities in
liquidation of such holders' interests in the Trust, the Depositary will act as
securities depositary for the Debentures. For a description of the Depositary
and the specific terms of the depositary arrangements, see "Description of the
Capital Securities -- Book-Entry Only Issuance -- The Depository Trust Company."
As of the date of this Prospectus, the description therein of the Depositary's
book-entry system and the Depositary's practices as they relate to purchases,
transfers, notices and payments with respect to the Capital Securities apply in
all material respects
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to any debt obligations represented by one or more Global Securities held by the
Depositary. The Company may appoint a successor to the Depositary or any
successor depositary in the event the Depositary or such successor depositary is
unable or unwilling to continue as a depositary for the Global Securities.
Although the Depositary has agreed to act as Depositary for the Debentures
in order to facilitate transfers of interests therein among Participants, the
Depositary is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Trust, the Debt Trustee, any paying agent and any other agent of
the Company or the Debt Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in a Global Security for such Debentures or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
In the event that (i) the Depositary notifies the Company that it is
unwilling or unable to continue as a depositary for the Global Securities and no
successor depositary shall have been appointed within 90 days after such
notification, (ii) the Depositary at any time ceases to be a clearing agency
registered under the Exchange Act at which time the Depositary is required to be
so registered to act as such depositary and no successor depositary shall have
been appointed within 90 days after the Trust or the Company becoming aware of
the Depositary's ceasing to be so registered, (iii) the Company, in its sole
discretion, determines that such Global Securities shall be so exchangeable or
(iv) there shall have occurred and be continuing an Indenture Event of Default,
certificates for the Debentures will be printed and delivered in exchange for
beneficial interest in the Global Securities. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
Debentures registered in such names as the Depositary shall direct. It is
expected that such instructions will be based upon directions received by the
Depositary from its Participants with respect to ownership of beneficial
interests in such Global Security.
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debt Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The Debt Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties if
the Debt Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
The Debt Trustee maintains commercial banking relationships with the
Company.
GOVERNING LAW
The Indenture and the Debentures will be governed by, and construed in
accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Company will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Debentures, (ii) the organization, maintenance and
dissolution of the Trust, (iii) the retention of the KBHC Trustees and (iv) the
enforcement by the Institutional Trustee of the rights of the holders of the
Capital Securities
EFFECT OF OBLIGATIONS UNDER THE
DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the
Debentures and engage in only those other activities necessary or incidental
thereto.
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As long as payments of interest and other payments are made when due on the
Debentures, such payments will be sufficient to cover distributions and payments
due on the Trust Securities because of the following factors: (i) the aggregate
principal amount of Debentures will be equal to the sum of the aggregate stated
liquidation amount of the Trust Securities; (ii) the interest rate and the
interest and other payment dates on the Debentures will match the distribution
rate and distribution and other payment dates for the Trust Securities; (iii)
the Company shall pay, and the Trust shall not be obligated to pay, directly or
indirectly, all costs, expenses, debts, and obligations of the Trust (other than
with respect to the Trust Securities); and (iv) the Declaration further provides
that the KBHC Trustees shall not take or cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes of
the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Capital Securities (to the extent funds therefor are
available) are guaranteed by the Company as and to the extent set forth under
"Description of the Guarantee." If the Company does not make interest payments
on the Debentures purchased by the Trust, the Trust will not have sufficient
funds to pay distributions on the Capital Securities. The Guarantee does not
apply to any payment of distributions unless and until the Trust has sufficient
funds for the payment of such distributions.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make under the
Debentures with and to the extent the Company has theretofore made, or is
concurrently on the date of such payment making, a payment under the Guarantee.
If the Company fails to make interest or other payments on the Debentures
when due (taking account of any Extension Period), the Declaration provides a
mechanism whereby the holders of the Capital Securities, using the procedures
described in "Description of the Capital Securities -- Book-Entry Only Issuance
- -- The Depository Trust Company" and "-- Voting Rights," may direct the
Institutional Trustee to enforce its rights under the Indenture. If the
Institutional Trustee fails to enforce its rights under the Indenture in respect
of an Indenture Event of Default, such holder of record of Capital Securities
may, to the fullest extent permitted by applicable law, institute a legal
proceeding against the Company to enforce the Institutional Trustee's rights
under the Indenture without first instituting any legal proceeding against the
Institutional Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest,
premium, if any, or principal on the Debentures on the date such interest,
premium, if any, or principal is otherwise payable, then a holder of Capital
Securities may directly institute a proceeding against the Company for payment.
The Company, under the Guarantee, acknowledges that the Guarantee Trustee shall
enforce the Guarantee on behalf of the holders of the Capital Securities. If the
Company fails to make payments under the Guarantee, the Guarantee provides a
mechanism whereby the holders of the Capital Securities may direct the Guarantee
Trustee to enforce its rights thereunder. Notwithstanding the foregoing, if the
Company has failed to make a payment under the Guarantee, any holder of Capital
Securities may institute a legal proceeding directly against the Company to
enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee, or any other person or
entity.
The Guarantee, when taken together with the Company's obligations under the
Debentures and the Indenture and its obligations under the Declaration,
including its obligations to pay costs, expenses, debts and liabilities of the
Trust (other than with respect to the Trust Securities), has the effect of
providing a full and unconditional guarantee of amounts due on the Capital
Securities. See "Description of the Guarantee.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the anticipated material United States
federal income tax consequences of the purchase, ownership and disposition of
the FELINE PRIDES, Capital Securities and Common Stock to investors generally.
Unless otherwise stated, this summary deals only with FELINE PRIDES, Capital
Securities and Common Stock held as capital assets (generally, assets held for
investment) by U.S. Holders who purchase FELINE PRIDES or Capital Securities
upon original issuance. The tax treatment of a U.S. Holder may vary depending on
such U.S. Holder's particular situation. This summary does not address all of
the tax consequences that may be relevant to holders who may be subject to
special tax treatment such
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as, for example, insurance companies, broker dealers, tax-exempt organizations,
or foreign taxpayers. In addition this summary does not address any aspects of
state, local, or foreign tax laws. This summary is based on the United States
federal income tax law in effect as of the date hereof, which is subject to
change, possibly on a retroactive basis. Each investor is urged to consult its
tax advisor as to the particular tax consequences of purchasing, owning, and
disposing of the FELINE PRIDES or Capital Securities, including the application
and effect of United States, federal, state, local, foreign and other tax laws.
No statutory, administrative or judicial authority directly addresses the
treatment of FELINE PRIDES or instruments similar to FELINE PRIDES for United
States federal income tax purposes. As a result, no assurance can be given that
the IRS will agree with the tax consequences described herein.
For purposes of this summary, the term "U.S. Holder" means (i) a person who
is a citizen or resident of the United States, (ii) a corporation or partnership
created or organized in or under the laws of the United States or any state
thereof or the District of Columbia, (iii) an estate the income of which is
subject to United States federal income taxation, regardless of its source, or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of such trust and one or more United States
persons have the authority to control all substantial decisions of such trust.
FELINE PRIDES
ALLOCATION OF PURCHASE PRICE. A U.S. Holder's acquisition of FELINE PRIDES
will be treated as an acquisition of a unit consisting of two components -- in
the case of an Income PRIDES, the Capital Security and the Purchase Contract
constituting such Income PRIDES and, in the case of a Growth PRIDES, the
interest in a Treasury Security and the Purchase Contract constituting such
Growth PRIDES. The purchase price of each FELINE PRIDES will be allocated
between the two components in proportion to their respective fair market values
at the time of purchase. Such allocation will establish the U.S. Holder's
initial tax basis in the Capital Security or interest in the Treasury Security,
as the case may be, and the Purchase Contract. The Company will report the fair
market value of each Capital Security and each interest in a Treasury Security
so that the entire purchase price of a FELINE PRIDES will be allocable to the
Capital Security or interest in the Treasury Security, as the case may be, and
no amount will be allocable to the Purchase Contract. This position will be
binding upon each U.S. Holder (but not on the IRS) unless such U.S. Holder
explicitly discloses a contrary position on a statement attached to such U.S.
Holder's timely filed United States federal income tax return for the taxable
year in which a FELINE PRIDES is acquired. Thus, absent such disclosure, a U.S.
Holder should allocate the purchase price for a FELINE PRIDES in accordance with
the foregoing. The remainder of this discussion assumes that this allocation of
purchase price will be respected for United States federal income tax purposes.
A different allocation could affect the timing and character of income to a U.S.
Holder.
OWNERSHIP OF CAPITAL SECURITIES OR TREASURY SECURITIES. A U.S. Holder will
be treated as owning the Capital Securities or Treasury Securities constituting
a part of the Income PRIDES or Growth PRIDES, respectively. The Company and, by
acquiring FELINE PRIDES, each U.S. Holder agree to treat such U.S. Holder as the
owner, for United States federal, state and local income and franchise tax
purposes, of the Capital Securities or Treasury Securities constituting a part
of the FELINE PRIDES beneficially owned by such U.S. Holder. Based upon such
agreement, the Company intends to take the position, and the remainder of this
summary assumes, that U.S. Holders of FELINE PRIDES will be treated as the
owners of the Capital Securities or Treasury Securities constituting a part of
such FELINE PRIDES for United States federal, state and local income and
franchise tax purposes. The United States federal income tax consequences of
owning the Capital Securities or Treasury Securities are discussed below (see
"-- Capital Securities," "-- Treasury Securities" and "-- Tax Event Redemption
of Capital Securities.").
SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF FELINE PRIDES. Upon a
sale, exchange or other taxable disposition (collectively, a "disposition") of
FELINE PRIDES, a U.S. Holder will be treated as having sold, exchanged or
disposed of the Purchase Contract and the Capital Securities, Treasury Portfolio
or, in the case of Growth PRIDES, the Treasury Securities, that constitute such
FELINE PRIDES and will generally have gain or loss equal to the difference
between the portion of the proceeds to such U.S. Holder
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allocable to the Purchase Contract and the Capital Securities, Treasury
Portfolio or Treasury Securities, as the case may be, and such U.S. Holder's
respective adjusted tax bases in the Purchase Contract and the Capital
Securities, Treasury Portfolio or Treasury Securities. Such gain or loss will
generally be capital gain or loss, except to the extent that such U.S. holder is
treated as receiving an amount with respect to accrued but unpaid interest on
the Capital Securities or the Treasury Portfolio, which amount will be treated
as ordinary interest income, or to the extent such U.S. Holder is treated as
receiving an amount with respect to accrued Contract Adjustment Payments, if
any, or Deferred Contract Adjustment Payments, which may be treated as ordinary
income, in each case to the extent not previously included in income. Such
capital gain or loss will generally be long-term capital gain or loss if the
U.S. Holder held such FELINE PRIDES for more than one year immediately prior to
such disposition. Long-term capital gains of individuals are eligible for
reduced rates of taxation depending upon the holding period of such capital
assets. The deductibility of capital losses is subject to limitations. If the
disposition of FELINE PRIDES occurs when the Purchase Contract has negative
value, the U.S. Holder should be considered to have received additional
consideration for the Capital Securities, Treasury Portfolio or Treasury
Securities, as the case may be, in an amount equal to such negative value and to
have paid such amount to be released from the U.S. Holder's obligation under the
Purchase Contract. U.S. Holders should consult their tax advisors regarding a
disposition of the FELINE PRIDES at a time when the Purchase Contract has
negative value.
In determining gain or loss, payments to a U.S. Holder of Contract
Adjustment Payments or Deferred Contract Adjustment Payments that have not
previously been included in the income of such U.S. Holder should either reduce
such U.S. Holder's adjusted tax basis in the Purchase Contract or result in an
increase in the amount realized on the disposition of the Purchase Contract. Any
Contract Adjustment Payments or Deferred Contract Adjustment Payments included
in a U.S. Holder's income but not paid should increase such U.S. Holder's
adjusted tax basis in the Purchase Contract. Payments in cash that have been
made by a U.S. Holder to create Growth PRIDES but not offset against payments of
Contract Adjustment Payments or Deferred Contract Adjustment Payments may
increase such U.S. Holder's adjusted tax basis in the Purchase Contract or
result in a decrease in the amount realized on the disposition of the Purchase
Contract (see "Contract Adjustment Payments and Deferred Contract Adjustment
Payments; Delivery of Cash" below).
CAPITAL SECURITIES
CLASSIFICATION OF THE TRUST. In connection with the issuance of the FELINE
PRIDES, Skadden, Arps, Slate, Meagher & Flom LLP ("Tax Counsel"), will deliver
an opinion that, under current law and assuming compliance with the terms of the
Declaration, and based on certain facts and assumptions contained in such
opinion, the Trust will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes. As a result, each U.S. Holder of Capital Securities will be treated as
owning an undivided beneficial ownership interest in the Debentures and, as
further discussed below, each U.S. Holder of Capital Securities will be required
to include in its gross income its pro rata share of the interest income or OID
that is paid or accrued on the Debentures. See "-- Interest Income and Original
Issue Discount."
CLASSIFICATION OF THE DEBENTURES. In connection with the issuance of the
Debentures, Tax Counsel will deliver an opinion that, under current law, and
based on certain representations, facts and assumptions set forth in such
opinion, the Debentures will be classified as indebtedness for United States
federal income tax purposes. The Company, the Trust and, by acquiring Income
PRIDES or Capital Securities, each U.S. Holder agree to treat the Debentures as
indebtedness of the Company for all United States tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. Under the applicable Treasury
regulations, the Debentures will not be considered to have been issued with OID.
Accordingly, except as set forth below, stated interest on the Debentures will
generally be included in income by a U.S. Holder at the time such interest
income is paid or accrued in accordance with such U.S. Holder's regular method
of tax accounting. If, however, the Company exercises its right to defer
payments of interest on the Debentures, U.S. Holders will be required to accrue
the stated interest on the Debentures (as OID) on a daily economic accrual basis
even though the Company will not pay such interest during the deferral period,
and even though some U.S. Holders may use the cash method of tax accounting.
Thereafter, the Debentures will be subject to tax as OID
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instruments for as long as they remain outstanding, which will require U.S.
Holders to include accrued OID in gross income in advance of the receipt of cash
attributable to such accrued OID. Under the OID economic accrual rules, a U.S.
Holder would accrue an amount of interest income each year that approximates the
stated interest payments called for under the terms of the Debentures, and
actual cash payments of interest on the Debentures would not be reported
separately as taxable income. Any amount of OID included in a U.S. Holder's
gross income will increase such U.S. Holder's adjusted tax basis in its Capital
Securities, and the amount of a distribution received by a U.S. Holder with
respect to such Capital Securities will reduce the adjusted tax basis of such
Capital Securities.
The Treasury regulations described above have not yet been addressed in any
rulings or other interpretations by the IRS, and it is possible that the IRS
could take a contrary position. If the IRS were to assert successfully that the
stated interest on the Debentures was OID regardless of whether the Company
exercises its right to defer payments of interest on such Debentures, all U.S.
Holders would be required to include such stated interest in income on a daily
economic accrual basis as described above.
U.S. Holders that are corporations will not be entitled to a dividends
received deduction with respect to any income recognized with respect to the
Capital Securities.
DISTRIBUTION OF DEBENTURES TO U.S. HOLDERS OF CAPITAL SECURITIES. A
distribution by the Trust of the Debentures as described under the caption
"Description of the Capital Securities -- Liquidation Distribution Upon
Dissolution" would be non-taxable to U.S. Holders. In such event, a U.S. Holder
would have an aggregate adjusted tax basis in the Debentures received in the
liquidation equal to the aggregate adjusted tax basis such U.S. Holder had in
its Capital Securities surrendered therefor, and the holding period of such
Debentures would include the period during which such U.S. Holder had held such
Capital Securities. In addition, a U.S. Holder would continue to include
interest (or OID) in respect of Debentures received from the Trust in the manner
described under "-- Interest Income and Original Issue Discount."
SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF CAPITAL SECURITIES. Gain
or loss will be recognized by a U.S. Holder on a disposition of a Capital
Security (including a redemption for cash or the remarketing thereof) in an
amount equal to the difference between the amount realized by the U.S. Holder on
the disposition of the Capital Security (except to the extent that such amount
realized is characterized as a payment in respect of accrued but unpaid interest
on such U.S. Holder's allocable share of the Debentures that such U.S. Holder
has not previously included in gross income, which amount will be subject to tax
as ordinary interest income) and the U.S. Holder's adjusted tax basis in such
Capital Security. Selling expenses incurred by a U.S. Holder, including the
remarketing fee, will reduce the amount of gain or increase the amount of loss
recognized by such U.S. Holder upon a disposition of a Capital Security. Gain or
loss realized by a U.S. Holder on a disposition of a Capital Security will
generally be capital gain or loss and will generally be long-term capital gain
or loss if the U.S. Holder held such Capital Security for more than one year
immediately prior to such disposition. Long-term capital gains of individuals
are eligible for reduced rates of taxation depending upon the holding period of
such capital assets. The deductibility of capital losses is subject to
limitations.
TREASURY SECURITIES
ORIGINAL ISSUE DISCOUNT. A U.S. Holder of Growth PRIDES will be required
to treat its ownership interest in the Treasury Securities comprising a Growth
PRIDES as an interest in a bond that was originally issued on the date such
Growth PRIDES is purchased and that has OID equal to the excess of the Stated
Amount of the Growth PRIDES over the purchase price of the Growth PRIDES. A U.S.
Holder will be required to include such OID in income on a daily economic
accrual basis over the period between the issue date of the Growth PRIDES and
the day immediately preceding the Purchase Contract Settlement Date, regardless
of such U.S. Holder's method of tax accounting and in advance of the receipt of
cash attributable to such OID. Amounts of OID included in a U.S. Holder's gross
income will increase such U.S. Holder's adjusted tax basis in its interest in
the Treasury Securities.
SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF TREASURY SECURITIES. In
the event that a U.S. Holder obtains the release of Treasury Securities by
delivering Capital Securities to the Collateral Agent, gain or loss
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will be recognized by the U.S. Holder on a subsequent disposition of the
Treasury Securities in an amount equal to the difference between the amount
realized by the U.S. Holder on such disposition and the U.S. Holder's adjusted
tax basis in the Treasury Securities. Such gain or loss will generally be
capital gain or loss and will generally be long-term capital gain or loss if the
U.S. Holder held such Treasury Securities for more than one year immediately
prior to such disposition. Long-term capital gains of individuals are eligible
for reduced rates of taxation depending upon the holding period of such capital
assets. The deductibility of capital losses is subject to limitations.
PURCHASE CONTRACTS
CONTRACT ADJUSTMENT PAYMENTS AND DEFERRED CONTRACT ADJUSTMENT PAYMENTS;
DELIVERY OF CASH. There is no direct authority addressing the treatment, under
current law, of the Contract Adjustment Payments, if any, and Deferred Contract
Adjustment Payments, or the delivery of cash in respect of excess accrued
Contract Adjustment Payments by a U.S. Holder of Income PRIDES upon the creation
of Growth PRIDES and such treatment is, therefore, unclear. Contract Adjustment
Payments and Deferred Contract Adjustment Payments may constitute taxable income
to a U.S. Holder of FELINE PRIDES when received or accrued, in accordance with
the U.S. Holder's regular method of tax accounting. To the extent the Company is
required to file information returns with respect to Contract Adjustment
Payments or Deferred Contract Adjustment Payments, it intends to report such
payments as taxable income to each U.S. Holder. U.S. Holders should consult
their tax advisors concerning the treatment of Contract Adjustment Payments and
Deferred Contract Adjustment Payments and the delivery of cash upon creation of
Growth PRIDES, including the possibility that any Contract Adjustment Payment or
Deferred Contract Adjustment Payment may be treated as a loan, purchase price
adjustment, rebate or payment analogous to an option premium, rather than being
includible in income on a current basis, and that the delivery of cash upon
creation of Growth PRIDES may be treated as an offset to Contract Adjustment
Payments or Deferred Contract Adjustment Payments or as a purchase price
adjustment. The treatment of Contract Adjustment Payments Deferred Contract
Adjustment Payments and the delivery of cash upon creation of Growth PRIDES
could affect a U.S. Holder's adjusted tax basis in a Purchase Contract or Common
Stock received under a Purchase Contract or the amount realized by a U.S. Holder
upon the sale or disposition of a FELINE PRIDES or the termination of a Purchase
Contract. See "-- Acquisition of Common Stock under a Purchase Contract," "Sale,
Exchanges or Other Taxable Dispositions of FELINE PRIDES" and "-- Termination of
Purchase Contract."
ACQUISITION OF COMMON STOCK UNDER A PURCHASE CONTRACT. A U.S. Holder of
FELINE PRIDES generally will not recognize gain or loss on the purchase of
Common Stock under a Purchase Contract, except with respect to any cash paid in
lieu of a fractional share of Common Stock. Subject to the following discussion,
a U.S. Holder's aggregate initial tax basis in the Common Stock received under a
Purchase Contract should generally equal the purchase price paid for such Common
Stock plus such U.S. Holder's adjusted tax basis in the Purchase Contract (if
any), less the portion of such purchase price and adjusted tax basis allocable
to the fractional share. Payments of Contract Adjustment Payments or Deferred
Contract Adjustment Payments that have been received in cash by a U.S. Holder
but not included in income by such U.S. Holder should reduce such U.S. Holder's
adjusted tax basis in the Purchase Contract or the Common Stock to be received
thereunder; payments in cash that have been made by a U.S. Holder to create
Growth PRIDES but not offset against payments of Contract Adjustment Payments or
Deferred Contract Adjustment Payments may increase such U.S. Holder's adjusted
tax basis in the Purchase Contract or the Common Stock to be received thereunder
(see "Contract Adjustment Payments and Deferred Contract Adjustment Payments"
above). The holding period for Common Stock received under a Purchase Contract
will commence on the day following the acquisition of such Common Stock.
OWNERSHIP OF COMMON STOCK ACQUIRED UNDER THE PURCHASE CONTRACT. Any
distribution on Common Stock paid by the Company out of its current or
accumulated earnings and profits (as determined for United States federal income
tax purposes) will constitute a dividend and will be includible in income by a
U.S. Holder when received. Any such dividend will be eligible for the dividends
received deduction if received by an otherwise qualifying corporate U.S. Holder
that meets the holding period and other requirements for the dividends received
deduction.
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Upon a disposition of Common Stock, a U.S. Holder will generally recognize
capital gain or loss equal to the difference between the amount realized and
such U.S. Holder's adjusted tax basis in the Common Stock. Such capital gain or
loss will generally be long-term capital gain or loss if the U.S. Holder held
such Common Stock for more than one year immediately prior to such disposition.
Long-term capital gains of individuals are eligible for reduced rates of
taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations.
EARLY SETTLEMENT OF PURCHASE CONTRACT. A U.S. Holder of FELINE PRIDES will
not recognize gain or loss on the receipt of such U.S. Holder's proportionate
share of Capital Securities, Treasury Securities or the Treasury Portfolio upon
Early Settlement of a Purchase Contract and will have the same adjusted tax
basis in such Capital Securities, Treasury Securities or the Treasury Portfolio
as before such Early Settlement. Any Contract Adjustment Payments or Deferred
Contract Adjustment Payments that have been included in a U.S. Holder's income
but forfeited and not paid upon Early Settlement of a Purchase Contract should
increase such U.S. Holder's adjusted tax basis in the Common Stock received
under a Purchase Contract.
TERMINATION OF PURCHASE CONTRACT. If a Purchase Contract terminates, a
U.S. Holder of FELINE PRIDES will recognize gain or loss equal to the difference
between the amount realized (if any) upon such termination and such U.S.
Holder's adjusted tax basis (if any) in the Purchase Contract at the time of
such termination. Payments of Contract Adjustment Payments or Deferred Contract
Adjustment Payments received by a U.S. Holder but not included in income by such
U.S. Holder should either reduce such U.S. Holder's adjusted tax adjusted basis
in the Purchase Contract or increase the amount realized on the termination of
the Purchase Contract. Any Contract Adjustment Payments or Deferred Contract
Adjustment Payments included in a U.S. Holder's income but not paid should
increase such U.S. Holder's adjusted tax basis in the Purchase Contract;
payments in cash that have been made by a U.S. Holder to create Growth PRIDES
but not offset against payments of Contract Adjustment Payments or Deferred
Contract Adjustment Payments may increase such U.S. Holder's adjusted tax basis
in the Purchase Contract or result in a deduction on the termination of the
Purchase Contract (see "Contract Adjustment Payments and Deferred Contract
Adjustment Payments" above). Such gain or loss generally will be capital gain or
loss and generally will be long-term capital gain or loss if the U.S. Holder
held such Purchase Contract for more than one year immediately prior to such
termination. Long-term capital gains of individuals are eligible for reduced
rates of taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations. A U.S. Holder will
not recognize gain or loss on the receipt of such U.S. Holder's proportionate
share of the Capital Securities, Treasury Securities or Treasury Portfolio upon
termination of the Purchase Contract and will have the same adjusted tax basis
in such Capital Securities, Treasury Securities or Treasury Portfolio as before
such distribution.
ADJUSTMENT TO SETTLEMENT RATE. U.S. Holders of FELINE PRIDES might be
treated as receiving a constructive dividend distribution from the Company if
(i) the Settlement Rate is adjusted and as a result of such adjustment the
proportionate interest of U.S. Holders of FELINE PRIDES in the assets or
earnings and profits of the Company is increased and (ii) the adjustment is not
made pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in
the Settlement Rate would not be considered made pursuant to such a formula if
the adjustment were made to compensate a U.S. Holder for certain taxable
distributions with respect to the Common Stock.
SUBSTITUTION OF TREASURY SECURITIES TO CREATE OR RECREATE GROWTH PRIDES
A U.S. Holder of an Income PRIDES that delivers Treasury Securities to the
Collateral Agent in substitution for Capital Securities will generally not
recognize gain or loss upon the delivery of such Treasury Securities or the
release of the Capital Securities to such U.S. Holder. Such U.S. Holder will
continue to take into account items of income or deduction otherwise includible
or deductible, respectively, by such U.S. Holder with respect to such Treasury
Securities and Capital Securities, and such U.S. Holder's adjusted tax bases in
the Treasury Securities, the Capital Securities and the Purchase Contract will
not be affected by such delivery and release.
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SUBSTITUTION OF CAPITAL SECURITIES TO CREATE OR RECREATE INCOME PRIDES
A U.S. Holder of a Growth PRIDES that delivers Capital Securities to the
Collateral Agent in substitution for Treasury Securities will generally not
recognize gain or loss upon the delivery of such Capital Securities or the
release of the Treasury Securities to the U.S. Holder. Such U.S. Holder will
continue to take into account items of income or deduction otherwise includible
or deductible, respectively, by such U.S. Holder with respect to such Treasury
Securities and Capital Securities, and such U.S. Holder's adjusted tax bases in
the Treasury Securities, the Capital Securities and the Purchase Contract will
not be affected by such delivery and release.
TAX EVENT REDEMPTION OF CAPITAL SECURITIES
A Tax Event Redemption will be a taxable event for U.S. Holders of Capital
Securities which will be subject to tax in the manner described under "Capital
Securities -- Sales, Exchange or Other Taxable Dispositions of Capital
Securities."
OWNERSHIP OF TREASURY PORTFOLIO. The Company, the Trust and, by acquiring
Income PRIDES, each U.S. Holder agree to treat such U.S. Holder as the owner,
for United States federal, state and local income and franchise tax purposes, of
the Applicable Ownership Interest of the Treasury Portfolio constituting a part
of the Income PRIDES beneficially owned by such U.S. Holder in the event of a
Tax Event Redemption prior to the Purchase Contract Settlement Date. Based on
such agreement, each U.S. Holder will include in income any amount earned on
such pro rata portion of the Treasury Portfolio for all United States federal,
state and local income and franchise tax purposes. The remainder of this summary
assumes that U.S. Holders of Income PRIDES will be treated as the owners of the
Applicable Ownership Interest of the Treasury Portfolio constituting a part of
such Income PRIDES for United States federal, state and local income and
franchise tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. The Treasury Portfolio will
consist of stripped U.S. Treasury Securities. Following a Tax Event Redemption
prior to the Purchase Contract Settlement Date, a U.S. Holder of Income PRIDES
will be required to treat its pro rata portion of each U.S. Treasury Security in
the Treasury Portfolio as a bond that was originally issued on the date the
Collateral Agent acquired the relevant U.S. Treasury Securities and that has OID
equal to the U.S. Holder's pro rata portion of the excess of the amounts payable
on such U.S. Treasury Securities over the value of the U.S. Treasury Securities
at the time the Collateral Agent acquires them on behalf of holders of Income
PRIDES. A U.S. Holder will be required to include such OID in income on a daily
economic basis over the life of the U.S. Treasury Securities. The amount of such
excess will constitute only a portion of the total amounts payable in respect of
the Treasury Portfolio. Consequently, a portion of each scheduled interest
payment to U.S. Holders will be treated as a return of such U.S. Holders'
investment in the Treasury Portfolio and will not be considered current income
for United States federal income tax purposes.
A U.S. Holder, whether on the cash or accrual method of tax accounting,
will be required to include OID (other than OID on short-term U.S. Treasury
Securities as defined below) in income for United States federal income tax
purposes as it accrues on a constant yield to maturity basis. See "-- Interest
Income and Original Issue Discount" above. In the case of any U.S. Treasury
Security with a maturity of one year or less from the date of its issue (a
"short-term U.S. Treasury Security"), in general only accrual basis taxpayers
will be required to include OID in income as it accrues. Unless such an accrual
basis U.S. Holder elects to accrue the OID on a short-term U.S. Treasury
Security according to the constant-yield-to-maturity method, such OID will be
accrued on a straight-line basis.
TAX BASIS OF THE TREASURY PORTFOLIO. A U.S. Holder's initial tax basis in
such U.S. Holder's Applicable Ownership Interest of the Treasury Portfolio will
equal such U.S. Holder's pro rata portion of the amount paid by the Collateral
Agent for the Treasury Portfolio. A U.S. Holder's adjusted tax basis in the
Treasury Portfolio will be increased by the amount of OID included in income
with respect thereto and decreased by the amount of cash received in respect of
the Treasury Portfolio.
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ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to ERISA, plans and
individual retirement accounts that are subject to Section 4975 of the Code and
entities whose assets are considered assets of such plans ("Plans") may purchase
the Securities subject to the investing fiduciary's determination that the
investment in the Securities satisfies ERISA's fiduciary standards and other
requirements applicable to investments by Plans. Accordingly, among other
factors, the investing fiduciary should consider whether the investment would
satisfy the prudence and diversification requirements of ERISA and would be
consistent with the documents and instruments governing the Plans.
Under regulations issued by the U.S. Department of Labor (the "DOL"), a
Plan that owns the Securities may be deemed to own a portion of the assets held
in the Trust, including a portion of the Debentures held in the Trust. In
addition, the Company and its affiliates may be "parties in interest" (within
the meaning of ERISA) or "disqualified persons" (within the meaning of Section
4975 of the Code) with respect to certain Plans (generally, Plans maintained or
sponsored by, or contributed to by, any such persons or Plans with respect to
which any such persons are fiduciaries or service providers). The acquisition
and ownership of the Securities and a deemed acquisition and ownership of an
interest in the Debentures by a Plan with respect to which the Company or any of
its affiliates is considered a party in interest or a disqualified person may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Code, unless such Securities are acquired and are held pursuant to and in
accordance with an applicable exemption. In this regard, the DOL has issued
prohibited transaction class exemptions ("PTCEs") that may apply to the
acquisition and holding of the Securities. These class exemptions are PTCE 84-14
(respecting transactions determined by independent qualified professional asset
managers), PTCE 90-1 (respecting insurance company separate accounts), PTCE
91-38 (respecting bank collective trust funds), PTCE 95-60 (respecting insurance
company general accounts) and PTCE 96-23 (respecting transactions determined by
in-house asset managers).
Any fiduciary proposing to acquire the Securities on behalf of a Plan
should consult with ERISA counsel for the Plan and should not acquire the
Securities unless it is determined that such acquisition and holding does not
and will not constitute a prohibited transaction and will satisfy the applicable
fiduciary requirements imposed under ERISA. Any such acquisition by a Plan shall
be deemed a representation by the Plan and the fiduciary effecting the
investment on behalf of the Plan that such acquisition and holding satisfies the
applicable fiduciary requirements of ERISA, and is either (i) not a prohibited
transaction under ERISA and the Code and is otherwise permissible under
applicable law or (ii) qualified for to exemptive relief from the prohibited
transaction provisions of ERISA and the Code in accordance with one or more of
the foregoing PTCEs or another available prohibited transaction exemption.
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UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Trust, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Underwriters"), the Company and the Trust have agreed to sell
to each of the Underwriters, and each of the Underwriters has severally agreed
to purchase from the Company and the Trust, the number of Income PRIDES, Growth
PRIDES and Capital Securities set forth below opposite its name. In the
Underwriting Agreement, the Underwriters have agreed, subject to the terms and
conditions set forth therein, to purchase all of the Income PRIDES, Growth
PRIDES and Capital Securities offered hereby if any of the Income PRIDES, Growth
PRIDES or Capital Securities are purchased.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
INCOME GROWTH CAPITAL
UNDERWRITERS PRIDES PRIDES SECURITIES
- --------------------------------------------------------- --------- --------- ----------
<S> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................
Donaldson, Lufkin & Jenrette Securities Corporation......
------- ------- -------
Total.......................................
======= ======= =======
</TABLE>
The Underwriters have advised the Company and the Trust that they propose
initially to offer the Income PRIDES, Growth PRIDES and Capital Securities to
the public at the public offering prices set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per Income PRIDES, $ per Growth PRIDES and $ per
Capital Security. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per Income PRIDES, $ per Growth
PRIDES and $ per Capital Security on sales to certain other dealers.
After the initial public offering, the public offering prices, concessions and
discounts may be changed.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriters and any selling group
members to bid for and purchase the Securities or shares of Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Securities or the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Securities or the Common Stock.
If the Underwriters create a short position in the Securities in connection
with the Offering, i.e., if they sell more Securities than are set forth on the
cover page of this Prospectus, the Underwriters may reduce that short position
by purchasing Securities in the open market. The Underwriters may also elect to
reduce any short position by exercising all or part of the over-allotment
options described below.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase Securities
in the open market to reduce the Underwriters' short position or to stabilize
the price of the Securities, they may reclaim the amount of the selling
concession from any Underwriters or selling group members who sold those
Securities as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company, the Trust nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities or the
Common Stock. In addition, neither the Company, the Trust nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transaction or that such transactions, once commenced, will not be discontinued
without notice.
The Company and the Trust have granted to the Underwriters options,
exercisable for 30 days following the date of this Prospectus, to purchase up to
an additional Income PRIDES, Growth PRIDES
105
<PAGE> 107
and Capital Securities from the Company and the Trust at the Price to
Public set forth on the cover page of this Prospectus less the underwriting
discount; provided, however, that the Underwriters must purchase,
proportionately, at least as many Capital Securities as Growth PRIDES and must
purchase, proportionately, at least as many Growth PRIDES as Income PRIDES. The
Underwriters may exercise these options only to cover over-allotments, if any,
made on the sale of the Income PRIDES, Growth PRIDES and Capital Securities
offered hereby. If the Underwriters exercise their over-allotment options, each
of the Underwriters has severally agreed, subject to certain conditions, to
purchase approximately the same percentage of such Income PRIDES, Growth PRIDES
and Capital Securities that the respective number of Income PRIDES, Growth
PRIDES and Capital Securities set forth opposite its name in the foregoing table
bears to the number of Income PRIDES, Growth PRIDES and Capital Securities
offered hereby.
The Company and the Trust have agreed that they will not, for a period of
90 days after the date of this Prospectus, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, directly or indirectly,
sell, offer to sell, grant any option for the sale of, or otherwise dispose of,
or enter into any agreement to sell, any Income PRIDES, Growth PRIDES, Purchase
Contracts, Capital Securities or Common Stock or any securities of the Company
or any affiliate of the Company similar to the Income PRIDES, Growth PRIDES,
Purchase Contracts, Capital Securities or Common Stock or any security
convertible into or exchangeable or exercisable for Income PRIDES, Growth
PRIDES, Purchase Contracts, Capital Securities or Common Stock or any such
similar securities, other than (i) to the Underwriters pursuant to the
Underwriting Agreement, (ii) the Debentures to be sold to the Trust and the
Common Securities to be sold to the Company; (iii) shares of Common Stock or
options for shares of Common Stock issued pursuant to or sold in connection with
any employee benefit, dividend reinvestment and stock option and stock purchase
plans of the Company and its subsidiaries, (iv) any securities issued pursuant
to a merger or acquisition and (v) the Growth PRIDES or Income PRIDES to be
created or recreated upon substitution of Pledged Securities, or shares of
Common Stock issuable upon early settlement of the Income PRIDES or Growth
PRIDES.
Prior to this offering, there has been no public market for the Income
PRIDES, Growth PRIDES and the Capital Securities. Application will be made to
list the Income PRIDES and Growth PRIDES on the NYSE. If Capital Securities are
separately traded to a sufficient extent that the applicable exchange listing
requirements are met, the Company will endeavor to cause such securities to be
listed on such exchange on which the Income PRIDES and the Growth PRIDES are
then listed, including, if applicable, the NYSE. There can be no assurance that
an active trading market will develop for the Income PRIDES, the Growth PRIDES
or the Capital Securities or that the Income PRIDES, Growth PRIDES or Capital
Securities will trade in the public market subsequent to the offering at or
above the initial public offering price.
The Company and the Trust have agreed to indemnify the Underwriters
against, or to contribute to payments that the Underwriters may be required to
make in respect of, certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
This Prospectus, as amended or stickered, may be used in connection with
Early Settlement or cash settlement of the Purchase Contracts, or by the
Remarketing Agent for remarketing the Capital Securities at such time as is
necessary.
In the ordinary course of their respective businesses, the Underwriters
have performed, and may in the future perform, investment banking services for
the Company.
106
<PAGE> 108
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report (Form 10-K) for the year ended November 30, 1997 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
LEGAL OPINIONS
The validity of the Purchase Contracts, the Common Stock issuable upon
settlement thereof, the Capital Securities, the Debentures and the Guarantee
will be passed upon for the Company and the Trust by Skadden, Arps, Slate,
Meagher & Flom LLP. Certain matters regarding the Company will be passed upon by
Barton P. Pachino, Esq., Senior Vice President and General Counsel for the
Company, and by Munger, Tolles & Olson LLP. Brown & Wood LLP, San Francisco,
California, will act as counsel for the Underwriters.
107
<PAGE> 109
INDEX OF CERTAIN TERMS FOR PROSPECTUS
Set forth below is a list of certain defined terms appearing in the
Prospectus and the page numbers on which such terms are defined.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Act......................................................... 6
1940 Act.................................................... 77
Applicable Market Value..................................... 16
Applicable Ownership Interest............................... 53
Bankruptcy Code............................................. 17
Beneficial Owner............................................ 81
Capital Securities.......................................... 1
Change in 1940 Act Law...................................... 77
Collateral Agent............................................ 11
Commission.................................................. 6
Common Securities........................................... 2
Common Stock................................................ 2
Company..................................................... 1, 8, 32
Compound Interest........................................... 89
Contract Adjustment Payments................................ 2
Custodial Agent............................................. 18
Debentures.................................................. 2
Debt Trustee................................................ 86
Declaration................................................. 10
Declaration Events of Default............................... 78
Deferred Contract Adjustment Payments....................... 13
Depositary.................................................. 63
Direct Action............................................... 30
Direct Participants......................................... 63
disposition................................................. 95
Early Settlement............................................ 16
Exchange Act................................................ 6
Exchange Agent.............................................. 4
Extension Periods........................................... 13, 18
Failed Remarketing.......................................... 4
FELINE PRIDES............................................... 1
FELINE PRIDES Certificate................................... 57
Global Security............................................. 92
Global Security Certificates................................ 63
Growth PRIDES............................................... 2
Guarantee................................................... 3
Guarantee Payments.......................................... 84
Guarantee Trustee........................................... 34
Income PRIDES............................................... 2
Indenture................................................... 86
Indenture Event of Default.................................. 78
Indirect Participants....................................... 64
Institutional Trustee....................................... 34
</TABLE>
108
<PAGE> 110
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Interest Payment Date....................................... 87
KBHC Trustees............................................... 10
NYSE........................................................ 1
OID......................................................... 2
Original Issue Date......................................... 3
Participants................................................ 63
Payment Date................................................ 14
Pledge Agreement............................................ 11
Pledged Securities.......................................... 27
Primary Treasury Dealer..................................... 88
Property Account............................................ 34
Purchase Contract........................................... 2
Purchase Contract Agent..................................... 12
Purchase Contract Agreement................................. 11
Purchase Contract Settlement Date........................... 2
Redemption Price............................................ 5
Reference Price............................................. 2
Regular Trustees............................................ 34
Remarketing Agent........................................... 14
Remarketing Agreement....................................... 14
Remarketing Fee............................................. 3
Remarketing Underwriting Agreement.......................... 14
Reset Announcement Date..................................... 74
Reset Rate.................................................. 3
Reset Spread................................................ 3
Securities.................................................. 1
Securities Act.............................................. 6
Senior Indebtedness......................................... 3
Settlement Rate............................................. 2, 16
short-term U.S. Treasury Security........................... 100
Sponsor..................................................... 10
Stated Amount............................................... 2
Successor Securities........................................ 80
Super-Majority.............................................. 79
Tax Counsel................................................. 96
Tax Event Redemption........................................ 5
Tax Event Redemption Date................................... 87
Threshold Appreciation Price................................ 2
Treasury Portfolio.......................................... 88
Treasury Securities......................................... 2
Trust....................................................... 1
Trust Indenture Act......................................... 10
Trust Securities............................................ 2
Underwriters................................................ 102
Underwriting Agreement...................................... 102
</TABLE>
109
<PAGE> 111
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR
ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE
HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OF SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements.................. 6
Available Information....................... 6
Incorporation of Certain Documents by
Reference................................. 7
Prospectus Summary.......................... 8
Explanatory Diagrams...................... 21
Risk Factors................................ 25
The Company................................. 32
The Trust................................... 34
Use of Proceeds............................. 35
Price Range of Common Stock and Dividends... 35
Dividend Policy............................. 35
Capitalization.............................. 36
Consolidated Ratios of Earnings to Fixed
Charges and of Earnings to Combined Fixed
Charges and Preferred Stock Dividends..... 37
Selected Consolidated Financial Data........ 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 40
Accounting Treatment........................ 52
Description of the FELINE PRIDES............ 53
Description of the Purchase Contracts....... 56
Description of Capital Stock................ 65
Certain Provisions of the Purchase Contract
Agreement and the Pledge Agreement........ 70
Description of the Capital Securities....... 73
Description of the Guarantee................ 86
Description of the Debentures............... 89
Effect of Obligations under the Debentures
and the Guarantee......................... 96
Federal Income Tax Consequences............. 97
ERISA Considerations........................ 104
Underwriting................................ 105
Experts..................................... 107
Legal Opinions.............................. 107
Index of Certain Terms for Prospectus....... 108
</TABLE>
======================================================
======================================================
KAUFMAN AND BROAD
HOME CORPORATION
KBHC
FINANCING I
15,000,000
FELINE PRIDES(SM)
,000,000
CAPITAL SECURITIES
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1998
(SM)Service Mark of Merrill Lynch & Co., Inc.
======================================================
<PAGE> 112
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration fee............................................ $101,775.00
NYSE listing fee............................................ $ 52,000.00
NASD filing fee............................................. $ 30,500.00
Legal fees and expenses..................................... $300,000.00
Accounting fees and expenses................................ $ 55,000.00
Blue sky fees and expenses.................................. $ 5,000.00
Printing and engraving expenses............................. $210,000.00
Trustee and Agent fees...................................... $ 35,000.00
Rating Agencies............................................. $125,000.00
Miscellaneous............................................... $ 10,725.00
-----------
Total....................................................... $925,000.00
===========
</TABLE>
All of the foregoing expenses, other than the SEC registration fee and NASD
filing fee, are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor, against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent that the Delaware
Court of Chancery or such other court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnification for such expenses which the Court of
Chancery or such other court shall deem proper.
Article 6(d) of the Company's Certificate of Incorporation provides that
each person who was or is made a party to (or is threatened to be made a party
to) or is otherwise involved in any action, suit or proceeding by reason of the
fact that such person is or was a director, officer, employee or agent of the
Company shall be indemnified and held harmless by the Company to the full extent
permitted by the General Corporation Law of Delaware against all expenses,
liability and loss (including without limitation attorney's fees, judgments,
fines and amounts paid in settlement) reasonably incurred by such person in
connection therewith. The rights conferred by Article 6(d) are contractual
rights and include the right to be paid by the Company the expenses incurred in
defending such action, suit or proceeding in advance of the final disposition
thereof.
Article 6(c) of the Company's Certificate of Incorporation provides that
the Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (i) for any breach of the duty of loyalty to the
Company or its stockholders,
II-1
<PAGE> 113
(ii) for acts of omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of Delaware, which makes directors liable for unlawful dividends
or unlawful stock repurchases or redemptions or (iv) for transactions from which
directors derive an improper personal benefit.
The Company has purchased directors' and officers' liability insurance
policies which insure against certain liabilities incurred by directors and
officers of the Company.
Under the Declaration, the Company will agree to indemnify each of the
Regular Trustees, the Institutional Trustee and the Delaware Trustee, and to
hold harmless the Regular Trustees, the Institutional Trustee and the Delaware
Trustee against any loss, damage, claims, liability or expense incurred without
negligence or bad faith on its part arising out of or in connection with the
acceptance or administration of such Declaration, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties under such
Declaration.
II-2
<PAGE> 114
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
**1.1 Form of Underwriting Agreement for the FELINE PRIDES.
4.1 Amended Certificate of Incorporation, filed as an exhibit to
the Company's Registration Statement no. 33-6471 on Form
S-1, is incorporated by reference herein.
4.2 Amended Certificate of Incorporation, filed as an exhibit to
the Company's Registration Statement no. 33-6471 on Form S-1
(Post-Effective Amendment No. 3), is incorporated by
reference herein.
4.3 Amended Certificate of Incorporation, filed as an exhibit to
the Company's Registration Statement no. 33-30140 on Form
S-1, is incorporated by reference herein.
4.4 By-laws filed as an exhibit to the Company's Registration
Statement no. 33-30140 on Form S-1, is incorporated by
reference herein.
4.5 Form of certificate for Common Stock filed as an exhibit to
the Company's Registration Statement No. 333-14977 on Form
S-3, is incorporated herein by reference.
4.6 Rights Agreement between the Company and ChaseMellon
Shareholder Services, L.L.C. (assignee of Bank of America
National Trust and Savings Association, successor-by-merger
to Security Pacific National Bank), as Rights Agent, dated
February 21, 1989, filed as an exhibit to the Company's 1989
Annual Report on Form 10-K, is incorporated by reference
herein.
***4.7 Certificate of Trust of KBHC Financing I.
***4.8 Declaration of Trust of KBHC Financing I.
***4.9 Form of Amended and Restated Declaration of Trust for KBHC
Financing I, with respect to the Capital Securities.
***4.10 Form of Capital Security Certificate for KBHC Financing I,
with respect to the Capital Securities (included as Exhibit
A-1 to the Amended and Restated Declaration of Trust
(Exhibit 4.9)).
***4.11 Form of Guarantee Agreement in respect of KBHC Financing I,
with respect to the Capital Securities.
***4.12 Form of Indenture.
***4.13 Form of Debentures (included in the First Supplemental
Indenture (Exhibit 4.14)).
***4.14 Form of First Supplemental Indenture.
***4.15 Form of Purchase Contract Agreement (including as Exhibit A
the form of Income PRIDES and as Exhibit B the form of
Growth PRIDES).
***4.16 Form of Pledge Agreement.
***4.17 Form of Remarketing Agreement (including form of Remarketing
Underwriting Agreement).
**5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the validity of the Purchase Contract, Capital Securities,
Debentures and Guarantee being registered.
**8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, as to
United States tax matters.
***12 Statement re: Computation of Consolidated Ratio of Earnings
to Fixed Charges of the Company and of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.
***23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.1).
**23.2 Consent of Ernst & Young LLP.
***24.1 Powers of Attorney (Kaufman and Broad Home
Corporation)(included on Page II-6).
***24.2 Powers of Attorney (KBHC Financing I).
***25.1 Form T-1 Statement of Eligibility of The First National Bank
of Chicago, as Debt Trustee under the Indenture.
***25.2 Form T-1 Statement of Eligibility of The First National Bank
of Chicago, as Institutional Trustee under the Amended and
Restated Declaration of Trust of KBHC Financing I.
***25.3 Form T-1 Statement of Eligibility of The First National Bank
of Chicago, as Guarantee Trustee under the Guarantee for
KBHC Financing I.
</TABLE>
- ---------------
* To be filed by amendment
** Filed herewith.
*** Previously filed.
II-3
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Los Angeles, California, on the 24th day of June, 1998.
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ MICHAEL F. HENN
------------------------------------
Name: Michael F. Henn
Title: Senior Vice President and
Chief Financial Officer
II-4
<PAGE> 1
EXHIBIT 1.1
KAUFMAN AND BROAD HOME CORPORATION
(a Delaware Corporation)
KBHC FINANCING I
(a Delaware Business Trust)
__,000,000 FELINE PRIDES(SM)
and
__,000 Capital Securities
FORM OF UNDERWRITING AGREEMENT
Dated: __, 1998
- ----------
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE> 2
KAUFMAN AND BROAD HOME CORPORATION
(a Delaware Corporation)
KBHC FINANCING I
(a Delaware Business Trust)
__,000,000 FELINE PRIDES(SM)
(Stated Amount of $10 per FELINE PRIDES)
consisting of
__,000 Income PRIDES(SM)
each consisting of
a Purchase Contract of Kaufman and Broad Home Corporation Requiring
the Purchase on __, 2001 (or earlier) of certain Shares
of Common Stock of Kaufman and Broad Home Corporation
and
a __% Capital Security of KBHC Financing I
and
__,000 Growth PRIDES(SM)
each consisting of
a Purchase Contract of Kaufman and Broad Home Corporation Requiring
the Purchase on __, 2001 (or earlier) of certain Shares
of Common Stock of Kaufman and Broad Home Corporation
and
a 1/100 Undivided Beneficial Interest in a Zero-Coupon U.S.
Treasury Security Having a Principal Amount Equal
to $1,000 and maturing on __ 2001;
and
__,000 __% Capital Securities of
KBHC Financing I (Liquidation Amount $10 per
Capital Security)
<PAGE> 3
__, 1998
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
As Representatives of the Several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1209
Ladies and Gentlemen:
Kaufman and Broad Home Corporation, a Delaware corporation (the
"Company"), and KBHC Financing I, a Delaware statutory business trust (the
"Trust" and, together with the Company, the "Offerors"), confirm their agreement
with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
each of the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom Merrill Lynch and
Donaldson, Lufkin & Jenrette Securities Corporation are acting as
representatives (in such capacity, the "Representatives"), with respect to the
issue and sale by the Offerors and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of the FELINE PRIDES and
__% Capital Securities of the Trust (the "Capital Securities") set forth in said
Schedule A (collectively, the "Initial Securities"). The FELINE PRIDES will
initially consist of (A) __,000 units (referred to as "Income PRIDES") with a
stated amount, per Income PRIDES, of $__ (the "Stated Amount") and (B) __,000
units (referred to as "Growth PRIDES") with a stated amount, per Growth PRIDES,
equal to the Stated Amount. Each Income PRIDES will initially consist of a unit
comprised of (a) a stock purchase contract (a "Purchase Contract") under which
(i) the holder will purchase from the Company on __ 2001 (the "Purchase Contract
Settlement Date"), for an amount of cash equal to the Stated Amount, a number of
newly issued shares of common stock, $1.00 par value per share ("Common Stock"),
of the Company equal to the Settlement Rate (as defined in the __), and (ii) the
Company will pay the holder unsecured contract adjustment payments ("Contract
Adjustment Payments") at the rate of __% of the Stated Amount per annum and (b)
beneficial ownership of a Capital Security. Each Growth PRIDES will initially
consist of a unit comprised of (a) a Purchase Contract under which (i) the
holder will purchase from the Company on the Purchase Contract Settlement Date,
for an amount in cash equal to the Stated Amount, the number of shares of Common
Stock of the Company equal to the Settlement Rate, and (ii) the Company will pay
the holder Contract Adjustment Payments, at the rate of
1
<PAGE> 4
__% of the Stated Amount per annum, and (b) a 1/100 undivided beneficial
interest in a zero-coupon U.S. Treasury Security (CUSIP No. __) in a principal
amount at maturity equal to $1,000 payable on __ 2001 (the "Treasury
Securities"). The Company and the Trust also confirm their agreement to grant to
the Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of __,000 additional Income
PRIDES, __,000 additional Growth PRIDES and __,000 additional Capital Securities
(the "Option Securities" and, together with the Initial Securities, the
"Securities") to cover over-allotments, if any. The Capital Securities which
will initially constitute a component of the Income PRIDES are hereinafter
sometimes called the "Underlying Capital Securities," and Capital Securities
which initially are not Underlying Capital Securities are hereinafter sometimes
called the "Separate Capital Securities." In accordance with the terms of the
Purchase Contract Agreement (as defined below), to be dated as of __, 1998,
between the Company and The First National Bank of Chicago, as Purchase Contract
Agent (the "Purchase Contract Agent"), the Capital Securities constituting a
part of the Income PRIDES, and the Treasury Securities constituting a part of
the Growth PRIDES will be pledged by the Purchase Contract Agent, on behalf of
the holders of the Securities that are Income PRIDES and Growth PRIDES,
respectively, to The Bank of New York, as Collateral Agent (the "Collateral
Agent"), pursuant to the Pledge Agreement, to be dated as of __, 1998 (the
"Pledge Agreement"), among the Company, the Purchase Contract Agent and the
Collateral Agent, to secure the holders' obligation to purchase Common Stock
under the Purchase Contracts. The shares of Common Stock issuable pursuant to
the Purchase Contracts are hereinafter called the "Shares".
The Capital Securities and Common Securities (as defined below) will be
guaranteed by the Company with respect to distributions and payments upon
liquidation, redemption and otherwise (the "Guarantee") pursuant to the
Guarantee Agreement, to be dated as of __, 1998 (the "Guarantee Agreement"),
between the Company and The First National Bank of Chicago, as trustee (the
"Guarantee Trustee"), for the benefit of the holders from time to time of the
Capital Securities and the Common Securities, and certain back-up undertakings
of the Company. All of the net proceeds from the sale of the Capital Securities
will be combined with the entire net proceeds from the sale by the Trust to the
Company of its common securities (the "Common Securities" and, together with the
Capital Securities, the "Trust Securities") and will be used by the Trust to
purchase the __% Debentures due __ 2003 (the "Debentures") of the Company. The
Trust Securities will be issued pursuant to the amended and restated declaration
of trust of the Trust, to be dated as of __, 1998 (the "Declaration"), among the
Company, as Sponsor, __ and __ (the "Regular Trustees"), and The First National
Bank of Chicago, as the institutional trustee (the "Institutional Trustee"), and
First Chicago Delaware, Inc., as the Delaware trustee (the "Delaware Trustee"
and, together with the Institutional Trustee and the Regular Trustees, the
"Trustees"), and the holders from time to time of undivided beneficial interests
in the assets of the Trust. The Debentures will be issued pursuant to the
Indenture, to be dated as of __, 1998 (the "Base Indenture"), between the
Company and The First National Bank of Chicago, as trustee (the "Debt Trustee"),
as amended and supplemented by the First Supplemental Indenture, to be dated as
of __, 1998, between the Company and the Debt Trustee (the Base Indenture, as
supplemented and amended by such First Supplemental Indenture, being referred to
as the "Indenture").
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The Company and the Trust have entered into a Common Securities Purchase
Agreement dated as of __, 1998 (the "Common Securities Purchase Agreement")
pursuant to which the Trust will sell to the Company, and the Company will
purchase from the Trust, the Common Securities, and a Debenture Purchase
Agreement dated as of __, 1998 (the "Debenture Purchase Agreement") pursuant to
which the Trust will purchase from the Company, and the Company will sell to the
Trust, the Debentures.
Pursuant to a Remarketing Agreement (the "Remarketing Agreement") to be
dated as of __, 1998, among the Company, the Trust, the Purchase Contract Agent
and a nationally recognized investment banking firm chosen by the Company, the
Capital Securities may be remarketed, subject to certain terms and conditions.
As used in this Agreement, the term "Operative Documents" means this
Agreement, the Purchase Contract Agreement, the Securities, the Pledge
Agreement, the Remarketing Agreement, the Declaration, the Trust Securities, the
Guarantee, the Indenture, the Debentures, the Common Securities Purchase
Agreement and the Debenture Purchase Agreement; and all references to the
Operative Documents to which the Company is a party (and all references of like
import) shall include, without limitation, the Income PRIDES, the Growth PRIDES
and the Debentures, and all references to the Operative Documents to which the
Trust is a party shall include, without limitation, the Trust Securities.
The Company and the Trust have filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form __ and
pre-effective amendment no. 1 and __ thereto covering the registration of the
Securities (including the Purchase Contracts), the Capital Securities, the
Guarantee, the Debentures and the Shares under the Securities Act of 1933, as
amended (the "1933 Act"), including the related preliminary prospectus or
prospectuses. Promptly after execution and delivery of this Agreement, the
Company and the Trust will either (i) prepare and file a prospectus in
accordance with the provisions of Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations")
and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or
(ii) if the Company and the Trust have elected to rely upon Rule 434 ("Rule
434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term
Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information". Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, in each case including the documents incorporated or deemed to be
incorporated by reference therein, is herein called a "preliminary prospectus".
Such registration statement, including the exhibits thereto, schedules thereto,
if any, and the documents incorporated by reference therein pursuant to Item 12
of Form S-3 under the 1933 Act, at the time it became effective and including
the Rule 430A Information
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<PAGE> 6
and the Rule 434 Information, as applicable, is herein called the "Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933
Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement", and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final prospectus, including
the documents incorporated by reference therein pursuant to Item 12 of From S-3
under the 1933 Act, in the form first furnished to the Underwriters for use in
connection with the offering of the Securities is herein called the
"Prospectus". If Rule 434 is relied on, the term "Prospectus" shall refer to the
preliminary prospectus dated __, 1998 together with the Term Sheet, and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the Prospectus or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
or deemed to be incorporated by reference in the Registration Statement, any
preliminary prospectus or the Prospectus, as the case may be; and all references
in this Agreement to amendments or supplements to the Registration Statement,
any preliminary prospectus or the Prospectus shall be deemed to mean and include
the filing of any document under the Securities Exchange Act of 1934 Act, as
amended (the "1934 Act"), which is incorporated or deemed to be incorporated by
reference in the Registration Statement, such preliminary prospectus or the
Prospectus, as the case may be.
The Offerors understand that the Underwriters propose to make a public
offering of the Securities as soon as the Underwriters deem advisable after this
Agreement has been executed and delivered and the Declaration, the Indenture and
the Guarantee Agreement have been qualified under the Trust Indenture Act of
1939, as amended (the "1939 Act").
SECTION 1. Representations and Warranties.
(a) The Offerors jointly and severally represent and warrant to each
Underwriter as of the date hereof, as of the Closing Time referred to in Section
2(d) hereof and as of each Date of Delivery (if any) referred to in Section 2(b)
hereof (the Closing Time and each Date of Delivery (if any) are hereinafter
called, individually, a "Representation Date"), and agrees with each
Underwriter, as follows:
(i) The Company and the Trust meet the requirements for the use of
Form S-3 under the 1933 Act. Each of the Registration Statement and any Rule
462(b) Registration Statement has become effective under the 1933 Act. At the
respective times the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendments thereto became or become effective,
at the date of this Agreement, and at each
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<PAGE> 7
Representation Date, the Registration Statement, any Rule 462(b) Registration
Statement and any amendments or supplements thereto complied and will comply in
all material respects with the requirements of the 1933 Act and the 1933 Act
Regulations and the 1939 Act and the rules and regulations of the Commission
under the 1939 Act (the "1939 Act Regulations") and did not and will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading.
At the date of the Prospectus and at each Representation Date, the Prospectus
and any amendments and supplements thereto did not and will not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. If the Offerors elect to rely upon Rule
434 of the 1933 Act Regulations, the Offerors will comply with the requirements
of Rule 434. Notwithstanding the foregoing, the representations and warranties
in this subsection (i) shall not apply to (A) statements in or omissions from
the Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Offerors in writing by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement or the Prospectus or (B) the part of the Registration Statement which
shall constitute a Statement of Eligibility (Form T-1) under the 1939 Act of any
trustee (each, a "Form T-1").
Each preliminary prospectus and prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the 1933 Act, complied when filed in all
material respects with the 1993 Act and the 1933 Act Regulations and each
preliminary prospectus delivered to the Underwriters for use in connection with
the offering of the Securities was and will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(ii) Ernst & Young LLP, whose reports are incorporated by reference
into the Registration Statement, are independent public accountants with respect
to the Company and its subsidiaries as required by the 1933 Act and the 1933 Act
Regulations.
(iii) The financial statements included or incorporated by reference
in the Registration Statement and the Prospectus present fairly the financial
position of the Company and its consolidated subsidiaries as at the dates
indicated and the results of operations of the Company and its consolidated
subsidiaries for the periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles in the United States
applied on a consistent basis; the supporting schedules included or incorporated
by reference in the Registration Statement present fairly the information
required to be stated therein; the Company's ratios of earnings to fixed charges
and of earnings to combined fixed charges and preferred stock dividends
(including the amounts the ratios would have been were interest on the
outstanding collateralized mortgage obligations of the Company's wholly owned
limited purpose financing subsidiaries included in such ratios' calculation)
included in the Prospectus under the caption "Consolidated Ratios of Earnings to
Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Stock
Dividends" and in Exhibit 12 to the Registration Statement have
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<PAGE> 8
been calculated in compliance with Item 503(d) of Regulation S-K of the
Commission; and the pro forma financial statements, if any, and related notes
thereto included in the Registration Statement and the Prospectus present fairly
the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial statements
and have been properly compiled on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions and
circumstances referred to therein.
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects (1) of the Company and its subsidiaries (which term, as used in this
Agreement, includes without limitation consolidated joint ventures in which the
Company or any of its other subsidiaries is a participant and limited and
general partnerships in which the Company or any of its other subsidiaries owns
partnership interests (such joint ventures and limited and general partnerships
being hereinafter called, collectively, the "Partnerships")) considered as one
enterprise, whether or not arising in the ordinary course of business, or (2)
the Trust, (B) there have been no transactions entered into by the Company or
any of its subsidiaries, other than those in the ordinary course of business,
which are material with respect to the Company and its subsidiaries considered
as one enterprise, and (C) except for regular quarterly dividends in customary
amounts per share on the Common Stock, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock.
(v) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware and
has corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and to enter into and
perform its obligations under, and as contemplated under, the Operative
Documents to which it is a party; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to so
qualify would not have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise.
(vi) Each Significant Subsidiary (as defined below) is either a
corporation or a limited partnership. Each Significant Subsidiary has been duly
organized and is validly existing as a corporation or limited partnership, as
the case may be, in good standing under the laws of the jurisdiction of its
organization, has power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and is duly qualified
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify
would not have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise; all of the issued
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<PAGE> 9
and outstanding capital stock of each Significant Subsidiary which is a
corporation has been duly authorized and validly issued, is fully paid and
non-assessable and is owned (except for directors qualifying shares and a
nominal number of shares held by affiliated parties) by the Company, directly or
through subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; and all of the outstanding equity interests
in each Significant Subsidiary which is a Partnership have been duly authorized
(if applicable) and validly issued, are fully paid and non-assessable and are
owned by the Company (except to the extent that a minority interest in the
Partnership is reflected in the Company's consolidated financial statements
included or incorporated by reference in the Prospectus), directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity. For purposes of this Agreement, "Significant
Subsidiary" means any subsidiary of the Company (including, without limitation,
any Partnership but excluding the Trust) that is a "significant subsidiary" as
defined in Rule 1-02 of Regulation S-X (as in effect on January 1, 1996), but
substituting "5%" for "10%" wherever "10%" appears in such definition.
(vii) The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust Act (the
"Delaware Act") with the power and authority to own its property and to conduct
its business as described in the Registration Statement and Prospectus and to
enter into and perform its obligations under the Operative Documents to which it
is a party and the Declaration; the Trust is qualified to transact business as a
foreign trust and is in good standing in each jurisdiction in which such
qualification is necessary, except where the failure to so qualify or be in good
standing would not have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the Trust;
the Trust is not a party to or otherwise bound by any agreement other than the
Operative Documents to which it is a party and the Declaration; the Trust is and
will, under current law, be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation;
the Offerors will treat the Debentures as indebtedness of the Company for United
States federal income tax purposes; and the Trust is and will be treated as a
consolidated subsidiary of the Company pursuant to generally accepted accounting
principles.
(viii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization" (except for
subsequent issuances, if any, pursuant to reservations, agreements or employee
benefit plans referred to or incorporated by reference in the Prospectus); and
the shares of issued and outstanding Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable; the Common Stock, the
Company's authorized but unissued special common stock, par value $1.00 per
share (the "Special Common Stock"), and the Company's authorized and unissued
preferred stock, par value $1.00 per share (the "Preferred Stock"), conform to
the respective statements relating thereto included in the Prospectus.
(ix) Neither the Company nor any of its Significant Subsidiaries is
in violation of its charter or by-laws or limited partnership agreement
(collectively, "Organizational Documents"); the Trust is not in violation of the
Declaration or its certificate
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of trust filed with the State of Delaware on __, 1998 (the "Certificate of
Trust"); neither the Company nor any of its Significant Subsidiaries nor the
Trust is in default in the performance or observance of (A) any obligation,
agreement, covenant or condition contained in the Company's 1997 Revolving Loan
Agreement dated as of April 21, 1997 (the "Loan Agreement") with Bank of America
National Trust and Savings Association, as administrative agent, and the other
parties thereto, the Company's 7-3/4% Senior Notes due October 15, 2004 (the
"7-3/4% Senior Notes") or the Indenture dated as of October 14, 1997 between the
Company and Suntrust Bank, Atlanta pursuant to which the 7-3/4% Senior Notes
were issued (the "7-3/4% Senior Indenture"), the Company's 9-3/8% Senior
Subordinated Notes due 2003 (the "9-3/8% Senior Subordinated Notes") or the
Indenture dated as of May 1, 1993 between the Company and The First National
Bank of Boston pursuant to which the 9-3/8% Senior Subordinated Notes were
issued (the "9-3/8% Senior Subordinated Indenture"), or the Company's 9-5/8%
Senior Subordinated Notes due 2007 (the "9-5/8% Senior Subordinated Notes") or
the Indenture dated as of November 19, 1996 between the Company and Suntrust
Bank, Atlanta pursuant to which the 9-5/8% Senior Subordinated Notes were
issued, including the instrument establishing the form and terms of the 9-5/8%
Senior Subordinated Notes (the "9-5/8% Senior Subordinated Indenture") (the Loan
Agreement, the 7-3/4% Senior Notes, the 7-3/4% Senior Indenture, the 9-3/8%
Senior Subordinated Notes, the 9-3/8% Senior Subordinated Indenture, the 9-5/8%
Senior Subordinated Notes and the 9-5/8% Senior Subordinated Indenture are
hereinafter called, collectively, the "Subject Instruments" and, individually, a
"Subject Instrument") or (B) any obligation, agreement, covenant or condition
contained in any other contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company or any of the Significant
Subsidiaries or the Trust is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or any of the
Significant Subsidiaries or the Trust is subject, which default or violation
would have a material adverse effect on the condition, financial or otherwise,
or the earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise or of the Trust; and the entry by the
Company into the Purchase Contracts underlying the Income PRIDES and the Growth
PRIDES, the offer, issuance and sale of the Securities as contemplated herein
and in the Prospectus, the issuance and sale of the Common Securities and the
Debentures as contemplated in the Common Securities Purchase Agreement and the
Debenture Purchase Agreement, respectively, and in the Prospectus, the offering
of the Shares and the issuance and sale of the Shares by the Company pursuant to
the Purchase Contracts, and the execution, delivery and performance of the
Operative Documents and the consummation of the transactions contemplated
therein (including, without limitation, the issuance and sale of the Securities,
the Trust Securities and the Debentures and the use of the proceeds therefrom as
described in the Prospectus under the caption "Use of Proceeds") and compliance
by the Company and the Trust with their respective obligations thereunder, have
been duly authorized by all necessary corporate and trust action and do not and
will not conflict with or constitute a breach of, or default under, or (except
for liens created by the Pledge Agreement) result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company or
any of the Significant Subsidiaries or the Trust pursuant to, any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to which
the Company or any of the Significant Subsidiaries or the Trust is a party or by
which it or any of them may be bound (including, without limitation, the Subject
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<PAGE> 11
Instruments), or to which any of the property or assets of the Company or any of
the Significant Subsidiaries or the Trust is subject, except (other than in the
case of the Subject Instruments) for a conflict, breach, default, lien, charge
or encumbrance which would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise or of the
Trust, nor will such action result in any violation of the provisions of the
Organizational Documents of the Company or any of the Significant Subsidiaries,
the Declaration or Certificate of Trust, or any applicable law, administrative
regulation or administrative or court order or decree.
(x) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or any of
its subsidiaries which is required to be disclosed in the Registration Statement
(other than as disclosed therein), or which is not so disclosed and (net of
reserves and insurance) the Company believes might result in any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise or of the Trust, or which might materially and
adversely affect the properties or assets thereof or which might materially and
adversely affect the consummation of the transactions contemplated by the
Operative Documents; all pending legal or governmental proceedings to which the
Company or any subsidiary is a party or of which any of their respective
property or assets is the subject which are not described in or incorporated by
reference in the Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate and net of reserves
and insurance, not material to the Company and its subsidiaries considered as
one enterprise; there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Offerors, threatened, against or affecting the Trust; and there
are no contracts or documents of the Company or any of its subsidiaries or the
Trust which are required to be filed as exhibits to, or incorporated by
reference in, the Registration Statement by the 1933 Act or by the 1933 Act
Regulations which have not been so filed or incorporated by reference.
(xi) No authorization, approval, consent, order, registration or
qualification of or with any court or governmental authority or agency is
required in connection with the entry by the Company into the Purchase Contracts
underlying the Income PRIDES and the Growth PRIDES, the offer, issuance or sale
of the Securities as contemplated herein and in the Prospectus, the issuance or
sale of the Common Securities or the Debentures as contemplated in the Common
Securities Purchase Agreement and Debenture Purchase Agreement, respectively,
and in the Prospectus, the offering of the Shares or the issuance or sale of the
Shares by the Company pursuant to the Purchase Contracts, or the execution,
delivery or performance by the Company or the Trust of the Operative Documents
or the consummation of the transactions contemplated therein or compliance by
the Company or the Trust with their respective obligations thereunder, except
such as have been obtained and made under the 1933 Act, the 1933 Act
Regulations, the 1934 Act and the rules and
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<PAGE> 12
regulations of the Commission thereunder (the "1934 Act Regulations"), the 1939
Act and the 1939 Act Regulations and such as may be required under state
securities or Blue Sky laws.
(xii) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were or hereafter are filed with
the Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the 1934 Act Regulations, and, when read
together with the other information in the Prospectus, at the respective times
the Registration Statement and any amendments thereto became or become
effective, at the date of this Agreement and at each Representation Date did
not, do not and will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(xiii) The Offerors complied with, and is and will be in compliance
with, the provisions of that certain Florida act relating to disclosure of doing
business with Cuba, codified as Section 517.075 of the Florida statutes, and the
rules and regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xiv) The Debentures rank and will rank pari passu in right of
payment with all other unsecured, unsubordinated indebtedness of the Company,
including, without limitation, borrowings under the Loan Agreement.
(xv) There are no holders of securities of the Company with
currently exercisable registration rights to have any securities registered as
part of the Registration Statement or included in the offering contemplated by
this Agreement.
(xvi) The Company and each of the Significant Subsidiaries have good
and marketable title to all of their respective properties, in each case free
and clear of all liens, encumbrances and defects, except (i) customary liens and
encumbrances arising in the ordinary course of the Company's construction and
development business and the financing thereof, (ii) as stated or incorporated
by reference in the Prospectus or (iii) such as do not materially affect the
value of such properties in the aggregate to the Company and its subsidiaries
considered as one enterprise and do not materially interfere with the use made
and proposed to be made of such properties.
(xvii) The Company and its Significant Subsidiaries possess such
certificates, authorities and permits issued by the appropriate state, federal
and foreign regulatory agencies or bodies necessary to conduct all material
aspects of the business now operated by them, and neither the Company nor any of
its Significant Subsidiaries has received any notice of proceedings relating to
the revocation or modification of any such certificate, authority or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise.
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(xviii) No default or event of default with respect to any
Indebtedness (as such term is defined in the Officers' Certificate dated October
14, 1997 establishing the form and terms of the 7-3/4% Senior Notes) of the
Company or any of its Significant Subsidiaries entitling, or which, with notice
or lapse of time or both, would entitle, the holders thereof to accelerate the
maturity thereof exists or will exist as a result of the execution and delivery
of the Operative Documents, the issuance and sale of the Securities, the Trust
Securities or the Debentures, or the consummation of the transactions
contemplated by the Operative Documents.
(xix) The Company and each of the Significant Subsidiaries have
filed all tax returns required to be filed, which returns, as amended, are
complete and correct in all material respects, and neither the Company nor any
Significant Subsidiary is in default in the payment of any taxes which were
payable pursuant to said returns or any assessments with respect to said returns
which would materially and adversely affect the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise.
(xx) The Company and its Significant Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurances that
(A) transactions are executed in accordance with management's general or
specific authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (C) access to
assets is permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxi) The Purchase Contract Agreement has been duly authorized by
the Company and, at the Closing Time and at each Date of Delivery (if any), will
have been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery of the Purchase Contract Agreement by the
Purchase Contract Agent, will constitute a legal, valid and binding agreement of
the Company, enforceable in accordance with its terms except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(xxii) The Pledge Agreement has been duly authorized by the Company
and, at the Closing Time and at each Date of Delivery (if any), will have been
duly executed and delivered by the Company and, assuming due authorization,
execution and delivery of the Pledge Agreement by the Collateral Agent and the
Purchase Contract Agent, will constitute a legal, valid and binding agreement of
the Company, enforceable in accordance with its terms except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
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(xxiii) (A) The Common Securities have been duly authorized by the
Declaration and, when delivered by the Trust to the Company against payment of
the consideration therefor set forth in the Common Securities Purchase
Agreement, will have been duly executed by the Trust and will be validly issued
and (except as provided in Section __ of the Declaration) fully paid and
non-assessable undivided beneficial interests in the assets of the Trust; the
issuance of the Common Securities is not and will not be subject to preemptive
or other similar rights; and at each Representation Date all of the issued and
outstanding Common Securities will be directly owned by the Company free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
equitable right. (B) The Capital Securities have been duly authorized by the
Declaration and, when issued and authenticated in accordance with the provisions
of the Declaration and delivered against payment of the consideration therefor
set forth in this Agreement, will have been duly executed by the Trust, will be
validly issued, fully paid and non-assessable undivided beneficial interests in
the assets in the Trust and will be entitled to the benefits of the Declaration;
the issuance of the Capital Securities is not and will not be subject to
preemptive or other similar rights; and holders of Capital Securities will be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
(xxiv) The Declaration has been duly authorized by the Company and,
at the Closing Time and at each Date of Delivery (if any), will have been
executed and delivered by the Company and the Trustees, and assuming due
authorization, execution and delivery of the Declaration by the Institutional
Trustee and the Delaware Trustee, the Declaration will, at the Closing Time and
at each Date of Delivery (if any), be a legal, valid and binding obligation of
the Company and the Regular Trustees, enforceable in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles, and
except to the extent that rights to indemnification thereunder may be limited by
applicable law; and the Declaration has been duly qualified under the 1939 Act.
(xxv) The Guarantee Agreement has been duly authorized by the
Company and, at the Closing Time and at each Date of Delivery (if any), will
have been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery of the Guarantee Agreement by the
Guarantee Trustee, will constitute a legal, valid and binding agreement of the
Company, enforceable in accordance with its terms except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and the Guarantee Agreement has
been duly qualified under the 1939 Act.
(xxvi) The Indenture has been duly authorized by the Company and, at
the Closing Time and at each Date of Delivery (if any), will have been executed
and delivered by the Company and, assuming due authorization, execution and
delivery of the Indenture by the Debt Trustee, will constitute a legal, valid
and binding agreement of the Company, enforceable in accordance with its terms
except to the extent that enforcement thereof may be
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<PAGE> 15
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; and the Indenture has been duly qualified under the 1939
Act.
(xxvii) The Debentures have been duly authorized by the Company and,
when authenticated in the manner provided for in the Indenture and delivered to
the Trust against payment of the consideration therefor set forth in the
Debenture Purchase Agreement, will have been duly executed and delivered by the
Company and will constitute legal, valid and binding obligations of the Company,
enforceable in accordance with their terms except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles, and will be entitled to the benefits of the
Indenture.
(xxviii) This Agreement and the Remarketing Agreement have been duly
authorized, executed and delivered by each of the Company and the Trust.
(xxix) The Common Securities Purchase Agreement and Debenture
Purchase Agreement have been duly authorized, executed and delivered by each of
the Company and the Trust.
(xxx) The Income PRIDES and the Growth PRIDES have been duly
authorized by the Company and, when delivered against payment therefor as
provided herein, will have been duly executed and delivered by the Company, will
be validly issued and outstanding, fully paid and non-assessable and will
constitute valid and binding obligations of the Company entitled to the benefits
of the Purchase Contract Agreement and enforceable against the Company in
accordance with their terms, except to the extent that enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles; the Income PRIDES, the Growth PRIDES and the Shares have
been duly registered under the 1934 Act and have been authorized for listing on
the NYSE, subject to official notice of issuance; and the issuance of the Income
PRIDES and the Growth PRIDES is not subject to preemptive or other similar
rights.
(xxxi) When the Securities are delivered against payment therefor as
provided herein, the holders of the Income PRIDES and the Growth PRIDES will be
entitled to the rights and subject to the obligations specified in the Purchase
Contract Agreement.
(xxxii) The Shares issuable pursuant to the Purchase Contract
Agreement have been duly authorized and reserved for issuance by the Company
and, when issued and delivered in accordance with the provisions of the Purchase
Contract Agreement[, the Purchase Contracts and the Pledge Agreement,] will be
validly issued and fully paid and non-assessable; and the issuance of such
Shares is not and will not be subject to preemptive or other similar rights.
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<PAGE> 16
(xxxiii) At each Representation Date, all conditions precedent
provided for in the Purchase Contract Agreement relating to the authentication
and delivery of the certificates evidencing the Income PRIDES and the Growth
PRIDES to be issued on such date will have been complied with and the Company
will be duly entitled to the authentication and delivery of such certificates in
accordance with the terms of the Purchase Contract Agreement.
(xxxiv) At the Closing Time and, so long as any Purchase Contracts
are outstanding, at all times thereafter, the provisions of the Pledge Agreement
will create in favor of the Collateral Agent for the benefit of the Company, a
valid and perfected security interest under the Uniform Commercial Code in the
Pledged Capital Securities, Pledged Debentures, Applicable Ownership Interests
(as specified in clause (A) of the definition thereof in the Declaration) of the
Treasury Portfolio and the Pledged Treasury Securities from time to time
credited to the Collateral Account. Capitalized terms used in this paragraph and
not defined have the respective meanings given to them in the __ Agreement.
(xxxv) The issuance and sale of the Income PRIDES and Growth PRIDES
do not contravene the Commodity Exchange Act or the regulations of the Commodity
Futures Trading Commission thereunder.
(xxxvi) Each of the Regular Trustees of the Trust is an employee of
the Company and has been authorized by the Company to execute and deliver the
Declaration.
(xxxvii) None of the Trust nor the Company or any of its
subsidiaries is, and upon the issuance and sale of the Securities, the Trust
Securities and the Debentures as herein contemplated and the application of the
net proceeds therefrom as described in the Prospectus, will not be, an
"investment company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
(xxxviii) The Operative Documents conform and will conform to the
respective descriptions thereof in the Prospectus.
(xxxix) When issued, the certificates evidencing the Income PRIDES
and the Growth PRIDES will be in the respective forms contemplated by the
Purchase Contract Agreement and will comply with all applicable statutory
requirements and with the requirements of the NYSE, the certificates evidencing
the Capital Securities and Common Securities will be in the respective forms
contemplated by the Declaration, and the certificates evidencing the Debentures
will be in the form contemplated by the Indenture.
(b) Any certificate signed by any officer of the Company or a Trustee of
the Trust and delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Company and
the Trust to the Underwriters as to the matters covered thereby.
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<PAGE> 17
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Offerors agree to
sell to each Underwriter, severally and not jointly, and each Underwriter,
severally and not jointly, agrees to purchase from the Offerors, at the
respective prices set forth in Schedule B, the number of each type of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Offerors
hereby grant an option to the Underwriters, severally and not jointly, to
purchase up to an additional __,000 Income PRIDES, __,000 Growth PRIDES and
__,000 Capital Securities at the respective prices set forth in Schedule B, less
an amount per security equal to any dividends or distributions payable on the
Initial Securities but not payable on the Option Securities. The option hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by the Representatives to the Company setting
forth the number of each type of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a "Date
of Delivery") shall be determined by the Representatives, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time. If the option is exercised as to all or any
portion of the Option Securities, each of the Underwriters, acting severally and
not jointly, will purchase that proportion of the total number of each type of
Option Securities then being purchased which the number of Initial Securities of
such type set forth in Schedule A opposite the name of such Underwriter bears to
the total number of Initial Securities of such type, subject in each case to
such adjustments as the Representatives in their discretion shall make to
eliminate any sales or purchases of fractional securities.
(c) The Capital Securities and Treasury Securities underlying the
Securities will be pledged with the Collateral Agent to secure the holders'
obligations to purchase Shares under the Purchase Contracts. Such pledge shall
be effected by the transfer to the Collateral Agent of the Capital Securities
and Treasury Securities to be pledged at the Closing Time and each Date of
Delivery, if any, in accordance with the Pledge Agreement.
(d) Delivery of certificates for the Initial Securities shall be made at
the offices of the Representatives in New York, against the delivery to the
Collateral Agent of the Capital Securities and Treasury Securities relating to
the Initial Securities by the Representatives or on their behalf, and payment of
the purchase price for the Initial Securities shall be made at the offices of
Brown & Wood LLP, 555 California Street, San Francisco, California 94104, or at
such other place as shall be agreed upon by the Representatives and the
Offerors, at 6:00 a.m. (California time) on the third (or fourth, if the pricing
occurs after 4:30 p.m. (Eastern time)
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<PAGE> 18
on any given day) business day after the date hereof (unless postponed in
accordance with the provisions of Section 10), or such other time not later than
ten business days after such date as shall be agreed upon by the Representatives
and the Offerors (such time and date of payment and delivery being referred to
herein as the "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, delivery of certificates for such Option
Securities, delivery to the Collateral Agent of the Capital Securities and
Treasury Securities relating to such Option Securities, and payment for such
Option Securities, shall be made at the respective offices mentioned above, or
at such other place as shall be agreed upon by the Representatives and the
Offerors, on each Date of Delivery as specified in the notice from the
Representatives to the Company.
Payment for the Securities purchased by the Underwriters shall be made by
wire transfer of immediately available funds to a bank account designated by the
Offerors, against delivery to the Representatives for the respective accounts of
the Underwriters of certificates for the Securities to be purchased by them and
delivery to the Collateral Agent of the Capital Securities and Treasury
Securities relating to such Securities. It is understood that each Underwriter
has authorized the Representatives, for its account, to accept delivery of, and
receipt for, and make payments of the purchase price for, the Initial Securities
and the Option Securities, if any, which it has agreed to purchase. Merrill
Lynch, individually and not as a representative of the Underwriters, may (but
shall not be obligated to) make payment of the purchase price for the Initial
Securities or the Option Securities, if any, to be purchase by any Underwriter
whose funds have not been received by the Closing Time or the relevant Date of
Delivery, as the case may be, but such payment shall not relieve such
Underwriter from its obligations hereunder.
Certificates for the Initial Securities and the Option Securities, if any,
shall be in such denominations and registered in such names as the
Representatives may request in writing at least one full business day before the
Closing Time or the relevant Date of Delivery, as the case may be. The
certificates for the Initial Securities and the Option Securities, if any, will
be made available for examination by the Representatives no later than 10:00
a.m. (New York City time) on the last business day prior to the Closing Time or
the relevant Date of Delivery, as the case may be.
In view of the fact that the proceeds from the sale of the Income PRIDES
and the Separate Capital Securities will be invested by the Trust in the
Debentures, and in view of the fact that the proceeds from the sale of the
Growth PRIDES will be used to purchase the underlying Treasury Securities and
that the proceeds from the Treasury Securities will be applied, subject to
certain possible exceptions, to purchase Shares from the Company, the Company
hereby agrees to pay the several Underwriters, as compensation (the
"Underwriters' Compensation") for their arranging for the investment therein of
such proceeds, the amounts set forth in Schedule B hereto. Such Underwriters'
Compensation shall be payable to the Underwriters by wire transfer of
immediately available funds to Merrill Lynch at the Closing Time and at each
Date of Delivery (if any).
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<PAGE> 19
(e) If settlement for any Option Securities occurs after the Closing Time,
the Offerors will deliver to the Underwriters on the relevant Date of Delivery,
and the several obligations of the Underwriters to purchase such Option
Securities shall be conditioned upon the receipt of, the documents specified in
Section 5(g) hereof.
SECTION 3. Covenants of the Offerors. The Offerors jointly and severally
consent and agree with each Underwriter as follows:
(a) The Offerors will notify the Representatives immediately, and confirm
the notice in writing, (i) of the effectiveness of any Rule 462(b) Registration
Statement or any post-effective amendment to any Registration Statement, (ii) of
the transmission to the Commission for filing of the Prospectus, any Rule 462(b)
Registration Statement or any amendment to any Registration Statement or
amendment or supplement to the Prospectus or any document to be filed pursuant
to the 1934 Act during any period when the Prospectus is required to be
delivered under the 1933 Act, (iii) of the receipt of any comments or inquiries
from the Commission relating to any Registration Statement or Prospectus, (iv)
of any request by the Commission for any amendment to any Registration Statement
or any amendment or supplement to the Prospectus or for additional information
and (v) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose. The Offerors will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) The Offerors will give the Representatives notice of their intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment and any filing under Rule 462(b) of the 1933 Act
Regulations), any Term Sheet or any amendment, supplement or revision to either
the prospectus included in the Registration Statement at the time it became
effective or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act
or otherwise; will furnish the Representatives with copies of any such amendment
to the Registration Statement (including any post-effective amendment and any
filing under Rule 462(b)), Term Sheet, amendment, supplement or revision a
reasonable amount of time prior to such proposed filing or use, as the case may
be; and will not file or use any such amendment to the Registration Statement
(including any post-effective amendment and any filing under Rule 462(b)), Term
Sheet, amendment, supplement or revision to which the Representatives or counsel
for the Underwriters shall reasonably object.
(c) The Offerors have delivered to the Representatives one signed copy of
the Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein and
documents incorporated or deemed to be incorporated by reference therein) and
will also deliver to the Representatives as many conformed copies of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) as the Representatives may reasonably request. The copies of
the Registration Statement and each amendment thereto furnished to the
Representatives will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
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<PAGE> 20
(d) The Company will furnish to each Underwriter, from time to time during
the period when the Prospectus is required to be delivered under the 1933 Act or
the 1934 Act, such number of copies of the Prospectus (as amended or
supplemented) as such Underwriter may reasonably request for the purposes
contemplated by the 1933 Act or the 1934 Act or the respective applicable rules
and regulations of the Commission thereunder. The Prospectus and any amendments
or supplements thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) If any event shall occur as a result of which it is necessary, in the
opinion of counsel for the Underwriters, to amend or supplement the Prospectus
in order to make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, the Offerors will forthwith
amend or supplement the Prospectus (in form and substance satisfactory to the
Representatives and counsel for the Underwriters) so that, as so amended or
supplemented, the Prospectus will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is delivered
to a purchaser, not misleading, and the Offerors will furnish to the
Underwriters a reasonable number of copies of such amendment or supplement.
(f) The Offerors will endeavor, in cooperation with the Underwriters, to
qualify the Securities, the Capital Securities, the Guarantees, the Debentures
and the Shares for offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States as the Representatives
may designate; provided, however, that neither Offeror shall be obligated to
qualify as a foreign corporation or trust in any jurisdiction in which it is not
so qualified. In each jurisdiction in which the foregoing securities have been
so qualified, the Offerors will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for so long as may be required by applicable law. The Offerors will
promptly advise the Representatives of the receipt by either of the Offerors of
any notification with respect to the suspension of qualification of any of the
foregoing securities for sale in any state or jurisdiction or the initiating or
threatening of any proceeding for such purpose.
(g) The Company will make generally available to its security holders as
soon as practicable, but not later than 60 days after the close of the period
covered thereby (or 120 days in the case of the close of the Company's fiscal
year), an earnings statement (in form complying with the provisions of Rule 158
of the 1933 Act Regulations) covering a twelve month period beginning not later
than the first day of the Company's fiscal quarter next following the date of
this Agreement.
(h) The Company will use the net proceeds received by it from the sale of
the Securities and the Debentures in the manner to be specified in the
Prospectus under "Use of Proceeds".
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<PAGE> 21
(i) The Company, during the period when the Prospectus is required to be
delivered under the 1933 Act or the 1934 Act, will file all documents required
to be filed with the Commission pursuant to Sections 13, 14 or 15 of the 1934
Act within the time periods required by the 1934 Act and the 1934 Act
Regulations.
(j) In accordance with the Cuba Act, if applicable, and without limitation
to the provisions of Sections 6 and 7 hereof, the Offerors agree to indemnify
and hold harmless the Underwriters from and against any and all loss, liability,
claim, damage and expense whatsoever (including fees and disbursements of
counsel), as incurred, arising out of any violation by the Offerors of the Cuba
Act, if applicable.
(k) If, at the time that the Registration Statement became (or in the case
of a post-effective amendment becomes) effective, any information shall have
been omitted therefrom in reliance upon Rule 430A or Rule 434 of the 1933 Act
Regulations, then immediately following the execution of this Agreement, the
Offerors will prepare, and file with the Commission in accordance with such Rule
430A or Rule 434 and Rule 424(b) of the 1933 Act Regulations, copies of an
amended Prospectus or Term Sheet, as the case may be, or, if required by such
Rule 430A, a post-effective amendment to the Registration Statement (including
an amended Prospectus), containing all information so omitted.
(l) If the Offerors elect to rely upon Rule 462(b), the Offerors shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) and pay the applicable fees in accordance with Rule 111 of the 1933
Act Regulations by the earlier of (i) 10:00 p.m. Eastern time on the date of
this Agreement and (ii) the time confirmations are sent or given, as specified
by Rule 462(b)(2).
(m) The Offerors will use their best efforts to effect the listing of the
Income PRIDES, the Growth PRIDES and the Shares on the New York Stock Exchange
(the "NYSE"). The Offerors will register the Income PRIDES, the Growth PRIDES
and the Shares under the 1934 Act.
(n) During a period of __ days from the date of this Agreement, neither
the Trust nor the Company will, without the prior written consent of Merrill
Lynch, directly or indirectly, sell, offer to sell, grant any option for the
sale of, or otherwise dispose of, or enter into any agreement to sell, any
Income PRIDES, Growth PRIDES, Purchase Contracts, Debentures, Capital Securities
or Common Stock, or any securities of the Company or any affiliate of the
Company similar to the Income PRIDES, Growth PRIDES, Purchase Contracts,
Debentures, Capital Securities or Common Stock (collectively, "Similar
Securities") or any securities convertible into or exchangeable or exercisable
for Income PRIDES, Growth PRIDES, Purchase Contracts, Debentures, Capital
Securities or Common Stock or any such Similar Securities, other than (i) to the
Underwriters pursuant to this Agreement, (ii) shares of Common Stock or options
for shares of Common Stock issued pursuant to or sold in connection with any
employee benefit plan, dividend reinvestment plan and stock option and stock
purchase plan of the Company and its subsidiaries described in the Registration
Statement, (iii) any securities issued pursuant to a merger or acquisition and
(iv) the Growth
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<PAGE> 22
PRIDES or Income PRIDES to be created or recreated upon substitution of Capital
Securities or Treasury Securities pledged pursuant to the Pledge Agreement, or
shares of Common Stock issuable upon early settlement of the Income PRIDES or
Growth PRIDES, or (B) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of any Income PRIDES, Growth PRIDES, Purchase
Contracts, Debentures, Capital Securities or Common Stock or any Similar
Securities or any securities convertible into or exchangeable into or
exercisable for Income PRIDES, Growth PRIDES, Purchase Contracts, Debentures,
Capital Securities, Common Stock or any such Similar Securities, whether any
such swap or transaction is to be settled by delivery of Income PRIDES, Growth
PRIDES, Purchase Contracts, Debentures, Capital Securities, Common Stock,
Similar Securities, other securities, in cash or otherwise.
(o) The Company will reserve and keep available at all times, free of
preemptive or other similar rights and liens and adverse claims, sufficient
shares of Common Stock to satisfy its obligations to issue Shares upon
settlement of the Purchase Contracts and shall take all actions necessary to
keep effective the Registration Statement with respect to the Shares.
SECTION 4. Payment of Expenses. The Company will pay all expenses incident
to the performance by the Offerors of their respective obligations under the
Operative Documents, including: (i) the printing and filing of the Registration
Statement as originally filed and of each amendment thereto, (ii) the printing
or reproduction of the Operative Documents, (iii) the preparation, issuance and
delivery of the certificates for the Securities and the Shares, (iv) the fees
and disbursements of the Company's counsel and accountants, (v) the
qualification of the Securities, the Shares and certain other securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey, (vi) the printing and delivery to the Underwriters of
copies of the Registration Statement as originally filed and of each amendment
thereto, of each preliminary prospectus, any Term Sheet, and the Prospectus and
any amendments or supplements thereto, (vii) the printing and delivery to the
Underwriters of copies of the Blue Sky Survey, (viii) the fees and expenses of
the Trustees, Purchase Contract Agent, Collateral Agent, the Debt Trustee, and
any other fiduciaries or agents, including the fees and disbursements of their
respective counsel, (ix) any fees payable in connection with the rating of the
Securities, the Capital Securities or the Debentures; (x) any fees and expenses
of a depositary in connection with holding the Securities in book-entry form;
(xi) any fees payable or expenses incurred pursuant to any Uniform Commercial
Code related filings; and (xii) the fees and expenses incurred in connection
with the listing of the Income PRIDES, the Growth PRIDES and the Shares on the
NYSE.
If this Agreement is terminated by the Representatives in accordance with
the provisions of Section 5 or Section 9(a)(i) hereof with respect to the
Initial Securities or the Option Securities, as the case may be, the Company
shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriters.
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<PAGE> 23
SECTION 5. Conditions of Underwriter's Obligations. The obligations of the
several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Offerors contained herein or in
certificates of any officer of the Company or any of its subsidiaries or any
trustee of the Trust delivered pursuant to the provisions hereof, to the
performance by the Offerors of their covenants and other obligations hereunder,
and to the following further conditions:
(a) The Registration Statement, including any Rule 462(b) Registration
Statement, have become effective and at the Closing Time and any Date of
Delivery, no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of counsel to the Underwriters. A prospectus containing the Rule
430A Information shall have been filed with the Commission in accordance with
Rule 424(b) (or at post-effective amendment providing such information shall
have been filed and declared effective in accordance with the requirements of
Rule 430A) or, if the Company has elected to rely upon Rule 434 of the 1933 Act
Regulations, a Term Sheet including the Rule 434 Information shall have been
filed with the Commission in accordance with Rule 424(b).
(b) At the Closing Time the Representatives shall have received:
(1) The favorable opinion, dated as of Closing Time, of Munger,
Tolles & Olson LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware.
(ii) The entry by the Company into the Purchase Contracts
underlying the Income PRIDES and the Growth PRIDES, the offer,
issuance and sale of the Securities as contemplated herein and in
the Prospectus, the issuance and sale of the Common Securities and
the Debentures as contemplated in the Common Securities Purchase
Agreement and the Debenture Purchase Agreement, respectively, and in
the Prospectus, the offering of the Shares and the issuance and sale
of the Shares by the Company pursuant to the Purchase Contracts, and
the execution, delivery and performance of the Operative Documents
and the consummation of the transactions contemplated therein
(including, without limitation, the issuance of the Securities, the
Trust Securities and the Debentures and the use of the proceeds
therefrom as described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company and the Trust with their
respective obligations thereunder, do not and will not conflict with
or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its Significant
Subsidiaries or the Trust pursuant to, the 7-3/4% Senior Notes, the
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<PAGE> 24
7-3/4% Senior Indenture, the 9-3/8% Senior Subordinated Notes, the
9-3/8% Senior Subordinated Indenture, the 9-5/8% Senior Subordinated
Notes or the 9-5/8% Senior Subordinated Indenture.
(iii) The information in the Prospectus under the caption
"Description of the Capital Stock," to the extent that it
constitutes matters of law, summaries of legal matters, the
Company's charter or by-laws or other documents or proceedings, or
legal conclusions, has been reviewed by such counsel and is correct
in all material respects.
In rendering such opinion, such counsel shall state that, insofar as
such opinion concerns the Declaration or the Trust Securities (which are
governed by the laws of the State of Delaware) or any instrument or
agreement which is governed by the laws of the State of New York, such
counsel has assumed without investigation that the laws of the States of
Delaware or New York, as the case may be, are the same as the laws of the
State of California.
(2) The favorable opinion, dated as of Closing Time, of Barton P.
Pachino, Esq., Senior Vice President and General Counsel of the Company,
in form and substance satisfactory to counsel for the Underwriters, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware and has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligation under, and as contemplated under, the Operative Documents
to which it is a party.
(ii) To the best of such counsel's knowledge and information,
the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, except where the failure to so qualify
would not have a material adverse effect on the condition, financial
or otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries (as such term is
defined in this Agreement) considered as one enterprise.
(iii) Each of the Company's Significant Domestic Subsidiaries
(as defined below) has been duly organized and is validly existing
as a corporation or limited partnership, as the case may be, in good
standing under the laws of the jurisdiction of its incorporation or
formation, as the case may be, has power and authority as a
corporation or limited partnership, as the case may be to own, lease
and operate its properties and to conduct its business as described
in the Prospectus and, to the best of such counsel's knowledge and
information, is duly qualified to transact business and is in good
standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or
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<PAGE> 25
leasing of property or the conduct of business, except where the
failure to so qualify would not have a material adverse effect on
the Company and its subsidiaries considered as one enterprise or on
their consolidated financial condition or earnings; to the best of
such counsel's knowledge and information, all of the issued and
outstanding capital stock of each such Significant Domestic
Subsidiary which is a corporation has been duly authorized and
validly issued, is fully paid and non-assessable and is owned
(except for directors qualifying shares and a nominal number of
shares held by affiliated parties) by the Company, directly or
through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; and to the
best of such counsel's knowledge and information, all of the issued
and outstanding partnership interests in each such Significant
Domestic Subsidiary which is a limited partnership have been duly
authorized (if applicable) and validly issued, are fully paid and
non-assessable and are owned by the Company (except to the extent
that a minority interest in such limited partnership is reflected in
the Company's consolidated financial statements included or
incorporated by reference in the Prospectus), directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity. As used in this
Agreement, the term "Significant Domestic Subsidiaries" means all
Significant Subsidiaries, other than any Significant Subsidiaries
organized and existing under the laws of any jurisdiction other than
the United States of America, any State thereof or the District of
Columbia.
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under "Capitalization"
(except for subsequent issuances, if any, pursuant to the exercise
of options issued under employee benefit plans referred to in the
Prospectus or in the documents incorporated by reference therein);
and the shares of issued and outstanding Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable.
(v) To the best of such counsel's knowledge and information,
there are no statutes or regulations required to be described in the
Registration Statement or the Prospectus or in the documents
incorporated by reference therein which are not described as
required and there are no legal or governmental proceedings pending
or threatened which are required to be disclosed in the Registration
Statement or in the documents incorporated by reference therein,
other than those disclosed therein, and all pending legal or
governmental proceedings to which the Company or any subsidiary is a
party or to which any of their property is subject which are not
described in or incorporated by reference in the Registration
Statement, including ordinary routine litigation incidental to the
business, are, considered in the aggregate and net of reserves and
insurance, not material to the Company and its subsidiaries
considered as one enterprise.
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(vi) The information under "Item 1. Business--Regulation and
Environmental Matters" and "Item 3. Legal Proceedings" in the
Company's 1997 Annual Report on Form 10-K and in Item 15 in Part II
of the Registration Statement, to the extent that such information
constitutes matters of law, summaries of legal matters, summaries of
securities, instruments, agreements or other documents or legal
conclusions, has been reviewed by such counsel and is correct in all
material respects.
(vii) To the best of such counsel's knowledge and information,
there are no contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described or
referred to in the Registration Statement or to be filed or
incorporated by reference as exhibits thereto other than those
described or referred to or filed as exhibits thereto, the
descriptions thereof or references thereto are correct, and, to the
best of such counsel's knowledge, no default exists in the due
performance or observance of any obligation, agreement, covenant or
condition contained in (A) any Subject Instrument or (B) any other
contract, indenture, mortgage, loan agreement, note, lease or other
instrument so described, referred to or filed or incorporated by
reference, which default (other than in the case of the Subject
Instruments) could have a material adverse effect on the Company and
its subsidiaries considered as one enterprise or on their
consolidated financial condition or earnings.
(viii) No authorization, approval, consent, order,
registration or qualification of or with any court or governmental
authority or agency is required in connection with the entry by the
Company into the Purchase Contracts underlying the Income PRIDES and
the Growth PRIDES, the offer, issuance or sale of the Securities as
contemplated herein and in the Prospectus, the issuance or sale of
the Common Securities or the Debentures as contemplated in the
Common Securities Purchase Agreement and Debenture Purchase
Agreement, respectively, and in the Prospectus, the offering of the
Shares or the issuance or sale of the Shares by the Company pursuant
to the Purchase Contracts, or the execution, delivery or performance
by the Company or the Trust of the Operative Documents or the
consummation of the transactions contemplated therein or compliance
by the Company or the Trust with their respective obligations
thereunder, except such as may be required under the 1933 Act, the
1933 Act Regulations, the 1934 Act, the 1934 Act Regulations, the
1939 Act, the 1939 Act Regulations or state securities laws.
(ix) The entry by the Company into the Purchase Contracts
underlying the Income PRIDES and the Growth PRIDES, the offer,
issuance and sale of the Securities as contemplated herein and in
the Prospectus, the issuance and sale of the Common Securities and
the Debentures as contemplated in the Common Securities Purchase
Agreement and the Debenture Purchase Agreement, respectively, and in
the Prospectus, the offering of the Shares and the issuance and sale
of the Shares by the Company pursuant to the
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<PAGE> 27
Purchase Contracts, and the execution, delivery and performance of
the Operative Documents and the consummation of the transactions
contemplated therein (including, without limitation, the issuance of
the Securities, the Trust Securities and the Debentures and the use
of the proceeds therefrom as described in the Prospectus under the
caption "Use of Proceeds") and compliance by the Company and the
Trust with their respective obligations thereunder, do not and will
not conflict with or constitute a breach of, or default under, or
(except for liens created by the Pledge Agreement) result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its Significant
Subsidiaries or the Trust pursuant to, (A) any Subject Instrument or
(B) to the best of such counsel's knowledge and information, any
other contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which the Company or any of its Significant
Subsidiaries is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or any of
its Significant Subsidiaries is subject, nor will such action result
in any violation of the provisions of the charter or by-laws of the
Company, or any applicable law, administrative regulation or
administrative or court decree.
(x) The documents incorporated or deemed to be incorporated by
reference in the Prospectus (other than the financial statements and
supporting schedules included or incorporated by reference therein,
as to which no opinion need be rendered), at the time they were
filed with the Commission, complied as to form in all material
respects with the requirements of the 1934 Act and the 1934 Act
Regulations.
(xi) At the time the Registration Statement became effective,
the Registration Statement (other than the financial statements and
supporting schedules included or incorporated by reference therein
and any Form T-1, as to which no opinion need be rendered) complied
as to form in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations.
(xii) To the best of such counsel's knowledge and information,
no default with respect to any Indebtedness of the Company or any of
its subsidiaries entitling, or which, with notice or lapse of time
or both, would entitle, the holders thereof to accelerate the
maturity thereof exists or will exist as a result of the execution
and delivery of the Operative Documents, the issuance and sale of
the Securities, the Trust Securities or the Shares or the
consummation of the transactions contemplated by the Operative
Documents.
In rendering such opinion, such counsel shall state that, insofar as
such opinion concerns the Declaration or the Trust Securities (which are
governed by the laws of the State of Delaware) or any instrument or
agreement which is governed by the laws of the State of New York, such
counsel has assumed without investigation that the laws of the States of
Delaware or New York, as the case may be, are the same as the
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laws of the State of California. In addition, in rendering such opinion,
such counsel may, as to other matters governed by the laws of any
jurisdiction other than the law of the State of California, the General
Corporation Law of the State of Delaware and the federal law of the United
States of America, either (a) assume without any investigation that the
law of the State of California is the same as the law governing such other
matters for all purposes relevant to such opinion or (b) rely on an
opinion or opinions of local counsel satisfactory to the Representatives,
so long as each such opinion shall be dated as of the Closing Time or the
relevant Date of Delivery, as the case may be, and in form and substance
satisfactory to the Representatives, and shall expressly permit the
Underwriters to rely thereon as if such opinion were addressed to the
Underwriters.
(3) The favorable opinion, dated as of the Closing Time, of Skadden,
Arps, Slate, Meagher & Flom LLP, special counsel to the Offerors, in form
and substance satisfactory to counsel for the Underwriters, to the effect
that:
(i) The Registration Statement (including any Rule 462(b)
Registration Statement) is effective under the 1933 Act and, to the
best of such counsel's knowledge and information, no stop order
suspending the effectiveness of the Registration Statement has been
issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission.
(ii) At the time the Registration Statement became effective,
the Registration Statement (other than the financial statements and
supporting schedules included or incorporated by reference therein
and any Form T-1, as to which no opinion need be rendered) complied
as to form in all material respects with requirements of the 1933
Act and the 1933 Act Regulations.
(iii) The Company and the Trust meet the requirements for the
use of Form S-3 under the 1933 Act.
(iv) The Trust has been duly created and is validly existing
in good standing as a business trust under the Delaware Act, and has
the trust power and authority to conduct its business as presently
conducted and as described in the Prospectus and to enter into and
perform its obligations under the Operative Documents to which it is
a party and the Declaration; and the Trust is qualified to transact
business as a foreign trust and is in good standing in each
jurisdiction in which such qualification is necessary, except where
the failure to so qualify or be in good standing would not have a
material adverse effect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the Trust.
(v) The Purchase Contract Agreement has been duly authorized,
executed and delivered by the Company and, assuming due
authorization, execution and delivery thereof by the Purchase
Contract Agent, constitutes a
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valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles.
(vi) The Pledge Agreement has been duly authorized, executed
and delivered by the Company and, assuming due authorization,
execution and delivery thereof by the Collateral Agent and the
Purchase Contract Agent, constitutes a valid and binding agreement
of the Company, enforceable against the Company in accordance with
its terms except to the extent that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(vii) The Common Securities have been duly authorized by the
Declaration and, when duly executed in accordance with the
Declaration and delivered by the Trust to the Company against
payment of the consideration therefor set forth in the Common
Securities Purchase Agreement, will be validly issued and (except as
otherwise provided in Section __ of the Declaration) fully paid and
non-assessable undivided beneficial interests in the assets of the
Trust; the issuance of the Common Securities is not subject to
preemptive or other similar rights arising by operation of law or
under the Declaration or, to such counsel's knowledge, otherwise;
and all of the issued and outstanding Common Securities will be
directly owned by the Company free and clear of any security
interest, mortgage, pledge, encumbrance, claim or equitable right.
(viii) The Capital Securities have been duly authorized by the
Declaration and, when duly executed and authenticated in accordance
with the Declaration and delivered against payment therefor in
accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable undivided beneficial interests in the
assets of the Trust and will be entitled to the benefits of the
Declaration; the issuance of the Capital Securities is not subject
to preemptive or other similar rights arising by operation of law or
under the Declaration or, to such counsel's knowledge, otherwise;
and the holders of the Capital Securities will be entitled to the
same limitation of personal liability extended to stockholders of
private corporations for profit organized under the General
Corporation Law of the State of Delaware. In rendering such opinion,
such counsel may state that they bring to your attention, however,
that the holders of Capital Securities may be obligated, pursuant to
the Declaration, to (a) provide indemnity and/or security in
connection with and pay taxes or governmental charges arising from
transfers of Capital Securities and the issuance of replacement
Capital Securities and (b) provide security and indemnity in
connection with requests of or directions
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to the Institutional Trustee to exercise its rights and powers under
the Declaration;
(ix) The Declaration has been duly authorized by the Company
and duly executed and delivered by the Company and the Regular
Trustees and, assuming the due authorization, execution and delivery
of the Declaration by the Institutional Trustee and the Delaware
Trustee, the Declaration constitutes a valid and binding obligation
of the Company and the Regular Trustees, enforceable against the
Company and the Regular Trustees in accordance with its terms,
except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by
general equitable principles and except to the extent that rights to
indemnification thereunder may be limited by applicable law; and the
Declaration has been duly qualified under the 1939 Acts.
(x) The Guarantee Agreement has been duly authorized, executed
and delivered by the Company and, assuming due authorization,
execution and delivery thereof by the Guarantee Trustee, constitutes
a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles; and the Guarantee Agreement has been duly qualified
under the 1939 Act.
(xi) The Indenture has been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution,
and delivery thereof by the Debt Trustee, constitutes a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles; and the
Indenture has been duly qualified under the 1939 Act.
(xii) The Debentures have been duly authorized, executed and
delivered by the Company and, when authenticated by the Debt Trustee
in the manner provided for in the Indenture and delivered to the
Trust against payment of the consideration therefor set forth in the
Debenture Purchase Agreement, will constitute valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms, except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles, and will be
entitled to the benefits of the Indenture.
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(xiii) This Agreement, the Remarketing Agreement, the Common
Securities Purchase Agreement and the Debenture Purchase Agreement
have been duly authorized, executed and delivered by each of the
Company and the Trust.
(xiv) The Income PRIDES and Growth PRIDES have been duly
authorized and executed by the Company and, when duly authenticated
by the Purchase Contract Agent in the manner provided for in the
Purchase Contract Agreement and delivered against payment therefor
as provided herein and assuming the certificates evidencing the
Income PRIDES and the Growth PRIDES have been duly executed by the
Purchase Contract Agent as attorney-in-fact of the holders thereof
will be validly issued and outstanding, fully paid and
non-assessable and will constitute valid and binding obligations of
the Company entitled to the benefits of the Purchase Contract
Agreement and enforceable against the Company in accordance with
their terms, except to the extent that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; the Income PRIDES, the
Growth PRIDES and the Shares have been duly registered under the
1934 Act and have been authorized for listing on the NYSE, subject
to official notice of issuance; and the issuance of the Income
PRIDES and the Growth PRIDES is not subject to preemptive or other
similar rights arising by operation of law, under the charter or
by-laws of the Company or, to the knowledge of such counsel,
otherwise.
(xv) When the Securities are delivered against payment
therefor as provided herein, the holders of the Income PRIDES and
the Growth PRIDES will be entitled to the rights and subject to the
obligations specified in the Purchase Contract Agreement.
(xvi) The Shares initially issuable pursuant to the Purchase
Contract Agreement have been duly authorized and reserved for
issuance by the Company and, when issued and delivered by the
Company in accordance with the provisions of the Purchase Contract
Agreement [, the Purchase Contracts, the Pledge Agreement,] will be
validly issued, fully paid and non-assessable; and the issuance of
such Shares is not and will not be subject to preemptive or other
similar rights arising by operation of law, under the charter or
by-laws of the Company or, to the best of such counsel's knowledge,
otherwise.
(xvii) The entry by the Company into the Purchase Contracts
underlying the Income PRIDES and the Growth PRIDES, the offer,
issuance and sale of the Securities as contemplated herein and in
the Prospectus, the issuance and sale of the Common Securities and
the Debentures as contemplated in the Common Securities Purchase
Agreement and the Debenture Purchase Agreement, respectively, and in
the Prospectus, the offering of the
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Shares and the issuance and sale of the Shares by the Company
pursuant to the Purchase Contracts and the execution, delivery and
performance of the Operative Documents and the consummation of the
transactions contemplated therein (including, without limitation,
the issuance of the Securities, the Trust Securities and the
Debentures and the use of the proceeds therefrom as described in the
Prospectus under the caption "Use of Proceeds") and compliance by
the Company and the Trust with their respective obligations
thereunder, have been duly authorized by all necessary corporate and
trust action and do not and will not result in any violation of the
provisions of the charter or by-laws of the Company or the
Declaration or Certificate of Trust or any applicable law, statute,
rule, or regulation of any government or government instrumentality
or official or, to the knowledge of such counsel, any judgment,
order, writ or decree of any court having jurisdiction over the
Company, any Significant Subsidiary or the Trust or any of their
assets or operations.
(xviii) All conditions precedent provided for in the Purchase
Contract Agreement relating to the authentication and delivery of
the certificates evidencing the Income PRIDES and the Growth PRIDES
have been complied with and the Company is duly entitled to the
authentication and delivery of such certificates in accordance with
the terms of the Purchase Contract Agreement.
(xix) No authorization, approval, consent, order, registration
or qualification of or with any court or governmental authority or
agency is required in connection with the entry by the Company into
the Purchase Contracts underlying the Income PRIDES and the Growth
PRIDES, the offer, issuance or sale of the Securities as
contemplated herein and in the Prospectus, the issuance or sale of
the Common Securities or the Debentures as contemplated in the
Common Securities Purchase Agreement and Debenture Purchase
Agreement, respectively, and in the Prospectus, the offering of the
Shares or the issuance or sale of the Shares by the Company pursuant
to the Purchase Contracts, or the execution, delivery or performance
by the Company or the Trust of the Operative Documents or the
consummation of the transactions contemplated therein or compliance
by the Company or the Trust with their respective obligations
thereunder, except such as has been obtained and made under the
federal securities laws or such as may be required under state
securities laws.
(xx) The statements made in Prospectus under the captions
"Description of the FELINE PRIDES," "Description of the Purchase
Contracts," "Certain Provisions of the Purchase Contract Agreement
and the Pledge Agreement," "Description of Capital Securities,"
"Description of the Guarantee," "Description of the Debentures,"
"Effect of Obligations Under the Debentures and the Guarantee," and
"ERISA Considerations," to the extent they constitute
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matters of law, summaries of legal matters, summaries of Operative
Documents or other documents, or legal conclusions, have been
reviewed by such counsel and are correct in all material respects.
(xxi) Each Purchase Contract constituting a part of the Income
PRIDES or the Growth PRIDES being delivered on the date of such
opinion constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles; provided, however, that upon the occurrence of
a Termination Event (as defined in the __), Section 365(e)(1) of the
Bankruptcy Code (11 U.S.C. ss.ss. 101-1330, as amended) should not
limit, invalidate or nullify the provisions of Sections 3.15 and 5.8
of the Purchase Contract Agreement and of Section 4.3 of the Pledge
Agreement that require termination of the Purchase Contracts and
release of the Collateral Agent's security interest in the Capital
Securities, the Debentures, the Applicable Ownership Interest in the
Treasury Portfolio or the Treasury Securities; provided, however,
that the procedural restrictions respecting relief from the
automatic stay under Section 362 of the Bankruptcy Code may affect
the timing of the exercise of such rights and remedies.
(xxii) The provisions of the Pledge Agreement are effective to
create in favor of the Collateral Agent for the benefit of the
Company, a valid and perfected security interest under the Uniform
Commercial Code as in effect on the date of such opinion in the
State of New York in the Pledged Capital Securities, Pledged
Debentures, Applicable Ownership Interests (as specified in clause
(A) of the definition thereof in the Declaration) of the Treasury
Portfolio and the Pledged Treasury Securities from time to time
credited to the Collateral Account. Capitalized terms used in this
paragraph and not defined have the respective meanings given to them
in the __ Agreement.
(xxiii) The issuance and sale of the Income PRIDES and Growth
PRIDES do not contravene the Commodity Exchange Act or the
regulations of the Commodity Futures Trading Commission thereunder.
(xxiv) Neither the Trust nor the Company is, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined
in the 1940 Act.
(xxv) The certificates evidencing the Income PRIDES and the
Growth PRIDES are in the respective forms contemplated by the
Purchase Contract Agreement and comply with all applicable statutory
requirements and with the
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requirements of the NYSE, the certificates evidencing the Capital
Securities and Common Securities are in the respective forms
contemplated by the Declaration, and the certificates evidencing the
Debentures are in the form contemplated by the Indenture.
(xxvi) Under current United States Federal income tax law: (i)
the Trust will be classified as a grantor trust and not as an
association taxable as a corporation; (ii) the Debentures will be
classified as indebtedness of the Company and (iii) the discussion
in the Prospectus under the caption "Certain Federal Income Tax
Consequences" is a fair and accurate summary of the matters
addressed therein.
(xxvii) Under the Delaware Act and the Declaration, the Trust
has the trust power and authority to (i) execute and deliver, and to
perform its obligations under, this Agreement and the Remarketing
Agreement, (ii) issue, and perform its obligations under, the Trust
Securities and (iii) perform its obligations under the Declaration.
(xxviii) Under the Delaware Act and the Declaration, the
execution and delivery by the Trust of this Agreement and the
Remarketing Agreement, and the performance by the Trust of its
obligations hereunder and thereunder, and the issuance by the Trust
of the Trust Securities and the performance by the Trust of its
obligations thereunder, have been authorized by all necessary trust
action on the part of the Trust.
(xxix) None of the execution and delivery by the Trust of, or
the performance by the Trust of its obligations under, this
Agreement or the Remarketing Agreement, the issuance and sale of the
Trust Securities by the Trust in accordance with the terms of this
Agreement, the performance by the Trust of its obligations under the
Declaration, or the consummation by the Trust of the other
transactions contemplated hereby or thereby, will contravene any
provisions of applicable Delaware law or Delaware administrative
regulations or the Certificate of Trust or the Declaration.
(xxx) No authorization, approval, consent, order, registration
or qualification of or with any Delaware court, any Delaware state
governmental authority or Delaware state agency is required in
connection with the entry by the Company into the Purchase Contracts
underlying the Income PRIDES or the Growth PRIDES, the offer,
issuance or sale by the Trust of the Trust Securities, or the
performance by the Company and the Trust of the Operative Documents
or the consummation of the transactions contemplated therein or
compliance by the Company or the Trust with their respective
obligations thereunder, except such as have been obtained and made
under federal securities laws or such as may be required under state
securities or Blue Sky laws.
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In rendering such opinion, Skadden, Arps, Slate, Meagher & Flom LLP shall
expressly state that Munger, Tolles & Olson LLP, Barton P. Pachino and
Brown & Wood LLP, in rendering their opinions pursuant to this Agreement,
may rely upon such opinion as if it were addressed to them as to all
matters arising under the laws of the State of Delaware other than the
General Corporation Law of the State of Delaware.
(4) The favorable opinion, dated as of the Closing Time, of Pepper
Hamilton LLP, counsel to The First National Bank of Chicago, as Purchase
Contract Agent, Institutional Trustee, Guarantee Trustee and Debt Trustee,
and to First Chicago Delaware Inc., as Delaware Trustee, in form and
substance satisfactory to counsel for the Underwriters, to the effect
that:
(i) The First National Bank of Chicago ("FNBC") is a national
banking association with trust powers, duly organized, validly
existing and in good standing under the laws of the United States
with all necessary corporate power and authority to execute and
deliver, and to carry out and perform its obligations under the
terms of, the Purchase Contract Agreement, the Pledge Agreement, the
Declaration, the Guarantee and the Indenture.
(ii) The Delaware Trustee is a Delaware corporation duly
organized, validly existing and in good standing, with full
corporate power and authority to execute and deliver, and to carry
out and perform its obligations under the terms of, the Declaration.
(iii) The execution, delivery and performance by the Purchase
Contract Agent of the Purchase Contract Agreement and the Pledge
Agreement, and the authentication and delivery by the Purchase
Contract Agent of the certificates evidencing the Income PRIDES and
the Growth PRIDES, have been duly authorized by all necessary
corporate action on the part of the Purchase Contract Agent. The
Purchase Contract Agreement and the Pledge Agreement have been duly
executed and delivered by the Purchase Contract Agent and constitute
valid and binding obligations of the Purchase Contract Agent,
enforceable against the Purchase Contract Agent in accordance with
their terms, except to the extent that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(iv) The execution and delivery of the certificates evidencing
the Income PRIDES and the Growth PRIDES by FNBC, as attorney-in-fact
of the holders thereof, have been duly authorized by FNBC and such
certificates have been duly executed by FNBC in such capacity.
(v) The execution, delivery and performance by each of the
Institutional Trustee and the Delaware Trustee of the Declaration
have been duly authorized by all necessary corporate action on the
part of the Institutional
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<PAGE> 36
Trustee and the Delaware Trustee, respectively. The Declaration has
been duly executed and delivered by the Institutional Trustee and
the Delaware Trustee and constitutes a valid and binding obligation
of the Institutional Trustee and the Delaware Trustee, enforceable
against the Institutional Trustee and the Delaware Trustee in
accordance with its terms, except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles.
(vi) the execution, delivery and performance by the Guarantee
Trustee of the Guarantee Agreement have been duly authorized by all
necessary corporate action on the part of the Guarantee Trustee. The
Guarantee Agreement has been duly executed and delivered by the
Guarantee Trustee and constitutes a valid and binding agreement of
the Guarantee Trustee, enforceable against the Guarantee Trustee in
accordance with its terms, except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles.
(vii) The execution, delivery and performance of the Purchase
Contract Agreement and the Pledge Agreement by the Purchase Contract
Agent, the execution, delivery and performance of the Declaration by
the Institutional Trustee and the Delaware Trustee, and the
execution, delivery and performance of the Guarantee Agreement by
the Guarantee Trustee, do not conflict with, or constitute a breach
of, FNBC's or the Delaware Trustee's respective charter or bylaws.
(viii) No consent, approval or authorization of, or
registration with or notice to, any Delaware, New York or federal
governmental authority or agency is required for the execution,
delivery or performance by the Purchase Contract Agent of the
Purchase Contract Agreement and the Pledge Agreement, for the
execution, delivery or performance by the Institutional Trustee or
the Delaware Trustee of the Declaration, or for the execution,
delivery or performance of the Guarantee Agreement by the Guarantee
Trustee.
(5) The favorable opinion, dated as of the Closing Time, of Brown &
Wood LLP, counsel for the Underwriters, in form and substance satisfactory
to the Representatives, with respect to the issuance and sale of the
Securities, and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass
upon such matters. In rendering such opinion, such counsel may rely, as to
all matters arising under or governed by the laws of the State of Delaware
(other than the General Corporation Law of the State of Delaware) upon the
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to
the Offerors.
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(6) In giving their opinions required by subsections (b)(1), (b)(2)
and (b)(5), respectively, of this Section, Munger, Tolles & Olson LLP,
Barton P. Pachino and Brown & Wood LLP shall each additionally state that
nothing has come to their attention that would lead them to believe that
the Registration Statement (except for financial statements and schedules
and other financial data included therein and any Form T-1, as to which
counsel need make no statement), at the time it became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (except for
financial statements and schedules and other financial data included
therein, as to which counsel need make no statement), as of its date
(unless the term "Prospectus" refers to a prospectus which has been
provided to the Underwriters by the Company for use in connection with the
offering of the Securities which differs from the Prospectus filed with at
the Commission pursuant to Rule 424(b) of the 1933 Act Regulations, in
which case at the time it is first provided to the Underwriters for such
use) or at the date of such opinion, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(c) At Closing Time, there shall not have been, since the date hereof or
since the respective dates as of which information is given in the Registration
Statement or the Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise or of
the Trust, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, and a certificate of a Regular Trustee of the Trust, each dated
as of Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1 are true
and correct with the same force and effect as though expressly made at and as of
Closing Time, (iii) each of the Company and the Trust has complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to Closing Time, (iv) no stop order suspending the effectiveness of
the Registration Statement has been issued and, to the best of such officers'
and Trustee's knowledge and information, no proceedings for that purpose have
been initiated or threatened by the Commission and (v) the rating assigned by
any nationally recognized statistical rating organization to the Income PRIDES,
the Growth PRIDES, any other securities of the Company or the Capital Securities
has not been lowered, and no such rating organization has publicly announced
that it has under surveillance or review its rating of the Income PRIDES, the
Growth PRIDES, any other securities of the Company or the Capital Securities
unless such announcement indicates that such organization is considering an
upgrade in such rating.
(d) (i) At the time of the execution of this Agreement, the
Representatives shall have received from Ernst & Young LLP a letter dated such
date, in form and substance satisfactory to the Representatives, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the
35
<PAGE> 38
financial statements and financial information included and incorporated by
reference in the Registration Statement and the Prospectus (including, without
limitation, any pro forma financial statements); and (ii) at Closing Time, the
Representatives shall have received from Ernst & Young LLP a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the letter
delivered pursuant to clause (i) of this paragraph, except that the specified
date referred to shall be a date not more than three business days prior to the
Closing Time.
(e) At Closing Time, the Income PRIDES, Growth PRIDES and Capital
Securities shall have a rating of at least __, __ and __, respectively, from
Moody's Investor's Service Inc. ("Moody's") and at least __, __ and __,
respectively from Standard & Poor's ("S&P"), and the Company shall have
delivered to the Representatives a letter from each such rating agency or other
evidence satisfactory to the Underwriter, confirming that the Securities have
such ratings.
(f) At the Closing Time, the Income PRIDES, the Growth PRIDES and the
Shares shall have been approved for listing on the NYSE, subject to official
notice of issuance.
(g) In the event that the Underwriters exercise their options provided in
Section 2(b) hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Offerors contained herein and the
statements in any certificates furnished by either of the Offerors hereunder
shall be true and correct as of, and as if made on, each Date of Delivery, and
at the relevant Date of Delivery, the Representatives shall have received:
(1) A certificate, dated such Date of Delivery, of the President or
a Vice-President of the Company and the chief financial officer or chief
accounting officer of the Company and a certificate of a Regular Trustee
of the Trust confirming that the certificate delivered at the Closing Time
pursuant to Section 5(c) hereof is true and correct as of, and as if made
on, such Date of Delivery.
(2) The favorable opinion of Munger, Tolles & Olson LLP, counsel to
the Company, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities and otherwise to the same effect as the opinion required by
Sections 5(b)(1) and 5(b)(6) hereof.
(3) The favorable opinion of Barton P. Pachino, Senior Vice
President and General Counsel of the Company, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities and otherwise to the same effect as the
opinion required by Sections 5(b)(2) and 5(b)(6) hereof.
(4) The favorable opinion of Skadden, Arps, Slate, Meagher & Flom,
LLP, special counsel to the Offerors, in form and substance satisfactory
to counsel for the
36
<PAGE> 39
Underwriters, dated such Date of Delivery, relating to the Option
Securities and otherwise to the same effect as the opinion required by
Section 5(b)(3) hereof.
(5) The favorable opinion of Pepper Hamilton LLP, counsel to The
First National Bank of Chicago and First Chicago Delaware Inc., in form
and substance satisfactory to counsel for the Underwriters, dated such
Date of Delivery, relating to the Option Securities and otherwise to the
same effect as the opinion required by Section 5(b)(4) hereof.
(6) The favorable opinion of Brown & Wood LLP, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities and otherwise to the same effect as the opinion required by
Section 5(b)(5) and 5(b)(6) hereof.
(7) A letter from Ernst & Young LLP, in form and substance
satisfactory to the Representatives and dated such Date of Delivery,
substantially the same in form and substance as the letter furnished to
the Representatives pursuant to Section 5(d)(ii) hereof, except that the
"specified date" in the letter furnished pursuant to this Section shall be
a date not more than five days prior to such Date of Delivery.
(8) At such Date of Delivery, the Income PRIDES, Growth PRIDES and
Capital Securities shall have a rating of at least __, __ and __,
respectively, from Moody's and at least __, __ and __, respectively, from
S&P.
(h) At Closing Time and at each Date of Delivery (if any), counsel for the
Underwriters shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Securities as herein contemplated and related proceedings, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Offerors in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement, or, in the case of any
condition to the purchase of Option Securities on a Date of Delivery which is
after the Closing Time, the obligations of the Underwriters to purchase such
Option Securities, may be terminated by the Representatives by notice to the
Company at any time at or prior to the Closing Time or such Date of Delivery, as
the case may be, and such termination shall be without liability of any party to
any other party except as provided in Section 4. Notwithstanding any such
termination, the provisions of Sections 4, 6, 7 and 8 shall remain in effect.
37
<PAGE> 40
SECTION 6. Indemnification.
(a) The Offerors agree, jointly and severally, to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Offerors; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and disbursements of
counsel chosen by Merrill Lynch), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that (A) the foregoing indemnity agreement shall not apply to
any loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission (1) made in
reliance upon and in conformity with written information furnished to the
Offerors by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or any preliminary prospectus,
or the Prospectus (or any amendment or supplement thereto) or (2) in any Form
T-1; and (B) the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of the Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Securities, or any person controlling such Underwriter, if it shall be
determined that a copy of the Prospectus (as it may then be amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto in accordance with the provisions of Sections 3(b) and 3(d) of this
38
<PAGE> 41
Agreement, but excluding documents incorporated by reference therein) was not
sent or given by or on behalf of such Underwriter to such person, if such is
required by law, at or prior to the written confirmation of the sale of such
Securities to such person and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense, except that this clause (B) shall not be applicable if such defect
shall have been corrected in a document which is incorporated or deemed to be
incorporated by reference in the Prospectus.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, the Trust and each of its Trustees who signed the Registration
Statement, and each person, if any, who controls the Company or the Trust within
the meaning of Section 15 of the 1933 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Offerors by such
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give written notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability which it may have otherwise than on account of this indemnity
agreement. An indemnifying party may participate at its own expense in the
defense of any such action. In no event shall the indemnifying parties be liable
for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
SECTION 7. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Offerors and the
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Offerors and one or more of the Underwriters, as incurred, in
such proportions that the Underwriters are responsible for that portion
represented by the percentage that the total underwriting commission set forth
in the table on the cover page of the Prospectus (or, if Rule 434 is used, in
the corresponding location on the Term Sheet) bears to the sum of (i) such total
underwriting commission plus (ii) the total proceeds to Company set forth in the
table on the cover page of the Prospectus (or, if Rule 434 is used, in the
corresponding location on the Term Sheet) and the Offerors are responsible for
the balance; provided, however, that no person guilty of fraudulent
misrepresentation (within the
39
<PAGE> 42
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation; and
provided, further, that no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact. For
purposes of this Section, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, the Trust, each of its
Trustees who signed the Registration Statement, and each person, if any, who
controls the Company or the Trust within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as the Offerors. The Offerors'
obligations to contribute pursuant to this Section 7 are joint and several. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the aggregate number of __ set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement, or
contained in certificates of officers of the Company or trustees of the Trust
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or any
controlling person, or by or on behalf of the Company or the Trust, and shall
survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) The Representatives may terminate this Agreement, by notice to the
Company, at any time at or prior to Closing Time (i) if there has been, since
the date of this Agreement or since the respective dates as of which information
is given in the Registration Statement, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise or of the Trust, in each case, whether or not arising in the ordinary
course of business, or (ii) if there has occurred any material adverse change in
the financial markets in the United States or any outbreak of hostilities or
escalation thereof or other calamity or crisis the effect of which is such as to
make it, in the judgment of the Representatives, impracticable to market any of
the Securities or to enforce contracts for the sale of any of the Securities, or
(iii) if trading in securities of the Company or the Trust has been suspended by
the Commission or a national securities exchange, or if trading generally on
either the American Stock Exchange or the New York Stock Exchange has been
suspended, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required, by either of said Exchanges
or by order of the Commission or any other governmental authority, or if a
banking moratorium has been declared by either federal, New York or California
authorities, (iv) if the rating assigned by any nationally recognized
statistical rating organization to the Income PRIDES, the Growth PRIDES, any
other securities of the Company or the Capital Securities shall have been
lowered, or if any
40
<PAGE> 43
such rating organization shall have publicly announced that it has under
surveillance or review its rating of the Income PRIDES, the Growth PRIDES, any
other securities of the Company or the Capital Securities unless such
announcement indicates that such organization is considering an upgrade in such
rating. As used in this Section 9(a), the term "Prospectus" means the Prospectus
in the form first used to confirm sales of the Securities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof. Notwithstanding any such termination, the
provisions of Sections [4, 6, 7 and 8] shall remain in effect.
SECTION 10. Default by One of the Underwriters. If one of the Underwriters
shall fail at Closing Time or a Date of Delivery to purchase the Securities
which it is obligated to purchase under this Agreement (the "Defaulted
Securities"), the non-defaulting Underwriter shall have the right, within 24
hours thereafter, to make arrangements for such non-defaulting Underwriter or
any other underwriters to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the non-defaulting Underwriter shall not have completed such
arrangements within such 24-hour period, then:
(a) if the aggregate number of Defaulted Securities of each type
does not exceed 10% of the aggregate number of Securities of such type to
be purchased on such date, the non-defaulting Underwriter shall be
obligated to purchase all of the Defaulted Securities, or
(b) if the aggregate number of Defaulted Securities of any type
exceeds 10% of the aggregate number of Securities of such type to be
purchased on such date, this Agreement or, with respect to any Date of
Delivery which occurs after the Closing Time, the obligation of the
Underwriters to purchase and the Company to sell the Options Securities to
be purchased and sold on such Date of Delivery shall terminate without
liability on the part of the non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the non-defaulting Underwriter or the Company shall
have the right to postpone Closing Time or the relevant Date of Delivery, as the
case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 10.
41
<PAGE> 44
SECTION 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to them at Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, World Financial Center, North Tower, New
York, New York 10281-1209, Attention: __; and notices to the Offerors shall be
directed to them at 10990 Wilshire Boulevard, Los Angeles, California 90024,
attention of Michael F. Henn, Senior Vice President and Chief Financial Officer.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and the Offerors and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriters
and the Offerors and their respective successors and the controlling persons and
officers, directors and Trustees referred to in Sections 6 and 7 and their heirs
and legal representatives, any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision contained herein. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers, directors and
Trustees and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. Governing Law and Time. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said State. Unless otherwise set forth
herein, specified times of day refer to New York City time.
SECTION 14. Effect of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
42
<PAGE> 45
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Offerors a counterpart hereof,
whereupon this instrument, along with all counterparts, shall become a binding
agreement among the Company, the Trust and the Underwriters in accordance with
its terms.
Very truly yours,
KAUFMAN AND BROAD HOME CORPORATION
By:
-----------------------------------
Name:
Title:
KBHC FINANCING I
By:
-----------------------------------
Name:
Title: Trustee
Solely as Trustee and not in
his individual capacity
By:
-----------------------------------
Name:
Title: Trustee
Solely as Trustee and not in
his individual capacity
43
<PAGE> 46
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
-------------------------------------------
Authorized Signatory
For themselves and as Representatives of the
Underwriters named in Schedule A hereto.
44
<PAGE> 47
Schedule A
<TABLE>
<CAPTION>
Number Number Number
of Income of Growth of Capital
Name of Underwriter PRIDES PRIDES Securities
------------------- --------- --------- ----------
<S> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ......................
Donaldson, Lufkin & Jenrette Securities
Corporation .......................
--------- --------- ----------
Total.........................................
========= ========= ==========
</TABLE>
Sch A-1
<PAGE> 48
Schedule B
1. The initial public offering price per Security, and the aggregate
interest rate per annum to be paid by the Offerors for the Securities, shall be
(a) in the case of each Income PRIDES, $10.00 and __%, (b) in the case of each
Growth PRIDES, $__ and __% and (c) in the case of each Separate Capital
Security, $__ and __%.
2. The respective purchase prices per Security to be paid by the several
Underwriters shall be equal to the respective initial public offering prices set
forth in paragraph 1. above. The Company shall pay Underwriters' Compensation to
the Underwriters equal, in the case of the Initial Securities, to $__ and, with
respect to the Option Securities, $.__ per security in the case of Income
PRIDES, $.__ per security in the case of Growth PRIDES and $.__ per security in
the case of Separate Capital Securities.
Sch B-1
<PAGE> 1
Exhibit 5
DIRECT DIAL
(212) 735-2509
DIRECT FAX
(212) 735-3745
June 24, 1998
Kaufman and Broad Home Corporation
KBHC Financing I
10990 Wilshire Boulevard
Los Angeles, California 90024
Re: Kaufman and Broad Home Corporation
KBHC Financing I
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special counsel to (1) Kaufman and Broad Home
Corporation (the "Company"), a corporation organized under the laws of the State
of Delaware and (2) KBHC Financing I (the "Trust"), a statutory business trust
formed under the Business Trust Act of the State of Delaware, in connection with
the preparation of a Registration Statement on Form S-3 (File Nos. 333-51825 and
333- 51825-01), filed by the Company and the Trust with the Securities and
Exchange Commission (the "Commission") on May 5, 1998 under the Securities Act
of 1933, as amended (the "Act"), and Amendments No. 1 and 2 thereto filed with
the Com mission on June 12 and June 23, 1998 (such Registration Statement, as so
amended, including through the filing of a subsequent registration statement
pursuant to Rule 462 in order to increase the number of securities being sold
thereunder, being hereinafter referred to as the "Registration Statement")
relating to the public offering of up to $300,000,000 in aggregate principal
amount of (i) Senior Debentures (the "Debentures") to be issued pursuant to an
Indenture (the "Indenture") between the Company and The First National Bank of
Chicago, as trustee (the "Trustee"), (ii) shares of common stock of the Company,
par value $1.00 per share (the "Common Stock"), (iii) units referred to as
Income PRIDES of the Company (the "Income PRIDES"), each consisting of a unit
comprised of (a) a stock purchase contract (a
<PAGE> 2
"Purchase Contract") under which (i) the holder will purchase from the Company a
number of newly issued shares of Common Stock and (ii) the Company will pay to
the holder unsecured contract adjustment payments ("Contract Adjustment
Payments"), if any, and (b) one Capital Security, liquidation amount $10, of the
Trust, representing a preferred undivided beneficial interest in the assets of
the Trust (the "Capital Securities"), (iv) units referred to as Growth PRIDES,
each consisting of (a) a Purchase Contract and (b) a 1/100 undivided beneficial
interest in a zero-coupon U.S. Treasury Security with a principal amount at
maturity equal to $1,000 (each such security a "Treasury Security" and,
collectively, the "Treasury Securities") and (v) Capital Securities. The
proceeds of the offering of Capital Securities by the Trust (together with the
proceeds from the issuance of common securities of the Trust) will be loaned by
the Trust to the Company and such loan will be evidenced by the Debentures, to
be issued pursuant to a supplemental indenture to the Indenture. In addition,
certain payment obligations of the Trust with respect to the Capital Securities
of the Trust will be guaranteed by the Company pursuant to a Capital Securities
Guarantee (the "Guarantee") to be executed by the Company for the benefit of
holders of Capital Securities of the Trust.
The Capital Securities of the Trust are to be issued pursuant to the
Amended and Restated Declaration of Trust of the Trust (the "Declaration"),
dated as of June , 1998, among the Company, as sponsor, The First National Bank
of Chicago, as the institutional trustee (in such capacity, the "Institutional
Trustee") and as the Delaware trustee, and Barton P. Pachino and Dennis Welsch
as regular trustees.
This opinion is being delivered in accordance with the requirements
of Item 601(b)(5) of Regulation S-K under the Act.
In so acting, we have examined and relied upon the originals, or
copies certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
documents executed by parties other than the Trust, we have assumed that such
parties had the power, corporate or other, to enter
<PAGE> 3
into and perform all obligations thereunder and have also assumed the due
authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents and that such documents constitute
valid and binding obligations of such parties. As to any facts material to the
opinions expressed herein which were not independently established or verified,
we have relied upon oral or written statements and representations of officers,
trustees and other representatives of the Company, the Trust and others.
Members of our firm are admitted to the bar in the States of New
York and Delaware, and we express no opinion as to the laws of any other
jurisdiction.
Based upon and subject to the foregoing and to the other
qualifications and limitations set forth herein, we are of the opinion that:
1. The Company is validly existing as a corporation in good standing
under the laws of the State of Delaware.
2. When (i) the issuance, execution and delivery of (a) a supple
mental indenture (the "Supplemental Indenture") to the Indenture and (b) the
Debentures have been duly authorized by all necessary corporate action of the
Company and (ii) the Supplemental Indenture has been duly executed and delivered
by the Company and the Trustee and the Debentures have been duly executed,
authenticated, issued, delivered and paid for as contemplated by the
Registration Statement and in accordance with the Indenture and such
Supplemental Indenture, assuming the terms of such Debentures are in compliance
with then applicable law, the Debentures will be validly issued and will
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
applicability relating to or affecting the rights of creditors and to general
principles of equity (whether considered in a proceeding at law or in equity).
3. When (i) the terms of the issuance and sale of the Common Stock
shall have been duly authorized by all necessary corporate action of the Company
and (ii) the shares of Common Stock shall have been issued and sold as
contemplated by the Registration Statement, and when issued pursuant to Purchase
Contracts, as contemplated by the terms thereof and of the agreements relating
thereto, assuming that the Company has reserved for issuance the requisite
number of
<PAGE> 4
shares of Common Stock, the Common Stock will be duly authorized, validly
issued, fully paid and nonassessable.
4. When (i) the issuance, execution and delivery by the Company of
any of the Income PRIDES and the Growth PRIDES shall have been duly authorized
by all necessary corporate action of the Company, (ii) the agreements relating
thereto shall have been duly executed and delivered by the parties thereto,
(iii) the Income PRIDES and the Growth PRIDES shall have been duly executed and
delivered by the Company and any other necessary signatories thereto and sold as
contemplated by the Registration Statement, against payment of the consideration
fixed therefor by the Board of Directors or a duly authorized committee thereof,
assuming that the terms of such Income PRIDES and Growth PRIDES are in
compliance with then applicable law, the Income PRIDES and the Growth PRIDES
will be validly issued and will constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability relating to or affecting the
rights of creditors and to general principles of equity (whether considered in a
proceeding at law or in equity).
5. The Capital Securities have been duly authorized for issuance
and, when issued, executed and authenticated in accordance with the terms of the
Declaration and delivered and paid for as contemplated by the Registration
Statement, will be validly issued, fully paid and nonassessable, representing
undivided beneficial interests in the assets of the Trust. We bring to your
attention, however, that the Capital Securities holders may be obligated,
pursuant to the Declaration, to (i) provide indemnity and/or security in
connection with and pay taxes or govern mental charges arising from transfers of
Capital Securities and (ii) provide security and indemnity in connection with
the requests of or directions to the Institutional Trustee to exercise its
rights and powers under the Declaration.
6. When (i) the execution and delivery of the Guarantee shall have
been duly authorized by all necessary corporate action of the Company, (ii) such
Guarantee shall have been duly executed and delivered by the Company, (iii) the
Capital Securities to which the Guarantee relates have been duly issued and sold
and the purchase price therefor has been received by the Trust and (iv) the
Guarantee shall have been qualified under the Trust Indenture Act of 1939, as
amended, the Guarantee will constitute a valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as
<PAGE> 5
may be limited by applicable bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting the rights of creditors
generally and to general principles of equity (whether considered in a
proceeding in equity or at law).
We hereby consent to the filing of this opinion with the Commission
as an exhibit to the Registration Statement. We also consent to the use of our
name under the heading "Legal Matters" in the prospectus supplement included in
the Registration Statement. In giving this consent, we do not thereby admit that
we are within the category of persons whose consent is required under Section 7
of the Act or the rules and regulations of the Commission promulgated
thereunder. This opinion is expressed as of the date hereof unless otherwise
expressly stated and we disclaim any undertaking to advise you of any subsequent
changes in the facts stated or assumed herein or of any subsequent changes in
applicable law.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
<PAGE> 1
Exhibit 8.1
June 24, 1998
Kaufman and Broad Home Corporation
KBHC Financing I
c/o Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
Re: Offering of Capital Securities and FELINE PRIDES
(sm) (Registration Statement Nos. 333-51825 and 333-
51825-01 )
Ladies and Gentlemen:
We have acted as tax counsel to Kaufman and Broad Home Corporation,
a corporation organized under the laws of the state of Delaware (the "Company"),
and KBHC Financing I, a statutory business trust formed under the Business Trust
Act of the State of Delaware (the "Trust"), in connection with above-captioned
registration statement on Form S-3, as subsequently amended (the "Registration
Statement"), filed with the Securities and Exchange Commission (the
"Commission") for the purpose of registering (i) Capital Securities representing
undivided beneficial interests in the assets of the Trust (the "Capital
Securities"), (ii) Debentures issued by the Company to the Trust in connection
with the sale of the Capital Securities (the "Debentures"), and (iii) FELINE
PRIDES (sm) consisting of (A) units (referred to as Income PRIDES), initially
comprised of stock purchase contracts (the "Purchase Contracts") and beneficial
ownership of Capital Securities and (B) units (referred to as Growth PRIDES)
initially comprised of Purchase Contracts and beneficial ownership of
zero-coupon U.S. Treasury Securities, as described in the Prospectus forming a
part of such Registration Statement (the "Prospectus").
In rendering our opinion, we have participated in the preparation of
the Registration Statement and the Prospectus. Our opinion is conditioned on,
among other things, the initial and continuing accuracy of the facts,
information,
<PAGE> 2
Kaufman and Broad Home Corporation
June 24, 1998
Page 2
covenants and representations set forth in the Registration Statement, the
Prospectus and certain other documents and statements and representations made
by officers of the Company. In our examination, we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic copies
and the authenticity of the originals of such documents. We also have assumed
that the transactions related to the issuance of the Capital Securities, the
Debentures, and the FELINE PRIDES will be consummated in the manner contemplated
by the Registration Statement and the Prospectus .
In rendering our opinion, we have considered the current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations (proposed, temporary and final) promulgated thereunder, judicial
decisions and Internal Revenue Service ("IRS") rulings, all of which are subject
to change, which changes may be retroactively applied. A change in the
authorities upon which our opinion is based could affect our conclusions. There
can be no assurance, moreover, that any of the opinions expressed herein will be
accepted by the IRS or, if challenged, by a court.
Based solely upon the foregoing, we are of the opinion that, under
current United States federal income tax law:
(1) the Trust will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal
income tax purposes;
(2) the Debentures will be classified as indebtedness of the
Company for United States federal income tax purposes, and the
Company will be entitled to deduct interest and original issue
discount (if any) with respect to the Debentures; and
Although the discussion set forth in the Prospectus under the
heading "FEDERAL INCOME TAX CONSEQUENCES" does not purport to discuss all
possible United States federal income tax consequences of the purchase,
ownership, and disposition of Capital Securities and FELINE PRIDES, in our
opinion, based solely upon the foregoing, such discussion constitutes, in all
material respects, a fair
<PAGE> 3
Kaufman and Broad Home Corporation
June 24, 1998
Page 3
and accurate summary under current law of the anticipated material United States
federal income tax consequences of the purchase, ownership, and disposition of
the FELINE PRIDES, Capital Securities and Common Stock to investors generally.
Except as set forth above, we express no opinion of any party as to
the tax consequences, whether federal, state, local, or foreign, of the issuance
of the Capital Securities, the Debentures, or the FELINE PRIDES or of any
transaction related to or contemplated by such issuance. This opinion is
furnished to you solely for your benefit and the benefit of purchasers pursuant
to and in connection with the initial offering of the Capital Securities and the
FELINE PRIDES and is not to be used, circulated, quoted or otherwise referred to
for any other purpose or relied upon by any other person without our prior
written consent. We consent to the use of our name under the heading "LEGAL
OPINIONS" in the Prospectus. We consent to the reference to and discussion of
this opinion under the heading "FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus. We hereby consent to the filing of this opinion with the Commission
as Exhibit 8 to the Registration Statement. In giving this consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Commission promulgated thereunder. This opinion is expressed
as of the date hereof, unless otherwise expressly stated, and we disclaim any
undertaking to advise you of any subsequent changes of the facts stated or
assumed herein or any subsequent changes in applicable law.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) No. 333-51825 and No. 333-51825-01 and
related Prospectus of Kaufman and Broad Home Corporation (the "Company") for
the registration of $345,000,000 of its common stock including preferred stock
purchase rights, debentures Income PRIDES, Growth PRIDES and Capital Securities
of KBHC Financing and the guarantee of the Capital Securities by the Company
and to the incorporation by reference therein of our report dated January 2,
1998, with respect to the consolidated financial statements of Kaufman and
Broad Home Corporation included in its Annual Report (Form 10-K) for the year
ended November 30, 1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Los Angeles, California
June 24, 1998
